<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
TRANSACTION STATEMENT
UNDER SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934
SEAGATE TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(NAME OF THE ISSUER)
SEAGATE TECHNOLOGY, INC.
VERITAS SOFTWARE CORPORATION
SUEZ ACQUISITION COMPANY (CAYMAN) LIMITED
- --------------------------------------------------------------------------------
(NAMES OF PERSONS FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
- --------------------------------------------------------------------------------
(TITLE OF CLASS OF SECURITIES)
811804 10 3
- --------------------------------------------------------------------------------
(CUSIP NUMBER OF CLASS OF SECURITIES)
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Lawrence Perlman Mark Leslie David J. Roux
Gary Filler Chief Executive Officer Suez Acquisition Company
Co-Chairmen of the Board and Chairman of the Board (Cayman) Limited
Seagate Technology, Inc. VERITAS Software Corporation P.O. Box 265GT
920 Disc Drive 1600 Plymouth Street Walker House
Scotts Valley, California 95066 Mountain View, California 94043 George Town
(831) 438-6550 (650) 335-8000 Grand Cayman
Cayman Islands
(650) 233-8120
</TABLE>
- --------------------------------------------------------------------------------
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS ON BEHALF OF THE PERSONS FILING STATEMENT)
COPIES TO:
<TABLE>
<S> <C> <C>
Larry W. Sonsini, Esq. Michael A. Schwartz, Esq. William E. Curbow, Esq.
Michael J. Kennedy, Esq. Willkie Farr & Gallagher Simpson Thacher & Bartlett
Wilson Sonsini Goodrich & Rosati 787 Seventh Avenue 425 Lexington Avenue
Professional Corporation New York, New York 10019 New York, New York 10017
650 Page Mill Road (212) 728-8000 (212) 455-2000
Palo Alto, California 94043
(650) 493-9300
</TABLE>
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement subject
to Regulation 14A (sec.sec. 240.14a-1 through 240.14b-2), Regulation 14C
(sec.sec. 240.14c-1 through 240.14c-101) or Rule 13e-3(c)
(sec. 240.13e(c)) under the Securities Exchange Act of 1934 ("the Act").
b. [ ] The filing of a registration statement under the Securities Act of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
CALCULATION OF FILING FEE
<TABLE>
<S> <C>
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TRANSACTION VALUATION* AMOUNT OF FILING FEE
$11,647,201,837 $2,329,440
- --------------------------------------------------------------------------------------------------------------
</TABLE>
* For purposes of calculating the filing fee only. The filing fee was calculated
assuming (i) the payment of an aggregate of $923 million in cash, and (ii) the
issuance of an aggregate of 118,173,023 shares of common stock, par value
$0.001 per share, of VERITAS Software Corporation with an aggregate market
value of $10,724,201,837 based upon the average of the high and low prices of
VERITAS common stock, as reported on the Nasdaq National Market on May 12,
2000, in exchange for all outstanding shares of common stock, par value $0.01
per share, of Seagate Technology, Inc. (the "Total Consideration"). The
payment of the filing fee, calculated in accordance with Regulation 240.0-11
under the Exchange Act of 1934, equals one-fiftieth of one percent of the
Total Consideration.
[ ] Check the box if any part of the fee is offset as provided by
sec. 240.0-11(a)(2) and identify the filing with which the offsetting
fee was previously paid. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: Not Applicable
Form or Registration No.: Not Applicable
Filing Party: Not Applicable
Date Filed: Not Applicable
<PAGE> 2
INTRODUCTION
This Schedule 13E-3 Transaction Statement (this "Transaction Statement") is
being filed by Seagate Technology, Inc., a Delaware corporation ("Seagate"),
VERITAS Software Corporation, a Delaware corporation ("VERITAS") and Suez
Acquisition Company (Cayman) Limited, a limited company organized under the laws
of the Cayman Islands ("SAC"), in connection with the proposed (i) sale of
Seagate's operating property and assets to SAC (the "Stock Purchase") pursuant
to that certain Stock Purchase Agreement, dated as of March 29, 2000, as amended
(the "Stock Purchase Agreement"), by and among SAC, Seagate and Seagate Software
Holdings, Inc., a Delaware corporation and a wholly owned subsidiary of Seagate
("Seagate Software"), and (ii) merger of a wholly owned subsidiary of VERITAS
with and into Seagate (the "Merger") pursuant to that certain Agreement and Plan
of Merger and Reorganization, dated as of March 29, 2000, as amended (the
"Merger Agreement"), by and among VERITAS, Victory Merger Sub, Inc., a Delaware
corporation, a wholly owned subsidiary of VERITAS ("Merger Sub"), and Seagate.
Under the terms of the Stock Purchase Agreement, Seagate will sell all of
its property and assets and the property and assets of its consolidated
subsidiaries, other than certain designated assets, to SAC in exchange for $2
billion in cash, less the value of Seagate equity securities held by members of
Seagate's senior management team which will be converted into equity securities
of SAC and will not be entitled to receive any consideration in the Merger. The
designated Seagate assets which will not be sold to SAC consist of (i) the
capital stock of Seagate Software, (ii) Seagate's investments in VERITAS,
Gadzoox Networks, Inc., SanDisk Corporation, Veeco Instruments and Dragon
Systems, Inc., (iii) Seagate's cash in excess of approximately $775 million in
cash (subject to upward adjustment) that will be transferred to SAC in the Stock
Purchase, and (iv) the right to receive certain tax refunds claimed and credits
utilized by VERITAS that are attributable to Seagate for all periods prior to
the effective time of the Merger.
Under the terms of the Merger Agreement, immediately following and
contingent upon the closing of the Stock Purchase, Merger Sub will merge with
and into Seagate and each outstanding share of Seagate common stock (other than
certain shares to be cancelled) will be converted into the right to receive a
proportionate share of the merger consideration, which will consist of (i)
109,330,300 shares of VERITAS common stock, (ii) an additional variable number
of shares of VERITAS common stock which depends on (A) the determined value of
Seagate's investments in Gadzoox Networks, Inc., SanDisk Corporation, Veeco
Instruments and Dragon Systems (to the extent valued at the effective time of
the Merger), and (B) whether VERITAS elects to issue additional shares of
VERITAS common stock in exchange for having Seagate retain a portion of the cash
held by it immediately prior to the Merger, (iii) an amount of cash equal to
Seagate's cash at the effective time of the Merger, which will include the net
proceeds received and retained by Seagate in connection with the Stock Purchase
(after transferring approximately $775 million in cash (subject to upward
adjustment) to SAC) less cash that VERITAS elects to have Seagate retain in
exchange for the issuance of additional shares of VERITAS common stock in
connection with the Merger, and (iv) the right to receive the value of certain
tax refunds claimed and credits utilized by VERITAS that are attributable to
Seagate and relate to periods ending on or prior to the effective time of the
Merger, and, in certain circumstances, net proceeds realized upon the sale by
Seagate of its shares of Dragon Systems, Inc. As a result of the Merger, Seagate
will become a wholly owned subsidiary of VERITAS, and VERITAS will indirectly
acquire all of the designated assets described above that are not purchased by
SAC in connection with the Stock Purchase.
This Transaction Statement is being filed with the Securities and Exchange
Commission concurrently with the filing of a preliminary proxy statement (the
"Proxy Statement") filed by VERITAS with the Securities and Exchange Commission
pursuant to Regulation 14A under the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"). A copy of the Proxy Statement is attached to this
Transaction Statement as Exhibit (a)(1). The information in the Proxy Statement,
including all schedules, exhibits, appendices and annexes thereto, is hereby
incorporated by reference in this Transaction Statement in response to all or
some of the items set forth in Schedule 13E-3 under the Exchange Act and the
responses to each item set forth below are qualified in their entirety by the
provisions of the Proxy Statement. The Proxy Statement is in preliminary form
and is subject to completion or amendment. Specific item numbers from Schedule
13E-3, including the applicable sections of Regulation M-A, are included in this
Transaction Statement only to the extent necessary to provide information that
is not in the Proxy Statement but is required to be disclosed pursuant to
<PAGE> 3
Schedule 13E-3. Capitalized terms used but not otherwise defined in this
Transaction Statement shall have the respective meanings ascribed thereto in the
Proxy Statement.
ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSONS
(b) Business and Background of Entities.
(c) Business and Background of Natural Persons.
Seagate Technology is a Delaware corporation. Its principal executive
offices are located at 920 Disc Drive, Scotts Valley, California 95066 and its
primary telephone number is (831) 438-6550. None of Seagate's directors or
executive officers has during the past five years (i) been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors), or
(ii) been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any violation
of such laws.
VERITAS Software Corporation is a Delaware corporation. Its principal
executive offices are located at 1600 Plymouth Street, Mountain View, California
94043 and its primary telephone number is (650) 335-8000. None of VERITAS'
directors or executive officers has during the past five years (i) been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors), or (ii) been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, federal or state securities
laws or finding any violation of such laws.
Silver Lake Partners, L.P. is a Delaware limited partnership. Its principal
executive offices are located at 2725 Sand Hill Road, Building C, Menlo Park, CA
94025 and its primary telephone number is (650) 233-8120. David J. Roux is the
sole director of SAC, a Managing Member of Silver Lake Technology Associates,
LLC, which is the general partner of Silver Lake Partners, L.P., and a Managing
Member of Silver Lake Technology Management. Mr. Roux served as Executive Vice
President of Oracle Corporation from 1994 to 1998 and Chief Executive Officer of
Liberate Technologies from February 1998 to November 1998. Mr. Roux remains the
Chairman and a director of Liberate Technologies. Mr. Roux's primary business
address is c/o Silver Lake Partners, L.P., 2725 Sand Hill Road, Building C,
Menlo Park, CA 94025.
None of SAC, Silver Lake Partners, L.P., or any director or executive
officer of SAC or Silver Lake Partners, L.P., has during the past five years (i)
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors), or (ii) been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting activities subject to, federal or state securities
laws or finding any violation of such laws.
ITEM 16. EXHIBITS
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(a)(1) Joint Proxy Statement for Special Meetings of Stockholders
of Seagate Technology, Inc. and VERITAS Software
Corporation, dated May 19, 2000.
(c)(1) Presentation by Morgan Stanley & Co. Incorporated to the
Board of Directors of Seagate, dated March 22, 2000.
(c)(2) Presentation by Morgan Stanley & Co. Incorporated to the
Board of Directors of Seagate, dated March 29, 2000.
(c)(3) Presentation by Credit Suisse First Boston Corporation to
the Board of Directors of VERITAS Software Corporation,
dated March 23, 2000.
(c)(4) Opinion of Morgan Stanley & Co. Incorporated, dated March
29, 2000 (included as part of the Joint Proxy Statement
filed as Exhibit (a)(1)).
(c)(5) Opinion of Credit Suisse First Boston Corporation, dated
March 29, 2000 (included as part of the Joint Proxy
Statement filed as Exhibit (a)(1)).
(e)(1) Statement Regarding Conflicts of Interest (included as part
of the Joint Proxy Statement filed as Exhibit (a)(1)).
(f)(1) Statement of Appraisal Rights (included as part of the Joint
Proxy Statement filed as Exhibit (a)(1)).
(h)(1) Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (to be filed by amendment).
(h)(2) Opinion of Willkie Farr & Gallagher (to be filed by
amendment).
</TABLE>
<PAGE> 4
SIGNATURES
After due inquiry and to the best of its knowledge and belief, each of the
undersigned hereby certifies that the information set forth in this statement is
true, complete and correct.
SUBJECT COMPANY AND FILING PERSON:
SEAGATE TECHNOLOGY, INC.
By: /s/ William L. Hudson
-------------------------------------------
Name: William L. Hudson
Title: Senior Vice President, General
Counsel and Corporate Secretary
ADDITIONAL FILING PERSONS:
VERITAS SOFTWARE CORPORATION
By: /s/ Jay Jones
-------------------------------------------
Name: Jay Jones
Title: Senior Vice President and
Chief Administrative Officer
SUEZ ACQUISITION COMPANY (CAYMAN) LIMITED
By: /s/ David J. Roux
-------------------------------------------
Name: David J. Roux
Title: Director
<PAGE> 5
EXHIBIT INDEX
<TABLE>
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EXHIBIT
NO. DESCRIPTION
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(a)(1) Joint Proxy Statement for Special Meetings of Stockholders
of Seagate Technology, Inc. and VERITAS Software
Corporation, dated May 19, 2000.
(c)(1) Presentation by Morgan Stanley & Co. Incorporated to the
Board of Directors of Seagate, dated March 22, 2000.
(c)(2) Presentation by Morgan Stanley & Co. Incorporated to the
Board of Directors of Seagate, dated March 29, 2000.
(c)(3) Presentation by Credit Suisse First Boston Corporation to
the Board of Directors of VERITAS Software Corporation,
dated March 23, 2000.
(c)(4) Opinion of Morgan Stanley & Co. Incorporated, dated March
29, 2000 (included as part of the Joint Proxy Statement
filed as Exhibit (a)(1)).
(c)(5) Opinion of Credit Suisse First Boston Corporation, dated
March 29, 2000 (included as part of the Joint Proxy
Statement filed as Exhibit (a)(1)).
(e)(1) Statement Regarding Conflicts of Interest (included as part
of the Joint Proxy Statement filed as Exhibit (a)(1)).
(f)(1) Statement of Appraisal Rights (included as part of the Joint
Proxy Statement filed as Exhibit (a)(1)).
(h)(1) Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (to be filed by amendment).
(h)(2) Opinion of Willkie Farr & Gallagher (to be filed by
amendment).
</TABLE>
<PAGE> 1
[SEAGATE LOGO]
, 2000
To Our Stockholders:
You are cordially invited to attend the special meeting of stockholders of
Seagate Technology, Inc. to be held on , 2000 at 9:00 a.m., Pacific
Time, at our principal executive offices located at 920 Disc Drive, Scotts
Valley, California 95066.
The joint transaction proposals to be considered and voted upon at the
special meeting consist of a sale of all the operating assets of Seagate for
cash to Suez Acquisition Company (Cayman) Limited, followed by a merger of
Seagate with a wholly owned subsidiary of VERITAS Software Corporation in which
Seagate stockholders will receive shares of VERITAS common stock, cash and the
right to receive the value of certain tax refunds and credits realized by
VERITAS following completion of the merger which are attributable to Seagate.
The sale of assets will be accomplished through the transfer of all of Seagate's
operating assets to its subsidiaries, followed by the purchase of those
subsidiaries by Suez Acquisition Company.
After careful consideration, your board of directors has approved both the
stock purchase and the merger, and has determined them to be fair to and in the
best interests of Seagate and its stockholders. Your board of directors
unanimously recommends a vote FOR the stock purchase and FOR the merger.
The stock purchase and the merger are described in more detail in the
attached document. THE STOCK PURCHASE AND THE MERGER INVOLVE A NUMBER OF RISKS
AND UNCERTAINTIES. YOU SHOULD READ THE ATTACHED DOCUMENT CAREFULLY, INCLUDING
THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 46 OF THE DOCUMENT, FOR A
DISCUSSION OF CERTAIN SPECIFIC FACTS AND RISKS THAT YOU SHOULD CONSIDER IN
DETERMINING HOW TO VOTE ON THE STOCK PURCHASE AND THE MERGER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE STOCK PURCHASE, THE MERGER OR THE
SECURITIES TO BE OFFERED TO YOU IN CONNECTION WITH THE MERGER, PASSED UPON THE
MERITS OR FAIRNESS OF THE STOCK PURCHASE OR THE MERGER, OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THE ATTACHED DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE ATTACHED DOCUMENT INCORPORATES IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT SEAGATE AND VERITAS THAT IS NOT INCLUDED IN OR DELIVERED WITH
THE DOCUMENT. THIS INFORMATION IS AVAILABLE UPON WRITTEN OR ORAL REQUEST AT THE
FOLLOWING ADDRESS, E-MAIL ADDRESS AND TELEPHONE NUMBER:
SEAGATE TECHNOLOGY, INC.
920 DISC DRIVE
SCOTTS VALLEY, CALIFORNIA 95066
(831) 439-2371
[email protected]
ATTENTION: BILL ROWLEY
INVESTOR RELATIONS
IN ORDER TO RECEIVE TIMELY DELIVERY OF THE FOREGOING INFORMATION, YOU MUST
REQUEST SUCH INFORMATION NO LATER THAN FIVE BUSINESS DAYS BEFORE THE SPECIAL
MEETING, OR , 2000.
It is important that you use this opportunity to participate in the affairs
of Seagate by voting on the joint transaction proposals to be considered at the
special meeting. Whether or not you expect to attend the special meeting, please
complete, date, sign and promptly return the accompanying proxy in the enclosed
postage-paid
<PAGE> 2
envelope so that your shares may be represented at the special meeting. YOUR
VOTE IS VERY IMPORTANT. Returning the proxy does not deprive you of your right
to attend the special meeting and to vote your shares in person.
Sincerely,
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Gary B. Filler Lawrence Perlman
Co-Chairman of the Board Co-Chairman of the Board
</TABLE>
This document is dated , 2000 and was first mailed to
stockholders on or about 2000.
<PAGE> 3
[SEAGATE LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Our Stockholders:
A special meeting of stockholders of Seagate Technology, Inc. will be held
at 9:00 a.m., Pacific Time, on , 2000, at our headquarters located
at 920 Disc Drive, Scotts Valley, California 95066, for the following purposes:
1. To consider and vote upon a proposal to authorize and approve a Stock
Purchase Agreement, dated as of March 29, 2000, as amended, by and among
Suez Acquisition Company (Cayman) Limited, Seagate and Seagate Software
Holdings, Inc., and the sale by Seagate of all of its operating assets
pursuant thereto.
2. To consider and vote upon a proposal to adopt and approve an Agreement
and Plan of Merger and Reorganization, dated as of March 29, 2000, as
amended, by and among VERITAS Software Corporation, a wholly owned
subsidiary of VERITAS, and Seagate, and the merger of Seagate with a
wholly owned subsidiary of VERITAS pursuant thereto.
3. To transact any other business that properly comes before the special
meeting or any adjournments or postponements thereof.
The attached document describes in more detail the stock purchase
agreement, the merger agreement and transactions contemplated thereby. We
encourage you to read the entire document carefully.
We have fixed the close of business on , 2000 as the record
date for the determination of stockholders entitled to vote at the special
meeting. Only holders of record of Seagate common stock on the record date are
entitled to notice of and to vote at the special meeting.
By Order of the Board of Directors
of Seagate Technology, Inc.
William L. Hudson
Senior Vice President,
General Counsel and Corporate
Secretary
Scotts Valley, California
, 2000
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, PLEASE
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND MAIL IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AT THE SPECIAL
MEETING.
<PAGE> 4
[VERITAS LOGO]
, 2000
Dear Stockholders:
VERITAS Software Corporation will hold a special meeting of our
stockholders at our offices located at 900 Alta Avenue, Mountain View,
California 94043 on , 2000 at 9:00 a.m., Pacific Time.
At the meeting, we will ask you to vote on a proposal to approve the
issuance of new shares of VERITAS common stock to be issued to stockholders of
Seagate Technology, Inc. in connection with the merger of a wholly owned
subsidiary of VERITAS with and into Seagate.
After careful consideration, our board of directors has approved the
merger, the merger agreement (which sets forth the terms and conditions of the
merger) and the issuance of new shares of VERITAS common stock, and has
concluded that the merger, the merger agreement and the share issuance are in
the best interests of VERITAS and you, our stockholders.
Our board of directors recommends a vote FOR the proposed issuance of new
shares of VERITAS common stock in connection with the merger.
A notice of the meeting and a disclosure document relating to the merger as
well as other related transactions are enclosed. The disclosure document
describes these transactions in detail and presents significant related
information. Please read it carefully.
We invite you to attend the meeting. Whether or not you plan to attend,
please complete, sign and date the enclosed proxy and return it to us in the
enclosed envelope. If you attend the meeting, you may vote in person if you
wish, even if you have previously returned your proxy. It is important that your
shares be represented and voted at the meeting.
You will not be required to exchange your VERITAS stock certificates in
connection with the merger or the other transactions described in the disclosure
document. PLEASE DO NOT SEND IN YOUR CERTIFICATES.
Sincerely,
Mark Leslie
Chief Executive Officer and
Chairman of the Board
THE TRANSACTIONS DESCRIBED IN THIS DOCUMENT INVOLVE NUMEROUS RISKS. SEE
"RISK FACTORS -- RISKS TO BOTH SEAGATE AND VERITAS STOCKHOLDERS RELATING TO THE
STOCK PURCHASE AND THE MERGER."
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE STOCK PURCHASE, THE MERGER OR THE
SECURITIES TO BE OFFERED TO SEAGATE STOCKHOLDERS IN CONNECTION WITH THE MERGER,
PASSED UPON THE MERITS OR FAIRNESS OF THE STOCK PURCHASE OR THE MERGER, OR
PASSED UPON THE ADEQUACY OR ACCURACY OF THE DISCLOSURE IN THE ATTACHED DOCUMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 5
[VERITAS LOGO]
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Our Stockholders:
We will hold a special meeting of VERITAS Software Corporation at 9:00
a.m., Pacific Time, on , 2000 at our offices located at 900 Alta
Avenue, Mountain View, California 94043 to consider and vote on a proposal to
issue new shares of VERITAS common stock to stockholders of Seagate Technology,
Inc. in connection with the merger of a wholly owned subsidiary of VERITAS with
and into Seagate, upon the terms and subject to the conditions set forth in the
merger agreement, a copy of which is included as Annex A to the attached
disclosure document (with the exact number of shares to be issued being
determined as described in the attached disclosure document). No other business
will be conducted at the special meeting.
The merger agreement, the merger and the share issuance, as well as other
related matters, are more fully described in the disclosure document that
accompanies this notice.
The close of business on , 2000 is the record date for the
determination of our stockholders entitled to vote at this meeting or any
adjournments or postponements thereof.
Sincerely,
Mark Leslie
Chief Executive Officer and
Chairman of the Board
Mountain View, California
, 2000
TO ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE POSTAGE-PAID
ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING. YOU CAN REVOKE
YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
<PAGE> 6
TABLE OF CONTENTS
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PAGE
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Summary of Principal Terms and Questions and Answers
Regarding the Stock Purchase and the Merger............... 1
Questions and Answers for Seagate Stockholders............ 7
Questions and Answers for VERITAS Stockholders............ 13
Summary..................................................... 18
The Parties............................................... 18
The Stock Purchase Agreement and the Stock Purchase....... 19
The Merger Agreement and the Merger....................... 23
Appraisal Rights.......................................... 29
The Indemnification Agreement............................. 29
The Exclusivity Agreement................................. 30
Interests of a Director and Certain Executive Officers of
Seagate in the Stock Purchase and the Merger........... 30
Interests of Certain Directors and Officers of VERITAS in
the Merger............................................. 31
Opinion of Seagate's Financial Advisor.................... 31
Opinion of VERITAS' Financial Advisor..................... 31
Regulatory Approvals Required to Complete the Stock
Purchase and the Merger................................ 31
Material United States Federal Income Tax Consequences of
the Merger............................................. 32
Accounting Treatment of the Stock Purchase and the
Merger................................................. 32
Legal Proceedings Related to the Stock Purchase and the
Merger................................................. 33
Cautionary Statement Regarding Forward Looking Statements
Contained in this Joint Proxy Statement/Prospectus..... 33
Summary Selected Historical Financial Data.................. 34
Summary Selected Historical Financial Data for Seagate.... 34
Summary Selected Historical Financial Data for VERITAS.... 36
Summary Selected Pro Forma Financial Data................... 37
Summary Selected Unaudited Pro Forma Condensed Financial
Data for Seagate and Seagate's Operating Assets........ 37
Summary Selected Unaudited Pro Forma Combined Condensed
Financial Data for VERITAS............................. 39
Comparative Historical and Pro Forma Per Share Data......... 42
Seagate Comparative Per Share Data........................ 42
VERITAS Comparative Per Share Data........................ 43
Comparative Per Share Market Price Data and Dividend
Information............................................... 44
Risk Factors................................................ 46
Risks to Seagate Stockholders Relating to the Stock
Purchase and the Merger................................ 46
Risks to Both Seagate and VERITAS Stockholders Relating to
the Stock Purchase and the Merger...................... 47
Risks Relating to VERITAS................................. 49
Risks Relating to Forward Looking Statements in this Joint
Proxy Statement/Prospectus............................. 57
Special Factors Regarding the Stock Purchase and the
Merger.................................................... 58
Background of the Stock Purchase and the Merger........... 58
Consideration of the Stock Purchase and the Merger by
Seagate................................................ 66
Seagate's Reasons for the Stock Purchase and the
Merger................................................ 66
Recommendation of the Board of Directors of Seagate.... 69
Opinion of Seagate's Financial Advisor................. 70
Interests of Directors and Certain Executive Officers
of Seagate in the Stock Purchase and the Merger....... 78
</TABLE>
<PAGE> 7
<TABLE>
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PAGE
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Consideration of the Merger by VERITAS.................... 84
VERITAS' Purposes and Reasons for the Merger........... 84
Recommendation of the Board of Directors of VERITAS.... 85
Fairness of the Merger to Seagate Stockholders......... 87
Opinion of VERITAS' Financial Advisor.................. 88
Interests of Certain Directors, Officers and Affiliates
of VERITAS in the Merger.............................. 93
Effect of the Merger on VERITAS........................ 93
Plans Relating to Seagate After the Merger............. 94
Consideration of the Stock Purchase by Suez Acquisition
Company................................................ 94
Purpose of the Stock Purchase.......................... 94
Fairness of the Stock Purchase to Seagate
Stockholders.......................................... 94
Summary Seagate Financial Projections..................... 95
Other Material Contracts and Agreements Between Seagate
and VERITAS............................................ 96
The Stock Purchase Agreement and the Stock Purchase......... 101
The Parties............................................... 101
The Asset Transfer and the Stock Purchase................. 101
Purchase Price............................................ 102
Required Cash............................................. 102
Financing of the Purchase Price........................... 102
Rollover Equity........................................... 105
Representations and Warranties............................ 105
Covenants Relating to Conduct of Business by Seagate Prior
to the Closing......................................... 108
Covenants Relating to Solicitations by Seagate Prior to
the Closing............................................ 108
Covenants Relating to Employee Matters.................... 110
Covenant to Recommend the Stock Purchase to the Seagate
Stockholders........................................... 110
Covenants Relating to Directors' and Officers'
Indemnification and Insurance.......................... 111
Covenants Relating to Outstanding Debt.................... 111
The Closing; Conditions to the Closing.................... 111
Suez Acquisition Company Indemnification Obligations
Following the Closing.................................. 113
Amendment or Waiver of Terms of the Stock Purchase
Agreement.............................................. 113
Termination of the Stock Purchase Agreement; Termination
Fees and Payments...................................... 113
The Merger Agreement and the Merger......................... 116
The Parties............................................... 116
Terms of the Merger....................................... 116
Effects of the Merger..................................... 116
The Merger Consideration.................................. 118
Effective Time of the Merger.............................. 122
Exchange and Payment Procedures for Seagate
Stockholders........................................... 123
No Dividends.............................................. 124
Transfer of Seagate Common Stock.......................... 124
Representations and Warranties............................ 124
Covenants Relating to Solicitations by Seagate Prior to
the Closing............................................ 127
Covenants Relating to Modification of the Stock Purchase
Agreement.............................................. 128
Covenant to Recommend the Merger to the Seagate
Stockholders and the VERITAS Stockholders.............. 128
Covenants Relating to Directors' and Officers'
Indemnification and Insurance.......................... 129
The Closing; Conditions to the Closing.................... 129
Amendment or Waiver of Terms of Merger Agreement.......... 131
Termination; Termination Fees and Payments................ 131
Restrictions on Sales of Shares by Affiliates............. 134
Appraisal Rights.......................................... 134
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Listing on the Nasdaq National Market of VERITAS Common
Stock to be Issued in the Merger....................... 138
Delisting and Deregistration of Seagate Common Stock After
the Merger............................................. 138
Litigation Regarding the Merger........................... 138
Other Agreements Related to the Stock Purchase and the
Merger.................................................... 140
The Indemnification Agreement............................. 140
The Exclusivity Agreement................................. 142
Regulatory Filings and Approvals Required to Complete the
Stock Purchase and the Merger............................. 144
Material United States Federal Income Tax Consequences of
the Merger................................................ 144
Accounting Treatment of the Stock Purchase and the Merger... 148
The Seagate Special Meeting................................. 149
The VERITAS Special Meeting................................. 152
Selected Historical Financial Data and Management's
Discussion and Analysis of Financial Condition and Results
of Operations............................................. 155
Selected Historical Financial Data for Seagate............ 155
Management's Discussion and Analysis of Financial
Condition and Results of Operations for Seagate's Year
Ended July 2, 1999.................................... 157
Management's Discussion and Analysis of Financial
Condition and Results of Operations for Seagate's Nine
Months Ended March 31, 2000........................... 168
Selected Historical Financial Data for VERITAS............ 174
Management's Discussion and Analysis of Financial
Condition and Results of Operations for VERITAS for
the Year Ended December 31, 1999...................... 175
Management's Discussion and Analysis of Financial
Condition and Results of Operations for VERITAS for
the Three Months Ended March 31, 2000................. 180
Selected Pro Forma Financial Data...........................
Selected Unaudited Pro Forma Condensed Financial Data for
Seagate and Seagate's Operating Assets.................
Selected Unaudited Pro Forma Combined Condensed
Consolidated Financial Data for VERITAS................ 207
Comparison of Rights of Holders of Seagate Common Stock and
VERITAS Common Stock...................................... 221
Additional Information Regarding Seagate.................... 227
Additional Information Regarding VERITAS.................... 227
Other Stockholder Proposals................................. 227
Proposals by Seagate Stockholders......................... 227
Proposals by VERITAS Stockholders......................... 228
Legal Matters............................................... 228
Experts..................................................... 229
Where You Can Find Additional Information................... 229
Additional Documents and Other Information Incorporated by
Reference................................................. 230
Cautionary Statement Regarding Information Contained in this
Joint Proxy Statement/Prospectus.......................... 232
Index to Financial Statements............................... F-1
</TABLE>
<PAGE> 9
<TABLE>
<S> <C>
ANNEX A Agreement and Plan of Merger and Reorganization
ANNEX B Stock Purchase Agreement
ANNEX C Indemnification Agreement
ANNEX D Exclusivity Agreement
ANNEX E Opinion of Morgan Stanley & Co. Incorporated, Financial
Advisor to Seagate Technology, Inc.
ANNEX F Opinion of Credit Suisse First Boston Corporation, Financial
Advisor to VERITAS Software Corporation
ANNEX G Delaware General Corporation Law Section 262
</TABLE>
<PAGE> 10
SUMMARY OF PRINCIPAL TERMS
AND QUESTIONS AND ANSWERS REGARDING THE STOCK PURCHASE AND THE MERGER
On March 29, 2000, Seagate Technology, Inc., VERITAS Software Corporation
and Victory Merger Sub, Inc., a wholly owned subsidiary of VERITAS which we
refer to as merger sub in this document, entered into an Agreement and Plan of
Merger and Reorganization, a copy of which is attached to this document as Annex
A. Simultaneously with entering into the merger agreement, Seagate, Seagate
Software Holdings, Inc., a wholly owned subsidiary of Seagate, and Suez
Acquisition Company (Cayman) Limited, a newly formed entity owned by Silver Lake
Partners, Texas Pacific Group, August Capital, Chase Capital Partners, Goldman
Sachs and members of Seagate's senior management team, entered into a stock
purchase agreement, a copy of which is attached to this document as Annex B.
Under the terms of the stock purchase agreement, Seagate agreed to sell all
of its property and assets and the property and assets of its consolidated
subsidiaries, other than certain designated assets, to Suez Acquisition Company.
In this document, we refer to the assets to be sold to Suez Acquisition Company
pursuant to the stock purchase agreement as Seagate's operating assets. The
designated assets that will not be sold to Suez Acquisition Company pursuant to
the stock purchase agreement consist of:
- the capital stock of Seagate Software;
- Seagate's investments in VERITAS Software Corporation, Gadzoox Networks,
Inc., SanDisk Corporation, Veeco Instruments, Inc. and Dragon Systems,
Inc.;
- cash in excess of the approximately $775 million (subject to upward
adjustment) to be transferred to Suez Acquisition Company; and
- the right to receive the value of certain tax refunds claimed and credits
utilized by VERITAS which are attributable to Seagate.
We refer to these assets, which will not be sold to Suez Acquisition Company
pursuant to the stock purchase agreement, as the designated assets in this
document. Under the terms of the stock purchase agreement, Suez Acquisition
Company will purchase Seagate's operating assets for $2 billion in cash, less
the value of Seagate equity securities held by members of Seagate's senior
management team which will be converted into equity securities of Suez
Acquisition Company and which will not be converted into the right to receive
any consideration in the merger. In connection with the stock purchase, Suez
Acquisition Company will also assume substantially all of the liabilities of
Seagate and its consolidated subsidiaries.
To complete the sale of assets described above, Seagate will transfer its
operating assets to its subsidiaries. We refer to this transfer of assets as the
asset transfer in this document. Immediately after the asset transfer, Seagate
will sell all of its subsidiaries, other than Seagate Software, to Suez
Acquisition Company. To ensure that Suez Acquisition Company obtains the
operating assets held by any subsidiaries of Seagate Software (which are being
retained by Seagate), Seagate Software will also sell to Suez Acquisition
Company the capital stock of its subsidiary, Seagate Software Information
Management Group, Inc., which we refer to as Seagate IMG in this document, and
any other indirect subsidiaries of Seagate then held by Seagate Software. We
refer to the asset transfer together with the sale of Seagate's subsidiaries
described above as the stock purchase in this document.
Under the terms of the merger agreement, immediately following and
contingent upon the stock purchase, merger sub will merge with Seagate, the
outstanding shares of Seagate common stock (other than certain shares to be
cancelled) will be converted into the right to receive the merger consideration
described below and Seagate will become a wholly owned subsidiary of VERITAS. We
refer to this transaction as the merger in this document. As a result of the
merger, VERITAS will
1
<PAGE> 11
indirectly acquire all of the designated assets which, as noted above, will
continue to be held by Seagate immediately after the merger.
In connection with the merger, Seagate stockholders will be entitled to
receive their proportionate share of the following merger consideration:
- 109,330,300 shares of VERITAS common stock;
- an additional variable number of shares of VERITAS common stock which
depends on:
- the determined value of Seagate's investments in Gadzoox Networks,
SanDisk Corporation, Veeco Instruments and Dragon Systems (to the
extent valued at the effective time of the merger); and
- whether VERITAS elects to issue additional shares of VERITAS common
stock in exchange for having Seagate retain a portion of the cash held
by it immediately prior to the merger;
- an amount of cash equal to Seagate's cash at the effective time of the
merger, which will include the net proceeds received and retained by
Seagate in connection with the stock purchase (after transferring
approximately $775 million in cash, subject to upward adjustment, to Suez
Acquisition Company), less any cash that VERITAS elects to have Seagate
retain in exchange for the issuance of additional shares of VERITAS
common stock in connection with the merger; and
- the right to receive the value of certain tax refunds claimed and credits
that are attributable to Seagate and relate to periods ending on or prior
to the effective time of the merger, and, in certain instances, net
proceeds realized upon the sale by Seagate of its shares of Dragon
Systems. We refer to the value of these tax refunds and credits, and to
such net proceeds, as the tax refund amount in this document.
The value of the merger consideration payable to Seagate stockholders in
connection with the merger will fluctuate daily because a large component of the
merger consideration is derived from the value of VERITAS common stock. In
addition, the number of shares of VERITAS common stock and the amount of cash
comprising a part of the merger consideration will not be determinable until
shortly before the effective time of the merger. In addition, the fair market
value of the tax refund amount will be determined shortly before the effective
time of the merger. Seagate stockholders, however, will only receive their
proportionate share of the tax refund amount, if any, after it is received by
VERITAS. Any such tax refunds or credits will not be claimed until after the
effective time of the merger. Accordingly, a payment to Seagate stockholders in
respect of the tax refund amount will not be made, if at all, until after the
effective time of the merger. In any event, Seagate stockholder's right to
receive the tax refund amount lapses as of March 31, 2003.
For a more complete description of the stock purchase agreement and the
stock purchase, see "The Stock Purchase Agreement and the Stock Purchase"
beginning on page 101 of this document. For a more complete description of the
merger agreement and the merger, see "The Merger Agreement and the Merger"
beginning on page 116 of this document.
The following is a series of four diagrams depicting:
- the current structure of Seagate;
- the currently contemplated structure of Seagate following the asset
transfer;
- the currently contemplated structure of Seagate and Suez Acquisition
Company following the stock purchase; and
- the currently contemplated structure of Seagate and VERITAS following the
merger.
2
<PAGE> 12
CURRENT STRUCTURE
Below is an illustration of the current structure of Seagate without giving
effect to the completion of the asset transfer, the stock purchase and the
merger.
[Seagate Diagram]
3
<PAGE> 13
STRUCTURE FOLLOWING THE ASSET TRANSFER
Below is an illustration of the currently contemplated structure of Seagate
immediately following the asset transfer.
[Seagate Diagram]
4
<PAGE> 14
STRUCTURE FOLLOWING THE STOCK PURCHASE
Below is an illustration of the currently contemplated structure of Seagate
and Suez Acquisition Company immediately following the stock purchase.
[Seagate Diagram]
5
<PAGE> 15
STRUCTURE FOLLOWING THE MERGER
Below is an illustration of the currently contemplated structure of Seagate
and VERITAS immediately following the merger.
[Seagate Diagram]
6
<PAGE> 16
QUESTIONS AND ANSWERS FOR SEAGATE STOCKHOLDERS
Q: WHY IS SEAGATE PROPOSING THE STOCK PURCHASE AND THE MERGER?
A: Seagate believes that the merger is the most efficient and direct way for
Seagate to deliver value to its stockholders for its various assets,
including value for its ownership of approximately 32.5% of VERITAS. The
merger will enable Seagate stockholders to obtain direct ownership of VERITAS
without imposing a corporate or stockholder level tax on the receipt of
VERITAS common stock by Seagate stockholders in connection with the merger.
The stock purchase will also enable Seagate stockholders to realize value for
Seagate's operating assets.
Q: CAN THE MERGER BE COMPLETED WITHOUT THE STOCK PURCHASE?
A: No. The merger is conditioned on the closing of the stock purchase. If the
stock purchase does not happen, neither will the merger. Similarly, the stock
purchase is conditioned on all of the conditions to the merger being
satisfied other than the closing of the stock purchase. As a result, although
you will be able to separately consider and vote upon the stock purchase and
the merger, your vote on the stock purchase is effectively a vote on the
merger, and vice-versa. Neither the stock purchase nor the merger will happen
unless the stock purchase is approved by the stockholders of Seagate, the
merger is approved by the stockholders of both Seagate and VERITAS, and all
of the other conditions to the closing of both the stock purchase and the
merger are satisfied.
Q: WHO WILL OWN SEAGATE FOLLOWING THE STOCK PURCHASE AND THE MERGER?
A: Following the stock purchase, Suez Acquisition Company will own all of
Seagate's operating assets. Suez Acquisition Company is a newly formed entity
controlled by Silver Lake Partners, Texas Pacific Group, August Capital,
Chase Capital Partners and Goldman Sachs. Suez Acquisition Company also has
the right under the stock purchase agreement to assign its rights under that
agreement to one or more designees. As a condition to completing the stock
purchase, the equity investors who control Suez Acquisition Company are
requiring that Stephen J. Luczo, Charles C. Pope, William D. Watkins, Donald
L. Waite, Townsend H. Porter, Bernardo A. Carballo, Don G. Colton and Thomas
S. Mulvaney, Seagate's President and Chief Executive Officer, Executive Vice
President and Chief Financial Officer, Executive Vice President and Chief
Operating Officer of Disc Drive Operations, Recording Media Operations and
Recording Heads Operations, Executive Vice President and Chief Administrative
Officer, Executive Vice President/ Chief Technology Officer of Product and
Technology Development, Executive Vice President, Worldwide Sales/Marketing,
PLM and Customer Service, Executive Vice President, Corporate Quality, and
Senior Vice President, Internet Solutions, respectively, as well as certain
other members of Seagate's management participate in the ownership of Suez
Acquisition Company.
Immediately following the stock purchase, VERITAS will acquire Seagate in the
merger. Because all of Seagate's operating assets will be sold to Suez
Acquisition Company in connection with the stock purchase, when VERITAS
acquires Seagate in connection with the merger, VERITAS will acquire only the
designated assets and will not acquire any of the operating assets of
Seagate.
Q: DO MEMBERS OF SEAGATE'S SENIOR MANAGEMENT TEAM HAVE ANY OTHER SPECIAL
INTERESTS IN THE STOCK PURCHASE AND THE MERGER?
A: Yes. Certain members of Seagate's senior management team will be entering
into employment agreements with Suez Acquisition Company or one of its
subsidiaries in connection with the stock purchase. These persons include
Messrs. Luczo, Watkins, Pope, Waite, Porter, Carballo, Colton and Mulvaney.
Members of Seagate's senior management team will also be entitled to receive
additional options to purchase stock of Suez Acquisition Company following
the stock purchase.
7
<PAGE> 17
Q: WHAT WILL I RECEIVE FROM THE MERGER?
A: At the effective time of the merger, Seagate stockholders will be entitled to
receive, in exchange for their shares of Seagate common stock, their
proportionate share of the following merger consideration based upon the
number of shares of Seagate common stock owned by each Seagate stockholder
immediately prior to the merger relative to the total number of shares of
Seagate common stock outstanding immediately prior to the merger (excluding
certain shares being cancelled, but including in each case shares of Seagate
common stock issuable upon the net exercise of all Seagate stock options
other than Seagate stock options to be converted into stock options of Suez
Acquisition Company, and Seagate common stock issuable upon the exercise of
all rights under Seagate's employee stock purchase plan):
- 109,330,300 shares of VERITAS common stock;
- an additional variable number of shares of VERITAS common stock which
depends on:
- the determined value of Seagate's investments in Gadzoox Networks,
SanDisk Corporation, Veeco Instruments and, to the extent valued at the
effective time of the merger, Dragon Systems; and
- whether VERITAS elects to issue additional shares of VERITAS common
stock in exchange for having Seagate retain a portion of the cash held
by it immediately prior to the merger;
- an amount of cash equal to Seagate's cash at the effective time of the
merger, which will include the net proceeds received and retained by
Seagate in connection with the stock purchase (after transferring
approximately $775 million in cash, subject to upward adjustment, to Suez
Acquisition Company), less any cash that VERITAS elects to have Seagate
retain in exchange for the issuance of additional shares of VERITAS common
stock in connection with the merger; and
- the right to receive the tax refund amount.
VERITAS has the right to increase the aggregate amount of VERITAS common
stock it will issue, and correspondingly decrease the amount of cash to be
distributed, in connection with the merger either by $500 million, or by
$750 million if after March 29, 2000 Seagate raises gross proceeds in excess
of $200 million from the sale of its investments in Gadzoox Networks,
SanDisk Corporation, Veeco Instruments and Dragon Systems. If VERITAS
exercises this right, the aggregate number of additional shares of VERITAS
common stock that will be issued in lieu of the foregoing cash amounts will
be determined based upon the average closing price of VERITAS common stock,
as reported on the Nasdaq National Market, for the five consecutive trading
days ending two trading days immediately preceding the date that VERITAS
exercises this right. If VERITAS exercises this right, Seagate stockholders
will receive additional shares of VERITAS common stock, and less cash, in
each case based upon proportionate ownership of Seagate common stock at the
effective time of the merger.
The amount of cash that Seagate will have at the effective time of the
merger is subject to a number of factors which are discussed in more detail
under "The Stock Purchase Agreement and the Stock Purchase -- Required Cash"
beginning on page 102 of this document.
Due to the variety of factors involved in determining the value of the
merger consideration and the mix of VERITAS common stock and cash comprising
a part of the merger consideration, for illustrative purposes we have listed
below the estimated merger consideration (excluding the tax refund amount)
that would be payable in the merger, and the stock portion and cash portion
of that merger consideration, at various VERITAS stock prices ranging from
$70.00 per share to
8
<PAGE> 18
$130.00 per share. The calculations in the following table are based upon
the following assumptions:
- the closing prices of shares of Gadzoox Networks, SanDisk Corporation and
Veeco Instruments on May 16, 2000;
- 232 - 237 million shares of Seagate common stock outstanding (depending
on the assumed VERITAS stock price), calculated on a pro forma basis
assuming the net exercise of all outstanding stock options (other than
certain stock options to be converted into Suez Acquisition Company stock
options) and rights under the Seagate employee stock purchase plan;
- the estimated cash balance of Seagate as of June 30, 2000; and
- other transaction related items.
<TABLE>
<CAPTION>
VERITAS HAS SEAGATE RETAIN $0MM CASH
- ---------------------------------------------------------
NUMBER OF VALUE OF
VERITAS VERITAS VERITAS VALUE OF TOTAL
PRICE SHARES SHARES CASH CONSIDERATION
- ------- --------- -------- -------- -------------
<S> <C> <C> <C> <C>
$70.00 0.490 $34.29 $6.74 $41.04
$80.00 0.485 $38.78 $6.45 $45.22
$90.00 0.481 $43.25 $6.16 $49.41
$100.00 0.477 $47.72 $5.88 $53.60
$110.00 0.474 $52.18 $5.61 $57.79
$120.00 0.472 $56.66 $5.31 $61.98
$130.00 0.470 $61.16 $5.01 $66.17
</TABLE>
<TABLE>
<CAPTION>
VERITAS HAS SEAGATE RETAIN $500MM CASH
- ---------------------------------------------------------
NUMBER OF VALUE OF
VERITAS VERITAS VERITAS VALUE OF TOTAL
PRICE SHARES SHARES CASH CONSIDERATION
- ------- --------- -------- -------- -------------
<S> <C> <C> <C> <C>
$70.00 0.521 $36.45 $4.59 $41.04
$80.00 0.511 $40.92 $4.31 $45.22
$90.00 0.504 $45.38 $4.03 $49.41
$100.00 0.498 $49.84 $3.76 $53.60
$110.00 0.494 $54.29 $3.50 $57.79
$120.00 0.490 $58.77 $3.20 $61.98
$130.00 0.487 $63.27 $2.90 $66.17
</TABLE>
<TABLE>
<CAPTION>
VERITAS HAS SEAGATE RETAIN $750MM CASH
- ---------------------------------------------------------
NUMBER OF VALUE OF
VERITAS VERITAS VERITAS VALUE OF TOTAL
PRICE SHARES SHARES CASH CONSIDERATION
- ------- --------- -------- -------- -------------
<S> <C> <C> <C> <C>
$70.00 0.536 $37.52 $3.51 $41.04
$80.00 0.525 $41.99 $3.24 $45.22
$90.00 0.516 $46.45 $2.97 $49.41
$100.00 0.509 $50.90 $2.70 $53.60
$110.00 0.503 $55.35 $2.44 $57.79
$120.00 0.499 $59.83 $2.15 $61.98
$130.00 0.495 $64.32 $1.85 $66.17
</TABLE>
Q: HOW WILL I KNOW EXACTLY HOW MANY SHARES OF VERITAS COMMON STOCK AND HOW MUCH
CASH I WILL RECEIVE IN THE MERGER, AND THE VALUE OF MY PROPORTIONATE SHARE OF
THE TAX REFUND AMOUNT?
A: The exact amount of cash payable, and the exact fractional number of a share
of VERITAS common stock issuable, in exchange for each outstanding share of
Seagate common stock (other
9
<PAGE> 19
than certain shares to be cancelled), and the fair market value of the tax
refund amount allocable to each share of Seagate common stock, will be
determined two trading days before the effective time of the merger. Seagate
stockholders may call 1-800- to determine the foregoing.
Q: WHAT ARE THE TAX CONSEQUENCES TO ME OF THE STOCK PURCHASE AND THE MERGER?
A: It is intended, but not certain, that the merger will qualify as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code. If the merger so qualifies, Seagate stockholders will recognize gain,
if any, for federal income tax purposes but only to the extent of the cash
received and the fair market value of their proportionate share of the tax
refund amount. To the extent a Seagate stockholder's adjusted tax basis in
his, her or its shares of Seagate common stock exceeds the merger
consideration received in exchange for such shares, the resulting loss will
not be recognized for federal income tax purposes. If the merger failed to
qualify as a "reorganization," it would be a fully taxable transaction. The
stock purchase will have no direct tax consequences to Seagate stockholders.
However, the amount of cash Seagate stockholders receive in connection with
the merger will depend in part on the amount of cash Seagate receives in
connection with the stock purchase.
For a more complete description of the tax consequences of the merger, see
"Material United States Federal Income Tax Consequences of the Merger"
beginning on page 144 of this document.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: Seagate stockholders are being asked to:
- authorize and approve the stock purchase agreement, and the sale by
Seagate of its operating assets to Suez Acquisition Company pursuant to
the stock purchase agreement; and
- adopt and approve the merger agreement, and the merger of merger sub with
and into Seagate pursuant to the merger agreement.
Q: WHAT VOTE OF SEAGATE'S STOCKHOLDERS IS REQUIRED TO APPROVE THE STOCK PURCHASE
AND THE MERGER?
A: The affirmative vote of the holders of a majority of the outstanding shares
of Seagate common stock is required to authorize and approve the stock
purchase agreement and the stock purchase, and to adopt and approve the
merger agreement and the merger. THEREFORE, IF YOU FAIL TO VOTE OR IF YOU
ABSTAIN FROM VOTING ON EITHER THE STOCK PURCHASE AGREEMENT AND THE STOCK
PURCHASE, OR THE MERGER AGREEMENT AND THE MERGER, IT WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST EITHER THE STOCK PURCHASE OR THE MERGER, AS
APPLICABLE.
Q: HAS THE BOARD OF DIRECTORS OF SEAGATE APPROVED THE STOCK PURCHASE AND THE
MERGER?
A: The board of directors of Seagate, acting without the participation of Mr.
Luczo, has unanimously approved the stock purchase agreement and the stock
purchase, and the merger agreement and the merger. The Seagate board of
directors (acting without Mr. Luczo) unanimously recommends that Seagate
stockholders vote FOR:
- the stock purchase agreement and the stock purchase contemplated thereby;
and
- the merger agreement and the merger contemplated thereby.
10
<PAGE> 20
Q: DID THE SEAGATE BOARD OF DIRECTORS RECEIVE A FAIRNESS OPINION FROM AN
INVESTMENT BANKER IN CONNECTION WITH THE MERGER?
A: Yes. The board of directors of Seagate retained Morgan Stanley & Co.
Incorporated to advise it on the stock purchase and the merger. Prior to
approval of the stock purchase and the merger by Seagate's board of directors
on March 29, 2000, Morgan Stanley delivered its oral opinion, subsequently
confirmed in writing, to Seagate's board of directors to the effect that, as
of that date and based upon and subject to the various considerations set
forth in its opinion, the merger consideration under the merger agreement was
fair, from a financial point of view, to the stockholders of Seagate. A copy
of Morgan Stanley's opinion is attached to this document as Annex E.
For a more complete description of Morgan Stanley's opinion, see "Special
Factors Regarding the Stock Purchase and the Merger -- Consideration of the
Stock Purchase and the Merger by Seagate -- Opinion of Seagate's Financial
Advisor" beginning on page 70 of this document.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE STOCK
PURCHASE AND THE MERGER?
A: Yes. In evaluating the stock purchase agreement and the stock purchase, and
the merger agreement and the merger, Seagate stockholders should carefully
consider the factors discussed in the section entitled "Risk Factors"
beginning on page 46 of this document.
Q: WHAT DO I NEED TO DO NOW?
A: After you have carefully read this document, PLEASE COMPLETE AND SIGN THE
PROXY CARD ENCLOSED WITH THIS DOCUMENT, AND RETURN THE PROXY CARD IN THE
ENCLOSED RETURN ENVELOPE AS SOON AS POSSIBLE so that your shares of Seagate
common stock may be represented at the special meeting of Seagate
stockholders called to consider and vote upon the stock purchase and the
merger. If you sign and return the enclosed proxy card but do not include
instructions on how to vote your proxy at the special meeting, your shares
will be voted FOR approval of the stock purchase and the merger.
Q: WHAT HAPPENS IF I DON'T RETURN A PROXY CARD?
A: If you do not return a signed proxy card, it will have the same effect as a
vote against the stock purchase and the merger (unless you attend the meeting
in person and vote in favor of the proposals).
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions to the
broker on how to vote. If you do not provide your broker with these
instructions, your broker's "non-votes" will have the same effect as a vote
against approval of the stock purchase and the merger. You should follow the
directions provided by your broker regarding how to instruct your broker to
vote your shares.
Q: CAN I CHANGE MY VOTE AFTER I HAVE SUBMITTED MY PROXY?
A: Yes. You may change your vote in any of the following three ways at any time
before your proxy is voted at the Seagate special meeting. First, you may
send a written notice to the Secretary of Seagate before the special meeting
stating that you would like to revoke your proxy. Second, you may complete
and submit a later-dated signed proxy card before the special meeting. Third,
you may attend the special meeting and vote in person. Simply attending the
special meeting without voting, however, will not revoke your proxy. Also, if
your shares are held of record by a broker,
11
<PAGE> 21
bank or other nominee, and you want to vote at the Seagate special meeting,
you will need to bring to the special meeting a letter from the broker, bank
or other nominee confirming your beneficial ownership of the shares.
Q: SHOULD I SEND IN MY SEAGATE STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send you written instructions for
exchanging your Seagate stock certificates for the merger consideration.
Q: AM I ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
A: Under applicable law, holders of Seagate common stock are entitled to
appraisal rights in connection with the merger, but not the stock purchase.
For a description of your appraisal rights, see "The Merger Agreement and
the Merger -- Appraisal Rights" beginning on page 134 of this document.
Q: WHEN DO YOU EXPECT THE STOCK PURCHASE AND THE MERGER TO BE COMPLETED?
A: We are working toward completing the stock purchase and the merger as quickly
as possible. We hope to complete both the stock purchase and the merger
during the third calendar quarter of 2000.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT VERITAS AND SEAGATE?
A: Both Seagate and VERITAS file reports, proxy and information statements and
other information with the Securities and Exchange Commission. You may read
and copy this information at the SEC's public reference facilities. Please
call the SEC at 1-800-SEC-0330 for information about these facilities. This
information is also available at the Internet site the SEC maintains at
www.sec.gov. For more information on where you can find additional
information about Seagate and VERITAS, see "Where You Can Find Additional
Information" beginning on page 229 of this document.
Q: WHOM SHOULD I CONTACT WITH QUESTIONS?
A: You should contact Bill Rowley in our Investor Relations Department, at
831-439-2371, or by e-mail at [email protected], with any
questions about the stock purchase agreement and the stock purchase or the
merger agreement and the merger.
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<PAGE> 22
QUESTIONS AND ANSWERS FOR VERITAS STOCKHOLDERS
Q: WHAT DOES THE STOCK PURCHASE MEAN TO ME?
A: VERITAS Software Corporation is not a party to the stock purchase, and you
are not being asked to approve the stock purchase. However, it is important
that you understand that Seagate is selling all of its operating assets in
the stock purchase prior to the merger. As a result, when VERITAS acquires
Seagate in the merger, Seagate will hold only the designated assets described
in the next paragraph.
The designated assets that will not be sold to Suez Acquisition Company
pursuant to the stock purchase agreement consist of:
- the capital stock of Seagate Software;
- the 128,059,966 shares of VERITAS common stock that Seagate Software
holds;
- Seagate's investments in Gadzoox Networks, SanDisk Corporation, Veeco
Instruments and Dragon Systems;
- cash in excess of the approximately $775 million (subject to upward
adjustment) to be transferred to Suez Acquisition Company in
connection with the stock purchase; and
- the right to receive the value of certain tax refunds claimed and
credits that are attributable to Seagate.
We refer to these assets as the designated assets in this document. Seagate
may sell some or all of the shares it owns of Gadzoox Networks, SanDisk
Corporation, Veeco Instruments and Dragon Systems before the closing of the
stock purchase.
For a more complete description of the stock purchase, see "The Stock
Purchase Agreement and the Stock Purchase" beginning on page 101 of this
document.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: You are being asked to consider and approve the issuance by VERITAS of new
shares of VERITAS common stock to Seagate stockholders in connection with the
merger, upon the terms and subject to the conditions set forth in the merger
agreement, with the exact number of shares to be determined as described in
the merger agreement. Based on the closing price on the Nasdaq National
Market for VERITAS common stock, and the common stock of Gadzoox Networks
SanDisk Corporation, and CVC, Inc. (which was subsequently converted into
common stock of Veeco Instruments) on the Nasdaq National Market, in each
case, on May 3, 2000, the assumed value of common stock of Dragon Systems
held by Seagate and assuming that VERITAS elects to have Seagate retain $500
million in cash, VERITAS would issue approximately 118.2 million new shares
of its common stock in the merger. The actual number of shares to be issued
will be higher or lower than this number, and will not be determined until
the second day prior to the effective time of the merger. Seagate and VERITAS
have established a toll-free number where you can call to find out the exact
total number of shares to be issued by VERITAS in the merger. The number is
1-800- . VERITAS STOCKHOLDERS ARE ENCOURAGED TO CALL THIS NUMBER.
Q: WHY IS VERITAS ACQUIRING SEAGATE IN THE MERGER?
A: VERITAS proposes to acquire Seagate in the merger because it believes that
the terms of the merger are beneficial to VERITAS and its stockholders. Based
on the closing price on May 3, 2000 of VERITAS common stock and of the common
stock of Gadzoox Networks, SanDisk Corporation and CVC, Inc. (which was
subsequently converted into common stock of Veeco Instruments) on the Nasdaq
National Market, and the assumed value of common stock of
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<PAGE> 23
Dragon Systems held by Seagate, VERITAS would expect to issue approximately
118.2 million new shares of its common stock in the merger, assuming that
VERITAS elected to have Seagate retain $500 million of cash. (Please note
that the actual number of shares issued will be higher or lower, depending on
certain variables described in this document.) In the merger, VERITAS will
acquire the 128,059,966 shares of VERITAS common stock held by Seagate
Software. The result is that fewer shares of VERITAS common stock will be
outstanding after the merger, and each remaining outstanding share of VERITAS
common stock will thus represent a slightly larger percentage ownership
interest in VERITAS and a slightly greater percentage of the total voting
power. Also, the new shares of VERITAS common stock being issued will be
issued to all of the Seagate stockholders entitled to receive the merger
consideration, and these holders, unless they are affiliates of Seagate or
VERITAS, will be able to freely trade their shares of VERITAS common stock
(unlike the 128,059,966 shares held by Seagate Software, which are subject to
contractual transfer restrictions as well as transfer restrictions under
applicable securities laws). VERITAS believes that this will increase the
liquidity of VERITAS common stock. The merger will also eliminate the
potential for downward pressure on the market price of VERITAS common stock
caused by having a single 32.5% stockholder.
It is important to note that VERITAS will not acquire any of the operating
assets of Seagate in the merger. All of these assets will instead be sold to
Suez Acquisition Company in the stock purchase. The only assets that Seagate
will hold at the time of the merger are the designated assets. In connection
with the merger, VERITAS is obligated to pay, as part of the merger
consideration, cash in an amount equal to all of the cash held by Seagate
immediately prior to the effective time of the merger.
For a more complete description of VERITAS' reasons for the merger, see
"Special Factors Regarding the Stock Purchase and the
Merger -- Consideration of the Merger by VERITAS -- VERITAS' Purposes and
Reasons for the Merger" beginning on page 84 of this document.
Q: WHAT WILL I RECEIVE FROM THE STOCK PURCHASE AND THE MERGER?
A: You will not receive any consideration in the stock purchase or the merger.
As noted above, you are receiving this document in connection with the
solicitation of your approval of the issuance of new shares of VERITAS common
stock to stockholders of Seagate in connection with the merger.
Q: CAN THE MERGER BE COMPLETED WITHOUT THE STOCK PURCHASE?
A: No. The merger is conditioned on the closing of the stock purchase. If the
stock purchase does not happen, neither will the merger. Similarly, the stock
purchase is conditioned on all of the conditions to the merger being
satisfied other than the consummation of merger itself. Neither the stock
purchase nor the merger will happen unless the stock purchase is approved by
the stockholders of Seagate, the merger is approved by the stockholders of
both Seagate and VERITAS, and all of the other conditions to the closing of
both the stock purchase and the merger are satisfied.
Q: HOW WILL THE STOCK PURCHASE AND THE MERGER AFFECT ME?
A: You will continue to hold the same number of shares of VERITAS common stock
after the merger. The stock purchase and the merger will not have any effect
on your ownership of the VERITAS shares you hold or on your voting rights
with respect to those shares. However, as described in the response to "Why
is VERITAS acquiring Seagate in the merger?", each share of VERITAS common
stock that you hold will, after the merger, represent a slightly larger
ownership percentage of VERITAS and a slightly greater percentage of the
total voting power.
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<PAGE> 24
Q: HOW WILL THE STOCK PURCHASE AND THE MERGER AFFECT VERITAS' BUSINESS AND
OPERATIONS?
A: VERITAS presently plans to continue conducting its businesses and operations
following the merger in the same manner as it currently conducts them.
Q: DO DIRECTORS OR EXECUTIVE OFFICERS OF VERITAS HAVE ANY OTHER SPECIAL
INTERESTS IN THE STOCK PURCHASE AND THE MERGER?
A: Yes. Stephen Luczo and Gregory Kerfoot, who are directors of VERITAS, are
executive officers of Seagate and Seagate Software, respectively. Mr. Luczo
also is a member of Seagate's senior management team who will participate in
the ownership of Suez Acquisition Company. Messrs. Luczo and Kerfoot did not
participate in discussions or negotiations on behalf of VERITAS in connection
with the merger agreement or the merger.
Q: WHAT ELSE DO I NEED TO DO IN ADDITION TO COMPLETING AND RETURNING THE
ENCLOSED PROXY?
A: Nothing. You will not be asked to turn in any certificates for your VERITAS
shares or take any other action in connection with the merger agreement, the
merger or the share issuance other than returning the enclosed proxy.
Q: WHAT VOTE OF VERITAS STOCKHOLDERS IS NEEDED TO APPROVE THE PROPOSALS?
A: Approval of the issuance of new shares of VERITAS common stock in connection
with the merger requires the affirmative vote of the holders of a majority of
the outstanding shares of VERITAS common stock. Therefore, if you fail to
vote or if you abstain from voting, it will have the same effect as a vote
against the share issuance. Seagate Software currently holds 128,059,966
shares of VERITAS common stock, or approximately 32.5% of the outstanding
VERITAS shares. Under the terms of the merger agreement, Seagate is required
to cause Seagate Software to vote all of its shares of VERITAS common stock
in favor of the share issuance in connection with the merger.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO THE VERITAS STOCKHOLDERS?
A: VERITAS stockholders will not recognize any gain or loss on their shares of
VERITAS common stock as a result of the merger.
Q: WHAT SHOULD I DO NOW?
A: After you have carefully read this document, PLEASE COMPLETE, DATE AND SIGN
THE PROXY CARD ENCLOSED WITH THIS DOCUMENT AND RETURN THE PROXY CARD IN THE
ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE so that your shares of
VERITAS common stock may be represented at the VERITAS special meeting. If
you sign and return the enclosed proxy card but do not include instructions
on how to vote your proxy, your shares will be voted FOR the issuance of
VERITAS common stock to the Seagate stockholders in connection with the
merger.
Q: IF VERITAS SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE
MY SHARES FOR ME?
A: Your broker will not be able to vote your VERITAS shares without instructions
from you. If you do not provide your broker with these instructions, your
broker's "non-votes" will be treated as shares present at the VERITAS special
meeting but which have not been voted, and will have the same effect as a
vote against approval of the share issuance. As a result, it is important
that you follow the directions provided by your broker regarding how to
instruct your broker to vote your shares.
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<PAGE> 25
Q: CAN I CHANGE MY VOTE AFTER I HAVE SUBMITTED MY PROXY?
A: Yes. You may change your vote in one of the following three ways at any time
before your proxy is voted at the VERITAS special meeting. First, you may
send a written notice to the Secretary of VERITAS before the special meeting
stating that you would like to revoke your proxy. Second, you may complete
and submit a later-dated signed proxy card before the special meeting. Third,
you may attend the special meeting and vote in person. Simply attending the
special meeting without voting, however, will not revoke your proxy. Also, if
your shares are held of record by a broker, bank or other nominee, you will
need to bring to the special meeting a letter from the broker, bank or other
nominee confirming your beneficial ownership of the shares.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. We hope
to complete the merger during the third calendar quarter of 2000.
Q: HAS THE BOARD OF DIRECTORS OF VERITAS APPROVED THE MERGER?
A: Yes. The board of directors of VERITAS, acting without the participation of
Mr. Luczo (who is the President and Chief Executive Officer of Seagate and a
member of Seagate's senior management team who will participate in the
ownership of Suez Acquisition Company) and Mr. Kerfoot (who is an executive
officer of Seagate Software), has unanimously approved the merger agreement
and the merger and the issuance of new shares of VERITAS common stock in
connection with the merger. The VERITAS board of directors, acting without
the participation of Messrs. Luczo and Kerfoot, unanimously recommends that
you vote FOR the issuance of new shares of VERITAS common stock to the
Seagate stockholders in connection with the merger.
Q: DID THE VERITAS BOARD OF DIRECTORS RECEIVE A FAIRNESS OPINION FROM AN
INVESTMENT BANKER IN CONNECTION WITH THE MERGER?
A: Yes. The board of directors of VERITAS retained Credit Suisse First Boston
Corporation to advise it on the merger. Prior to approval of the merger by
the VERITAS board of directors, Credit Suisse First Boston delivered its oral
opinion to VERITAS' board of directors on March 28, 2000, which it later
confirmed in writing as of March 29, 2000, to the effect that as of the date
of the opinion, the exchange ratio for the stock portion of the merger
consideration was fair to VERITAS from a financial point of view. A copy of
Credit Suisse First Boston's opinion is attached to this document as Annex F.
You should read Credit Suisse First Boston's opinion carefully. Credit Suisse
First Boston's opinion does not constitute a recommendation to any
stockholder as to how to vote on any matter at the VERITAS special meeting.
For a more complete description of Credit Suisse First Boston's fairness
opinion, see "Special Factors Regarding the Stock Purchase and the Merger --
Consideration of the Merger by VERITAS -- Opinion of VERITAS' Financial
Advisor" beginning on page 88 of this document.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
ISSUANCE OF NEW VERITAS SHARES TO THE SEAGATE STOCKHOLDERS?
A: Yes. In evaluating the proposed issuance of new shares of VERITAS common
stock to the Seagate stockholders, you should carefully consider the factors
discussed under "Risk Factors -- Risks to Both Seagate and VERITAS
Stockholders Relating to the Stock Purchase and the Merger" beginning on page
47 of this document.
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Q: SHOULD I SEND IN MY VERITAS STOCK CERTIFICATES?
A: No. You are not being asked to exchange any shares of VERITAS common stock
that you own in connection with the merger or the other transactions
described in this document. PLEASE DO NOT SEND IN YOUR VERITAS STOCK
CERTIFICATES.
Q: AM I ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
A: No. Under applicable law, holders of VERITAS common stock are not entitled to
appraisal rights in connection with the merger or the stock purchase.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT VERITAS AND SEAGATE?
A: Both VERITAS and Seagate file reports, proxy and information statements and
other information with the Securities and Exchange Commission. You may read
and copy this information at the SEC's public reference facilities. Please
call the SEC at 1-800-SEC-0330 for information about these facilities. This
information is also available at the Internet site the SEC maintains at
www.sec.gov. See "Where You Can Find Additional Information" beginning on
page 229 of this document.
Q: WHOM SHOULD I CONTACT IF I HAVE ANY QUESTIONS ABOUT THE STOCK PURCHASE OR THE
MERGER?
A: You should contact either Dave Galiotto by telephone at 650-318-4047 or by
e-mail at [email protected], or Borah Kim by telephone at
650-318-4514 or by e-mail at [email protected], with any questions about
the stock purchase, the merger, the issuance of new shares of VERITAS common
stock to the Seagate stockholders or related transactions.
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<PAGE> 27
SUMMARY
The following is a summary of this document. This summary highlights
selected information contained in this document, but may not contain all of the
information that is important to you. To fully understand the stock purchase and
the merger, we encourage you to read this entire document carefully, as well as
the additional documents attached hereto as Annexes and any other documents to
which we refer you under "Additional Documents and Other Information
Incorporated by Reference" beginning on page 230 of this document. We also
caution you not to place undue reliance on forward looking statements contained
in this document or in the documents to which we refer you. See "-- Cautionary
Statement Regarding Forward Looking Statements Contained in this Joint Proxy
Statement/Prospectus" on page 33 of this document.
THE PARTIES
[SEAGATE LOGO]
SEAGATE TECHNOLOGY, INC.
920 Disc Drive
Scotts Valley, California 95066
(831) 438-6550
http://www.seagate.com
Seagate Technology, Inc. designs, manufactures and markets products for
storage, retrieval and management of data on computer systems and other systems
that receive, store and transmit data. These products include disc drives and
disc drive components, tape drives and software. Seagate designs, manufactures
and markets a broad line of rigid disc drives. These products are used in
computer systems ranging from desktop personal computers to large, sophisticated
enterprise computers. Seagate also designs and markets tape drives ranging in
capacity from 4 gigabytes to 240 gigabytes for low cost storage and protection
of large volumes of data electronically. Seagate currently produces tape backup
solutions for desktop personal computers and midrange servers to complement its
line of disc drive products. Through its Seagate Software Holdings, Inc.
subsidiary, Seagate also develops and markets software products and provides
related services enabling business users and information technology
professionals to manage enterprise information.
[VERITAS LOGO]
VERITAS SOFTWARE CORPORATION
1600 Plymouth Street
Mountain View, California 94043
(650) 335-8000
http://www.veritas.com
VERITAS Software Corporation is a leading independent supplier of storage
management software. Storage management software has grown significantly in
importance and market impact during the last few years. Computing operations
have moved from being part of the infrastructural background of a business
enterprise to being a critical component in the success of a business,
particularly given businesses' requirements that data remain protected and
accessible at all times. VERITAS products assist businesses by making sure that
their data is protected, can be accessed at all times, and can be managed and
used in compliance with business policies. Since VERITAS' products help to
improve the levels of centralization, control, automation and manageability in
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<PAGE> 28
computing environments, they allow information technology, or IT, managers to be
significantly more effective with constrained resources and limited budgets.
More specifically, VERITAS' products offer protection against data loss and file
corruption, allow rapid recovery after disk or computer system failure, enable
IT managers to work efficiently with large numbers of files, and make it
possible to manage data distributed on large networks of computer systems
without harming productivity or interrupting users. In addition, VERITAS'
products provide continuous availability of data in clustered computer systems
that share disk resources to maintain smooth business operations. VERITAS'
products are highly scalable in order to keep up with the rapid growth of data
and technologies deployed in businesses. In summary, VERITAS' products help its
customers manage their data storage in complex and diverse computing
environments efficiently and cost-effectively.
SUEZ ACQUISITION COMPANY (CAYMAN) LIMITED
P.O. Box 265GT
Walker House
George Town
Grand Cayman
Cayman Islands
(650) 233-8120
Suez Acquisition Company (Cayman) Limited is a newly formed limited company
organized under the laws of the Cayman Islands. Suez Acquisition Company was
organized solely for the purpose of entering into the stock purchase agreement
with Seagate and Seagate Software. Suez Acquisition Company also has the right
under the stock purchase agreement to assign its rights under that agreement to
one or more designees. Suez Acquisition Company is controlled by Silver Lake
Partners and Texas Pacific Group. Silver Lake Partners is a private investment
firm headquartered in Menlo Park, California and New York, New York. Texas
Pacific Group is a private investment firm headquartered in Fort Worth, Texas.
THE STOCK PURCHASE AGREEMENT AND THE STOCK PURCHASE
STRUCTURE AND PURCHASE PRICE
The stock purchase consists of the sale by Seagate of all of its operating
assets and the transfer of substantially all of its liabilities to Suez
Acquisition Company. In this document, we refer to the properties and assets to
be sold to Suez Acquisition Company as Seagate's operating assets. Certain
designated assets which will not be sold to Suez Acquisition Company consist of
the capital stock of Seagate Software, Seagate's investments in VERITAS, Gadzoox
Networks, Inc., SanDisk Corporation, Veeco Instruments, Inc. and Dragon Systems,
Inc., cash on hand in excess of approximately $775 million (subject to upward
adjustment) that will be transferred to Suez Acquisition Company, and the right
to receive the tax refund amount.
To sell its operating assets to Suez Acquisition Company, Seagate will
transfer its operating assets to its subsidiaries, and then sell to all of those
subsidiaries (other than Seagate Software, which currently holds Seagate's
equity investment in VERITAS) to Suez Acquisition Company. To ensure that Suez
Acquisition Company obtains the operating assets held by any subsidiaries of
Seagate Software, Seagate Software will also sell the capital stock of its
subsidiary, Seagate Software Information Management Group, Inc., which we refer
to as Seagate IMG in this document, to Suez Acquisition Company. In the stock
purchase, Suez Acquisition Company will purchase Seagate's operating assets for
$2 billion in cash, less the value of the Seagate equity securities held by
Seagate's senior management team which will be converted into equity securities
of Suez Acquisition Company and which will not be converted into the right to
receive any consideration in the merger. In connection with the stock purchase,
Suez Acquisition Company will also assume substantially all of
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<PAGE> 29
the liabilities of Seagate and its consolidated subsidiaries. Under the terms of
the stock purchase agreement, Seagate is required to commence a tender offer to
purchase all of the principal amount of its currently outstanding debentures. In
the event that less than 100% of the debentures are tendered for repurchase
pursuant to the tender offer, then at the closing of the stock purchase, Suez
Acquisition Company has agreed, under the stock purchase agreement, to assume
Seagate's liabilities under the debentures, give an irrevocable notice of
redemption pursuant to the terms of the indenture governing the debentures, and
deposit the principal amount of the redemption price for the debentures with the
trustee for the debentures. Immediately following and contingent upon the stock
purchase, Seagate will merge with a wholly owned subsidiary of VERITAS.
FINANCING OF THE PURCHASE PRICE
Prior to the execution of the stock purchase agreement, Suez Acquisition
Company delivered to Seagate copies of commitment letters from Silver Lake
Partners, L.P., TPG Partners III, L.P., August Capital, Chase Capital Partners
and GS Private Equity Partners, L.P., to provide equity financing in an
aggregate amount of at least $800 million. In addition, Suez Acquisition Company
delivered to Seagate copies of commitment letters from The Chase Manhattan Bank,
Goldman Sachs Credit Partners L.P. and Merrill Lynch Capital Corporation to
provide senior secured credit facilities of $900 million in the aggregate
(including a $200 million revolver facility which will not be drawn down at
closing) and $400 million in senior subordinated financing. The equity and debt
financing described above along with the management equity rollover described
below will provide the funds necessary to consummate the stock purchase.
ROLLOVER EQUITY
In connection with the stock purchase, certain members of Seagate's senior
management team will convert a portion of their Seagate restricted stock and
stock options to acquire Seagate common stock with an aggregate value of between
$150 million and $250 million (targeted at $200 million, but no less than $150
million) into restricted stock of Suez Acquisition Company and stock options to
acquire Suez Acquisition Company common stock. Because the proceeds from the
stock purchase are being distributed to Seagate stockholders in the merger, the
aggregate value of this converted equity will reduce the aggregate cash purchase
price paid by Suez Acquisition Company to Seagate in connection with the stock
purchase and the aggregate number of shares of Seagate common stock entitled to
a proportionate share of the merger consideration in connection with the merger.
NO SOLICITATIONS BY SEAGATE
Until the closing of the stock purchase, Seagate may not solicit, initiate,
encourage, or induce any third party to make, submit or announce, an offer or
proposal regarding the acquisition of more than (i) 15% of the voting power of
Seagate's outstanding capital stock, (ii) 15% of the consolidated assets and
properties of Seagate, or (iii) 15% of the assets to be sold to Suez Acquisition
Company in connection with the stock purchase. In addition, Seagate may not
furnish information to or otherwise cooperate with any third party regarding any
of the foregoing transactions. However, Seagate may enter into discussions with
a third party regarding one or more of the transactions described above if such
transaction is superior, from a financial point of view, to the stock purchase
and the merger in the case of a transaction described in clauses (i) and (ii) of
this paragraph, or to the stock purchase in the case of a transaction described
in clause (iii) of this paragraph.
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<PAGE> 30
CONDITIONS TO THE CLOSING
Seagate and Suez Acquisition Company are required to close the stock
purchase only if:
- the Seagate stockholders have approved the stock purchase and the merger;
- there are no stop orders or other proceedings initiated by the Securities
and Exchange Commission and pending against the registration statement of
which this document forms a part (or against this joint proxy
statement/prospectus itself);
- no laws or other governmental orders have been enacted or issued
rendering the stock purchase illegal or otherwise prohibiting the stock
purchase;
- the parties to the stock purchase agreement have complied with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in
respect of the stock purchase; and
- all of the conditions to the closing of the merger contained in the
merger agreement, which are described below under "-- The Merger
Agreement and the Merger -- Conditions to the Closing," have been
satisfied or waived.
In addition, Seagate is required to close the stock purchase only if:
- the representations and warranties of Suez Acquisition Company contained
in the stock purchase agreement were true in all material respects when
they were made and are true in all material respects as of the closing
(except to the extent that any inaccuracies would not reasonably be
expected to have a material adverse effect on Suez Acquisition Company);
- Suez Acquisition Company has performed its obligations under the stock
purchase agreement in all material respects; and
- the merger agreement is in effect and VERITAS has not expressed any
intention to terminate the merger agreement.
In addition, Suez Acquisition Company is required to close the stock
purchase only if:
- the representations and warranties of Seagate contained in the stock
purchase agreement were true in all material respects when they were made
and are true in all material respects as of the closing (except, in the
case of all representations other than certain key representations, to
the extent that any inaccuracies would not reasonably be expected to have
a material adverse effect on Seagate);
- Seagate has performed its obligations under the stock purchase agreement
in all material respects;
- Suez Acquisition Company has received the proceeds of the debt financing
under its debt commitments; and
- Seagate has available cash and cash equivalents of at least $775 million,
subject to upward adjustment as described in this document.
TERMINATION OF THE STOCK PURCHASE AGREEMENT
The stock purchase agreement may be terminated:
- by Seagate and Suez Acquisition Company if they mutually agree, following
authorization from their respective boards of directors;
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<PAGE> 31
- by either Seagate or Suez Acquisition Company if:
- subject to certain qualifications, Seagate and Suez Acquisition Company
have not closed the stock purchase by December 31, 2000;
- any governmental authority has issued an order (including a court order)
which has the effect of permanently prohibiting the stock purchase or
the merger, provided that the governmental order has become final and
nonappealable; or
- subject to certain qualifications, the stockholders of Seagate fail to
approve the stock purchase agreement and the stock purchase, and the
merger agreement and the merger;
- by Seagate if:
- there has been a breach of the representations and warranties of Suez
Acquisition Company contained in the stock purchase agreement, which
breach would cause a failure of the conditions to Suez Acquisition
Company's obligation to close the stock purchase and the breach is not
cured within 35 days after Seagate provides written notice; or
- prior to obtaining the approval of Seagate's stockholders to the stock
purchase agreement and the stock purchase, and the merger agreement and
the merger:
- Seagate receives an acquisition proposal which is superior to the
stock purchase and the merger, or to the stock purchase (determined in
accordance with the terms of the stock purchase agreement);
- Seagate has not violated the terms of the stock purchase agreement
regarding restrictions on its ability to solicit third party
proposals;
- the board of directors of Seagate concludes in good faith, after
consulting with its legal counsel, that the termination of the stock
purchase agreement is necessary in order to comply with its fiduciary
obligations to the stockholders of Seagate under applicable law; and
- Seagate pays Suez Acquisition Company an $80 million termination fee
concurrently with such termination; or
- by Suez Acquisition Company if:
- there has been a breach of the representations and warranties of Seagate
contained in the stock purchase agreement, which breach would cause a
failure of the conditions to Seagate's obligation to close the stock
purchase and the breach is not cured within 35 days after Suez
Acquisition Company provides written notice; or
- the board of directors of Seagate withdraws, modifies or amends its
recommendation in favor of the stock purchase agreement and the stock
purchase, or the merger agreement and the merger, or fails to recommend
rejection within 10 business days of a third party tender offer or
exchange offer commenced for more than 15% of the equity securities of
Seagate.
TERMINATION FEES AND PAYMENTS
Seagate is required to pay Suez Acquisition Company an $80 million
termination fee in cash if:
- Seagate terminates the stock purchase agreement following receipt of an
acquisition proposal that is superior to the stock purchase and the
merger, or the stock purchase (determined in accordance with the terms of
the stock purchase agreement);
- Suez Acquisition Company terminates the stock purchase agreement because
the board of directors of Seagate withdraws, modifies or amends its
recommendation in favor of the stock
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purchase agreement and the stock purchase, or the merger agreement and
the merger, or fails to recommend within 10 business days the rejection
of any third party tender offer or exchange offer commenced for more than
15% of the equity securities of Seagate;
- either Seagate or Suez Acquisition Company terminates the stock purchase
agreement because (i) the stockholders of Seagate fail to approve the
stock purchase agreement and the stock purchase, or the merger agreement
and the merger, (ii) a proposal to acquire more than 15% of Seagate's
outstanding capital stock or property and assets is made prior to the
Seagate special meeting, and (iii) within twelve months following the
termination of the stock purchase agreement, Seagate enters into an
agreement with a third party to effect a business combination involving
the acquisition of more than 50% of Seagate's outstanding capital stock
or assets; or
- either Seagate or Suez Acquisition Company terminates the stock purchase
agreement because (i) they have not completed the stock purchase by
December 31, 2000, (ii) a proposal to acquire more than 15% of Seagate's
outstanding capital stock or property and assets is made prior to
December 31, 2000, (iii) following the foregoing proposal but before the
termination of the stock purchase agreement, Seagate intentionally
breaches any of the terms of the stock purchase agreement in any material
respect and such breach contributed to the failure to complete the stock
purchase by December 31, 2000, and (iv) within twelve months following
the termination of the stock purchase agreement, Seagate enters into an
agreement to effect a business combination involving the acquisition of
more than 50% of Seagate's outstanding capital stock or assets.
THE MERGER AGREEMENT AND THE MERGER
STRUCTURE AND EFFECTS OF THE MERGER
At the effective time of the merger, a wholly owned subsidiary of VERITAS,
referred to in this document as merger sub, will be merged with and into
Seagate, merger sub will cease to exist and Seagate will continue as the
corporation surviving the merger. Following the merger, Seagate will be a wholly
owned subsidiary of VERITAS.
At the effective time of the merger:
- each share of Seagate common stock outstanding immediately prior to the
effective time (other than certain shares to be canceled as described
below) will be converted into the right to receive the merger
consideration described below;
- each share of Seagate common stock held in the treasury of Seagate, or
owned by merger sub or any wholly-owned subsidiary of Seagate or VERITAS
will be canceled;
- certain shares of Seagate restricted stock and stock options to purchase
shares of Seagate common stock held by certain members of Seagate's
senior management team that are being exchanged for equity securities of
Suez Acquisition Company will be canceled;
- all options to purchase shares of Seagate common stock (other than the
options held by Seagate's senior management team that are being canceled
as described above), whether vested or unvested, will be converted into
shares of Seagate common stock on a net issue basis and then immediately
converted into the right to receive the merger consideration described
below; and
- all rights to purchase shares of Seagate common stock outstanding under
the Seagate employee stock purchase plan will be fully exercised, and all
shares of Seagate common stock acquired pursuant to such exercise will be
converted into the merger consideration described below.
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Shares of Seagate common stock held by a stockholder who has demanded and
perfected his or her right to appraisal will not be converted into the right to
receive the merger consideration described below. Any such stockholder will
instead be entitled to the rights that are afforded under the Delaware General
Corporation Law with respect to such shares.
Outstanding shares of VERITAS common stock will not be converted or
exchanged in the merger.
THE MERGER CONSIDERATION
The merger consideration payable to former Seagate stockholders will
consist of shares of VERITAS common stock, cash and the right to receive the tax
refund amount. The number of shares of VERITAS common stock, the amount of cash
and fair market value of the tax refund amount comprising a part of the merger
consideration will not be determined until the second trading before the
effective time of the merger. Seagate and VERITAS have established a toll-free
number which interested persons may call to find out the number of VERITAS
common shares, the amount of cash and the fair market value of the tax refund
amount comprising a part of the merger consideration. This toll-free number is
1-800- . SEAGATE AND VERITAS STOCKHOLDERS ARE STRONGLY ENCOURAGED
TO CALL THIS TOLL-FREE NUMBER IN ORDER TO FIND OUT THIS INFORMATION.
The tax refund amount will be distributed only upon receipt by VERITAS of
any cash refunds or utilization of any credits or, if applicable, receipt of
proceeds for the sale of all or a portion of the shares of Dragon Systems.
Therefore, the tax refund amount will not be paid to Seagate stockholders at the
same time as the stock portion and the cash portion of the merger consideration.
The Stock Portion
A portion of the merger consideration will consist of shares of VERITAS
common stock. The total number of shares of VERITAS common stock to be issued in
the merger will equal to the sum of the following:
- 109,330,300 shares of VERITAS common stock;
- a number of shares obtained by dividing the amount of cash received from
Seagate that VERITAS elects to have Seagate retain in connection with the
merger (either $0, $500 million or $750 million), by the average closing
price per share of VERITAS common stock for the five consecutive trading
days ending two trading days immediately preceding the date that VERITAS
makes its election; and
- a number of shares obtained by dividing the aggregate stipulated value of
the shares of Gadzoox Networks, SanDisk Corporation, Veeco Instruments
and Dragon Systems held by Seagate immediately prior to the effective
time of the merger, by the average closing price per share of VERITAS
common stock for the five consecutive trading days ending two trading
days immediately preceding the effective time of the merger.
The total number of shares of VERITAS common stock being issued in
connection with the merger will be divided among all of the shares of Seagate
common stock outstanding immediately prior to the effective time of the merger
(other than certain shares being cancelled), including:
- all shares of Seagate common stock issuable upon the net exercise of all
stock options to acquire Seagate common stock, other than stock options
held by members of Seagate's senior management team that are being
converted into options of Suez Acquisition Company; and
- all shares of Seagate common stock issuable upon the exercise of all
rights under Seagate's employee stock purchase plan.
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The Cash Portion
A portion of the merger consideration will consist of an amount of cash
equal to all of the cash held by Seagate immediately after completion of the
stock purchase, less all cash that VERITAS elects to have Seagate retain in
connection with the merger, as more fully described below.
Under the terms of the stock purchase agreement, the amount of cash that
Seagate will receive in connection with the stock purchase depends on the amount
of cash that Seagate is required to transfer to Suez Acquisition Company in
connection with the stock purchase. The exact amount of cash that Seagate will
be required to transfer to Suez Acquisition Company will be determined prior to
the effective time of the merger in accordance with the provisions of the stock
purchase agreement.
The merger agreement permits VERITAS to elect to have Seagate retain either
$0, $500 million or $750 million of the cash held by Seagate immediately prior
to the merger, rather than distribute that cash to Seagate stockholders in the
merger. VERITAS must choose one of these amounts at least 10 days prior to the
effective time. VERITAS can elect to cause Seagate to retain $750 million only
if Seagate has sold all or a portion of its shares of Gadzoox Networks, SanDisk
Corporation, Veeco Instruments or Dragon Systems and has received aggregate
gross proceeds in excess of $200 million from these sales. If VERITAS chooses to
reduce the cash portion of the merger consideration in this manner, VERITAS will
issue additional shares of VERITAS common stock as part of the merger
consideration.
The total amount of cash payable in the merger will be divided among all of
the shares of Seagate common stock outstanding immediately prior to the
effective time of the merger (other than certain shares being cancelled),
including:
- all shares of Seagate common stock issuable upon the acceleration and net
exercise of all stock options to acquire Seagate common stock, other than
stock options held by members of Seagate's senior management team that
are being converted into options of Suez Acquisition Company; and
- all shares of Seagate common stock issuable upon the exercise of all
rights under Seagate's employee stock purchase plan.
The Tax Refund Amount
A portion of the merger consideration will consist of the right to receive
the tax refund amount, which consists of:
- amounts received by VERITAS with respect to certain anticipated tax
refunds and the utilization of tax credits attributable to Seagate for
taxable years or periods (or any portion of a taxable year or period)
ending on or prior to the effective time of the merger; and
- shares of Dragon Systems capital stock (or any securities or other assets
issued in exchange for such shares) being held under any escrow
arrangements, or all of the shares of Dragon Systems capital stock held
by Seagate at the effective time of the merger if such shares are not
listed on any securities exchange or other market and Seagate and VERITAS
are unable to agree on the value of these shares.
The tax refund amount will be decreased by the amount of any administrative
fees, which are limited to 1% of amounts paid to Seagate stockholders in respect
of the tax refund amount. Seagate is required to appoint a tax refund amount
administrator on or prior to the effective time of the merger. The administrator
will have the right to initiate and prosecute any claims for tax refunds or the
utilization of tax credits. VERITAS is required to cooperate with the
administrator as necessary to timely pursue any of these claims. Upon receipt of
a refund or upon the effective utilization of a
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tax credit, VERITAS is required to remit any such amounts to the administrator
within 10 business days of receipt. Amounts remitted thereafter are subject to
an interest charge of 8% per annum. All funds collected by the administrator
will be invested in short-term money market instruments and paid to those
persons who were Seagate stockholders as of the effective time of the merger at
the end of each calendar quarter commencing September 30, 2000.
Each Seagate stockholder's interest in the tax refund amount is a
non-transferable right and will be evidenced by appropriate documentation as
agreed upon by Seagate and VERITAS prior to the effective time of the merger. A
person's right to receive his, her or its proportionate interest in the tax
refund amount expires on March 31, 2003. Any amounts received after such
expiration will be the property of VERITAS.
In connection with the merger, Seagate anticipates that it will recognize a
significant compensation deduction in connection with the mandatory exercise of
employee stock options. The size of this deduction will vary directly with the
value of merger consideration. It is anticipated, although not certain, that the
deduction will offset the net gain, if any, recognized in connection with the
sale of Seagate's operating assets and all other taxable income accrued in the
tax period in which the merger occurs (before taking into account this
compensation deduction), thus creating a net operating loss for such period.
This net operating loss, if any and to the full extent permitted by law, will be
carried back to prior taxable years in which Seagate paid federal income tax and
should be reflected in the tax refund amount.
Each share of Seagate common stock outstanding immediately prior to the
effective time of the merger (other than certain shares to be cancelled) will be
entitled to receive a proportionate share of the tax refund amount based upon
the total number of shares of Seagate common stock outstanding immediately prior
to the effective time of the merger, including:
- all shares of Seagate common stock issuable upon the acceleration and net
exercise of all stock options to acquire Seagate common stock, other than
stock options held by members of Seagate's senior management team that
are being converted into options of Suez Acquisition Company; and
- all shares of Seagate common stock issuable upon the exercise of all
rights under Seagate's employee stock purchase plan.
NO SOLICITATIONS BY SEAGATE
Until the effective time of the merger, Seagate may not solicit, initiate,
encourage, or induce any third party to make, submit or announce, an offer or
proposal regarding the acquisition of more than 15% of the voting power of
Seagate's outstanding capital stock, the acquisition of more than 15% of the
consolidated assets and properties of Seagate, or any liquidation or dissolution
of Seagate. In addition, Seagate may not furnish information to or otherwise
cooperate with any third party regarding any of the foregoing transactions.
Seagate may enter into discussions with a third party regarding one or more of
the transactions described above if such transaction is superior, from a
financial point of view, to the merger.
CONDITIONS TO THE CLOSING
Seagate, VERITAS and merger sub are required to close the merger only if:
- the Seagate stockholders have approved the merger and the stockholders of
VERITAS have approved the issuance of new shares of VERITAS common stock
in connection with the merger;
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- there are no stop orders or other proceedings initiated by the Securities
and Exchange Commission and pending against the registration statement of
which this document forms a part (or against this joint proxy
statement/prospectus itself);
- no laws or governmental orders have been enacted or issued rendering the
merger illegal or otherwise prohibiting the merger;
- the parties to the merger agreement have complied with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in
respect of the merger;
- Seagate and VERITAS have received written opinions from their respective
tax counsel that the merger should constitute a "reorganization" within
the meaning of the applicable section of the Internal Revenue Code of
1986, and such opinions have not been withdrawn; and
- the stock purchase has been completed, and Seagate and Seagate Software
have no assets or liabilities other than the designated assets and
designated liabilities or liabilities for which VERITAS is entitled to
indemnification under the indemnification agreement.
In addition, Seagate is required to close the merger only if:
- the representations and warranties of VERITAS and merger sub contained in
the merger agreement were true in all material respects when they were
made and are true in all material respects as of the closing (except to
the extent that any inaccuracies would not reasonably be expected to have
a material adverse effect on VERITAS); and
- VERITAS and merger sub have performed their respective obligations under
the merger agreement in all material respects.
In addition, VERITAS and merger sub are required to close the merger only
if:
- the representations and warranties of Seagate contained in the merger
agreement were true in all material respects when they were made and are
true in all material respects as of the closing (except to the extent
that any inaccuracies would not reasonably be expected to have a material
adverse effect on VERITAS);
- Seagate has performed its obligations under the merger agreement in all
material respects;
- the representations and warranties of Suez Acquisition Company and its
subsidiaries contained in the indemnification agreement were true and
correct in all material respects when they were made and are true in all
material respects as of the closing date, and the indemnification
agreement between VERITAS, Suez Acquisition Company and each of its
subsidiaries remains in effect;
- all subsidiaries of Suez Acquisition Company have executed and delivered
a joinder agreement agreeing to be bound by the terms of the
indemnification agreement; and
- the bank financing arrangements contemplated under the stock purchase
agreement shall have closed on the terms and conditions specified in the
commitment letters referred to in the stock purchase agreement, and there
shall not have been any material change to any term of these financing
arrangements which, in VERITAS' reasonable judgment, would materially and
adversely impact the ability of Suez Acquisition Company and its
subsidiaries to timely satisfy their obligations under the
indemnification agreement.
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TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated:
- by Seagate and VERITAS if they mutually agree, following authorization by
mutual written consent, with the authorization of their respective boards
of directors;
- by either Seagate or VERITAS if:
- subject to certain qualifications, Seagate and VERITAS have not closed
the merger by December 31, 2000;
- any governmental authority has issued an order (including a court order)
which has the effect of permanently prohibiting the merger, provided
that the governmental order has become final and nonappealable; or
- subject to certain qualifications, the stockholders of Seagate fail to
approve the stock purchase and the merger, or the stockholders of
VERITAS fail to approve the issuance of VERITAS common stock in
connection with the merger;
- by Seagate if:
- there has been a breach of the representations and warranties of VERITAS
contained in the merger agreement, which breach would cause a failure of
the conditions to Seagate's obligation to close the merger and the
breach has not been cured within 35 days after Seagate provides notice;
- the VERITAS board of directors withdraws or modifies in any manner
adverse to Seagate its recommendation in favor of the merger; or
- prior to obtaining the approval of Seagate's stockholders to the stock
purchase and the merger:
- Seagate receives an acquisition proposal which is superior to the
merger (determined in accordance with the terms of the merger
agreement);
- Seagate has not violated the terms of the merger agreement regarding
restrictions on its ability to solicit third party proposals;
- the board of directors of Seagate concludes in good faith, after
consulting with its legal counsel, that the termination of the merger
agreement is necessary in order to comply with its fiduciary
obligations to the stockholders of Seagate under applicable law;
- Seagate enters into an agreement contemplating, or consummates, such
an alternative transaction; and
- Seagate pays VERITAS a $440 million termination fee; or
- by VERITAS if:
- there has been a breach of the representations and warranties of Seagate
contained in the merger agreement, which breach would cause a failure of
the conditions to VERITAS' obligation to close the merger and the breach
has not been cured with 35 days after VERITAS provides notice;
- if the Seagate board of directors withdraws or modifies in any manner
adverse to VERITAS its recommendation in favor of the merger; or
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- a person unaffiliated with VERITAS commences a tender or exchange offer
relating to the securities of Seagate and Seagate fails to recommend
within 10 business days of receipt that its stockholders reject the
tender or exchange offer.
TERMINATION FEES AND PAYMENTS
Under the terms of the merger agreement, Seagate must pay VERITAS a
termination fee of $440 million in cash if:
- Seagate terminates the merger agreement following receipt of an
acquisition proposal that is superior to the merger (determined in
accordance with the terms of the merger agreement);
- VERITAS terminates the merger agreement because the Seagate board of
directors withdraws or modifies in any manner adverse to VERITAS its
recommendation in favor of the merger agreement or the merger, or fails
to recommend within 10 business days the rejection of any third party
tender offer or exchange offer commenced for Seagate securities;
- VERITAS terminates the merger agreement because (i) the Seagate
stockholders fail to approve the merger agreement and the merger, (ii)
following the date of the merger agreement and prior to the time of the
vote of the Seagate stockholders, a third party announced or communicated
to Seagate a proposal for an alternative transaction, and (iii) within 12
months following VERITAS' termination of the merger agreement, Seagate
enters into an agreement with a third party relating to or consummates an
alternative transaction; or
- either VERITAS or Seagate terminates the merger agreement because (i) the
merger has not occurred on or prior to December 31, 2000, (ii) following
the date of the merger agreement and prior to the termination date, a
third party announced or communicated to Seagate a proposal for an
alternative transaction, (iii) following the announcement or
communication of this proposal, Seagate had intentionally breached any of
its covenants or agreements in the merger agreement, and this breach
contributed to the failure of the merger to occur on or before December
31, 2000 and (iv) within 12 months following the termination, Seagate
enters into an agreement with a third party relating to or consummates an
alternative transaction.
APPRAISAL RIGHTS
Holders of shares of Seagate common stock who do not wish to accept the
merger consideration provided for in the merger agreement and who follow the
procedures set forth in Section 262 of the Delaware General Corporation Law will
be entitled to have their shares of Seagate common stock appraised by the
Delaware Court of Chancery. Any holders who submit their shares for appraisal
will be entitled to receive payment in cash of the "fair value" of such shares
of Seagate common stock, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, if any, as determined by such court.
Holders of shares of VERITAS common stock are not entitled to appraisal
rights in connection with the stock purchase or the merger.
THE INDEMNIFICATION AGREEMENT
In connection with the stock purchase and the merger, Seagate, VERITAS and
Suez Acquisition Company entered into an indemnification agreement. Under the
terms of the indemnification agreement, Suez Acquisition Company and its
subsidiaries have agreed to indemnify Seagate and VERITAS and their respective
affiliates against certain prescribed liabilities, including all liabilities of
Seagate and its affiliates prior to the closing of the stock purchase.
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Under the terms of the indemnification agreement, Seagate and VERITAS have
also agreed to jointly and severally indemnify Suez Acquisition Company against
certain prescribed liabilities, including all liabilities associated with the
assets to be retained by Seagate and acquired by VERITAS in the merger.
The indemnification agreement also contains certain provisions relating to
the payment of taxes and the preparation of tax returns following the completion
of the stock purchase and the merger.
THE EXCLUSIVITY AGREEMENT
VERITAS and Suez Acquisition Company are parties to a letter agreement that
provides, in part, that VERITAS will be obligated to pay to Suez Acquisition
Company a termination fee of $50 million if the stock purchase agreement is
terminated under certain circumstances and VERITAS enters into an alternative
transaction that meets certain criteria within 90 days after the termination of
the stock purchase agreement.
INTERESTS OF A DIRECTOR AND CERTAIN EXECUTIVE OFFICERS OF SEAGATE IN THE STOCK
PURCHASE AND THE MERGER
Mr. Luczo and certain executive officers of Seagate have certain interests
in the stock purchase and the merger that are different from, or in addition to,
the interests of Seagate's stockholders generally and which may create potential
conflicts of interest. In addition, Mr. Luczo and certain executive officers of
Seagate will receive benefits in connection with the stock purchase and the
merger that are not available to other Seagate stockholders.
PARTICIPATION ON BOARDS OF DIRECTORS
Currently, Mr. Luczo is a member of the board of directors of Seagate and
VERITAS. Mr. Luczo will also be joining the board of directors of Suez
Acquisition Company following the closing of the stock purchase and the merger.
EMPLOYMENT AGREEMENTS
Suez Acquisition Company and each of Messrs. Luczo, Watkins, Waite, Porter,
Pope, Carballo, Colton, Mulvaney and other senior executives of Seagate have
agreed that they will enter into employment agreements with Suez Acquisition
Company in a form to be mutually agreed upon.
MANAGEMENT RETENTION AGREEMENTS
Suez Acquisition Company will assume all obligations and liabilities under
the management retention agreements between Seagate and certain members of
Seagate's senior management team, subject to certain modifications to their
respective terms.
EQUITY ROLLOVER
Certain members of Seagate's senior management team have agreed to convert
certain of their restricted shares of Seagate common stock and stock options to
purchase shares of Seagate common stock with an aggregate value of between $150
million and $250 million (targeted at $200 million, but no less than $150
million) into restricted stock of Suez Acquisition Company and stock options to
purchase shares of Suez Acquisition Company.
Following the stock purchase and the merger, but without giving effect to
the grant of additional stock options described in the following paragraph, the
members of Seagate's senior management team who convert restricted stock and
stock options into restricted stock and stock options of Suez Acquisition
Company will own, in the aggregate, shares of Suez Acquisition Company common
stock
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representing approximately % of Suez Acquisition Company's outstanding
common stock calculated on a fully-diluted basis, and stock options representing
approximately % of the Suez Acquisition Company common stock calculated on
a fully-diluted basis.
In addition, certain members of Seagate's senior management team will be
entitled to receive additional stock options to purchase equity in Seagate's
operating assets following the stock purchase.
SPECIAL DIRECTOR COMPENSATION
The board of directors of Seagate has agreed to pay $100,000 to each of
Messrs. Perlman and Filler, the Co-Chairmen of the Seagate board of directors,
as compensation for their additional supervisory efforts in connection with the
stock purchase and the merger. These payments are not contingent on the closing
of the stock purchase or the merger.
INTERESTS OF CERTAIN DIRECTORS AND OFFICERS OF VERITAS IN THE MERGER
Stephen Luczo and Gregory Kerfoot, who are directors of VERITAS, are
executive officers of Seagate and Seagate Software, respectively. Mr. Luczo also
is a member of Seagate's senior management who will participate in the ownership
of Suez Acquisition Company. Messrs. Luczo and Kerfoot did not participate in
discussions or negotiations on behalf of VERITAS in connection with the merger
agreement or the merger.
OPINION OF SEAGATE'S FINANCIAL ADVISOR
In making its determination on whether to approve the stock purchase and
the merger, the board of directors of Seagate considered, among other things,
the oral opinion of Morgan Stanley, subsequently confirmed in writing, to
Seagate's board of directors on March 29, 2000, to the effect that, as of the
date of the opinion and based upon and subject to the various considerations set
forth in its opinion, the merger consideration under the merger agreement was
fair, from a financial point of view, to the stockholders of Seagate. The
opinion of Morgan Stanley is subject to the limitations and qualifications
described in the opinion, a copy of which is attached to this document as Annex
E. We encourage you to carefully read the Morgan Stanley opinion in its
entirety. THE MORGAN STANLEY OPINION IS DIRECTED TO THE SEAGATE BOARD OF
DIRECTORS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY SEAGATE STOCKHOLDER AS
TO ANY MATTER RELATING TO THE STOCK PURCHASE OR THE MERGER.
OPINION OF VERITAS' FINANCIAL ADVISOR
In making its determination on whether to approve the merger, the board of
directors of VERITAS considered, among other things, the oral opinion of Credit
Suisse First Boston rendered to the board of directors of VERITAS on March 28,
2000, which was subsequently confirmed in writing as of March 29, 2000, to the
effect that, as of the date of the opinion and based upon and subject to the
various considerations set forth in its opinion, the exchange ratio for the
stock portion of the merger consideration was fair from a financial point of
view to VERITAS. The opinion of Credit Suisse First Boston is subject to the
limitations and qualifications described in the opinion, a copy of which is
attached to this document as Annex F. THE CREDIT SUISSE FIRST BOSTON OPINION IS
DIRECTED TO THE VERITAS BOARD OF DIRECTORS AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY VERITAS STOCKHOLDER AS TO ANY MATTER RELATING TO THE
MERGER.
REGULATORY APPROVALS REQUIRED TO COMPLETE THE STOCK PURCHASE AND THE MERGER
In order to complete the stock purchase and the merger, Seagate and VERITAS
each will file notifications under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and all of the parties will make various filings with
state and foreign governmental authorities with jurisdiction over applicable
antitrust laws. It is a condition to the obligations of Seagate, VERITAS
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and Suez Acquisition Company to close the stock purchase and the merger that
they comply with the Hart-Scott-Rodino Antitrust Improvements Act and that all
applicable waiting periods under that statute expire.
Seagate, VERITAS and Suez Acquisition Company are not aware of any other
significant governmental or regulatory approval required for completion of the
stock purchase or the merger, other than the effectiveness of the registration
statement of which this joint proxy statement/ prospectus forms a part, and
compliance with the applicable corporate laws of the state of Delaware.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Consummation of the merger is conditioned upon the receipt by Seagate and
VERITAS of opinions from their respective counsel that the merger should be
treated as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code. These opinions will be subject to certain assumptions,
limitations and qualifications, and will be based upon the truth and accuracy of
certain factual representations of Seagate, VERITAS and merger sub. As discussed
under "Material United States Federal Income Tax Consequences of the Merger"
beginning on page 144 of this document, these opinions will be qualified and the
conclusion that the merger qualifies as a "reorganization" is not free from
doubt. Furthermore, these opinions will be based upon currently existing
provisions of the Internal Revenue Code, existing Treasury regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change. Assuming that the merger qualifies as a reorganization,
and that the shares of Seagate common stock surrendered in the merger were held
as capital assets:
- Seagate stockholders will be required to recognize gain for federal
income tax purposes on the exchange of shares of Seagate common stock for
VERITAS common stock, cash and the tax refund amount but only up to the
amount of cash received plus the fair market value of their proportionate
share in the tax refund amount. Seagate stockholders will not be
permitted to recognize any loss on the exchange;
- The stock purchase will have no direct tax consequence to Seagate
stockholders, but the cash received in the merger will be based in part
on the consideration received by Seagate from Suez Acquisition Company in
connection with the stock purchase;
- VERITAS stockholders will not recognize any gain or loss on their shares
of VERITAS common stock as a result of the merger; and
- None of Seagate, VERITAS or merger sub will recognize gain or loss as a
result of the merger.
ACCOUNTING TREATMENT OF THE STOCK PURCHASE AND THE MERGER
The stock purchase will be accounted for using the purchase method of
accounting. The merger will be accounted for at the estimated fair value of the
assets and liabilities remaining in Seagate, immediately prior to the merger.
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LEGAL PROCEEDINGS RELATED TO THE STOCK PURCHASE AND THE MERGER
After the announcement of the stock purchase and merger, seventeen putative
class action lawsuits were filed in the Chancery Court of Delaware alleging that
Seagate and its directors breached their fiduciary duties in connection with the
stock purchase and merger. VERITAS was also named as a defendant in certain of
the lawsuits. On April 8, 2000, those seventeen lawsuits were consolidated into
one action by order of the Delaware Chancery Court. On April 19, 2000, Seagate
and its directors were served with an amended and consolidated class action
complaint. At that time, certain of Seagate's officers, VERITAS, and Silver Lake
Partners were named as defendants. On May 1, 2000, the plaintiffs filed a motion
for class action determination, seeking certification of the Delaware action as
a class action lawsuit. The principal relief sought in the Delaware action is a
judgment ordering the individual defendants to carry out their fiduciary duties
and payment of an unspecified sum in damages. Seagate, VERITAS and Silver Lake
Partners believe that the Delaware action is without merit and intend to contest
it vigorously.
In addition to the Delaware action, five putative class action lawsuits
were filed in California Superior Court, also alleging that the directors and
certain of the officers of Seagate breached their fiduciary duties in connection
with the stock purchase and merger. VERITAS and Silver Lake Partners are also
named as defendants in certain of these lawsuits. No proceedings of substance
have yet occurred in the California actions. The principal relief sought in the
California actions is certification of the putative class, an injunction against
the stock purchase and merger, recission of the stock purchase and merger in the
event that they are consummated, and payment of an unspecified sum in damages.
Seagate, VERITAS and Silver Lake Partners believe that the California actions
are without merit and intend to contest them vigorously.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS CONTAINED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS
This document contains forward looking statements within the safe harbor
provisions of the Private Securities Litigation Reform Act. These statements
include statements with respect to the financial condition, results of
operations and business of Seagate and VERITAS, and on the expected impact of
the stock purchase and the merger on the financial performance of Seagate and of
the merger on the financial performance of VERITAS. Words such as anticipates,
expects, intends, plans, believes, seeks, estimates and similar expressions
identify forward looking statements. These forward looking statements are not
guarantees of future performance and are subject to certain risks and
uncertainties that could cause actual results to differ materially from the
results contemplated by the forward looking statements.
IN EVALUATING THE STOCK PURCHASE AND THE MERGER, YOU SHOULD CAREFULLY CONSIDER
THE DISCUSSION OF THESE AND OTHER FACTORS UNDER "RISK FACTORS" BEGINNING ON PAGE
46 OF THIS DOCUMENT.
33
<PAGE> 43
SUMMARY SELECTED HISTORICAL FINANCIAL DATA
SUMMARY SELECTED HISTORICAL FINANCIAL DATA FOR SEAGATE
The following summary selected historical financial data for Seagate for
fiscal 1995 through fiscal 1999 was derived from Seagate's audited financial
statements for the same periods, and the summary selected historical financial
data for the nine month period ended March 31, 2000 and April 2, 1999 was
derived from Seagate's unaudited financial statements for the same periods. This
financial data is only a summary and should be read in conjunction with the
Seagate financial statements and related notes included in this document.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
-------------------------------------------------- --------------------
JULY 2, JULY 3, JUNE 27, JUNE 28, JUNE 30, MARCH 31, APRIL 2,
1999 1998 1997 1996 1995 2000 1999
------- ------- -------- -------- -------- --------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF OPERATIONS
DATA:
Revenues............................. $6,802 $6,819 $8,940 $8,588 $7,256 $4,900 $5,159
Income (loss) from operations........ 258 (686) 858 287 459 (525) 175
Income (loss) before extraordinary
gain............................... 1,176 (530) 658 213 313 79 157
Net income (loss).................... 1,176 (530) 658 213 319 79 157
Basic income (loss) per share before
extraordinary gain................. 4.94 (2.17) 2.82 1.07 1.64 .36 .65
Basic net income (loss) per share.... 4.94 (2.17) 2.82 1.07 1.67 .36 .65
Diluted net income (loss) per share
before extraordinary gain.......... 4.53 (2.17) 2.62 .97 1.44 .35 .63
Diluted net income (loss) per
share.............................. 4.53 (2.17) 2.62 .97 1.47 .35 .63
Shares used in computing basic net
income (loss) per share............ 237.9 243.6 233.6 199.7 190.6 218.9 242.2
Shares used in computing diluted net
income (loss) per share............ 243.1 243.6 257.9 236.1 244.7 227.6 247.3
HISTORICAL BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments........................ $1,623 $1,827 $2,283 $1,174 $1,246 $1,890 $1,601
Working capital...................... 1,772 2,240 2,716 1,961 1,535 1,876 1,738
Total assets......................... 7,072 5,645 6,723 5,240 4,900 7,156 5,229
Long-term obligations, net of current
portion............................ 703 704 702 798 1,066 703 703
Total stockholders' equity........... 3,563 2,937 3,476 2,466 1,936 3,714 2,357
</TABLE>
The results of operations for fiscal 1999 include a $60 million
restructuring charge, a $78 million charge to operations for milestone payments
related to the acquisition of Quinta Corporation, a $1,670 million gain on the
contribution of NSMG to VERITAS net of various transaction costs, and a $119
million charge related to Seagate's equity ownership in VERITAS. Seagate
Technology's fiscal 1998 results of operations include a $347 million
restructuring charge, a $223 million write-off of in-process research and
development incurred primarily in connection with the acquisition of Quinta
Corporation, a $76 million charge for mark-to-market adjustments on certain of
Seagate Technology's foreign currency forward exchange contracts and a $22
million reduction in the charge recorded in fiscal 1997 as a result of the
adverse judgment in the Amstrad PLC litigation. The fiscal 1997 results of
operations include a $153 million charge as a result of the adverse judgment in
the Amstrad PLC litigation. The fiscal 1996 results of operations include a $242
million restructuring charge as a result of the merger with Conner Peripherals,
Inc. and a $99 million write-off of in-process research and development
primarily incurred in connection with the acquisition of software
34
<PAGE> 44
companies. The fiscal 1995 results of operations include a $73 million write-off
of in-process research and development incurred in connection with business
acquisitions.
The results of operations for the nine months ended March 31, 2000 include
a $105 million charge for in-process research and development costs related to
our acquisition of X10tech in January 2000, a $183 million restructuring charge,
a $286 million related to compensation expense with regards to the
reorganization of Seagate Software in October 1999, $39 million related to the
settlement of Rodime litigation in January 2000, a $537 million gain on the sale
of VERITAS stock, and a $515 million gain on the sale of SanDisk stock.
Prior periods have been restated to reflect the merger with Conner
Peripherals, Inc. in February 1996 on a pooling of interests basis, a
two-for-one stock split, effected in the form of a stock dividend, in November
1996, and Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" adopted in the second quarter of fiscal 1998.
35
<PAGE> 45
SUMMARY SELECTED HISTORICAL FINANCIAL DATA FOR VERITAS
The following summary selected historical financial data for VERITAS for
years ended December 31, 1995 through December 31, 1999 was derived from
VERITAS' audited financial statements for the same periods, and the summary
selected historical financial data for the three month period ended March 31,
2000 and 1999 was derived from VERITAS' unaudited financial statements for the
same periods. This financial data is only a summary and should be read in
conjunction with the VERITAS financial statements and related notes included in
this document.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------ --------------------
1999 1998 1997 1996 1995 2000 1999
---------- -------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total net revenue................ $ 596,112 $210,865 $121,125 $ 72,746 $ 47,826 $ 244,640 $ 71,904
Amortization of developed
technology..................... 35,659 -- -- -- -- 15,395 --
Amortization of goodwill and
other intangibles.............. 510,943 -- -- -- -- 219,759 --
Acquisition and restructuring
costs.......................... 11,000 -- 8,490 -- -- -- --
In-process research and
development.................... 104,200 600 -- 2,200 -- -- --
Income (loss) from operations.... (475,237) 53,668 20,076 11,858 1,193 (158,198) 19,494
Net income (loss)................ (502,958) 51,648 22,749 12,129 2,371 (174,383) 13,583
Net income (loss) per
share -- basic................. $ (1.59) $ 0.24 $ 0.11 $ 0.06 $ 0.01 $ (0.44) $ 0.06
Net income (loss) per share --
diluted........................ $ (1.59) $ 0.22 $ 0.10 $ 0.06 $ 0.01 $ (0.44) $ 0.06
Number of shares used in
computing per share
amounts -- basic............... 316,892 211,558 205,300 193,617 181,590 394,471 215,199
Number of shares used in
computing per share
amounts -- diluted............. 316,892 232,519 222,716 209,228 193,780 394,471 239,111
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
-------------------------------------------------------- MARCH 31,
1999 1998 1997 1996 1995 2000
---------- -------- -------- --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital......................... $ 631,036 $198,842 $188,578 $ 67,413 $ 23,451 $ 757,775
Total assets............................ 4,233,277 349,117 241,880 94,524 48,100 4,157,368
Long-term obligations................... 451,640 100,773 100,911 1,468 6,205 455,086
Accumulated deficit..................... (532,374) (29,416) (81,064) (103,813) (115,942) (706,757)
Stockholders' equity.................... 3,393,061 169,854 104,193 74,955 23,602 3,295,047
</TABLE>
In 1999, VERITAS acquired the NSMG business, TeleBackup and NuView. Because
VERITAS accounted for the NSMG, TeleBackup and NuView acquisitions using the
purchase method of accounting, VERITAS recorded developed technology, goodwill
and other intangible assets of approximately $3,754.9 million in total. These
assets are being amortized over their estimated useful life of four years, and
result in charges to operations of approximately $234.8 million per quarter.
VERITAS also recorded one-time non-cash charges of $104.2 million in its
statements of operations in 1999, related to the write-off of in-process
research and development. VERITAS also recorded a one-time restructuring charge
in 1999 of $11.0 million related primarily to costs for its duplicative
facilities that it plans to vacate.
36
<PAGE> 46
SUMMARY SELECTED PRO FORMA FINANCIAL DATA
SUMMARY SELECTED UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA FOR SEAGATE AND
SEAGATE'S OPERATING ASSETS
Seagate has completed several recent transactions, including:
- the sale of the Network and Storage Management Group business of Seagate
Software in May 1999, which we refer to as the NSMG transaction in this
document;
- an exchange offer for shares of Seagate Software held by third parties in
June 1999;
- a reorganization of Seagate Software in October 1999; and
- the acquisition of XIOtech Corporation in January 2000.
Seagate has provided the following summary unaudited pro forma financial
data to give you a better picture of what the results of operations of Seagate
might have looked like had the NSMG transaction, the Seagate exchange offer, the
Seagate Software reorganization, and the XIOtech acquisition occurred as of the
beginning of fiscal 1999. Seagate has also provided summary unaudited pro forma
financial data to give you a better picture of what the standalone operations of
Seagate's operating assets might have looked like had Seagate's operating assets
been separated from Seagate and had the XIOtech acquisition occurred at the
beginning of fiscal 1999. In addition, Seagate has provided summary pro forma
financial data to give you a better picture of what the distribution of the
assets and liabilities of Seagate might have looked like had the stock purchase,
the liquidation of Seagate's short-term investments, the retirement of Seagate's
long-term debt, the merger, the payment of transaction related costs and other
adjustments, and the distribution of excess cash and future tax refund amounts
to the stockholders of Seagate, occurred at March 31, 2000. This financial
information is provided for illustrative purposes only and does not show what
the results of operations or the distribution of assets and liabilities would
have been for Seagate or Seagate's operating assets had the transactions
described above occurred on the assumed dates.
Seagate derived this data from the unaudited pro forma combined condensed
statement of operations of Seagate and Seagate's operating assets for the year
ended July 2, 1999, and the nine months ended March 31, 2000, and from the
Seagate unaudited pro forma condensed balance sheet as of March 31, 2000. The
unaudited pro forma combined statements of operations for Seagate give effect to
the NSMG transaction, the Seagate exchange offer, the Seagate Software
reorganization, and the XIOtech acquisition as if they occurred as of the
beginning of fiscal 1999. The unaudited pro forma combined statements of
operations for Seagate's operating assets include all of the operating
activities of Seagate and exclude the impact on earnings relating to Seagate's
equity investments in VERITAS, Gadzoox Networks, Sandisk Corporation, Veeco
Instruments and Dragon Systems to be retained by Seagate in connection with the
stock purchase and acquired by VERITAS in connection with the merger. The pro
forma unaudited statements of operations for Seagate's operating assets give you
a picture of what Seagate's operating assets might have looked like had they
been separated from Seagate and had the XIOtech acquisition occurred at the
beginning of fiscal 1999.
The unaudited pro forma balance sheet of Seagate assumes that the sale of
Seagate's operating assets in the stock purchase, the liquidation of Seagate's
short-term investments, the retirement of Seagate's long-term debt, the
completion of the merger, the payment of transaction related costs and other
adjustments in connection with the stock purchase and the merger, and the
distribution of excess cash and the tax refund amount to the stockholders of
Seagate, occurred at March 31, 2000.
The summary selected unaudited pro forma condensed financial data for
Seagate and Seagate's operating assets should be read in conjunction with the
selected unaudited pro forma condensed
37
<PAGE> 47
financial data for Seagate and Seagate's operating assets and the related notes
included in this document beginning on page 192. They should also be read in
conjunction with the audited Seagate financial statements for the year ended
July 2, 1999 and the unaudited financial statements for the nine months ended
March 31, 2000 which are included in this document beginning on page F-1. The
selected unaudited pro forma condensed financial data for Seagate is not
necessarily indicative of what the actual results of operations and financial
positions would have been had the NSMG transaction, the Seagate exchange offer,
the Seagate Software reorganization, and the XIOtech acquisition actually taken
place at the beginning of fiscal 1999. The selected unaudited proforma condensed
statement of operations data for Seagate's operating assets is not necessarily
indicative of what the actual results of operations would have been had
Seagate's operating assets been operated separately from Seagate and had the
XIOtech acquisition actually taken place at the beginning of fiscal 1999. The
selected unaudited pro forma condensed balance sheet information is not
necessarily indicative of what the actual distribution of assets and liabilities
of Seagate would have been had the sale of Seagate's operating assets in the
stock purchase, the liquidation of Seagate's short-term investments, retirement
of Seagate's long-term debt, the completion of the merger, the payment of
transaction related costs and other adjustments in connection with the stock
purchase and the merger, and the distribution of excess cash and the tax refund
amount to the stockholders of Seagate, occurred at March 31, 2000.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA FOR SEAGATE
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR MONTHS ENDED
ENDED JULY 2, 1999 MARCH 31, 2000
------------------ --------------
(AMOUNTS IN MILLIONS)
<S> <C> <C>
Total net revenue.................................... $6,600 $4,900
Income/(loss) from operations........................ 152 (162)
Net income/(loss).................................... (83) 399
Net income/(loss) per share -- basic................. (.32) 1.74
Net income/(loss) per share -- diluted............... (.32) 1.68
Number of shares used in computing per share
amounts -- basic................................... 260.0 228.8
Number of shares used in computing per share
amounts -- diluted................................. 260.0 237.4
</TABLE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA FOR SEAGATE'S OPERATING
ASSETS
<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEAR MONTHS ENDED
ENDED JULY 2, 1999 MARCH 31, 2000
------------------ --------------
(AMOUNTS IN MILLIONS)
<S> <C> <C>
Total net revenue..................................... $6,600 $4,900
Income/(loss) from operations......................... 169 (149)
Net income/(loss)..................................... 161 (74)
</TABLE>
Seagate's operating business has neither a formal capital structure nor
shares outstanding. Accordingly, no pro forma net income/(loss) per share
information is provided for Seagate's operating assets.
38
<PAGE> 48
UNAUDITED PRO FORMA BALANCE SHEET DISTRIBUTION DATA FOR SEAGATE
<TABLE>
<CAPTION>
NET
CASH ASSETS
------- -----------
(AMOUNTS IN MILLIONS)
<S> <C> <C>
Balance at March 31, 2000................................... $1,125 $ 3,713
Conversion of short-term investments to cash................ 765 --
Retirement of long-term debt................................ (704) --
Cashless exercise of stock options.......................... -- (326)
Tax indemnification for Seagate tax liabilities............. (125) (125)
Management bonuses.......................................... (34) (34)
Sale of Operating Assets --
Cash received(1).......................................... 1,850 1,850
Assets sold............................................... (775) (2,541)
Equity investments, retained cash, and other included in
merger with VERITAS(2).................................... (843) (1,614)
Income taxes and other adjustments(3)....................... (336) --
Excess cash to be distributed to stockholders............... (923) (923)
Remaining after all transactions............................ $ -- $ --
</TABLE>
- -------------------------
(1) Assumes members of Seagate's senior management team convert $150 million of
Seagate equity value into equity of Suez Acquisition Company in connection
with the stock purchase.
(2) Assumes VERITAS exercises its right to have Seagate retain $500 million in
cash in exchange for the issuance of additional shares of VERITAS common
stock in connection with the merger. In addition, assumes Veritas retains
$343 million in cash to pay for Seagate employer and employee withholding
tax liabilities.
(3) Income taxes and other adjustments include cash used to pay transaction
costs of $150 million and $186 million for foreign taxes.
SUMMARY SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA FOR
VERITAS
VERITAS has provided the following summary unaudited pro forma combined
condensed consolidated financial statements to give you a better picture of what
the results of operations and financial position of VERITAS might have looked
like had the Seagate transaction and the NSMG, TeleBackup and NuView
acquisitions occurred as of January 1, 1999.
SEAGATE TRANSACTION
The VERITAS unaudited pro forma combined condensed consolidated financial
statements give effect to the issuance of VERITAS common stock and cash for all
of the outstanding common stock of Seagate, immediately after the sale of all of
the operating assets and liabilities of Seagate to Suez Acquisition Company. The
effect of the transactions is that VERITAS is not acquiring any business of
Seagate but is acquiring only certain assets and assuming only certain
liabilities of Seagate which are held by Seagate after the sale of the operating
assets and liabilities to Suez Acquisition Company. The assets of Seagate being
acquired by VERITAS include VERITAS common stock obtained by Seagate Software, a
subsidiary of Seagate, upon the acquisition by VERITAS of the Network and
Storage Management Group, referred to as NSMG, of Seagate Software in May 1999,
equity securities of Gadzoox Networks, SanDisk Corporation, Veeco Instruments
and Dragon Systems and cash and cash equivalents, all of which are referred to
as the designated assets.
39
<PAGE> 49
The VERITAS unaudited pro forma combined condensed consolidated balance
sheet as of March 31, 2000 combines the historical balance sheet of VERITAS as
of March 31, 2000 and the pro forma balance sheet of Seagate as of March 31,
2000 which gives effect to the sale of its operating assets and liabilities to
Suez Acquisition Company, assuming the transactions took place on March 31,
2000.
The VERITAS unaudited pro forma combined condensed consolidated statement
of operations for the three months ended March 31, 2000 shows certain pro forma
adjustments to the VERITAS historical statement of operations for the three
months ended March 31, 2000 as a result of the acquisition of the designated
assets of Seagate. Since VERITAS is not acquiring a business of Seagate, there
is no statement of operations of Seagate to combine with the statement of
operations of VERITAS. The VERITAS unaudited pro forma combined condensed
consolidated statement of operations for the year ended December 31, 1999 shows
certain pro forma adjustments to the VERITAS pro forma statement of operations
for the year ended December 31, 1999 as a result of the acquisition of the
designated assets of Seagate and also give effect to the acquisitions by VERITAS
during 1999 of NSMG, TeleBackup and NuView as described below.
NSMG, TELEBACKUP AND NUVIEW ACQUISITIONS
The VERITAS unaudited pro forma combined condensed consolidated statement
of operations for the year ended December 31, 1999 combines VERITAS' historical
results of operations for the year ended December 31, 1999 with NSMG's
historical results of operations for the period from January 1, 1999 to May 28,
1999 and TeleBackup's historical results of operations from January 1, 1999 to
June 1, 1999, the respective closing dates of the transactions, and give effect
to the acquisitions of NSMG, TeleBackup and NuView using the purchase method of
accounting assuming that the acquisitions took place on January 1, 1999. The
results of operations of NuView from January 1, 1999 to the date of acquisition
have been excluded as they were not significant; however, the pro forma
adjustments give effect to the acquisition of NuView using the purchase method
of accounting.
The following VERITAS summary unaudited pro forma combined condensed
consolidated financial statements should be read in conjunction with the
selected unaudited pro forma combined condensed consolidated financial data for
VERITAS and the related notes included in this document beginning on page 207.
They also should be read in conjunction with the audited financial statements of
VERITAS that are included in this document, beginning on page F-61, and the
audited financial statements of NSMG and TeleBackup that are incorporated by
reference. The VERITAS unaudited pro forma combined condensed consolidated
financial statements do not necessarily indicate what the actual operating
results or financial position would have been had the NSMG, TeleBackup, NuView
acquisitions and the acquisition of the designated assets of Seagate taken place
on January 1, 1999. They also do not purport to indicate VERITAS' future results
of operations or financial position.
40
<PAGE> 50
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1999 2000
------------ ------------
(IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
VERITAS UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF
OPERATIONS DATA:
Total net revenue........................................... $ 700 $ 244
Loss from operations........................................ (718) (158)
Net loss.................................................... (721) (170)
Net loss per share -- basic................................. $(1.93) $(0.44)
Net loss per share -- diluted............................... $(1.93) $(0.44)
Number of shares used in computing per share
amounts -- basic.......................................... 373 384
Number of shares used in computing per share
amounts -- diluted........................................ 373 384
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,
2000
-------------
(IN MILLIONS)
<S> <C>
VERITAS UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
DATA:
Working capital............................................. $1,208
Total assets................................................ 5,798
Long-term obligations....................................... 455
Accumulated deficit......................................... (707)
Total stockholders' equity.................................. 3,990
</TABLE>
41
<PAGE> 51
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
SEAGATE COMPARATIVE PER SHARE DATA
The following tables present certain unaudited historical and pro forma per
share data that reflects the NSMG transaction, the Seagate exchange offer, the
Seagate Software reorganization, and the XIOtech acquisition as if such
transactions had occurred as of the beginning of fiscal 1999. Such pro forma
financial data also includes the effects of the stock purchase and merger. The
data presented below should be read in conjunction with the selected unaudited
pro forma condensed financial data for Seagate included in this document
beginning on page 38, and the historical financial statements of Seagate
included in this document beginning on page F1. The unaudited pro forma combined
financial data does not necessarily indicate the operating results that would
have been achieved had the foregoing transactions been in effect as of the
beginning of the periods presented or future results of operations or financial
position.
The historical book value per share of Seagate common stock is computed by
dividing stockholders' equity as of the end of each period for which such
computation is made by the number of shares of common stock outstanding at the
end of each period.
The pro forma comparative per share data has been calculated assuming 4.9
million shares of Seagate common stock that were issued in connection with the
Seagate exchange offer were outstanding as of July 4, 1998, 9.1 million shares
of Seagate common stock that were issued in October 1999 in connection with the
Seagate Software reorganization were outstanding as of July 4, 1998 and 8
million shares of Seagate common stock that were issued in connection with
XIOtech acquisition in January 2000 were outstanding as of July 4, 1998.
After consideration of the sale of Seagate's operating assets to Suez
Acquisition Company in the stock purchase, the completion of the merger, and the
distribution of excess cash to Seagate stockholders, there will be no net assets
remaining in Seagate and, therefore, no pro forma book value per share has been
included in this summary information.
The Seagate operating assets have no formal capital structure. Accordingly,
share and per share information is not presented.
SEAGATE -- HISTORICAL
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
OR AS OF OR AS OF
JULY 2, 1999 MARCH 31, 2000
-------------- -----------------
<S> <C> <C>
Net income (loss) per share -- basic.................. $ 4.94 $ .36
Net income (loss) per share -- diluted................ $ 4.53 $ .35
Book value per common share........................... $14.98 $16.96
</TABLE>
SEAGATE -- PRO FORMA
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JULY 2, 1999 MARCH 31, 2000
------------ -----------------
<S> <C> <C>
Net income (loss) per share -- basic................... $(.32) $1.74
Net income (loss) per share -- diluted................. $(.32) $1.68
</TABLE>
42
<PAGE> 52
VERITAS COMPARATIVE PER SHARE DATA
The following tables present certain unaudited historical and pro forma per
share data that reflects the acquisitions of NSMG, TeleBackup and NuView and the
merger with Seagate as if these acquisitions and merger had taken place on
January 1, 1999. The data presented below should be read in conjunction with the
historical financial statements of VERITAS included in this document beginning
on page F-61, and the VERITAS unaudited pro forma combined condensed
consolidated financial data included in this document beginning on page 207. The
VERITAS unaudited pro forma combined condensed financial statements do not
necessarily indicate what the actual operating results or financial positions
would have been had the acquisitions and merger taken place on January 1, 1999.
They also do not purport to indicate VERITAS' future results of operations or
financial position.
The historical book value per VERITAS common share is computed by dividing
stockholders' equity as of the end of each period presented by the number of
shares of common stock outstanding at the end of each period.
The pro forma comparative per share data is calculated assuming that 155.6
million shares issued in the NSMG acquisition in May 1999, 6.8 million shares
issued in the TeleBackup acquisition and 1.4 million shares issued in the NuView
acquisition were outstanding as of January 1, 1999. It also assumes that the
number of shares outstanding as of January 1, 1999 was reduced by 9.9 million
shares, representing the difference between the approximately 128.1 million
VERITAS shares that VERITAS will acquire in the Seagate merger less an estimated
118.2 million VERITAS shares to be issued to the Seagate stockholders.
VERITAS -- HISTORICAL
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
OR AS OF OR AS OF
DECEMBER 31, 1999 MARCH 31, 2000
------------------- ------------------
<S> <C> <C>
Net income (loss) per share -- basic............ $(1.59) $(0.44)
Net income (loss) per share -- diluted.......... $(1.59) $(0.44)
Book value per common share..................... $ 8.68 $ 8.27
</TABLE>
VERITAS -- PRO FORMA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED OR AS OF
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
<S> <C> <C>
Net income (loss) per share -- basic.............. $(1.93) $(0.44)
Net income (loss) per share -- diluted............ $(1.93) $(0.44)
Book value per common share....................... $10.26
Equivalent pro forma net income (loss) per Seagate
share -- basic and diluted...................... $(0.95) $(0.21)
Equivalent pro forma book value per Seagate
share........................................... $ 5.02
</TABLE>
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COMPARATIVE PER SHARE MARKET PRICE DATA AND DIVIDEND INFORMATION
As of April 30, 2000, 227,942,629 shares of common stock, par value $0.01
per share, of Seagate were outstanding and listed for trading on The New York
Stock Exchange under the trading symbol "SEG." As of April 30, 2000, 398,670,619
shares of common stock, par value $0.001 per share, of VERITAS were outstanding
and listed for trading on the Nasdaq National Market under the trading symbol
"VRTS." The following table shows, for the periods indicated, the high and low
reported sales prices for shares of Seagate common stock, as reported on The New
York Stock Exchange, and for VERITAS common stock, as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
VERITAS SEAGATE
----------------- --------------------
HIGH LOW HIGH LOW
------- ------ ------ ------
<S> <C> <C> <C> <C>
CALENDAR YEAR 1997:
First Quarter............................... $ 5.54 $ 2.69 $56.25 $37.38
Second Quarter.............................. 5.28 2.43 54.25 32.50
Third Quarter............................... 7.28 5.01 45.75 34.13
Fourth Quarter.............................. 7.89 5.70 40.63 18.44
CALENDAR YEAR 1998:
First Quarter............................... $ 8.76 $ 6.09 $27.19 $17.75
Second Quarter.............................. 9.66 7.61 29.63 19.44
Third Quarter............................... 12.92 9.33 27.38 16.13
Fourth Quarter.............................. 14.22 5.82 34.50 19.19
CALENDAR YEAR 1999:
First Quarter............................... $ 19.65 $13.55 $44.25 $25.63
Second Quarter.............................. 21.59 14.25 33.50 25.63
Third Quarter............................... 35.67 20.86 36.88 25.13
Fourth Quarter.............................. 95.42 32.95 48.81 26.56
CALENDAR YEAR 2000:
First Quarter............................... $168.69 $76.04 $76.00 $38.94
Second Quarter (to May 16, 2000)............ 126.25 82.00 60.50 35.75
</TABLE>
On May 16, 2000, the last sale price of Seagate common stock, as reported
on The New York Stock Exchange, was $52.63 per share. On May 16, 2000, the last
sale price of VERITAS common stock, as reported on the Nasdaq National Market,
was $104.00 per share.
Seagate stockholders and VERITAS stockholders should obtain current market
quotations for Seagate common stock and VERITAS common stock. In recent months,
the market price of Seagate common stock and VERITAS common stock has fluctuated
substantially due to volatility in the marketplace. The market prices of Seagate
common stock and VERITAS common stock will fluctuate between the date of this
document and the closing of the stock purchase and the merger. Accordingly, we
can give you no assurances regarding the market prices of Seagate common stock
or VERITAS common stock before or after the date on which the stock purchase and
the merger closed.
Seagate's present policy is to retain its earnings to finance future
growth. Seagate has never paid cash dividends and has no present intention to
pay cash dividends.
VERITAS has never declared or paid cash dividends on its capital stock.
Whether or not the merger is consummated, VERITAS anticipates that it will
retain future earnings, if any, to fund development and growth of its business
and does not anticipate paying any cash dividends in the foreseeable future.
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SEAGATE MARKET PURCHASES
The following table sets forth the aggregate number of shares of Seagate
common stock purchased by Seagate in the open market during the last two years
for each of the periods indicated, the high and low purchase price during each
period and the average purchase price during each period.
<TABLE>
<CAPTION>
SHARES HIGH LOW AVERAGE
PURCHASED PRICE PRICE PRICE
---------- ------ ------ -------
<S> <C> <C> <C> <C>
CALENDAR YEAR 1998:
First Quarter................................. -- -- -- --
Second Quarter................................ -- -- -- --
Third Quarter................................. 50,000 $24.23 $24.23 $24.19
Fourth Quarter................................ 3,218,500 $31.75 $30.08 $31.03
CALENDAR YEAR 1999:
First Quarter................................. 23,126,600 $41.11 $27.13 $32.04
Second Quarter................................ 615,600 $26.78 $26.40 $26.44
Third Quarter................................. 21,356,473 $35.65 $25.56 $30.02
Fourth Quarter................................ 4,017,742 $44.38 $28.63 $32.10
CALENDAR YEAR 2000:
First Quarter................................. -- -- -- --
</TABLE>
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RISK FACTORS
The stock purchase and the merger involve a high degree of risk. By voting
in favor of the stock purchase agreement and the stock purchase, and the merger
agreement and the merger, Seagate stockholders will be choosing to invest in
VERITAS common stock. By voting in favor of the share issuance, VERITAS
stockholders will be choosing to cause VERITAS to acquire Seagate (after the
sale of its operating assets in the stock purchase). An investment in VERITAS
common stock involves a high degree of risk. In addition to the other
information contained or incorporated by reference in this document, (i) Seagate
stockholders should carefully consider all of the following risks in deciding
whether to vote for the stock purchase agreement and the stock purchase, and the
merger agreement and the merger and (ii) VERITAS stockholders should carefully
consider the risks set forth below under "-- Risks to Both Seagate and VERITAS
Stockholders Relating to the Stock Purchase and the Merger" in deciding whether
to vote for the share issuance.
RISKS TO SEAGATE STOCKHOLDERS RELATING TO THE STOCK PURCHASE AND THE MERGER
IF THE MARKET PRICE OF VERITAS COMMON STOCK DECLINES, SEAGATE AND VERITAS MAY
BE UNABLE TO TERMINATE THE MERGER AGREEMENT AND SEAGATE STOCKHOLDERS WILL
RECEIVE SHARES WITH A LOWER MARKET VALUE IN CONNECTION WITH THE MERGER
A significant portion of the consideration to be issued to Seagate
stockholders in exchange for their shares of Seagate common stock pursuant to
the merger will consist of a fixed number of shares of VERITAS common stock.
There will be no adjustment to the fixed number of shares of VERITAS common
stock issued to Seagate stockholders in connection with the merger based upon
changes in the market price of VERITAS common stock. In addition, neither
Seagate nor VERITAS may terminate the merger agreement or "walk away" from the
merger solely due to changes in the market price of VERITAS common stock.
Accordingly, the specific dollar value of the consideration that Seagate
stockholders will receive in connection with the merger will depend, in part, on
the market value of VERITAS common stock, and may decrease from the date Seagate
stockholders submit their proxies. The market price of VERITAS common stock is
subject to fluctuations in the market for publicly traded equity securities
generally and has experienced significant volatility.
VERITAS cannot predict or give any assurances as to the market price of its
common stock at any time before or after the effective time of the merger.
Seagate stockholders should obtain recent market quotations for VERITAS common
stock in making a determination on how to vote on the merger agreement and the
merger. In addition, you should call the toll free number that Seagate and
VERITAS have established in order to find out the exact amount cash and the
exact fraction of a share of VERITAS common stock issuable in exchange for each
Seagate share entitled to receive the merger consideration.
THE MERGER MAY FAIL TO QUALIFY AS A "REORGANIZATION" WITHIN THE MEANING OF
SECTION 368(A) OF THE INTERNAL REVENUE CODE
Seagate and VERITAS intend the merger to qualify as a "reorganization"
within the meaning of Section 368(a) of the Internal Revenue Code, and
consummation of the merger is conditioned upon the receipt by Seagate and
VERITAS of opinions from their respective legal counsel that the merger should
qualify as a "reorganization." These opinions, however, are not binding on any
court or the Internal Revenue Service. In addition, those opinions are subject
to important qualifications and the conclusions set
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<PAGE> 56
forth in the opinions are not free from doubt. Seagate and VERITAS do not intend
to seek a ruling from the Internal Revenue Service that the merger will qualify
as a "reorganization." If the Internal Revenue Service were to challenge the
characterization of the merger and determine that it does not qualify as a
"reorganization," each Seagate stockholder would recognize capital gain or loss
equal to the difference between that stockholder's basis in the Seagate common
stock exchanged in the merger and the fair market value, as of the closing of
the merger, of the VERITAS common stock, the cash received in the merger and the
proportionate share of the tax refund amount.
RISKS TO BOTH SEAGATE AND VERITAS STOCKHOLDERS RELATING TO THE STOCK PURCHASE
AND THE MERGER
SEAGATE WILL REMAIN LIABLE TO THIRD PARTIES AFTER THE STOCK PURCHASE AND THE
MERGER
In the stock purchase, Seagate will sell all of its operating assets to
Suez Acquisition Company, and Suez Acquisition Company has agreed to assume and
indemnify VERITAS and Seagate for substantially all liabilities arising in
connection with Seagate's operating assets. However, third parties may
nevertheless try to seek recourse against Seagate for these liabilities. Seagate
currently is a large, multinational enterprise that owns or leases facilities
and offices in numerous states and foreign countries and employs over
persons worldwide. As a result, Seagate could continue to face a wide range of
possible liabilities after the stock purchase and the merger are completed, both
for actions, events or circumstances arising or occurring before the stock
purchase and the merger as well as after. Some areas of potential liability
include:
- environmental cleanup costs and liabilities for claims made under
federal, state or foreign environmental laws;
- tax liabilities;
- obligations under federal, state and foreign pension and retirement
benefit laws;
- existing and future litigation arising from the restructuring that
Seagate commenced last year, including litigation initiated by terminated
employees; and
- existing and future patent litigation.
If Suez Acquisition Company fails to indemnify VERITAS or Seagate under the
indemnification agreement for any of these liabilities, VERITAS could experience
a material adverse effect on its business and financial performance.
SUEZ ACQUISITION COMPANY MAY BE UNABLE TO SATISFY ITS OBLIGATIONS UNDER THE
INDEMNIFICATION AGREEMENT
Under the terms of the indemnification agreement, Suez Acquisition Company
has agreed to indemnify VERITAS and Seagate for substantially all liabilities
arising in connection with Seagate's operating assets, whether these liabilities
arise before or after the stock purchase and the merger. After the stock
purchase, Suez Acquisition Company will have consolidated indebtedness that will
be substantially greater than Seagate's indebtedness prior to the stock purchase
and the merger. As a result of this increased level of indebtedness, if VERITAS
or Seagate makes a claim for indemnity under the indemnification agreement,
there is a risk that Suez Acquisition Company may be insolvent or otherwise
financially incapable of satisfying its indemnification obligations. Any
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<PAGE> 57
failure by Suez Acquisition Company to satisfy its indemnification obligations
could have a material adverse effect on VERITAS' business and financial
performance.
THE STOCK PURCHASE AND THE MERGER MAY BE DELAYED IF SEAGATE AND VERITAS ARE
UNABLE TO TIMELY OBTAIN ALL NECESSARY CONSENTS FROM GOVERNMENTAL AUTHORITIES
In order to complete the stock purchase and the merger, Seagate and VERITAS
have each filed notifications under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and have made and will make various filings with state
and foreign governmental authorities with jurisdiction over applicable antitrust
laws. It is a condition to the obligations of Seagate, VERITAS and Suez
Acquisition Company to effect the stock purchase and the merger that they comply
with the Hart-Scott-Rodino Antitrust Improvements Act and that all applicable
waiting periods under that statute expire. Although Seagate, VERITAS and Suez
Acquisition Company do not currently anticipate any challenges to the stock
purchase or the merger based upon antitrust grounds, the Department of Justice,
the Federal Trade Commission or any state or foreign governmental authorities
could take action under various antitrust laws against the stock purchase or the
merger as they deem necessary in the public interest. Private parties may also
seek to take action under various antitrust laws against the stock purchase
and/or the merger. If any of these events occur, the stock purchase and the
merger may be delayed. Based upon available information, Seagate, VERITAS and
Suez Acquisition Company believe that the stock purchase and the merger comply
with all significant federal, state and foreign antitrust laws. We cannot assure
you, however, that there will not be a challenge to the stock purchase and/or
the merger based on antitrust grounds, or that if so challenged, Seagate,
VERITAS and Suez Acquisition Company will prevail.
FAILURE TO COMPLETE THE STOCK PURCHASE AND THE MERGER COULD NEGATIVELY AFFECT
THE STOCK PRICE, FUTURE BUSINESS AND/OR OPERATIONS OF SEAGATE AND THE STOCK
PRICE OF VERITAS
The stock purchase agreement and the merger agreement contain a number of
conditions to the obligations of the parties to close the stock purchase and the
merger. In addition, the stock purchase agreement and the merger agreement may
be terminated under a number of circumstances. If the stock purchase and the
merger are not completed for any reason, Seagate and VERITAS may be subject to a
number of material risks. These risks include the following:
- the market price of Seagate and/or VERITAS common stock may decline to
the extent that the current market prices of Seagate or VERITAS common
stock reflect a market assumption that the stock purchase and the merger
will be completed;
- Seagate may be required to pay a substantial termination fee to Suez
Acquisition Company and/or to VERITAS if the stock purchase agreement
and/or the merger agreement are terminated for certain reasons;
- VERITAS may be required to pay a fee to Suez Acquisition Company if the
stock purchase agreement is terminated for certain reasons; and
- fees, costs and expenses incurred by Seagate and VERITAS in connection
with the stock purchase and the merger, such as legal, accounting and
financial advisor fees, costs and expenses, must be paid even if the
stock purchase and the merger are not completed.
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<PAGE> 58
If the stock purchase agreement and/or the merger agreement are terminated
and/or Seagate is required to pay the foregoing fees and expenses, it could have
a material adverse effect on Seagate's business, financial condition and results
of operations, which could ultimately affect the market price of Seagate common
stock.
In addition, in response to the public announcement of the stock purchase
and the merger, any of Seagate's customers, suppliers and strategic partners may
delay or defer decisions concerning Seagate, or terminate or modify their
existing business with Seagate. If any of Seagate's customers, suppliers or
strategic partners actually delay or defer decisions with respect to Seagate, or
terminate or modify their existing business with Seagate, it could have a
material adverse effect on Seagate's business.
CERTAIN OF VERITAS' DIRECTORS HAVE CONFLICTS OF INTEREST THAT MAY HAVE
INFLUENCED THEM TO SUPPORT OR APPROVE THE MERGER
Certain of the directors of VERITAS have interests in the stock purchase
and the merger that are different from, or in addition to, the interests of
VERITAS stockholders generally and which may create potential conflicts of
interests. In particular, Stephen Luczo and Gregory Kerfoot, directors of
VERITAS, are executive officers of Seagate and Seagate Software, respectively.
Mr. Luczo also is a member of Seagate's senior management team who will
participate in the ownership of Suez Acquisition Company.
The board of directors of VERITAS was aware of these interests and benefits
when it approved the merger agreement and the merger, and the issuance of new
VERITAS shares in connection with the merger, and neither Mr. Luczo nor Mr.
Kerfoot participated in the deliberations or negotiations on behalf of VERITAS
regarding these transactions.
As a result of one or more of these interests, some of the directors of
VERITAS could have been more likely to vote and approve the merger agreement and
the merger, and the share issuance, than if they did not have these interests.
VERITAS stockholders should consider whether one or more of these interests may
have influenced some of the directors of VERITAS to recommend that the VERITAS
stockholders vote to approve the share issuance.
RISKS RELATING TO VERITAS
VERITAS FACES MANY NEW DIFFICULTIES MANAGING A LARGER COMPANY
VERITAS has made several recent acquisitions, including:
- the acquisition of the NSMG business of Seagate Software. (sometimes
referred to in this document as the NSMG transaction) in May 1999;
- the acquisition of TeleBackup in June 1999; and
- certain assets of NuView in August 1999.
These acquisitions have created new challenges for VERITAS. If VERITAS
fails to meet those challenges, its business and quarterly and annual results of
operations could be adversely affected and the value of your VERITAS common
stock could decline. VERITAS grew rapidly before the NSMG transaction and the
TeleBackup acquisition. After these acquisitions, VERITAS' workforce was
approximately twice the size of its workforce prior to these acquisitions. This
growth is likely to strain VERITAS' management control systems and resources,
including decision support, accounting, management information systems and
facilities. VERITAS must continue to improve its
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financial and management controls and its reporting systems and procedures to
manage its employees and to obtain additional facilities.
VERITAS IS INCURRING SIGNIFICANT ACCOUNTING CHARGES IN CONNECTION WITH THE
NSMG, TELEBACKUP AND NUVIEW ACQUISITIONS THAT ARE CREATING NET LOSSES
IMMEDIATELY AND IN THE FUTURE
The significant costs of integration associated with the NSMG, TeleBackup
and NuView acquisitions increase the risk that VERITAS will not realize the
anticipated benefits. Because VERITAS accounted for these acquisitions using
purchase method of accounting, VERITAS recorded goodwill and other intangible
assets of approximately $3,754.9 million in 1999. This amount is being amortized
over four years, and is resulting in charges to operations of approximately
$234.8 million per quarter.
VERITAS HAS A SIGNIFICANT AMOUNT OF DEBT THAT VERITAS MAY BE UNABLE TO SERVICE
OR REPAY
In October 1997, VERITAS issued $100.0 million in aggregate principal
amount of 5.25% convertible subordinated notes due 2004. In August 1999, VERITAS
issued $465.8 million aggregate principal amount at maturity of 1.856%
convertible subordinated notes due 2006. The annual interest payments on its
outstanding notes as of March 31, 2000 are $5.3 million and $8.6 million
respectively, which VERITAS expects to fund from cash flow from operations.
VERITAS will need to generate substantial amounts of cash from its operations to
fund interest payments and to repay the principal amount of debt when it
matures, while at the same time funding capital expenditures and its other
working capital needs. If VERITAS does not have sufficient cash to repay its
debts as they become due, VERITAS may be unable to refinance its debt on
reasonable terms or at all. For example, the notes could be declared immediately
due and payable if VERITAS does not make timely payments. While VERITAS' cash
flow has been sufficient to fund interest payments to date, if VERITAS cannot
meet its debt obligations from the cash generated by its business, VERITAS may
not be able to develop and sell new products, respond to changing business or
economic conditions adequately, make acquisitions or otherwise fund its
business.
VERITAS MIGHT FAIL TO SUCCESSFULLY COMPLETE THE INTEGRATION OF THE BUSINESSES
OF VERITAS, NSMG AND TELEBACKUP
VERITAS continues to experience difficulties in integrating the businesses
of NSMG and TeleBackup with its own. If VERITAS fails to successfully complete
the integration, its businesses and its quarterly and annual results of
operations may be adversely affected. The difficulties that VERITAS faces
include:
- integrating VERITAS' products with those of NSMG and TeleBackup,
including consolidating products with duplicative functionality and
converging the technologies supporting the various products despite their
lack of a common technology architecture;
- maintaining brand recognition for key products formerly associated with
NSMG, such as VERITAS Backup Exec, while migrating customer
identification of the brands to VERITAS;
- resolving channel conflicts that may arise between VERITAS' original
equipment manufacturer and direct sales channels and the retail channels
acquired in the NSMG acquisition;
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- coordinating and streamlining geographically dispersed operations, such
as engineering facilities in California, Florida, Maryland,
Massachusetts, Minnesota, North Carolina, Washington, Canada, India and
the United Kingdom; and
- resolving differences between the corporate cultures of VERITAS, NSMG and
TeleBackup.
VERITAS' OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AS A RESULT OF FACTORS
OUTSIDE ITS CONTROL, WHICH COULD CAUSE THE MARKET PRICE OF ITS COMMON STOCK TO
DECLINE
Fluctuations in VERITAS' results of operations are likely to affect the
market price of its common stock and subordinated notes in a manner that may be
unrelated to its long-term operating performance. The number of factors that
could affect VERITAS' results of operations makes an investment in its common
stock riskier than many other investments. VERITAS' revenues in any quarter will
depend substantially on orders VERITAS receives and ships in that quarter. In
addition, VERITAS typically receives a significant portion of orders in any
quarter during the last two weeks of the quarter, and VERITAS cannot predict
whether those orders will be placed, fulfilled and shipped in that period. If
VERITAS has lower revenue than it expects, VERITAS probably will not be able to
reduce its operating expenses quickly in response. Therefore, any significant
shortfall in revenues or delay of customer orders could have an immediate
adverse effect on VERITAS' operating results in that quarter. The results of
operations of VERITAS, and of the NSMG and TeleBackup businesses VERITAS
acquired in 1999, have fluctuated in the past, and VERITAS' operating results
are likely to fluctuate significantly in the future. Factors that could affect
VERITAS' results of operations include:
- the timing and magnitude of sales through original equipment
manufacturers;
- the unpredictability of the timing and level of sales to large
distributors in the retail channel and VERITAS' direct sales force, which
tend to generate sales later in VERITAS' quarters than original equipment
manufacturer sales;
- the timing and magnitude of large orders;
- the timing and amount of VERITAS' marketing, sales and product
development expenses;
- the introduction, timing and market acceptance of new products;
- the timing of revenue recognition for sales of software products and
services;
- changes in data storage and networking technology or introduction of new
operating system upgrades by original equipment manufacturers, which
could require VERITAS to modify its products or develop new products;
- the relative growth rates of the Windows NT and UNIX markets;
- the rate of adoption of Microsoft's release of Windows 2000 by users;
- pricing policies and distribution terms; and
- the timing and magnitude of acquisitions.
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VERITAS DEPENDS ON LARGE ORDERS WITH LENGTHY SALES CYCLES FOR A SIGNIFICANT
PORTION OF ITS REVENUES
VERITAS' revenues for a quarter could fluctuate significantly based on
whether a large order near the end of a quarter is closed or delayed. VERITAS'
customer orders can range in value from a few thousand to a few million dollars.
The length of time between initial contact with a potential customer and sale of
a product, or VERITAS' sales cycle, outside the retail channel is typically
complex and lengthy, often lasting from three to nine months. These direct sales
also represent VERITAS' largest orders. Therefore, VERITAS' revenues for a
period are likely to be affected by the timing of larger orders, which makes
that revenue difficult to predict. The factors that could delay or defer an
order for VERITAS' products include:
- time needed for technical evaluations of VERITAS' software by its
customers;
- customer budget restrictions;
- customer internal review and testing procedures; and
- engineering work needed to integrate VERITAS' software with its
customers' systems.
VERITAS MAY BE UNABLE TO HIRE AND RETAIN NEEDED SALES AND ENGINEERING
PERSONNEL
VERITAS' personnel needs are more acute than those facing most companies.
VERITAS needs to hire additional sales, engineering, service and administrative
personnel. If VERITAS is unable to hire and retain these employees, its business
and quarterly and annual results of operations would be adversely affected.
Competition for people with the skills VERITAS requires is intense. Additions of
new personnel and departures of existing personnel could disrupt VERITAS'
business and may result in the departure of other employees. VERITAS also
depends on the continued service of its key personnel. Even though VERITAS has
entered into employment agreements with key management personnel, these
agreements cannot prevent their departure. VERITAS does not have key person life
insurance covering any of its personnel, nor does VERITAS currently intend to
obtain any of this insurance.
VERITAS DISTRIBUTES ITS PRODUCTS THROUGH MULTIPLE DISTRIBUTION CHANNELS, EACH
OF WHICH IS SUBJECT TO RISKS
Historically, VERITAS sold products through original equipment
manufacturers and through direct sales. As a result of the NSMG and TeleBackup
acquisitions, however, VERITAS also has a retail distribution channel as well.
If VERITAS fails to manage its distribution channels successfully, its business
and quarterly and annual results of operations would be adversely affected.
Retail distribution. Some of the software products of the former NSMG
business are sold primarily in the retail channel. As a result, VERITAS faces
different challenges selling these products than it faces in selling most of its
other products. For example:
- the VERITAS brand does not have the same level of recognition in the
retail channel;
- retail distribution typically involves shorter product life cycles; and
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- the retail channel has higher risks of product returns, higher marketing
expenses and less predictable market demand.
Moreover, VERITAS' retail distributors have no obligation to continue
selling the products previously sold by NSMG and TeleBackup and may terminate
their relationship with VERITAS at any time.
Direct sales. VERITAS also depends on its direct sales force to sell its
products. This involves a number of risks, including:
- longer sales cycles for direct sales;
- the need to hire, train, retain and motivate a sales force; and
- the length of time it takes VERITAS' new sales representatives to become
productive.
Original equipment manufacturers. A portion of VERITAS' revenue is expected
to come from original equipment manufacturers that incorporate its storage
management software into systems they sell. VERITAS has no control over the
shipping dates or volumes of systems the original equipment manufacturers ship
and they have no obligation to ship systems incorporating VERITAS' software.
They also have no obligation to recommend or offer VERITAS' software products
exclusively or at all. They have no minimum sales requirements and can terminate
their relationship with VERITAS at any time. These original equipment
manufacturers also could choose to develop their own storage management products
internally and incorporate those products into their systems in lieu of VERITAS'
products. Finally, the original equipment manufacturers that VERITAS does
business with compete with one another. To the extent that one of VERITAS'
original equipment manufacturer customers views the products VERITAS has
developed for another original equipment manufacturer as competing with its
products, it may decide to stop doing business with VERITAS, which could harm
VERITAS' business.
Development agreements for original equipment manufacturers. VERITAS has
important original equipment manufacturer agreements with Hewlett-Packard, Sun
Microsystems, Microsoft, Dell, Seagate and Compaq Computer. Under these
agreements, VERITAS develops "lite" versions of its products to be included in
these original equipment manufacturers' systems software and products.
Developing products for these original equipment manufacturers causes VERITAS to
divert significant resources from other activities that are also important to
its business. If these "lite" versions do not result in substantial revenue,
VERITAS' business could be harmed.
VERITAS' DISTRIBUTION CHANNELS COULD CONFLICT WITH ONE ANOTHER
VERITAS has many different distribution channels. If VERITAS cannot use
these distribution channels efficiently, its business and quarterly and annual
results of operations could be adversely affected. VERITAS' original equipment
manufacturers, resellers and direct sales force might target similar sales
opportunities, which could lead to inefficient allocation of sales resources.
VERITAS may also try to sell full versions of the products to customers of the
original equipment manufacturers for whom VERITAS has developed "lite" versions
of its products. This would result in VERITAS marketing similar products to
end-users. These overlapping sales efforts could also harm VERITAS'
relationships with its original equipment manufacturers and other sales channels
and result in them being less willing to market VERITAS' products aggressively.
If VERITAS' indirect sales decline,
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VERITAS would need to accelerate its investments in alternative distribution
channels. VERITAS may not be able to do this in a timely manner, or at all.
VERITAS' DEVELOPMENT AGREEMENTS WITH MICROSOFT COULD CAUSE VERITAS TO LOSE
CUSTOMERS
VERITAS has important agreements with Microsoft under which VERITAS
develops software for Microsoft's Windows operating system. Microsoft is not
obligated under these agreements to include VERITAS' software in any of its
future releases of Windows 2000. If for any reason VERITAS' software is not
included in the future, VERITAS will lose its expected opportunity to market
additional products to the Windows 2000 or Windows NT installed customer base,
as well as suffer negative publicity. In addition, VERITAS would lose a part of
the investment VERITAS has made in developing products for inclusion in Windows
2000.
MICROSOFT COULD DEVELOP COMPETING PRODUCTS
Microsoft can also develop enhancements to and derivative products from
VERITAS' software products that are embedded in Windows 2000 or Windows NT
products. If Microsoft develops any enhancements or derivative products, or
enhances its own base products with equivalent functionality, Microsoft could
choose to compete with VERITAS.
SALES OF A SMALL NUMBER OF PRODUCT LINES MAKE UP A SUBSTANTIAL PORTION OF
VERITAS' REVENUE
For the foreseeable future, VERITAS expects to derive a substantial
majority of its revenue from a limited number of software products. If many
customers do not purchase these products as a result of competition,
technological change or other factors, VERITAS' revenue would decrease and its
business and quarterly and annual results of operations would be adversely
affected. For example, in 1999 and 1998 VERITAS derived approximately 86% and
88% of its license revenue from storage management products, including VERITAS
Volume Manager, VERITAS File System, VERITAS NetBackup and VERITAS Backup Exec.
Also, the VERITAS NetBackup and VERITAS Backup Exec products perform some
overlapping functions. Customers may select one product over the other,
resulting in reduced revenue for the product not selected. Therefore, VERITAS
may not receive the same aggregate level of revenue from these products as
VERITAS has received in the past.
VERITAS' PRODUCTS HAVE RELATIVELY SHORT LIFE CYCLES
VERITAS' software products have a limited life cycle and it is difficult to
estimate when they will become obsolete. This makes it difficult for VERITAS to
forecast revenue and makes your investment more risky. If VERITAS does not
develop and introduce new products before VERITAS' existing products have
completed their lifecycles, VERITAS would not be able to sustain its level of
sales. In addition, to succeed, many customers must adopt VERITAS' new products
early in each product's lifecycle. Therefore, if VERITAS does not attract
sufficient customers early in a product's life, VERITAS may not realize the
amount of revenue it anticipated for the product. VERITAS cannot be sure that it
will continue to be successful in marketing its key products.
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VERITAS DERIVES SIGNIFICANT REVENUES FROM ONLY A FEW CUSTOMERS
For 1999 and 1997 no customer accounted for greater than 10% of VERITAS'
net revenue. In 1998, VERITAS derived 12% of its revenue from sales to Sun
Microsystems. If Sun Microsystems, or any other significant customer, were to
reduce its purchases from VERITAS, VERITAS' revenue and therefore its business
would be harmed unless it was to increase sales to other customers
substantially. VERITAS does not have a contract with Sun Microsystems or any
other customer that requires the customer to purchase any specified number of
software licenses from VERITAS. Therefore, VERITAS cannot be sure that these
customers will continue to purchase its products at current levels.
VERITAS FACES UNCERTAINTIES PORTING PRODUCTS TO NEW OPERATING SYSTEMS AND
DEVELOPING NEW PRODUCTS
Some of VERITAS' products operate primarily on the UNIX computer operating
system. VERITAS is currently redesigning, or porting, these products to operate
on the Windows NT operating system. VERITAS is also developing new products for
UNIX and for Windows NT. TeleBackup's products operate on the Sun Solaris
version of UNIX, the Windows and Windows NT operating systems. VERITAS intends
to port the TeleBackup products to other UNIX operating systems and subsequent
releases of Windows NT. VERITAS may not be able to accomplish any of this work
quickly or cost-effectively. These activities require substantial capital
investment, substantial employee resources and the cooperation of the owners of
the operating systems to or for which the products are being ported or
developed. VERITAS' porting and development work for the Windows NT market has
required VERITAS to hire additional personnel with Windows NT expertise and to
devote engineering resources to these projects. VERITAS must obtain from
operating system owners a source code license to certain portions of the
operating system software to port some of VERITAS' products to or develop
products for the operating system. Operating system owners have no obligation to
assist in these porting or development efforts. If they do not grant VERITAS a
license or if they do not renew VERITAS' license, VERITAS would not be able to
expand its product line easily into other areas. For example, VERITAS relies on
a source code license from Microsoft with respect to VERITAS' Windows NT
development projects. Microsoft is under no obligation to renew the source code
license, which is subject to annual renewal.
VERITAS FACES INTENSE COMPETITION ON SEVERAL FRONTS
VERITAS faces a variety of tough competitors, principal among which are:
- internal development groups within original equipment manufacturers that
provide storage management functions to support their systems;
- other software vendors and hardware companies that offer products with
some of VERITAS' products' features, such as controller and disk
subsystem manufacturers;
- hardware and software vendors that offer storage application products;
- hardware and software vendors that offer high availability and clustering
products; and
- software vendors focused on remote backup technologies and electronic
data vaulting services.
Many of VERITAS' competitors have greater financial, technical, sales,
marketing and other resources than VERITAS does and could attempt to increase
their presence in
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the storage management market by acquiring or forming strategic alliances with
other competitors or business partners.
EXPANDING VERITAS' INTERNATIONAL SALES DEPENDS ON ECONOMIC STABILITY IN
REGIONS THAT HAVE BEEN UNSTABLE
An investment in VERITAS common stock is riskier than an investment in the
common stock of many other companies because VERITAS plans to expand in overseas
markets such as Asia, Russia and Latin America that have experienced significant
economic turmoil in recent years. Continued turmoil could adversely affect
VERITAS' plans to increase sales in these regions. Economic recession could also
affect VERITAS' ability to maintain or increase sales in these or other regions
in the future. VERITAS' concern is that recession in these markets could lead
to:
- restrictions on government spending imposed by the International Monetary
Fund;
- customers' reduced access to working capital to fund software purchases;
and
- reduced bank lending or other sources of financing for customers and
potential customers.
Any of these factors could cause foreign customers to reduce their
purchases of VERITAS' products substantially.
VERITAS' FOREIGN-BASED OPERATIONS AND SALES CREATE SPECIAL PROBLEMS THAT COULD
HURT VERITAS' RESULTS
An investment in VERITAS common stock is riskier than an investment in the
common stock of many other companies because VERITAS has significant offshore
operations, including development facilities, sales personnel and customer
support operations. For example, as of March 31, 2000, VERITAS had approximately
215 engineers located in Pune, India, performing product development work. These
offshore operations are subject to risks, including:
- potential loss of developed technology through piracy, misappropriation,
or more lax laws regarding intellectual property protection;
- imposition of governmental controls, including trade restrictions;
- fluctuations in currency exchange rates and economic instability;
- longer payment cycles for sales in foreign countries;
- difficulties in staffing and managing the offshore operations;
- seasonal reductions in business activity in the summer months in Europe
and other countries; and
- political unrest, particularly in areas in which VERITAS has facilities.
In addition, VERITAS' international sales are denominated in local
currency, creating risk of foreign currency translation gains and losses that
could harm VERITAS' quarterly and annual results of operations. If VERITAS
generates profits or losses in foreign countries, its effective income tax rate
could also be adversely affected. Currency instability in Asia and other
financial markets may make VERITAS' products more expensive than products sold
by other vendors that are priced in one of the affected currencies. Therefore,
customers in these markets may choose not to purchase VERITAS' products.
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VERITAS' GROWTH STRATEGY IS RISKIER THAN OTHERS BECAUSE IT IS BASED UPON
ACQUISITIONS OF OTHER BUSINESSES
An investment in VERITAS common stock is riskier than investments in the
common stock of many other companies because VERITAS plans to continue to pursue
its strategy of growth through acquisition. VERITAS has grown aggressively
through acquisitions in the past and expects to pursue acquisitions in the
future.
Acquisitions involve a number of special risks and challenges, including:
- diversion of management attention, particularly in the case of multiple
concurrent acquisitions;
- integration of the acquired company's operations and employees with an
existing business;
- incorporation of technology into existing product lines;
- loss of key employees; and
- presentation of a unified corporate image.
In the past, VERITAS has lost certain employees of acquired companies whom
VERITAS desired to retain. In some cases, the integration of the operations of
acquired companies took longer than VERITAS anticipated. In addition, if the
employees of target companies remain geographically apart from its existing
staff, VERITAS may not realize some or all of the anticipated economies of
scale.
RISKS RELATING TO FORWARD LOOKING STATEMENTS IN THIS JOINT PROXY STATEMENT/
PROSPECTUS
Both Seagate and VERITAS have made forward looking statements in this
document that are subject to risks and uncertainties. Forward looking statements
include expectations concerning matters that are not historical fact. Words such
as believes, expects, anticipates, or similar expressions indicate forward
looking statements. Some of the factors that could cause actual results to
differ from these expectations are discussed in this "Risk Factors" section.
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SPECIAL FACTORS
REGARDING THE STOCK PURCHASE AND THE MERGER
BACKGROUND OF THE STOCK PURCHASE AND THE MERGER
On May 28, 1999, Seagate, and its direct and indirect subsidiaries, Seagate
Software and Seagate Software Network & Storage Management Group, Inc., VERITAS
and a predecessor to VERITAS, consummated an Amended and Restated Agreement and
Plan of Reorganization, dated as of April 15, 1999. In this document, we refer
to this Amended and Restated Agreement and Plan of Reorganization as the
software acquisition agreement, and the transactions contemplated thereby as the
software acquisition. The software acquisition agreement provided for the
contribution by Seagate, Seagate Software, and certain of their respective
subsidiaries to a VERITAS predecessor of (i) the outstanding stock of Seagate
Software Network & Storage Management Group, Inc. and certain other subsidiaries
of Seagate Software, and (ii) those assets used primarily in the network and
storage management business of Seagate Software. We occasionally refer to
Seagate Software's network and storage management business as the NSMG business
in this document. In consideration for these contributions, the VERITAS
predecessor issued shares of its common stock to Seagate Software and offered to
grant stock options to purchase its common stock to certain of Seagate
Software's employees who become its employees or employees of its subsidiaries
in connection with the software acquisition. In addition, in connection with the
software acquisition, the VERITAS predecessor assumed certain liabilities of the
NSMG business. Simultaneous with the consummation of the software acquisition,
all outstanding securities of the VERITAS predecessor were converted into common
stock of VERITAS with identical rights, preferences and privileges, on a share
for share basis.
As a result of the software acquisition, Seagate Software acquired a total
of 155,583,468 shares of VERITAS common stock and former employees of the NSMG
business received options to purchase an aggregate of 15,626,358 shares of
VERITAS common stock. These share and option amounts have been adjusted to
reflect the two-for-one stock dividend of VERITAS common stock effected on July
9, 1999 and the three-for-two stock dividends effected on November 19, 1999 and
March 3, 2000.
In connection with the software acquisition, Seagate, Seagate Software, the
VERITAS predecessor and VERITAS also entered into a stockholder agreement. The
stockholder agreement provides for, among other things, Seagate representation
rights on the VERITAS board of directors, restrictions on the sale of the shares
of VERITAS common stock acquired by Seagate Software in the software
acquisition, voting agreements between Seagate and VERITAS, standstill
restrictions relating to the acquisition of securities of VERITAS by Seagate,
and preemptive rights of Seagate in respect of the outstanding shares of VERITAS
common stock. For a more complete description of the stockholder agreement, see
"-- Other Material Contracts and Agreements between Seagate and
VERITAS -- Stockholder Agreement" beginning on page 97 of this document.
Pursuant to Seagate's rights under the stockholder agreement, Stephen
Luczo, the President and Chief Executive Officer of Seagate, and Gregory
Kerfoot, an executive officer of Seagate Software, were appointed to the board
of directors of VERITAS following the software acquisition.
Following the software acquisition and throughout the summer and into the
fall of 1999, the market price of VERITAS common stock increased substantially.
By
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September 30, 1999, VERITAS' stock price had increased by approximately 150%
from its closing price on January 4, 1999. During this same period, however, the
market price of Seagate common stock did not increase in value to reflect the
increasing value of the VERITAS common stock held by Seagate. On September 30,
1999, Seagate's stock price was approximately equal to its price on January 4,
1999. Throughout the summer of 1999, the Seagate board of directors discussed
the fact that the market price of Seagate common stock did not reflect the
board's assessment of the underlying value of Seagate's operating assets and its
investment security assets, including its holdings of VERITAS common stock. At
this time, the board of directors of Seagate also discussed the possibility of
selling some of its holdings of VERITAS common stock and purchasing shares of
Seagate common stock in the market as a strategy for partially remedying the
disparity between the market price of Seagate common stock and the underlying
value of its assets. Pursuant to authorization from the Seagate board of
directors, beginning in July 1999 and ending in November 1999, Seagate acquired
approximately 25 million shares of its common stock in open market purchases at
prices ranging from $25.56 to $44.38 per share. The Seagate board of directors
also continued to implement a number of operational and other initiatives which
it had instituted upon Mr. Luczo becoming President and Chief Executive Officer
of Seagate.
Throughout the summer and into the fall of 1999, members of the Seagate
board of directors and certain members of Seagate management received a number
of unsolicited calls from various financial institutions regarding the
perception in the investment community that the market price of Seagate common
stock did not reflect the underlying value of Seagate's assets and operational
improvements, particularly given the market value of its holdings in VERITAS
common stock. Also during the summer and into the fall of 1999, members of the
Seagate board of directors and certain members of Seagate's management received
numerous unsolicited calls from Seagate stockholders to discuss the market price
of Seagate common stock relative to the market value of its holdings of VERITAS
common stock.
On October 8, 1999, the Executive Committee of Seagate's board of directors
(consisting of Lawrence Perlman, Gary Filler and Mr. Luzco) held a meeting to
discuss, among other things, the fact that the market price of Seagate common
stock continued to remain depressed despite the increasing value of its
investment security assets, particularly its holdings of VERITAS common stock
and the improvement of Seagate's overall operating and financial performance. By
late October 1999, VERITAS' stock price had increased by over 200% since January
4, 1999, while Seagate's stock price had not increased at all during the same
period. At this meeting the Executive Committee authorized Mr. Luczo to speak
with Morgan Stanley about potential alternatives available to Seagate that would
enable Seagate to address this issue. At board meetings on November 1 and 2, in
addition to regular board matters, members of the Executive Committee informed
the board of the October 8 Executive Committee meeting and generally discussed
the matters discussed at the October 8 Executive Committee meeting. The Board
authorized the co-chairmen and senior management to continue speaking with
Morgan Stanley about alternatives.
On November 8, 1999, Mr. Luczo met informally with representatives of
Silver Lake Partners. This meeting was an informational and marketing oriented
meeting, during which representatives of Silver Lake Partners outlined to Mr.
Luczo Silver Lake Partners's investment strategy and expressed a general
interest in exploring whether some type of transaction between Seagate and
Silver Lake Partners would be possible.
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On November 22, 1999, Mr. Luczo met with representatives of Silver Lake
Partners. Representatives of Silver Lake Partners repeated Silver Lake Partners'
possible interest in exploring whether some type of transaction involving
Seagate and Silver Lake Partners would be possible, and outlined the role that
VERITAS might play in such a transaction, although Silver Lake Partners had not
yet engaged in any discussions with VERITAS. Without discussing valuation, the
general concept proposed by representatives of Silver Lake Partners involved a
leveraged buyout by Silver Lake Partners (with the participation of certain
members of Seagate's senior management team) of Seagate's operating businesses
(excluding the VERITAS shares held by Seagate) and a subsequent transaction
involving Seagate and VERITAS.
On November 24, 1999, Mr. Pope and representatives of VERITAS held a
conference call to discuss possible strategies in connection with Seagate
Software's ownership position of VERITAS common stock, and possible alternatives
for Seagate Software to sell a portion of its VERITAS shares in a tax efficient
manner.
On December 1, 1999, representatives of Silver Lake Partners again met with
Mr. Luczo, and other members of Seagate's management team who gave Silver Lake
Partners an overview of Seagate's business and strategy, which consisted solely
of publicly available information.
In early December 1999, the other members of Seagate's Executive Committee
were informed of the proposed Silver Lake Partners transaction. Members of the
Executive Committee informed each of the other members of the Seagate board of
directors of these developments. On December 16, 1999, representatives of Silver
Lake Partners met with Mr. Luczo and Mr. Pope and gave them a detailed
description about Silver Lake Partners. Throughout the remainder of December and
throughout January 2000 until the January 27, 2000 meeting of the Seagate board
of directors, Morgan Stanley reviewed possible options available to Seagate
based upon input from Seagate's management team and members of Seagate's
Executive Committee, including the feasibility of the type of transaction
suggested by Silver Lake Partners.
During this same period, Silver Lake Partners continued to explore the
feasibility of a possible transaction between Seagate and Silver Lake Partners,
including meetings or other contacts with members of Seagate's management and
Morgan Stanley from time to time. On January 19, 2000 the Executive Committee
met and discussed contacts made with Silver Lake and strategic alternatives. On
January 21, 2000, Mr. Luczo, Mr. Pope, and other members of Seagate's senior
management team met with representatives of Silver Lake Partners Partners and
discussed the feasibility of pursuing a transaction between Seagate and Silver
Lake Partners. Representatives of Silver Lake Partners informed Mr. Luczo that,
although there were a large number of items that would need to be addressed
before definitely going forward (e.g., due diligence, arranging financing,
confirming VERITAS' interest in a transaction, valuation, etc.), it was still
interested in further exploring a possible transaction between Seagate and
Silver Lake Partners.
After the completion of regularly scheduled matters at a January 27, 2000
meeting of the Seagate board of directors, representatives of Morgan Stanley
reviewed with the board of directors possible options available to Seagate. The
discussion included a wide range of possible options (including a continued
liquidation of the shares of VERITAS common stock held by Seagate, a transaction
involving VERITAS and a purchase of Seagate's operating businesses, a sale of
Seagate, a spin-off of the VERITAS shares held by Seagate and a spin-off of
Seagate's operating businesses), an illustrative relative comparison of possible
valuations, and a preliminary discussion of positive and negative factors
associated
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with each alternative. At this meeting, Mr. Luczo also briefed the board of
directors on discussions to date between Seagate and Silver Lake Partners.
At the January 27, 2000 meeting of the Seagate board of directors, in a
general discussion among the directors, Seagate's management and representatives
of Morgan Stanley, there was a discussion regarding some form of transaction
involving the separation of Seagate's operating business from the ownership of
the VERITAS shares then held by Seagate (and other publicly traded securities
owned by Seagate). These discussions focused on the fact that the stock market
did not appropriately value Seagate's operating businesses and its ownership of
the VERITAS shares. Moreover, Mr. Luczo indicated that it was becoming
increasingly difficult for Seagate to attract and retain qualified management
and employees in light of competition in Seagate's markets from internet,
e-commerce and other new economy companies with the ability to offer
considerable equity upside. Mr. Luczo stated management's belief that a
transaction separating the VERITAS shares held by Seagate from Seagate's
operating businesses (if it could be accomplished without significant corporate
level tax) might be a desirable means of providing Seagate's stockholders with a
better return on their investment in Seagate's common stock than they could
receive if Seagate continued with its current plan of operating its business and
selling its shares of VERITAS common stock in a taxable transaction. However,
Mr. Luczo stated that he and Seagate's senior management were committed to
pursuing whatever alternative the board of directors preferred, including
maintaining the status quo.
The representatives of Morgan Stanley and, given his potential interest in
a possible transaction with Silver Lake Partners, Mr. Luczo were then excused
from the remainder of the January 27, 2000 meeting of the Seagate board of
directors, which was devoted to exploring possible strategic alternatives. The
Seagate board of directors and representatives from its outside counsel, Wilson
Sonsini Goodrich & Rosati, Professional Corporation, discussed a number of
topics. Representatives of Wilson Sonsini generally advised the Seagate board of
directors of its fiduciary duties. Because of Mr. Luczo's potential conflict of
interest, representatives of Wilson Sonsini recommended, and the board of
directors resolved, that both Mr. Luczo and all other members of Seagate's
senior management should be excluded from the portion of any future meetings of
the Seagate board of directors during which possible transactions were
discussed. The Seagate board of directors (excluding Mr. Luczo) assigned Mr.
Perlman and Mr. Filler, the Co-Chairmen of the Seagate board of directors, the
additional responsibility of overseeing day to day developments regarding a
possible transaction involving Silver Lake Partners and VERITAS and exploring
other alternatives. The Seagate board of directors (excluding Mr. Luczo) further
authorized the Seagate Co-Chairmen to retain Morgan Stanley to advise the board
of directors regarding possible alternatives available to Seagate, including a
possible transaction involving Silver Lake Partners and VERITAS. The Seagate
board of directors (excluding Mr. Luczo) also requested Morgan Stanley to
continue reviewing alternatives, and develop and report to the Seagate
Co-Chairmen its views regarding potential third parties (excluding Silver Lake
Partners and VERITAS) that might be interested in a pursuing an acquisition of
Seagate or other business combination with Seagate. Finally, the Seagate board
of directors (excluding Mr. Luczo) implemented a number of procedural
initiatives, including a prohibition on senior management contact with
interested third parties unless pre-approved by the Seagate Co-Chairmen, a
requirement that the distribution of information regarding Seagate to third
parties be pre-cleared by the Seagate Co-Chairmen or the board of director's
advisors, and a requirement that representatives of Morgan Stanley be invited to
attend all meetings regarding Seagate
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that might be held with Silver Lake Partners and/or its financing sources.
Following the January 27, 2000 meeting, consistent with its instructions from
the Seagate board of directors, representatives of Morgan Stanley contacted
Silver Lake Partners and invited Silver Lake Partners to proceed with its
evaluation of a potential transaction with Seagate.
After the January 27, 2000 meeting of the Seagate board of directors, the
Seagate Co-Chairmen and representatives of Morgan Stanley and Wilson Sonsini met
telephonically at least once a week during February to discuss alternatives and
developments. During this same period, representatives of Morgan Stanley, on
behalf of Seagate, contacted a select number of potential strategic third
parties approved by the Seagate board of directors to explore whether they might
have an interest in pursuing an acquisition of Seagate or other business
combination with Seagate. By the end of February, it became clear that none of
these third parties had an interest in pursuing an acquisition of Seagate or
other business combination with Seagate.
On January 27, 2000, the board of directors of VERITAS held its regular
quarterly board meeting. In the meeting, members of the board raised the
possibility of a three-way transaction involving Silver Lake Partners and
Seagate.
On February 3, 2000, Mr. Luczo and Mr. Pope met with representatives of
Silver Lake Partners to discuss the merits of a potential transaction.
On February 4, 2000, Mr. Luczo and Mr. Pope, and representatives of Morgan
Stanley and Wilson Sonsini met with representatives of Silver Lake Partners and
VERITAS, their respective financial advisors and legal counsel to Silver Lake
Partners. The meeting was exploratory in nature and focused on the possible
structures a transaction among Seagate, Silver Lake Partners and VERITAS might
involve, and did not involve discussions of valuation or specific transaction
terms, other than tax treatment. At this meeting, representatives of VERITAS
expressed the view that VERITAS would only pursue a transaction with Seagate and
Silver Lake Partners if the terms of the transaction contemplated that Silver
Lake Partners would acquire all of the operating businesses of Seagate and that
Silver Lake Partners would assume and be liable for all liabilities of Seagate.
On February 8, 2000, Seagate and Silver Lake Partners entered into a
customary confidentiality agreement.
On February 10, 2000, Seagate and Morgan Stanley entered into an engagement
letter under which Seagate agreed to pay certain fees and expenses of Morgan
Stanley for financial advice and assistance rendered by Morgan Stanley in
connection with a possible strategic transaction involving Seagate.
During February 2000, representatives of Seagate's senior management had a
number of meetings with representatives of Silver Lake Partners and its
financing sources regarding business diligence and financing structures. At
least one representative of Morgan Stanley attended each of these meetings.
During these meetings, there was no negotiation or discussion of the terms and
conditions of any particular transaction. Also during these meetings,
representatives of Seagate's management team discussed and responded to
questions concerning Seagate's history, strategy and prospects. Silver Lake
Partners was also provided by Morgan Stanley with a set of financial projections
for Seagate prepared by Seagate and reviewed by the Seagate Co-Chairmen.
Over the same time period and into March 2000, Silver Lake Partners
continued to investigate a potential transaction involving Seagate, including
further contacts with
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representatives of VERITAS regarding the structure and details of a unified bid
and initial contacts with representatives of Texas Pacific Group, August
Capital, Chase Capital Partners and Goldman Sachs.
On March 3, 2000, representatives from VERITAS, Gary Filler and Larry
Perlman met to negotiate some of the business terms of the proposed transaction
among VERITAS, Seagate and Silver Lake Partners.
During the month of March 2000, the Seagate Co-Chairmen and representatives
of Morgan Stanley and Wilson Sonsini continued to have conference calls at least
weekly regarding a possible transaction among Seagate, Silver Lake Partners and
VERITAS and other alternatives. In addition, during this same period of time,
the Co-Chairmen had multiple discussions with each other and individually with
representatives of Morgan Stanley and Wilson Sonsini regarding a possible
transaction among Seagate, Silver Lake Partners and VERITAS and other
alternatives. During a meeting of the Seagate board of directors held on March
3, 2000, the Seagate board of directors (excluding Mr. Luczo) reviewed the
activities conducted to date. Representatives of Morgan Stanley reported on the
apparent lack of interest by strategic third parties to consider a business
combination involving all of Seagate, and it became clear to the Seagate board
of directors that any transaction involving Seagate and VERITAS would likely
involve a financial buyer. Based on Morgan Stanley's review of Silver Lake
Partners and the amount of equity that would likely need to be raised (which
would involve contacting a number of other large private equity sources) to
finance the acquisition of Seagate's operating businesses, the Seagate board of
directors (excluding Mr. Luczo) concluded that Silver Lake Partners would act as
a proxy for the private equity market by virtue of its solicitations of other
private equity sources. The Seagate board of directors (excluding Mr. Luczo)
also discussed the benefits and risks of alternative structures, and concluded
that a tax-free transaction with VERITAS combined with taxable sale of assets to
Silver Lake Partners appeared to offer substantial benefits to Seagate's
stockholders. The Seagate board of directors (excluding Mr. Luczo) also
discussed the fact that VERITAS would likely require a material financial
benefit to its stockholders in return for allowing Seagate's stockholders to
receive new VERITAS shares in a tax efficient manner. The Seagate board of
directors (excluding Mr. Luczo) also discussed the fact that Silver Lake
Partners would ultimately be constrained in the amount of debt it could raise in
connection with a cash acquisition. Representatives of Morgan Stanley reported
that, based on information provided to it, Morgan Stanley believed that Silver
Lake Partners and VERITAS would be in a position to make a formal proposal by
March 12, 2000. The Seagate board of directors (excluding Mr. Luczo) authorized
the Seagate Co-Chairmen and Morgan Stanley to continue exploring a transaction
involving Seagate, Silver Lake Partners and VERITAS, as well as other
alternatives.
By the end of the first week of March 2000, it became clear through
discussions with Credit Suisse First Boston, VERITAS' financial advisor, that
VERITAS' view was that it would require a substantial discount to proceed with a
transaction with Seagate (i.e., VERITAS would issue fewer shares of VERITAS
common stock in the merger than the number of VERITAS shares owned by Seagate
Software), in return for participating in a tax-free reorganization with
Seagate. Prior to this time, Seagate and VERITAS had not negotiated or discussed
a specific discount, but had proceeded on the general assumption that VERITAS
would receive some discount for engaging in a transaction with Seagate on the
general terms previously discussed. At a March 10 meeting between Mark Leslie,
the Chief Executive Officer of VERITAS, and the Seagate Co-Chairmen, Mr. Leslie
suggested that VERITAS viewed an appropriate discount to be within the 25-30%
range,
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while Mr. Filler and Mr. Perlman expressed their view of the appropriate
discount to be within the 5 - 10% range. After further negotiation, Mr. Leslie,
Mr. Filler and Mr. Perlman arrived at an approximately 14.6% discount as being a
discount they would raise for the consideration of their respective boards of
directors. At this meeting, Mr. Leslie and the Seagate Co-Chairmen also
discussed the appropriate treatment of Seagate's other investment assets, how
these assets would affect the discount applied to the VERITAS common stock, and
how these other investment securities would be valued if VERITAS were to acquire
them. No other terms or conditions of a possible transaction were negotiated at
this meeting.
On March 13, 2000, representatives of Silver Lake Partners and its
financial advisors met with representatives of Morgan Stanley and Wilson Sonsini
to give a presentation of the joint proposal that Silver Lake Partners and
VERITAS intended to make.
On March 15, 2000, Mr. Luczo, Mr. Pope and representatives of Morgan
Stanley and Wilson Sonsini met with representatives of Silver Lake Partners and
VERITAS. During this meeting, representatives of Silver Lake Partners and
VERITAS presented a joint proposal involving Silver Lake Partners' purchase of
Seagate's operating assets and a subsequent merger of Seagate and VERITAS. Under
this joint proposal (after giving effect to the proposed Silver Lake Partners
transaction), VERITAS would cause a wholly owned subsidiary to merge with and
into Seagate and Seagate stockholders would receive approximately 117.9 million
shares of VERITAS common stock, a number of additional shares of VERITAS common
stock equal to an agreed schedule of values for the shares of Gadzoox Networks,
SanDisk Corporation, CVC, Inc. (which were subsequently converted into shares of
Veeco Instruments) and Dragon Systems held by Seagate, and cash equal to the net
amount of cash held by Seagate after giving effect to the proposed transaction
between Seagate and Silver Lake Partners. Under this joint proposal, Silver Lake
Partners would purchase all of Seagate's assets for $2 billion of cash. Under
this joint proposal, this $2 billion amount, plus cash on hand at Seagate, less
(i) $800 million (to be retained by the ongoing company for operating purposes),
(ii) any negative working capital (excluding cash), (iii) unpaid tax
liabilities, (iv) any liabilities under Section 280G of the Internal Revenue
Code, and (v) transaction expenses would be distributed to Seagate stockholders
in the merger with VERITAS. In addition, the joint proposal specified that all
outstanding stock options would be fully vested and converted into the right to
receive the merger consideration as part of the proposed transaction. Silver
Lake Partners's proposal was supplemented by committed financing, but subject to
reaching satisfactory arrangements with Seagate's senior management team and
further due diligence of Seagate. Silver Lake Partners and VERITAS indicated
that their joint proposal was a unified proposal.
At a meeting of the Seagate board of directors (excluding Mr. Luczo) held
on March 15, 2000, representatives of Morgan Stanley and Wilson Sonsini reviewed
with the Seagate board of directors the financial and legal terms, respectively,
of the proposed transactions with Silver Lake Partners and VERITAS. The Seagate
board of directors (excluding Mr. Luczo) requested Morgan Stanley to prepare a
financial analysis of the proposed transactions and requested the Seagate
Co-Chairmen, and representatives of Morgan Stanley and Wilson Sonsini to clarify
the terms of the proposed transactions and attempt to negotiate more favorable
terms regarding value and deal certainty.
During the next several days, the Seagate Co-Chairmen, and representatives
of Morgan Stanley and Wilson Sonsini, on behalf of Seagate, negotiated and
clarified the terms of the proposed transactions with representatives of Silver
Lake Partners and VERITAS. On March 17, 2000, Silver Lake Partners and VERITAS
delivered a revised
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proposal. The revised proposal differed from the March 15, 2000 proposal by
increasing the value to be received by Seagate stockholders in two ways: (i) by
decreasing the liquidity discounts associated with the investment securities to
those ultimately contained in the merger agreement and (ii) by agreeing that
Silver Lake Partners would assume the first $100 million of any liabilities
arising under Section 280G of the Internal Revenue Code in connection with the
proposed transactions. Again, Silver Lake Partners and VERITAS indicated that
their revised proposal was a unified proposal. On March 19, 2000, Wilson Sonsini
delivered to Silver Lake Partners and VERITAS, and their respective financial
and legal advisors, draft forms of agreements for the proposed transactions.
On March 22, 2000, the Seagate board of directors (excluding Mr. Luczo) met
to review the status of negotiations with Silver Lake Partners and VERITAS.
Representatives of Wilson Sonsini reviewed with the Seagate board of directors
(excluding Mr. Luczo) its fiduciary obligations as directors and summarized the
material terms of the draft agreements for the proposed transactions.
Representatives of Morgan Stanley reviewed the financial aspects of the proposed
transactions, the changes made from the March 15, 2000 proposal, remaining open
issues and its preliminary financial analysis of the proposed transactions.
Representatives of Morgan Stanley also discussed generally the proposed
transactions compared with alternatives potentially available to Seagate and the
likely timing for completing the proposed transactions. The Seagate board of
directors (excluding Mr. Luczo) concluded that Seagate should continue
negotiating the terms of the proposed transactions.
From March 22 through March 29, 2000, Seagate, Silver Lake Partners and
VERITAS and their respective financial and legal advisors continued to negotiate
the terms and conditions of the definitive agreements for the proposed
transactions.
On March 23, 2000, the VERITAS board of directors held a conference call
meeting to discuss the latest proposed terms and issues of a proposed
transaction. Messrs. Luczo and Kerfoot did not participate. Representatives from
Credit Suisse First Boston and Willkie Farr & Gallagher were present. The
attendees held an extensive discussion of the terms of the proposed transaction,
followed by numerous questions from the board members. The parties also
discussed results of due diligence efforts that had been undertaken regarding
Seagate and its businesses and operations.
On March 28, 2000, the VERITAS board of directors (excluding Messrs. Luczo
and Kerfoot), together with representatives of Credit Suisse First Boston and
Willkie Farr & Gallagher, met to review and discuss the negotiated terms of the
merger agreement and the indemnification agreement. Representatives of Credit
Suisse First Boston and Willkie Farr & Gallagher reviewed with the VERITAS board
of directors the changes in the terms of the merger agreement and the
indemnification agreement since the last meeting of the VERITAS board of
directors. The VERITAS board of directors also discussed the most recent due
diligence assessments received from various advisors with respect to accrued and
potential liabilities of Seagate. Representatives of Credit Suisse First Boston
concluded by delivering Credit Suisse First Boston's oral opinion to the VERITAS
board of directors, which it later confirmed in writing as of March 29, 2000,
that the stock portion exchange ratio was fair to VERITAS from a financial point
of view as of the date of the opinion and based upon and subject to the various
consideration set forth in its opinion. Based on Credit Suisse First Boston's
opinion and other factors considered during the meeting, the VERITAS board of
directors, acting without Messrs. Luczo and Kerfoot, unanimously determined that
the merger agreement and the merger were advisable and in the best interests of
the VERITAS stockholders and approved the merger agreement, the merger,
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and the issuance of new shares of VERITAS common stock in connection with the
merger.
On March 29, 2000, the Seagate board of directors (excluding Mr. Luczo),
together with representatives of Morgan Stanley and Wilson Sonsini, met to
review the negotiated agreements for the proposed transactions. Representatives
of Wilson Sonsini summarized the terms of the definitive stock purchase
agreement and merger agreement. Representatives of Morgan Stanley reviewed with
the Seagate board of directors the financial changes since the last meeting of
the board of directors, which included the elimination of any downward
adjustment to the purchase price based on negative working capital (excluding
cash) and provision for the retention by Seagate's stockholders of any tax
refunds and other tax assets that might be associated with the proposed
transactions. Representatives of Morgan Stanley then presented the Seagate board
of directors with its financial analysis of the proposed transactions.
Representatives of Morgan Stanley concluded by delivering Morgan Stanley's oral
opinion, subsequently confirmed in writing, to the Seagate board of directors,
to the effect that the merger consideration under the merger agreement was fair,
from a financial point of view, to the Seagate stockholders. Based on Morgan
Stanley's opinion and valuation analysis and other factors considered during the
meeting, the Seagate board of directors (excluding and acting without Mr. Luczo)
unanimously determined that the proposed transactions together were fair to, and
in the best interest of, Seagate's stockholders and approved the stock purchase
agreement and the stock purchase, and the merger agreement and the merger.
On March 29, 2000, after the closing of the financial markets, the parties
executed the stock purchase agreement, the merger agreement, the indemnification
agreement and the exclusivity agreement, and Seagate and VERITAS issued a press
release announcing the stock purchase and the merger.
In April 2000, Seagate and Silver Lake Partners executed an amendment to
the stock purchase agreement. Under the terms of this amendment, Silver Lake
Partners consented to certain strategic investments proposed to be made by
Seagate having a value of up to $25 million, and to a $25 million reduction in
the amount of required cash to be held by Seagate at closing from $800 million
to $775 million (subject to upward adjustment).
CONSIDERATION OF THE STOCK PURCHASE AND THE MERGER BY SEAGATE
SEAGATE'S REASONS FOR THE STOCK PURCHASE AND THE MERGER
In connection with its recommendation, the Seagate board of directors
(excluding Mr. Luczo) considered a number of factors, including the following:
- the value of the VERITAS shares held by Seagate relative to the value of
the remainder of Seagate's assets, the terms of the existing stockholder
agreement between Seagate and VERITAS which restricts Seagate's ability
to dispose of its VERITAS shares, and the fact that the merger would
enable Seagate stockholders to directly participate in Seagate's
investment in VERITAS in a tax efficient manner;
- the historical market prices and trading activity of Seagate's common
stock, including (i) the fact that the historical market price of Seagate
common stock did not reflect the full value of the shares of VERITAS
common stock held by Seagate together with Seagate's other assets, (ii)
the fact that, based upon the market price of Seagate common stock and
VERITAS common stock, Seagate's operating assets had a low and sometimes
negative value in the market, even after accounting for
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the tax liability that Seagate would incur if it sold its VERITAS shares,
(iii) based on the closing price of VERITAS common stock on March 8, 2000
and certain other assumptions, the combined consideration to be received
by Seagate's stockholders in connection with the stock purchase and the
merger represented approximately a 51% and 67% premium over the average
closing price of Seagate common stock during the 10 and 30 trading day
period ending March 8, 2000 (which was the last "unaffected" trading day
prior to a significant increase in the closing price per share and
trading volume of the Seagate common stock that occurred on March 9, 2000
and a public report that appeared on March 10, 2000 speculating that
Seagate and VERITAS were in discussions regarding a potential business
combination), respectively, and (iv) based on the closing price of
VERITAS common stock on March 28, 2000 (which was the last trading day
prior to the meeting of the Seagate board of directors at which the stock
purchase and the merger were approved), the combined consideration to be
received by Seagate's stockholders in connection with the stock purchase
and the merger represented approximately a 35% premium over the average
closing price of Seagate common stock during the 30 trading day period
ending March 28, 2000;
- the presentation of Morgan Stanley on March 29, 2000 regarding the stock
purchase and the merger and Morgan Stanley's oral opinion, subsequently
confirmed in writing, to the Seagate board of directors to the effect
that the merger consideration under the merger agreement was fair, from a
financial point of view, to the Seagate stockholders;
- information with respect to the financial condition, results of
operations, business and prospects of Seagate, as well as the risks
involved in achieving such prospects, and general economic and market
conditions affecting Seagate;
- results of the process undertaken by Morgan Stanley in connection with
the solicitation of indications of interest from a selected group of
third parties, and in connection with identifying possible alternatives
to the stock purchase and the merger;
- the treatment of Seagate's outstanding stock options and restricted stock
in the merger;
- information with respect to the financial condition, results of
operations and prospects of VERITAS, as well as the risks involved in
achieving such prospects, and the general economic and market conditions
affecting VERITAS;
- the structure of the stock purchase and the merger, the likelihood of
consummating the stock purchase and the merger, the existence of executed
financing commitments for the stock purchase, the likely closing date for
the stock purchase and the merger, and the conclusion that Silver Lake
Partners is a significant participant in the capital markets specializing
in transactions involving technology companies;
- the fact that consummation of the stock purchase and the merger would
allow Seagate's stockholders to participate in the future growth and
success of VERITAS, as well as allowing them to directly make the
investment decision to sell or hold shares of VERITAS common stock
received by them in connection with the merger;
- the fact that consummation of the stock purchase and the merger would
preclude the Seagate stockholders from having the opportunity to
participate in the future prospects of Seagate's operating assets;
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- actual and potential conflicts of interests of Mr. Luczo, Mr. Pope and
certain other members of the Seagate's senior management team who will
have the opportunity to benefit from any increases in the value of
Seagate's operating assets following the closing of the stock purchase
and the merger by virtue of their equity participation; and
- the terms and conditions of the stock purchase agreement and the merger
agreement, including the fact that each of the stock purchase agreement
and the merger agreement is subject to approval by Seagate's stockholders
and the ability for Seagate's board of directors, to the extent it
determines it is required to do so as provided therein, to terminate
either agreement in order to approve a competing, more favorable
transaction or transactions.
In view of the various factors considered by the Seagate board of directors
in connection with its evaluation of the stock purchase and the merger, the
Seagate board of directors did not find it necessary to quantify or otherwise
attempt to assign relative weights or importance to the factors considered in
making its determination, nor did it evaluate whether such factors were of equal
importance. Based upon all of the above factors and the evaluation of all the
relevant information provided to it by Morgan Stanley, the Seagate board of
directors (excluding Mr. Luzco) unanimously determined that the stock purchase
and the merger, considered together, were fair to Seagate's stockholders.
In considering the factors described above, individual members of the
Seagate board of directors may have given different weights or assigned
different levels of importance to different factors. Except for the fact that
the transactions would preclude Seagate stockholders from participating in the
future prospects of Seagate's operating assets, and the actual and potential
conflicts of interests of Seagate senior management discussed above, the Seagate
board of directors considered the foregoing factors to be positive factors.
Notwithstanding these negative factors, the Seagate board of directors believes
the stock purchase and the merger are fair to, and are in the best interest of,
Seagate's stockholders. Although members of Seagate's senior management team
will have the opportunity to participate in the future prospects of Seagate's
operating assets, they will also bear the risk of any decrease in the value of
these operating assets. As a result of the stock purchase and the merger,
Seagate's operating assets will also have significant amounts of indebtedness
and significantly less asset value that may reduce its value in the future.
The Seagate board of directors (excluding Mr. Luzco) further believes that
the following procedural safeguards were sufficient to ensure that the stock
purchase and the merger were considered in a manner that was procedurally fair
to Seagate's stockholders notwithstanding any actual or potential conflicts of
interest of Mr. Luczo and Mr. Pope and other members of Seagate's senior
management team participating in the purchase of Seagate's operating assets:
- Mr. Luczo did not participate in any deliberations of the Seagate board
of directors regarding the stock purchase and the merger, and the
remainder of the Seagate board of directors consists entirely of
non-management, non-affiliated independent directors who have no
relationship with VERITAS or Silver Lake Partners;
- the Seagate board of directors retained Morgan Stanley as its financial
advisor to assist it in evaluating the stock purchase and the merger, and
the board of directors received advice from Morgan Stanley;
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- the Seagate board of directors engaged in extensive deliberations in
evaluating the stock purchase and the merger, as well as the negotiation
process;
- the consideration to be received by Seagate's stockholders from the stock
purchase and the merger and the terms and conditions of the stock
purchase agreement and the merger agreement resulted from arm's-length
bargaining between the Seagate board of directors (through its
Co-Chairmen) and its representatives, on the one hand, and Silver Lake
Partners and VERITAS and their respective representatives, on the other;
- the fact that both the stock purchase agreement and the merger agreement
are subject to the approval of the holders of at least a majority of
Seagate's outstanding common stock, and that the senior members of
Seagate's management team (consisting of officers at or above the level
of senior vice president) who will participate in the ownership of Suez
Acquisition Company own, collectively, less than approximately one
percent of Seagate's outstanding common stock;
- the fact that under both the stock purchase agreement and the merger
agreement the Seagate board of directors is permitted to negotiate with
third parties who submit business transaction proposals which are
superior to those contemplated under the relevant agreement and, if the
Seagate board of directors so determines, to terminate that agreement in
order to enter into a more favorable transaction;
- the fact that Seagate is not required to close the stock purchase unless
the merger closes simultaneously therewith and vice versa;
- the belief of the Seagate board of directors that the stock purchase and
the merger would receive wide publicity that, when taken together with
the fact that the Seagate board of directors could terminate the relevant
agreement in order to accept a superior business transaction proposal,
would not unduly restrict the ability of the Seagate board of directors
to respond to any such proposal.
The merger consideration that the members of the Seagate board of directors
will receive in connection with the merger with respect to stock options held by
them was not discussed by the Seagate board of directors during its
deliberations on the stock purchase or the merger.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF SEAGATE
After carefully evaluating these factors, both positive and negative, the
board of directors of Seagate has determined that the stock purchase and the
merger are fair to and in the best interests of the stockholders of Seagate and
unanimously recommends that the stockholders of Seagate vote for approval and
adoption of the stock purchase agreement and the merger agreement, and for
approval of the stock purchase and the merger.
In considering the recommendation of the board of directors of Seagate with
respect to the stock purchase and the merger, you should be aware that Mr. Luczo
and certain other members of Seagate's senior management team have certain
interests in the stock purchase and the merger that are different from, or are
in addition to, the interests of Seagate's stockholders generally and which
create conflicts of interest. In addition, certain of the directors and officers
of Seagate will receive benefits (such as customary indemnification) in
connection with the stock purchase and the merger that are not available to
other Seagate stockholders. For a more complete description of these interests
and benefits, see "-- Interests of Directors and Certain Executive Officers of
Seagate in the Stock Purchase and the Merger" beginning on page 78 of this
document.
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OPINION OF SEAGATE'S FINANCIAL ADVISOR
Under an engagement letter dated February 10, 2000, Seagate retained Morgan
Stanley to provide it with financial advisory services in connection with the
merger. The board of directors of Seagate selected Morgan Stanley to act as its
financial advisor based on Morgan Stanley's qualifications, expertise and
reputation, and its knowledge of the business and affairs of Seagate. At the
meeting of the board of directors of Seagate on March 29, 2000, Morgan Stanley
delivered its oral opinion, subsequently confirmed in writing, to the board of
directors of Seagate to the effect that, as of March 29, 2000 and based upon and
subject to the various considerations set forth in its opinion, the merger
consideration to be received by holders of Seagate common stock under the merger
agreement was fair from a financial point of view to those holders.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DATED AS OF MARCH
29, 2000 IS ATTACHED AS ANNEX E TO THIS DOCUMENT AND SETS FORTH THE ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF
THE REVIEW UNDERTAKEN BY MORGAN STANLEY IN RENDERING ITS OPINION. SEAGATE'S
STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE OPINION CAREFULLY AND IN ITS
ENTIRETY. MORGAN STANLEY'S OPINION WAS DIRECTED TO THE BOARD OF DIRECTORS OF
SEAGATE AND ADDRESSED ONLY THE FAIRNESS OF THE MERGER CONSIDERATION TO BE
RECEIVED BY HOLDERS OF SEAGATE COMMON STOCK UNDER THE MERGER AGREEMENT FROM A
FINANCIAL POINT OF VIEW AS OF THE DATE OF THE OPINION. IT DID NOT ADDRESS ANY
OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
HOLDER OF SEAGATE COMMON STOCK AS TO HOW TO VOTE AT THE SEAGATE SPECIAL MEETING.
THE SUMMARY OF THE OPINION OF MORGAN STANLEY SET FORTH IN THIS DOCUMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF ITS OPINION.
In connection with rendering its opinion, Morgan Stanley, among other
things:
- reviewed certain publicly available financial statements and other
information concerning Seagate;
- reviewed certain publicly available financial statements and other
information concerning VERITAS;
- reviewed certain internal financial statements and other financial and
operating data concerning Seagate prepared by the management of Seagate;
- reviewed certain financial projections prepared by the management of
Seagate;
- discussed with senior executives of Seagate the past and current
operations and financial condition and the prospects of Seagate;
- discussed with senior executives of VERITAS the past and current
operations and financial condition and the prospects of VERITAS,
including a review of publicly available projections of certain equity
research analyst estimates;
- reviewed the reported prices and trading activity for the Seagate common
stock, for the VERITAS common stock, and those for publicly traded
securities of certain other companies whose shares are owned by Seagate,
including Gadzoox Networks, SanDisk Corporation and CVC, Inc. (which were
subsequently converted into shares of Veeco Instruments);
- reviewed the pro forma impact of the merger on the earnings per share of
VERITAS;
- analyzed alternative transaction structures involving some or all of the
assets of Seagate;
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- participated in certain discussions and negotiations among
representatives of Seagate, VERITAS and Suez Acquisition Company;
- reviewed the merger agreement, and certain related documents, including
the stock purchase agreement; and
- performed such other analyses and considered such other factors as Morgan
Stanley has deemed appropriate.
Morgan Stanley assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by Morgan Stanley for the
purposes of its opinion, including the information prepared by the management of
Seagate as to the computation and timing of the tax refund amount and other
certain tax related items. Other than the discussions with senior executives of
VERITAS referred to in the fifth and sixth bullet points above, in connection
with the preparation of its opinion, Morgan Stanley was not provided access to
any non-public information prepared by or relating to VERITAS and has instead
relied on the publicly available projections of certain equity research analyst
estimates reporting on VERITAS. With respect to the financial projections,
Morgan Stanley assumed that they were reasonably prepared on bases reflecting
the best currently available estimates and judgments of the future financial
performance of Seagate. Morgan Stanley did not make and did not assume
responsibility for making any independent valuation or appraisal of the assets
or liabilities of Seagate or VERITAS, nor has it been furnished with any such
appraisals.
Morgan Stanley assumed with the consent of the board of directors of
Seagate that the merger will be consummated in accordance with the terms set
forth in the merger agreement and will be treated as a tax-free reorganization
pursuant to the Internal Revenue Code of 1986, as amended. Morgan Stanley also
assumed that the stock purchase will be consummated in accordance with the terms
set forth in the stock purchase agreement. Morgan Stanley's opinion was
necessarily based on financial, economic, market and other conditions on, and
the information made available to it as of, the date of its opinion.
Morgan Stanley's opinion did not in any manner address the prices at which
the Seagate common stock or the VERITAS common stock would actually trade at any
time.
The following is a brief summary of some of the analyses Morgan Stanley
performed in connection with its opinion letter dated March 29, 2000. Some of
these summaries of financial analyses include information presented in tabular
format. In order to understand fully the financial analyses used by Morgan
Stanley, the tables must be read together with the text of each summary. The
tables alone do not constitute a complete description of the financial analyses.
Merger Consideration Analysis
Morgan Stanley reviewed the components of the merger consideration and
analyzed the value of the stock and cash portions of the merger consideration,
excluding the tax refund amount, over a range of prices of VERITAS common stock.
As part of this analysis, Morgan Stanley also calculated the premia those
estimated valuations implied to the closing price per share of the Seagate
common stock over various time periods ending on March 28, 2000, which was the
last trading day prior to the meeting of the board of directors of Seagate at
which the merger was approved, and also over various time periods ending on
March 8, 2000, which was the last "unaffected" trading day prior to a
significant increase in the closing price per share and trading volume of the
Seagate common stock
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that occurred on March 9, 2000 and a public report that appeared on March 10,
2000 speculating that Seagate and VERITAS were in discussions regarding a
potential business combination. Morgan Stanley calculated the premia, based on
the closing price per share of the VERITAS common stock on March 28, 2000 of
$154.94, to be 14% and 35% relative to the closing price per share of the
Seagate common stock on March 28, 2000 and the average closing price per share
for the 30-trading day period ending March 28, 2000, respectively. Morgan
Stanley also calculated the premia to be 42%, 51% and 67% for the 1-trading day,
10-trading day and 30-trading day periods ending on March 8, 2000, respectively.
Morgan Stanley also observed the following based on a range of prices analyzed
for the VERITAS common stock:
<TABLE>
<CAPTION>
IMPLIED PREMIUM TO SEAGATE COMMON STOCK
--------------------------------------------------------------
30-TRADING 10-TRADING 30-TRADING
APPROXIMATE VALUE DAY DAY DAY
PER SHARE AVERAGE FOR AVERAGE FOR AVERAGE FOR
OF SEAGATE CLOSING PERIOD CLOSING PERIOD PERIOD
COMMON STOCK PRICE ON ENDING PRICE ON ENDING ENDING
VERITAS COMMON ----------------------- MARCH 28, MARCH 28, MARCH 8, MARCH 8, MARCH 8,
STOCK PRICE STOCK CASH TOTAL 2000 2000 2000 2000 2000
-------------- ------ ----- ------ --------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$168.69................................ $78.20 $5.03 $83.23 22% 45% 53% 62% 79%
(Highest closing price through March
28, 2000)
$158.81................................ $74.06 $5.04 $79.10 16% 38% 45% 54% 70%
(Closing price on March 8, 2000)
$154.94................................ $72.43 $5.05 $77.48 14% 35% 42% 51% 67%
(Closing price on March 28, 2000)
$153.25................................ $71.72 $5.05 $76.77 13% 34% 41% 50% 65%
(5-trading day average for period
ending March 8, 2000)
$140.50................................ $66.37 $5.07 $71.44 5% 25% 31% 39% 54%
(10-trading day average for period
ending March 8, 2000)
$119.70................................ $57.63 $5.12 $62.75 (8)% 9% 15% 22% 35%
(30-trading day average for period
ending March 8, 2000)
</TABLE>
Morgan Stanley noted that the value of the merger consideration varied with and
was dependent on the VERITAS common stock price. While the implied value of the
Merger Consideration was approximately $77.48 using the closing share prices as
of March 28, 2000, the value of the Merger Consideration was $62.75 when using
average share prices for the 30-trading day period ending March 8, 2000. The
estimated values of the stock and cash portions of the merger consideration set
forth in the table above were derived based upon Seagate's ownership of 128.1
million shares of VERITAS common stock, an assumption that VERITAS would elect
to retain $500 million in cash, that Seagate has a tax basis in the assets sold
to Suez Acquisition Company of approximately $2 billion and an effective tax
rate of 40%, and that transaction costs (including cost associated with any
retirement of debt and other fees and expenses) will be approximately $150
million.
Implied Valuation of Seagate Operating Assets
Morgan Stanley reviewed the stock price performance of Seagate common stock
in relation to the stock price performance of VERITAS common stock and the
publicly traded common stock of each of the publicly traded securities of
certain other companies whose shares are owned by Seagate, including Gadzoox
Networks, SanDisk Corporation and CVC, Inc. (which were subsequently converted
into shares of Veeco Instruments) for the one-year period ending on March 28,
2000. Morgan Stanley also estimated the after-tax value to Seagate, based upon
an effective tax rate of 40%, of those securities, the
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securities of Dragon Systems and the net cash held during such period by
Seagate, and estimated the implied public market valuation of Seagate's
operating assets by subtracting the values above from total market value of the
Seagate common stock. Morgan Stanley calculated that for the 30 trading days
ending on March 8, 2000, the implied value of Seagate's operating assets ranged
from a high of approximately $1.68 billion on February 16, 2000 to a low of
approximately a negative $620 million on March 7, 2000.
Transaction Premia Analysis
Morgan Stanley reviewed the recent stock price performance of Seagate
common stock and VERITAS common stock over various time periods ending on March
8, 2000 and on March 28, 2000. Morgan Stanley also estimated the implied value
of the merger consideration based upon the averages for the VERITAS common stock
for the time periods indicated below, and the premia those values implied to the
average price of the Seagate common stock over the corresponding periods, using
the same time period for each stock price. Morgan Stanley observed the
following:
<TABLE>
<CAPTION>
VERITAS IMPLIED VALUE SEAGATE
COMMON OF MERGER COMMON IMPLIED
STOCK PRICE CONSIDERATION STOCK PRICE PREMIUM
----------- ------------- ----------- -------
<S> <C> <C> <C> <C>
PERIOD ENDING MARCH 28, 2000
March 28, 2000...................... $155 $77 $68 14%
30-trading day average.............. $143 $73 $57 26%
PERIOD ENDING MARCH 8, 2000
March 8, 2000....................... $159 $79 $55 45%
5-trading day average............... $153 $77 $54 41%
10-trading day average.............. $140 $71 $51 39%
30-trading day average.............. $120 $63 $47 35%
60-trading day average.............. $105 $56 $45 26%
120-trading day average............. $ 76 $45 $39 15%
</TABLE>
Realized Value Analysis
Morgan Stanley compared the value realized for the VERITAS shares and the
other securities held by Seagate in the merger with the estimated value that
Seagate would realize on an after-tax basis assuming that Seagate continued to
sell its positions in the VERITAS common stock and the other publicly traded
securities owned by Seagate in the public markets using share prices as of March
28, 2000. This analysis showed that the value realized in the merger associated
with these securities represented a nominal 40% premium to the value that
Seagate would realize on an after-tax basis assuming that Seagate sold its
positions in VERITAS common stock and the other publicly traded securities owned
by Seagate. This analysis also indicated that the retirement of a portion of the
VERITAS shares owned by Seagate following the merger would be immediately
accretive to the earnings per share of the VERITAS common stock by approximately
5%, assuming no change in VERITAS' net income. Taking into account the implied
financial benefits that would be expected to accrue to holders of Seagate common
stock resulting from this accretion, the analysis showed that the merger
consideration represented an effective premium of 47% to the value that Seagate
would receive on an after-tax basis relative to Seagate's selling its positions
in VERITAS common stock and the other publicly traded securities owned by
Seagate.
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Morgan Stanley also compared the implied value of the merger consideration
to be received by holders of Seagate common stock under the merger with the
estimated value of Seagate's operating businesses and investments using a
hypothetical "sum-of-the-parts" analysis. For purposes of this analysis, Morgan
Stanley valued Seagate's positions in VERITAS common stock and the other
publicly traded securities owned by Seagate on an after-tax basis assuming that
Seagate sold those positions in their entirety at market prices as of March 28,
2000, and added to this estimated value the amount of Seagate's net cash and an
assumed range of values for Seagate's operating businesses from $1 billion to $4
billion. This analysis showed that the implied value of the merger consideration
to be received by holders of Seagate common stock under the merger represented a
premium ranging from 12% to 36% to this analysis of the "sum-of-the-parts"
valuation of Seagate. Morgan Stanley also observed that this analysis of the
"sum-of-the-parts" valuation of Seagate may not be realizable or sustainable for
Seagate given liquidity and other constraints that would arise in selling its
positions in VERITAS common stock and the other publicly traded securities owned
by Seagate.
Alternative Transaction Structures
In addition to the analyses summarized above, Morgan Stanley also reviewed
various alternatives to the merger, the potential ranges of value that might be
realized in these alternatives, and the timing and execution risks that might be
associated with those alternatives.
The alternatives reviewed by Morgan Stanley included:
- retaining Seagate's operating assets, continuing to sell shares of
VERITAS common stock periodically in the market, paying taxes on these
sales, and using the after-tax proceeds for repurchasing shares of
Seagate common stock. This alternative is referred to as the Status Quo.
Assuming that Seagate's operating assets traded at multiples ranging from
10x to 15x earnings forecasted by Seagate's management's base case
projections, that the VERITAS common stock had returns ranging from -20%
to 40% annually, that Seagate continued to sell its position in VERITAS
and paid taxes on these sales, Morgan Stanley calculated an implied
present value per share, discounted at 20% per annum, to the holders of
Seagate common stock, under the Status Quo ranging from approximately
$33.69 to $95.39;
- distributing the shares of a company holding all assets excluding the
VERITAS shares and certain operating businesses to Seagate stockholders
in a tax-free spin-off, whereby the assets of the remaining Seagate would
be only the shares of VERITAS common stock and those operating
businesses. This alternative is referred to as the HoldCo / Tax-Free
Spin. Assuming that the spun-off entity comprising Seagate's disc drive
business traded within a band of equity values ranging from $1.5 billion
to $3.5 billion and the distributing company would trade at a discount
ranging from 5% to 20% to the pre-tax value of the underlying shares of
VERITAS common stock, Morgan Stanley calculated an implied per share
value to the holders of Seagate common stock under the HoldCo / Tax-Free
Spin ranging from approximately $69.75 to $88.78;
- distributing the shares of a company holding all assets excluding the
VERITAS shares to Seagate stockholders in a taxable spin-off, whereby the
only assets of Seagate after the spin-off would be shares of VERITAS
common stock. This alternative is referred to as the HoldCo / Taxable
Spin. Assuming that the spun-off entity comprising Seagate's operating
assets traded within the same band of equity
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<PAGE> 84
values as under the HoldCo / Tax-Free Spin ranging from $1.5 billion to
$3.5 billion, and the distributing company would trade at a discount
ranging from 5% to 20% to the pre-tax value of the underlying shares of
VERITAS common stock, Morgan Stanley calculated an implied per share
value to the holders of Seagate common stock under the HoldCo / Taxable
Spin ranging from approximately $69.75 to $88.78. Morgan Stanley noted
that the range of implied per share values to the holders of the Seagate
common stock under the HoldCo / Taxable Spin would be the same as under
the HoldCo / Tax-Free Spin; and
- distributing the shares of a company holding the operating businesses to
Seagate stockholders in a taxable spin-off, then merging Seagate with
VERITAS in the same structure as the merger. This alternative is referred
to as the VERITAS Merger / Spin. Assuming that Seagate effected a merger
with VERITAS that was identical to the proposed merger except that the
operating assets would be spun-off in a taxable spin and the spun-off
entity comprising Seagate's operating assets traded within a band of
equity values ranging from $1.5 billion to $3.5 billion, Morgan Stanley
calculated an implied per share value to the holders of Seagate common
stock under the VERITAS Merger / Spin alternative ranging from
approximately $75.76 to $86.78. The high end of such range includes the
implied financial benefit to holders of Seagate common stock related to
the reduction in the number of outstanding shares of VERITAS.
The table below summarizes the potential ranges of value estimated by
Morgan Stanley based upon the assumptions described above.
<TABLE>
<CAPTION>
TRANSACTION STRUCTURE IMPLIED VALUE PER SHARE OF SEAGATE COMMON STOCK
--------------------- -----------------------------------------------
<S> <C>
Proposed merger................ $77.48 - $82.47
Status Quo..................... $33.69 - $95.39
HoldCo / Tax-free Spin......... $69.75 - $88.78
HoldCo / Taxable Spin.......... $69.75 - $88.78
VERITAS Merger / Spin.......... $75.76 - $86.78
</TABLE>
The high end of the range described above for the proposed merger includes the
implied financial benefit to holders of Seagate common stock related to the
reduction in the number of outstanding shares of VERITAS common stock and an
assumed potential tax refund in the amount of $1.60 per share of Seagate common
stock. Morgan Stanley noted that the proposed merger did not provide an option
for Seagate to effect the VERITAS Merger / Spin alternative described above.
Morgan Stanley also noted that the proposed merger and stock purchase
potentially offered greater certainty in terms of value and timing than the
alternative transaction structures described above.
Morgan Stanley also reviewed for illustrative purposes estimated ranges of
values for Seagate's operating businesses derived using various methodologies,
including a comparable companies analysis, a discounted equity analysis, a
discounted cash flow analysis, and a hypothetical "sum-of-the-parts" analysis.
As part of this review, Morgan Stanley analyzed the two cases developed by
Seagate management, as well as a third case developed by Morgan Stanley as a
sensitivity case, which reflected Seagate management's base case but assumed
that gross margins for the desktop segment of Seagate's disk drive business
remained constant for years 2000 through 2008.
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VERITAS Stock Price Study
Morgan Stanley compared the per share daily closing market price movements
of the VERITAS common stock for the 1-year period ending on March 28, 2000 to
the movements during the same period of:
- an index of the per share market prices of the common stock of a group of
software and other companies consisting of Microsoft Corporation, Cisco
Systems, Inc., Oracle Corporation, i2 Technologies, Inc., Siebel Systems,
Inc. and Legato Systems, Inc.;
- the Nasdaq 100; and
- the S&P 500.
This analysis showed that during this period the VERITAS common stock
outperformed the index of comparable companies and the two other market indices.
Morgan Stanley also compared the closing price per share of the VERITAS common
stock on March 28, 2000 as a multiple of the projected 2001 earnings per share
of the VERITAS common stock, the projected five-year earnings per share growth
rate for the VERITAS common stock, and the aggregate market value for the
VERITAS common stock to projected 2001 sales, with the corresponding multiples
for the comparable software companies referred to above as well as VeriSign,
Inc. and Broadvision, Inc. The earnings per share, growth rate and sales
estimates were obtained from Institutional Brokers Estimate System.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. In arriving
at its opinion, Morgan Stanley considered the results of all of its analyses as
a whole and did not attribute any particular weight to any analysis or factor
considered by it. Furthermore, Morgan Stanley believes that selecting any
portion of its analyses, without considering all analyses, would create an
incomplete view of the process underlying its opinion. In addition, Morgan
Stanley may have given various analyses and factors more or less weight than
other analyses and factors, and may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of Seagate. In performing its analyses,
Morgan Stanley made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Seagate or VERITAS. Any estimates contained in Morgan
Stanley's analyses are not necessarily indicative of future results or actual
values, which may be significantly more or less favorable than those suggested
by such estimates.
The analyses performed were prepared solely as part of Morgan Stanley's
analysis of the fairness of the merger consideration to be received by holders
of Seagate common stock pursuant to the merger agreement from a financial point
of view to those holders and were conducted in connection with the delivery of
the Morgan Stanley opinion to the board of directors of Seagate. The analyses do
not purport to be appraisals or to reflect the prices at which Seagate or any of
its assets might actually be sold.
The merger consideration pursuant to the merger agreement was determined
through arm's-length negotiations between the board of directors of Seagate and
VERITAS. Morgan Stanley provided advice to the board of directors of Seagate
during such negotiations; however, Morgan Stanley did not recommend any specific
consideration to
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<PAGE> 86
the board of directors of Seagate or that any specific consideration constituted
the only appropriate consideration for the merger.
The board of directors of Seagate retained Morgan Stanley based upon Morgan
Stanley's qualifications, experience and expertise. Morgan Stanley is an
internationally recognized investment banking and advisory firm. Morgan Stanley,
as part of its investment banking business, is continuously engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate, estate and other purposes. In the past, Morgan Stanley
and its affiliates have provided financial advisory and financing services for
Seagate and financing services for VERITAS, and have received fees for the
rendering of these services. During the past two years, Morgan Stanley and its
affiliates have received an aggregate of approximately $10.3 million in fees
from Seagate and approximately $13.3 million in fees from VERITAS for these
services. In the ordinary course of Morgan Stanley's trading and brokerage
activities, Morgan Stanley or its affiliates may at any time hold long or short
positions, may trade or otherwise effect transactions, for its own account or
for the account of customers in the equity securities of Seagate, VERITAS or any
other parties involved in the transaction. As had been disclosed to the Seagate
board of directors, Morgan Stanley and certain of its officers and employees,
including officers and employees who assisted Seagate in connection with the
merger, have committed to answer capital calls, if and when made by Silver Lake
Partners, to invest up to an aggregate of $40.85 million in the overall Silver
Lake Partners fund, substantially all of which commitments have been made by
officers and employees of Morgan Stanley. These investment commitments were made
in May 1999. Following this disclosure, the Seagate board of directors approved
Morgan Stanley's on-going participation as Seagate's financial advisor in
connection with the merger. Silver Lake Partners is a limited partnership that
has commitments from third party investors to invest up to $2.3 billion.
Under the engagement letter, Morgan Stanley provided financial advisory
services and a financial fairness opinion in connection with the merger, and
Seagate agreed to pay Morgan Stanley:
- an announcement fee in the amount of $2.5 million payable in cash upon
public announcement that Seagate entered into the merger agreement; and
- a completion fee payable in cash upon closing of the transaction based
upon a percentage ranging from 0.23% to 0.45% of the aggregate value of
the transaction, where the aggregate value means the value of the
consideration received per share of Seagate common stock multiplied by
the total number of shares outstanding, including shares that would be
outstanding upon exercise of any in-the-money stock options, warrants or
convertible preferred securities. The value of common stock to be used to
calculate the aggregate value is based on the average of (i) the average
closing price of that common stock over the five trading days up to the
announcement of the transaction, and (ii) the average closing price of
that common stock over the five trading days up to the date of the
closing of the transaction. The completion fee payable to Morgan Stanley
is subject to a minimum of $10 million and a maximum of $50 million. Any
announcement fee previously paid to Morgan Stanley will be credited
against the completion fee.
Seagate has also agreed to reimburse Morgan Stanley for its expenses incurred in
performing its services. In addition, Seagate has also agreed to indemnify
Morgan Stanley and its affiliates, their respective directors, officers, agents
and employees and each person,
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<PAGE> 87
if any, controlling Morgan Stanley or any of its affiliates against possible
liabilities and expenses, including possible liabilities under the federal
securities laws, related to or arising out of Morgan Stanley's engagement.
The full text of Morgan Stanley's presentations to the board of directors
of Seagate on March 22, 2000 and March 29, 2000 has been included as exhibit
(c)(1) and exhibit (c)(2) to the Schedule 13E-3 filed by Seagate, VERITAS and
Suez Acquisition Company in connection with the stock purchase and the merger,
and the foregoing summary is qualified in its entirety by reference to those
exhibits.
INTERESTS OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS OF SEAGATE IN THE STOCK
PURCHASE AND THE MERGER
In considering the recommendations of Seagate's board of directors,
stockholders of Seagate should be aware that Mr. Luczo and other members of
Seagate's senior management have certain interests in the stock purchase and the
merger that are different from, or in addition to, the interests of Seagate's
stockholders generally and which create potential conflicts of interest. In
addition, certain of the directors and officers of Seagate will receive benefits
in connection with the stock purchase and the merger that are not available to
other Seagate stockholders. These interests and benefits include the following:
Participation on Boards of Directors
Currently, Stephen Luczo, the President and Chief Executive Officer of
Seagate, is a member of the board of directors of Seagate and VERITAS. Mr. Luczo
is a director of VERITAS by virtue of the stockholder agreement described in
more detail under "-- Other Material Contracts and Agreements Between Seagate
and VERITAS -- Stockholder Agreement" beginning on page 97 of this document.
Mr. Luczo will also be joining the board of directors of Suez Acquisition
Company following the closing of the stock purchase and the merger.
Employment Agreements
Suez Acquisition Company and each of Messrs. Luczo, Watkins, Waite, Porter,
Pope, Carballo, Colton, Mulvaney and other senior executives of Seagate have
agreed that they will enter into employment agreements to be effective as of the
effective time of the merger in a form to be mutually agreed upon. Each of the
employment agreements will have a three-year term, subject to automatic
successive one year renewals thereafter.
Under the employment agreements, Mr. Luczo will serve as Chief Executive
Officer and President, Mr. Watkins will serve as Executive Vice President and
Chief Operating Officer, Mr. Waite will serve as Executive Vice President and
Chief Administrative Officer, Mr. Porter will serve as Executive Vice President
and Chief Technical Officer, Mr. Pope will serve as Executive Vice President and
Chief Financial Officer and Mr. Mulvaney will serve as Senior Vice President of
Suez Acquisition Company.
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<PAGE> 88
Set forth below is a chart showing such executives' base salaries and
bonuses for attaining specified target performance goals after the stock
purchase and the merger. An executive may elect to defer the payment of all or a
portion of his bonus.
------------------------------------------------------------------------
<TABLE>
<CAPTION>
EXECUTIVE BASE SALARY TARGET BONUS
- ----------------------------
<S> <C> <C>
Stephen J. Luczo $1,000,000 125% of Base Salary
- ----------------------------
William D. Watkins $ 750,000 125% of Base Salary
- ----------------------------
Charles C. Pope $ 550,000 100% of Base Salary
- ----------------------------
Donald L. Waite $ 500,000 100% of Base Salary
- ----------------------------
Townsend H. Porter $ 500,000 100% of Base Salary
- ----------------------------
Thomas F. Mulvaney $ 350,000 80% of Base Salary
- ----------------------------
</TABLE>
The executives also will be entitled to participate in employee benefit
programs comparable, in the aggregate, to those employee benefit programs made
available to senior executives of Seagate immediately prior to the effective
time of the transactions.
Under the employment agreements, in the event an executive's employment is
terminated by Suez Acquisition Company without "Cause" or by the executive with
"Good Reason" (as each such term will be defined in the employment agreements),
such executive will receive, subject to compliance with the restrictive
covenants described below, (i) continued payment of base salary and target
bonus, and (ii) continued participation in Suez Acquisition Company's health,
dental and life insurance programs, for one year following such termination of
employment (two years in the case of Messrs. Luczo and Watkins). However, if the
executive's employment is terminated by Suez Acquisition Company without Cause
or by the executive for Good Reason within two years following the effective
time of the transactions, the executive will be entitled to severance benefits
under his or her management retention agreement (as described below).
Under the employment agreements, the executives will be subject to
customary confidentiality and nondisclosure covenants and a
noncompete/nonsolicitation covenant during the term of employment and for the
period in which the employee receives severance following the executive's
termination of employment.
The employment agreements will also contain other customary provisions.
Management Retention Agreements
Seagate has entered into management retention agreements with a number of
its key executive officers. The management retention agreements provide that the
executive will be entitled to (i) a lump sum payment equal to two (three in the
case of Messrs. Luczo and Watkins) times the sum of the executive's (a) base
salary and (b) the highest annual bonus paid within the last three fiscal years,
(ii) accelerated vesting of stock options and restricted shares (as modified
below), (iii) a pro rata portion of the executive's target bonus for the year of
termination, and (iv) continued participation in Suez Acquisition Company's
health, dental and life insurance programs. In addition, the management
retention agreements of Messrs. Luczo, Watkins, Waite, Porter, Pope and Mulvaney
further provide that, in the event the severance payments are subject to excise
tax under Section 4999 of the Internal Revenue Code of 1986, as amended, Suez
Acquisition Company will provide such executives an additional payment
sufficient to pay the excise taxes and all related excise and income taxes on
such additional payment.
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<PAGE> 89
As of the effective time of the merger, Suez Acquisition Company will
assume all obligations and liabilities under the management retention
agreements. In consideration for these assumptions, Messrs. Luczo, Watkins,
Waite, Porter, Pope, Carballo, Colton, Mulvaney and several other executives of
Seagate agreed to the following modifications of their management retention
agreements: (i) the closing of the transactions will be deemed to be a "Change
of Control" for purposes of the management retention agreements; provided, that
no further corporate transactions will constitute a Change of Control; (ii) the
transactions will not constitute a termination of employment for purposes of the
management retention agreements; (iii) the definition of Good Reason was
modified; and (iv) the provisions relating to the accelerated vesting of stock
options and restricted shares will only apply to stock options and restricted
shares granted to Messrs. Luczo, Watkins, Waite, Porter, Pope Carballo, Colton
and Mulvaney in substitution for unvested stock options to acquire Seagate
common stock and restricted shares of Seagate (as described below).
Equity Rollover
As of the record date for the Seagate special meeting, Messrs. Luczo,
Watkins, Waite, Porter, Pope, Carballo, Colton and Mulvaney owned an aggregate
of approximately shares of Seagate's outstanding common stock and held
stock options to purchase an aggregate of shares of Seagate common
stock.
Messrs. Luczo, Watkins, Waite, Porter, Pope, Carballo, Colton, Mulvaney and
certain other executives of Seagate have agreed to convert restricted shares of
Seagate common stock and unvested stock options to purchase shares of Seagate
common stock and with an aggregate Value (as defined below) of between
$150,000,000 and $250,000,000 into restricted stock of Suez Acquisition Company
and unvested stock options to purchase shares of Suez Acquisition Company. For
purposes of this paragraph, "Value" means (i) with respect to restricted stock,
the fair market value of Seagate common stock times the number of shares of
restricted stock, and (ii) with respect to stock options, the excess of (x) the
fair market value per share of Seagate common stock, times the number of shares
of Seagate common stock subject to the stock option, over (y) the aggregate
exercise price of the stock option.
A significant number of shares of Seagate common stock and stock options to
purchase shares of Seagate common stock held by Messrs. Luczo, Watkins, Waite,
Porter, Pope, Carballo, Colton, Mulvaney and other executives of Seagate will
not be exchanged for capital stock or stock options of Suez Acquisition Company,
but will be converted in the merger into the right to receive aggregate
consideration of approximately $151 million, based upon (i) the closing share
price of VERITAS, Gadzoox Networks, SanDisk Corporation and Veeco Instruments on
May 15, 2000, (ii) 232 - 237 million shares of Seagate common stock outstanding
(depending on the assumed VERITAS stock price), calculated on a pro forma basis
assuming the net exercise of all outstanding stock options (other than certain
stock options to be converted into Suez Acquisition Company stock options) and
rights under the Seagate employee stock purchase plan, (iii) the estimated cash
balance of Seagate on June 30, 2000, and (iv) other transaction related items.
The aggregate value of the restricted stock and stock options held by Messrs.
Luczo, Watkins, Waite, Porter, Pope, Carballo, Colton and Mulvaney to be
converted into restricted stock and stock options of Suez Acquisition Company,
and the amount of consideration to be received by each of Messrs. Luczo,
Watkins, Waite, Porter, Pope, Carballo, Colton and
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<PAGE> 90
Mulvaney in connection with the merger, is set forth below. All such information
is estimated and subject to change prior to the closing of the stock purchase
and the merger.
<TABLE>
<CAPTION>
CONSIDERATION TO BE CONSIDERATION TO BE
RECEIVED IN MERGER RECEIVED IN MERGER
AGGREGATE VALUE OF RELATED TO STOCK RELATED TO COMMON
NAME OF EXECUTIVE OFFICER CONVERTED AMOUNT OPTIONS STOCK OWNED(1)
------------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C>
Stephen J. Luczo............. $23,584,601 $32,888,399 $14,590,001
William D. Watkins........... $11,906,917 $16,449,850 $ 1,704,609
Donald L. Waite.............. $ 8,692,187 $10,714,838 $12,190,054
Townsend H. Porter........... $ 7,460,310 $ 8,398,746 $ 2,095,609
Thomas F. Mulvaney........... $ 6,645,626 $ 7,802,770 $ 652,875
Charles C. Pope.............. $ 5,763,121 $ 7,807,587 $ 1,630,196
Bernard Carballo............. $ 8,875,012 $20,216,525 $ 2,126,844
Don Colton................... $ 7,159,572 $11,739,264 $ 2,480,229
</TABLE>
- -------------------------
(1) Amounts reflect aggregate amounts to be received in respect of the
conversion of Seagate common stock in connection with the merger but do not
reflect the actual gain realized because the cost basis in such shares of
Seagate common stock has not been deducted from amounts shown.
Following the stock purchase and the merger, but without giving effect to
the grant of additional stock options described in the following paragraph, it
is expected that Messrs. Luczo, Watkins, Waite, Porter, Pope, Carballo, Colton
and Mulvaney will own, in the aggregate, shares of Suez Acquisition Company
common stock representing approximately % of Suez Acquisition Company's
outstanding common stock calculated on a fully-diluted basis, and stock options
representing approximately % of the Suez Acquisition Company common stock
calculated on a fully-diluted basis.
Messrs. Luczo, Watkins, Waite, Porter, Pope, Carballo, Colton, Mulvaney and
certain other executives of Seagate will be entitled to receive, promptly
following the effective time of the merger, additional stock options to purchase
equity in Seagate's operating assets following the stock purchase. Each such
additional stock option will have an exercise price equal to the fair market
value of the shares. The additional options will become exercisable with respect
to 25% of the shares on the first anniversary of the date of grant and with
respect to 1/48 of the shares each month thereafter, subject to such executive's
continued employment with Suez Acquisition Company or any of its consolidated
subsidiaries.
In considering the stock purchase and the merger, the Seagate board of
directors took into account the fact that the executives mentioned above would
receive equity interests in Suez Acquisition Company in exchange for a portion
of their equity interests in Seagate.
Stock Option Payments
The merger agreement provides that, except for the portion of the options
rolled over by executives of Seagate, each holder of an outstanding option to
purchase Seagate common stock will have their option fully vested and
automatically exercised through a "net exercise" immediately prior to the
effective time of the merger. Upon the automatic exercise, each optionee will
receive the per share merger consideration received by the stockholders of
Seagate for the shares the optionee receives from the "net exercise." The "net
exercise" does not require any payment to Seagate for the exercise price of the
option or the tax withholding required upon exercise. Instead, Seagate will
deduct from the total
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<PAGE> 91
number of shares issuable upon exercise in full of the option a number of shares
equal to the number of shares derived from dividing the sum of the aggregate
exercise price and tax withholding by the average closing price of a share of
Seagate common stock for the five consecutive trading days ending two trading
days immediately preceding the closing of the merger.
The directors and executive officers of Seagate who own stock options in
Seagate immediately prior to the merger will receive the consideration described
above in the merger in exchange for all of their Seagate stock options other
than those converted by certain executives of Seagate into stock options of Suez
Acquisition Company as described above. As of April 30, 2000, there were stock
options outstanding to purchase an aggregate of 34,354,140 shares of Seagate's
common stock at a weighted average exercise price of $25.71 per share.
The following table sets forth information with respect to the stock
options held, as of April 30, 2000, by the directors and certain members of
Seagate's senior management team who will participate in the ownership of Suez
Acquisition Company which will not be converted into stock options of Suez
Acquisition Company and for which consideration will be received in connection
with the merger, and the proceeds expected to be received in respect of such
stock options in connection with the merger. All such information is estimated
and subject to change prior to the closing of the stock purchase and the merger.
<TABLE>
<CAPTION>
SHARES UNDERLYING VALUE OF CONSIDERATION
NAME OF OPTION HOLDER OPTIONS TO BE RECEIVED($)(1)
--------------------- ----------------- ----------------------
<S> <C> <C>
Officers:
Stephen J. Luczo (Director)............... 1,218,750 $32,888,399
Bernardo A. Carballo...................... 613,250 $20,216,525
William D. Watkins........................ 645,634 $16,449,850
Don G. Colton............................. 433,250 $11,739,264
Donald L. Waite........................... 417,750 $10,714,838
Townsend H. Porter........................ 344,500 $ 8,398,746
Charles C. Pope........................... 314,000 $ 7,807,587
Thomas F. Mulvaney........................ 329,711 $ 7,802,770
Directors:
Lawrence Perlman.......................... 298,742 $ 6,853,460
Gary B. Filler............................ 238,359 $ 5,497,300
Kenneth E. Haughton....................... 104,574 $ 2,077,504
Robert A. Kleist.......................... 104,574 $ 2,077,504
Laurel L. Wilkening....................... 98,991 $ 2,002,522
Thomas P. Stafford........................ 80,000 $ 1,995,059
</TABLE>
- -------------------------
(1) Based upon (i) the closing share price of VERITAS, Gadzoox Networks, SanDisk
Corporation and Veeco Instruments on May 15, 2000, (ii) 232-237 million
shares of Seagate common stock outstanding (depending on the assumed VERITAS
stock price), calculated on a pro forma basis assuming the net exercise of
all outstanding stock options (other than certain stock options to be
converted into Suez Acquisition Company stock options) and rights under the
Seagate employee stock purchase plan, (iii) the estimated cash balance of
Seagate on June 30, 2000, and (iv) other transaction related items.
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Director and Officer Indemnification and Insurance
Under the terms of the stock purchase agreement, Suez Acquisition Company
has agreed to fulfill (either directly or through one or more of the
subsidiaries it acquires from Seagate) the indemnification obligations of
Seagate and any of the foregoing subsidiaries of Seagate to their respective
directors and officers under Seagate's charter documents and any indemnification
agreements between Seagate or any of the foregoing subsidiaries of Seagate and
their respective directors and officers. In addition, Suez Acquisition Company
has agreed to include exculpation and indemnification clauses in its charter
documents that are at least as favorable to the covered persons as the
indemnification and exculpation clauses in Seagate's certificate of
incorporation and bylaws as in effect on the date of the stock purchase
agreement. Moreover, Suez Acquisition Company has agreed to use its best efforts
to maintain the directors' and officers' liability insurance policies currently
maintained by Seagate for a period of six years following the closing of the
stock purchase, provided that Suez Acquisition Company will not be required to
expend more than 150% of the annual premium currently paid for such policy in
order to maintain the policy during the foregoing six year period.
The merger agreement provides that VERITAS will fulfill and honor in all
respects the obligations of Seagate under any indemnification agreements between
Seagate and any of its directors and officers, as in effect prior to the date of
the merger agreement, but only to the extent that the obligations under such
indemnification agreements relate to approval and adoption of the merger. In
addition, the merger agreement provides that, for a period of six years after
the merger, VERITAS will cause Seagate to maintain the indemnification
obligations, and the exculpation, expense advancement and elimination of
liability provisions, contained in Seagate's certificate of incorporation and
bylaws immediately prior to the merger to the extent that such provisions apply
to the adoption and approval of the merger, and for a period of six years after
the merger, VERITAS will not permit Seagate to amend, repeal or otherwise modify
these provisions in a manner that adversely affects the rights of any directors,
officers, employees or agents of Seagate, except as otherwise required by
applicable law. The merger agreement further provides that VERITAS will use its
commercially reasonable efforts to maintain in effect, for a period of six years
following the merger, a policy of directors' and officers' liability insurance
for the benefit of the directors and officers of Seagate who are currently
covered under Seagate's directors' and officers' liability insurance on terms
that are comparable to those of Seagate's current directors' and officers'
insurance coverage.
Special Director Compensation
In connection with the stock purchase and the merger, the board of
directors of Seagate agreed to pay $100,000 to each of Messrs. Perlman and
Filler, the Co-Chairmen of the Seagate board of directors, as compensation for
their additional supervisory efforts in connection with the stock purchase and
the merger. These payments are not contingent upon the closing of the stock
purchase or merger. In addition Messrs. Perlman and Filler also receive a
payment of $2,000 per week during the pendency of the stock purchase and the
merger.
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CONSIDERATION OF THE MERGER BY VERITAS
VERITAS' PURPOSES AND REASONS FOR THE MERGER
VERITAS' principal purposes and reasons for the merger are as follows:
- to increase the percentage ownership of VERITAS represented by each share
of VERITAS common stock outstanding immediately prior to the effective
time by reducing the total number of outstanding shares of VERITAS common
stock;
- to increase liquidity of VERITAS common stock in the public trading
market;
- to eliminate the risk of downward pressure on VERITAS' stock price caused
by Seagate Software's current ownership of approximately 32.5% of the
outstanding shares of VERITAS common stock; and
- to avoid the possibility that a competitor or potential competitor of
VERITAS might seek to acquire Seagate and thereby acquire a 32.5%
ownership stake in VERITAS.
VERITAS seeks to achieve these purposes by merging an acquisition
subsidiary established by it with and into Seagate. At the effective time of the
merger, each share of Seagate common stock outstanding immediately prior to the
effective time (other than shares to be canceled as described under "The Merger
Agreement and the Merger -- Effects of the Merger" beginning on page 116 of this
document) will be converted into the right to receive the merger consideration.
As a result of the merger, Seagate will become a wholly owned subsidiary of
VERITAS.
Seagate Software, a wholly owned subsidiary of Seagate, currently holds
128,059,966 shares of VERITAS common stock. In the merger, VERITAS will
indirectly acquire these 128,059,966 shares by acquiring Seagate and will issue
a lesser number of new shares of its common stock as part of the merger
consideration in exchange for the shares of VERITAS common stock currently held
by Seagate Software, Inc. The exact number of new shares of VERITAS common stock
to be issued in the merger, however, will depend on certain variables described
under "The Merger Agreement and the Merger -- The Merger Consideration"
beginning on page 118 of this document, and will not be determined until two
days prior to the effective time of the merger. Based on the closing price on
May 3, 2000 of VERITAS common stock and the common stock of Gadzoox Networks,
SanDisk Corporation and CVC, Inc. (which was subsequently converted into common
stock of Veeco Instruments) on the Nasdaq National Market, and the assumed value
of common stock of Dragon Systems held by Seagate, VERITAS would expect to issue
approximately 118.2 million new shares of its common stock in the merger,
assuming that VERITAS elected to have Seagate retain $500 million of cash. Thus,
following the merger there will be fewer outstanding shares of VERITAS common
stock held by public stockholders and, therefore, each share that is outstanding
and held by public stockholders will represent a slightly higher percentage
ownership of VERITAS. Similarly, the proportional voting power of each
outstanding share of VERITAS common stock held by public stockholders will be
slightly greater. (The VERITAS shares held by Seagate Software will not be
considered outstanding following the merger for quorum, voting and financial
presentation purposes, including determining earnings per share).
The merger will eliminate the potential of downward pressure on VERITAS'
stock price caused by having a single 32.5% stockholder. That risk of downward
pressure on the price of a company's stock is caused by one or more holders
selling a large number of shares at one time or within a short period of time.
VERITAS believes it is possible that
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removing this risk caused by Seagate's large ownership position could have a
positive effect on the price of VERITAS common stock in the public market.
VERITAS also believes that the merger may enhance the liquidity of VERITAS
common stock in the public trading market by increasing the number of beneficial
owners of VERITAS common stock immediately after the merger as compared to the
number immediately prior to the merger. In the merger, VERITAS will issue new
shares of its common stock to all of the stockholders of Seagate entitled to
receive the merger consideration. As of the record date for the Seagate special
meeting, there were approximately record holders of Seagate common
stock representing approximately beneficial owners. In addition, the
VERITAS shares issued to Seagate stockholders (other than Seagate stockholders
that are affiliates of Seagate or VERITAS) will be freely tradable, as compared
to the VERITAS shares held by Seagate Software, which are subject to contractual
resale restrictions as well as restrictions under applicable securities laws.
VERITAS is proposing the merger at this time because the merger is part of
a series of related transactions which include the stock purchase and the other
transactions contemplated under the stock purchase agreement. VERITAS has no
other reason for proposing the merger at this particular time (as opposed to any
other time) and is not aware of any material development affecting the future
value of the Seagate common stock that is not described in this document.
RECOMMENDATION OF THE BOARD OF DIRECTORS OF VERITAS
On March 28, 1999, the VERITAS board of directors (other than Messrs. Luczo
and Kerfoot, who did not participate in the deliberations) (1) unanimously
determined that the terms of the merger agreement and the merger are advisable
and in the best interests of the VERITAS stockholders, (2) unanimously approved
the merger agreement and authorized the execution and delivery of the merger
agreement by VERITAS, and (3) unanimously recommended that the stockholders of
VERITAS approve the issuance of new shares of VERITAS common stock in connection
with the merger.
In reaching its determinations referred to above, the VERITAS board of
directors considered the factors listed below. The following discussion of the
factors considered by the VERITAS board of directors is not intended to be
exhaustive but summarizes all material factors considered. The VERITAS board did
not assign any relative or specific weights to the following factors, and
individual members of the board may have given differing weights to differing
factors and may have viewed certain factors more positively or negatively than
others. Throughout its deliberations, the board received the advice of its
financial and legal advisors, who are experienced in advising on transactions
similar to the merger. The positive factors considered by the VERITAS board are
as follows:
- As described above, the merger will slightly increase the percentage
ownership of VERITAS represented by each share of VERITAS common stock
outstanding, as compared with such percentage immediately prior to the
merger.
- The merger may enhance the liquidity of VERITAS common stock in the
public trading market by increasing the number of beneficial owners of
VERITAS common stock immediately after the merger as compared to the
number immediately prior to the merger. Also, the VERITAS shares issued
to Seagate stockholders (other than Seagate stockholders that are
affiliates of Seagate) will be freely tradable, as compared to the
VERITAS shares held by Seagate Software,
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which are subject to contractual resale restrictions as well as
restrictions under applicable securities laws.
- The merger will eliminate potential downward pressure on VERITAS' stock
price caused by Seagate Software's approximately 32.5% ownership of
VERITAS' outstanding common stock.
- If the stock purchase and the merger are not consummated, there is a risk
that a competitor or potential competitor of VERITAS might subsequently
seek to acquire Seagate and thereby acquire a 32.5% ownership stake in
VERITAS.
- Under the terms of the merger, VERITAS has the option of having Seagate
retain $500 million of the cash held by Seagate immediately following the
stock purchase (or $750 million if certain conditions are met, as
described under "The Merger Agreement and the Merger -- The Merger
Consideration" beginning on page 118 of this document) and issuing
additional shares of VERITAS common stock in the merger in lieu of
distributing such retained cash.
- In the merger, VERITAS is indirectly acquiring securities of Gadzoox
Networks, SanDisk Corporation, CVC, Inc. (which was subsequently
converted into securities of Veeco Instruments), and Dragon Systems
(except to the extent that Seagate sells all or a portion of these shares
prior to the effective time of the merger). The values assigned to these
shares in the merger agreement represent a substantial discount from the
current market prices of these securities. The discounts reflect both the
expected capital gains taxes that will be owed on the sale of these
shares and the discount to current market price likely to be incurred if
VERITAS sells such shares (since they represent substantial percentages
of the respective outstanding shares of their respective companies and
are subject to restrictions on resale under applicable securities laws
and, in some instances, contractual resale restrictions). VERITAS
ultimately may be able to sell these shares for a higher price than the
prices determined under the merger agreement, although there can be no
assurance that VERITAS will be able to do so, or that VERITAS will be
able to sell these shares for as much as the prices determined under the
merger agreement.
- Credit Suisse First Boston, VERITAS' financial advisor, delivered its
opinion orally on March 28, 2000, and subsequently in writing as of March
29, 2000, to the effect that, as of such date, and subject to the matters
stated in the opinion, the exchange ratio for the stock portion of the
merger consideration was fair to VERITAS, from a financial point of view.
- Because Suez Acquisition Company is backed by prominent venture capital
firms and has received written financing commitments with respect to the
stock purchase, as described in "The Stock Purchase Agreement and the
Stock Purchase -- Financing of the Purchase Price," it appears reasonably
likely that the stock purchase, which is a condition to the merger, can
be completed.
- The VERITAS board of directors and its financial advisor conducted arm's
length negotiations with Seagate and Suez Acquisition Company and their
respective financial advisors regarding the terms of the merger and the
merger consideration, and the board believes that the terms of the merger
consideration are as favorable to VERITAS as could reasonably be attained
under the circumstances. (Messrs. Luczo and Kerfoot did not participate
in these negotiations on behalf of VERITAS.)
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- Suez Acquisition Company and its subsidiaries have agreed to indemnify
VERITAS and Seagate and their subsidiaries for substantially all
liabilities relating to or arising from the operation of Seagate's
operating businesses prior to the merger, as well as substantially all
liabilities arising from Suez Acquisition Company's operation of these
businesses from and after the merger.
The VERITAS board also identified and considered a number of potentially
negative factors in its deliberations concerning the merger, including the
following:
- the fact that Suez Acquisition Company will be highly leveraged and could
become unable to satisfy its indemnity obligations under the
indemnification agreement;
- the possibility that the merger may not be consummated because of a
failure by Seagate to obtain the requisite vote of its stockholders in
favor of the stock purchase and the merger;
- the possibility that lawsuits, including securities class actions
lawsuits, would be filed seeking to enjoin the stock purchase and the
merger; and
- the possibility that the merger may not be consummated, even if approved
by VERITAS' and Seagate's stockholders.
The board of directors of VERITAS concluded, however, that on balance the
potential benefits of the merger to VERITAS and its stockholders outweighed the
risks associated with the merger.
FAIRNESS OF THE MERGER TO SEAGATE STOCKHOLDERS
Because Seagate currently owns approximately 32.5% of the outstanding
shares of VERITAS' common stock and because two executive officers of Seagate
are members of VERITAS' board of directors, VERITAS may be deemed to be an
affiliate of Seagate for purposes of Rule 13e-3 under the Securities Exchange
Act of 1934. As a result, VERITAS is required, under Rule 13e-3, to state
whether it reasonably believes that the merger is fair to unaffiliated
stockholders of Seagate (i.e., the holders of Seagate common stock other than
directors and executive officers of Seagate).
VERITAS AND THE BOARD OF DIRECTORS OF VERITAS ARE MAKING THE STATEMENTS
INCLUDED IN THIS SUB-SECTION SOLELY FOR THE PURPOSES OF COMPLYING WITH THE
REQUIREMENTS OF RULE 13E-3 AND RELATED RULES UNDER THE EXCHANGE ACT. VERITAS AND
THE BOARD OF DIRECTORS OF VERITAS HEREBY EXPRESSLY DISCLAIM ANY FIDUCIARY
RELATIONSHIP OR OBLIGATION TO THE STOCKHOLDERS OF SEAGATE.
The board of directors of VERITAS (other than Messrs. Luczo and Kerfoot,
who did not participate in the deliberations) has concluded that the merger and
the terms of the merger agreement (including the merger consideration, which
will be determined as described in "The Merger Agreement and the Merger -- The
Merger Consideration" beginning on page 118 of this document) are fair to
unaffiliated Seagate stockholders. The VERITAS board's conclusion is based on
the following factors:
- the fact that members of the Seagate board of directors, with the
exception of Mr. Luczo, who did not participate in the negotiations or
deliberations on behalf of Seagate, consisted solely of directors
unaffiliated with Suez Acquisition Company, VERITAS or the members of
Seagate's senior management team who will participate in the ownership of
Suez Acquisition Company;
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- the members of the Seagate board of directors are experienced and
sophisticated in business and financial matters and were well informed
about the business and operations of Seagate;
- the Seagate board of directors retained and was advised by legal counsel
experienced in advising on transactions similar to the stock purchase and
the merger;
- the Seagate board of directors retained and was advised by Morgan Stanley
& Co. as its financial advisor to assist it in evaluating the stock
purchase and the merger;
- the Seagate board of directors engaged in numerous and lengthy
deliberations to evaluate the stock purchase and the merger and
alternatives thereto;
- the unanimous approval and recommendation of the stock purchase and the
merger, and the terms of the stock purchase agreement and the merger
agreement, by the Seagate board of directors;
- the fact that the process undertaken by the Seagate board of directors
resulted in receipt of an opinion of Morgan Stanley & Co. to the effect
that the merger consideration payable under the merger agreement was fair
to the stockholders of Seagate from a financial point of view; and
- the fact that the price and terms and conditions of the stock purchase
agreement and the merger agreement were the result of arm's-length
negotiations between the Seagate board of directors, Suez Acquisition
Company and VERITAS and their respective financial advisors.
VERITAS has not assigned any relative or specific weights to the foregoing
factors. However, VERITAS believes that each of the factors is material to its
determination that the transactions are fair, and has characterized each of the
factors as positive.
VERITAS also has considered the fact that the stock purchase, the stock
purchase agreement, the merger and the merger agreement are not conditioned on
the approval of a majority of the unaffiliated Seagate stockholders, and that
certain directors and officers of Seagate have entered into employment
agreements with Suez Acquisition Company and have certain other interests that
are different from, or in addition to, the interests of the unaffiliated Seagate
stockholders, as described under "-- Interests of Directors and Certain
Executive Officers of Seagate in the Stock Purchase and the Merger" beginning on
page 78 of this document. While the approval of a majority of the Seagate common
stock held by unaffiliated Seagate stockholders may have served as an indication
of the views of such unaffiliated stockholders as to the fairness of the
transactions, Seagate, Suez Acquisition Company and VERITAS did not structure
the stock purchase or the merger to require the approval of a majority of the
Seagate common stock held by the unaffiliated Seagate stockholders because such
approvals are not required under applicable Delaware law. VERITAS believes that
the fairness of the transactions was established by the factors set forth above.
OPINION OF VERITAS' FINANCIAL ADVISOR
On March 28, 2000, Credit Suisse First Boston rendered its oral opinion,
which it subsequently confirmed in writing as of March 29, 2000, that, as of
that date, based upon and subject to the various considerations set forth in the
Credit Suisse First Boston opinion, the exchange ratio for the stock portion of
the merger consideration was fair to VERITAS from a financial point of view. The
merger consideration was determined
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through negotiations between the managements of VERITAS and the Seagate board of
directors. Credit Suisse First Boston did not recommend that any specific merger
consideration constituted the appropriate consideration for the merger.
The full text of the Credit Suisse First Boston opinion sets forth, among
other things, assumptions made, procedures followed, matters considered and
limitations on the scope of the review undertaken by Credit Suisse First Boston
in rendering its opinion. The full text of the opinion is attached as Annex F to
this document and is incorporated by reference in its entirety. VERITAS
stockholders are urged to, and should, read the Credit Suisse First Boston
opinion carefully and in its entirety. The Credit Suisse First Boston opinion
addresses only the fairness of the stock portion exchange ratio to VERITAS from
a financial point of view as of the date of the Credit Suisse First Boston
opinion, and does not constitute a recommendation to any stockholder as to how
such stockholder should vote at the VERITAS special meeting. The summary of the
Credit Suisse First Boston opinion in this document is qualified in its entirety
by reference to the full text of the Credit Suisse First Boston opinion.
In arriving at its opinion, Credit Suisse First Boston reviewed certain
publicly available business and financial information relating to VERITAS and
Seagate, as well as the merger agreement and the stock purchase agreement.
Credit Suisse First Boston also reviewed certain other information provided to
it or discussed with it by VERITAS, and met with Suez Acquisition Company and
the management of VERITAS and advisors to VERITAS and Suez Acquisition Company
to discuss the business and prospects of VERITAS and Seagate. Credit Suisse
First Boston also considered certain financial and stock market data of VERITAS
and Seagate, and Credit Suisse First Boston considered the pro forma effect of
the merger on VERITAS. Credit Suisse First Boston also considered such other
information, financial studies, analyzes and investigations and financial,
economic and market criteria which it deemed relevant.
In connection with its review, Credit Suisse First Boston did not assume
any responsibility for independent verification of any of the foregoing
information and relied on its being complete and accurate in all material
respects. With respect to financial forecasts for Seagate and VERITAS, Credit
Suisse First Boston reviewed and discussed with the management of VERITAS
publicly available financial forecasts relating to Seagate and VERITAS and
assumed that such forecasts represent reasonable estimates and judgments as to
the future financial performance of Seagate and VERITAS, respectively. VERITAS
also informed Credit Suisse First Boston of its belief that the merger should,
and Credit Suisse First Boston assumed that the merger would, be treated as a
tax-free reorganization for federal income tax purposes. In addition, Credit
Suisse First Boston did not make an independent evaluation or appraisal of the
assets or liabilities (absolute, accrued, contingent or otherwise) of Seagate,
nor was Credit Suisse First Boston furnished with any such evaluations or
appraisals. The Credit Suisse First Boston opinion is necessarily based upon
financial, economic, market and other conditions as they existed and could be
evaluated on the date of the Credit Suisse First Boston opinion. Credit Suisse
First Boston did not express any opinion as to what the value of the VERITAS
common stock actually will be when issued to Seagate's stockholders pursuant to
the merger or the prices at which shares of VERITAS common stock will trade
subsequent to the merger.
In preparing the Credit Suisse First Boston opinion, Credit Suisse First
Boston performed a variety of financial and comparative analyses. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. Credit Suisse First
Boston believes that its analyses must be
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considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, could
create a misleading view of the processes underlying the Credit Suisse First
Boston opinion. In addition, Credit Suisse First Boston may have given various
analyses more or less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions, so that the range of
valuation resulting from any particular analysis described below should not be
taken to be Credit Suisse First Boston's view of the actual value of VERITAS or
Seagate. In performing its analyses, Credit Suisse First Boston made numerous
assumptions with respect to industry performance, general business and economic
conditions and other matters, many of which are beyond the control of VERITAS or
Seagate. The analyses performed by Credit Suisse First Boston are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. In
addition, analyses relating to the value of businesses or assets do not purport
to be appraisals or to necessarily reflect the prices at which businesses or
assets may actually be sold. The analyses performed were prepared solely as part
of Credit Suisse First Boston's analysis of the fairness of the stock portion
exchange ratio to VERITAS from a financial point of view and were provided to
the VERITAS board of directors in connection with the delivery of the Credit
Suisse First Boston opinion.
The following is a summary of the material financial analyses performed by
Credit Suisse First Boston in connection with the preparation of its opinion,
and reviewed with the VERITAS board of directors at several meetings of the
VERITAS board of directors culminating in a meeting held on March 28, 2000.
Certain of the summaries of those financial analyses include information
presented in tabular format. In order to understand fully the material financial
analyses used by Credit Suisse First Boston, the tables should be read together
with the text of each summary. The tables alone do not constitute a complete
description of the material financial analyses.
Historical Stock Price Analysis
Credit Suisse First Boston analyzed the prices at which Seagate common
stock and VERITAS common stock traded from September 1, 1999 through March 22,
2000. Credit Suisse First Boston noted that VERITAS common stock had appreciated
from $27.44 a share on September 1, 1999 to $162.25 a share on March 22, 2000.
Credit Suisse First Boston also noted that Seagate common stock had appreciated
(albeit to a lesser degree than VERITAS common stock) over the same period.
Consideration Analysis
Credit Suisse First Boston analyzed the aggregate number of shares of
VERITAS common stock that would be issued by VERITAS in the merger, based upon
certain assumptions including (i) the closing prices of VERITAS, Gadzoox
Networks, SanDisk Corporation and CVC, Inc. (which were subsequently converted
into shares of Veeco Instruments) common stock as of March 22, 2000, (ii) the
value of the Dragon Systems
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common stock, and (iii) the level of cash elected to be retained by VERITAS
pursuant to the transaction. The following table summarizes the results of this
analysis:
<TABLE>
<S> <C>
VERITAS shares attributable to VERITAS shares held by
Seagate
VERITAS shares assumed held by Seagate at closing........... 128,059,966
Multiplied by 0.853743...................................... 0.853743
Illustrative VERITAS shares issued.......................... 109,330,300
VERITAS shares attributable to Seagate's other equity
holdings
Estimated aggregate after-tax discounted market value....... $431.4 million
Divided by assumed VERITAS share price at closing........... $ 162.25(1)
Illustrative VERITAS shares issued.......................... 2,658,985
VERITAS shares attributable to cash retained by VERITAS(2)
Retained cash............................................... $ 500 million
Divided by assumed VERITAS share price ten days prior to
Seagate stockholder vote.................................. $ 162.25(1)
Illustrative VERITAS shares issued.......................... 3,081,664
Total illustrative VERITAS shares issued.................. 115,070,949
</TABLE>
- -------------------------
(1) Closing price on March 22, 2000.
(2) Represents cash retained by Seagate subsequent to the consummation of the
stock purchase.
Based on the above, Credit Suisse First Boston noted that VERITAS would be
issuing in the merger approximately 10.1% fewer shares of VERITAS common stock
than the number of shares of VERITAS common stock held by Seagate as of March
22, 2000 while retaining $500 million in cash and a portfolio of other
securities.
Value Recapture Sensitivity Analysis
Credit Suisse First Boston analyzed the sensitivity of the total value to
be recaptured by VERITAS in the merger to changes in the assumed stock prices
for VERITAS and various assumed values for the stock of Gadzoox Networks,
SanDisk Corporation, CVC, Inc. (which was subsequently converted into stock of
Veeco Instruments) and Dragon Systems. The total value recaptured was calculated
as the difference between the value of the number of shares of VERITAS common
stock issued in the merger and the sum of the value of the VERITAS common stock
assumed to be held by Seagate at the time of the merger, the assumed after-tax
value at closing of Seagate's equity holdings in Gadzoox Networks, SanDisk
Corporation, CVC, Inc. (which was subsequently converted into stock of Veeco
Instruments) and Dragon Systems and the amount of cash to be retained by VERITAS
in the merger. Based upon the closing prices on March 22, 2000, the total
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value recapture would be approximately $3,198 million. The following table
summarizes the results of this analysis (in millions):
<TABLE>
<CAPTION>
ASSUMED VERITAS
ASSUMED DISCOUNTED SHARE PRICE
AFTER-TAX VALUE OF ------------------------------
EQUITY HOLDINGS $120 $162.25(1) $200
------------------ ------ ---------- ------
<S> <C> <C> <C>
$250............................................. $2,334 $3,125 $3,832
$300............................................. $2,354 $3,145 $3,852
$431.4(2)........................................ $2,407 $3,198 $3,905
$500............................................. $2,434 $3,226 $3,933
$600............................................. $2,474 $3,266 $3,973
</TABLE>
- -------------------------
(1) Closing price of VERITAS common stock on March 22, 2000.
(2) Based on closing share prices of Gadzoox Networks, SanDisk Corporation and
CVC, Inc. (which was subsequently converted into shares of Veeco
Instruments) on March 22, 2000 and other assumptions.
Pro Forma Merger Analysis
Credit Suisse First Boston analyzed certain pro forma effects of the
merger, including, among other things, the impact of the merger on the estimated
revenues per share and earnings per share for VERITAS for the second half of
calendar year 2000 and for calendar year 2001. The following table set forth the
resulting accretion/(dilution) to VERITAS' revenues per share and earnings per
share for the second half of calendar year 2000 and calendar year 2001:
<TABLE>
<CAPTION>
ACCRETION/(DILUTION)
----------------------------------------
SECOND HALF OF
CALENDAR YEAR 2000 CALENDAR YEAR 2001
------------------ ------------------
<S> <C> <C>
Revenues per share......................... 2.9% 2.8%
Earnings per share......................... 16.7% 13.5%
</TABLE>
As described above, Credit Suisse First Boston's opinion and presentation
to the VERITAS board of directors was one of many factors taken into
consideration by the VERITAS board of directors in making its determination to
recommend the merger agreement and the transactions contemplated thereby.
Consequently, the analyses described above should not be viewed as determinative
of the opinion of the VERITAS board of directors or the management of VERITAS
with respect to the value of the assets to be acquired through a merger with
Seagate or whether the VERITAS board of directors would have been willing to
agree to a different stock portion exchange ratio.
The VERITAS board of directors retained Credit Suisse First Boston to act
as its financial advisor in connection with the merger. Credit Suisse First
Boston was selected by the VERITAS board of directors based on Credit Suisse
First Boston's qualifications, expertise and reputation, as well as its
investment banking relationship and familiarity with VERITAS. Credit Suisse
First Boston is an internationally recognized investment banking and advisory
firm. Credit Suisse First Boston, as part of its investment banking business, is
continuously engaged in the valuation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes. In the past, Credit Suisse
First Boston has performed certain investment banking services for VERITAS and
has received customary fees for such
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services. During the past two years, Credit Suisse First Boston and its
affiliates have received an aggregate of approximately $2 million in fees for
such services. In the ordinary course of its business, Credit Suisse First
Boston and its affiliates may actively trade the debt and equity securities of
VERITAS and Seagate for its own account and for the accounts of its customers
and, accordingly, may at any time hold a long or short position in such
securities. Credit Suisse First Boston and certain of its affiliates and their
officers and employees have established investment funds that have committed to
invest (i) an aggregate of $20 million to acquire beneficial ownership of
limited partnership interests in Silver Lake Partners, which is a limited
partnership that has commitments from third party investors to invest up to $2.3
billion in Silver Lake Partners, and (ii) an aggregate of $10 million to acquire
beneficial ownership of limited partnership interests in Texas Pacific Group,
which is a limited partnership that has commitments from third party investors
to invest in Texas Pacific Group. These commitments were made substantially
before Credit Suisse First Boston began advising VERITAS regarding the
transactions described herein.
Pursuant to an engagement letter dated March 21, 2000, VERITAS engaged
Credit Suisse First Boston to provide financial advisory services to VERITAS in
connection with the merger, including, among other things, rendering its opinion
and making the presentation referred to above. Pursuant to the terms of the
engagement letter, VERITAS has agreed to pay Credit Suisse First Boston a fee of
$5 million upon the rendering of Credit Suisse First Boston's opinion to
VERITAS' board of directors and a fee of $25 million upon consummation of the
merger, against which the opinion fee to the extent paid will be credited. In
addition, VERITAS has agreed to reimburse Credit Suisse First Boston for its
out-of-pocket expenses, including attorney's fees, incurred in connection with
its engagement and to indemnify Credit Suisse First Boston and certain related
persons against certain liabilities and expenses arising out of or in
conjunction with its rendering of services under its engagement, including
liabilities arising under the federal securities laws.
INTERESTS OF CERTAIN DIRECTORS, OFFICERS AND AFFILIATES OF VERITAS IN THE
MERGER
In considering the recommendation of the board of directors of VERITAS to
VERITAS stockholders with respect to the share issuance, and its determination
that the merger agreement and the merger are fair to unaffiliated Seagate
stockholders, VERITAS stockholders and Seagate stockholders should be aware of
certain inherent conflicts of interest, including those referred to below, that
give rise to divided interests in considering these matters. The board of
directors of VERITAS was aware of these actual and potential conflicts of
interest when it approved the merger agreement, the merger and the share
issuance.
Seagate Software currently owns approximately 32.5% of the outstanding
shares of the outstanding common stock of VERITAS. Two members of the VERITAS
board of directors, Stephen Luczo and Gregory Kerfoot, are executive officers of
Seagate and Seagate Software, respectively. Mr. Luczo also is a member of
Seagate's senior management team who will participate in the ownership of Suez
Acquisition Company. Messrs. Luczo and Kerfoot did not participate in VERITAS'
substantive discussions or consideration of the merger agreement and the merger
or the issuance of new shares of VERITAS common stock in connection with the
merger.
EFFECT OF THE MERGER ON VERITAS
Following consummation of the merger, VERITAS presently expects to continue
its operations and businesses substantially as they are currently conducted.
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PLANS RELATING TO SEAGATE AFTER THE MERGER
VERITAS has no present plans or proposals relating to that would result in
an extraordinary corporate transaction involving Seagate or Seagate Software,
such as a merger, reorganization, liquidation, or sale or transfer of a material
amount of their respective assets, or involving any material change in the
corporate structure of Seagate or Seagate Software. However, VERITAS will
continue to evaluate the assets of Seagate and Seagate Software after the merger
from time to time, and may propose or develop new plans and proposals regarding
Seagate, Seagate Software or their respective assets which VERITAS considers to
be in the best interests of VERITAS and its stockholders. VERITAS presently
plans to cause Seagate Software to continue to hold after the merger the
128,059,966 shares of VERITAS common stock Seagate Software currently holds.
VERITAS also presently plans to cause Seagate to continue holding for investment
purposes the shares of Gadzoox Networks, SanDisk Corporation, Veeco Instruments
and Dragon Systems, to the extent that such shares are not sold by Seagate prior
to the effective time.
CONSIDERATION OF THE STOCK PURCHASE BY SUEZ ACQUISITION COMPANY
PURPOSE OF THE STOCK PURCHASE
Suez Acquisition Company's purpose for the stock purchase is to acquire
control of Seagate's operating assets. Because Suez Acquisition Company is
participating in the stock purchase with certain directors and executive
officers of Seagate, Suez Acquisition Company may be deemed to be an affiliate
of Seagate for purposes of Rule 13e-3 under the Exchange Act. As a result, Suez
Acquisition Company is required, under Rule 13e-3, to state whether it
reasonably believes that the stock purchase is fair to unaffiliated stockholders
of Seagate (i.e., the holders of Seagate common stock other than directors and
executive officers of Seagate). The following statements as to Suez Acquisition
Company's belief as to the fairness of the stock purchase to unaffiliated
stockholders of Seagate are solely for the purposes of compliance with Rule
13e-3 and related rules under the Exchange Act. SUEZ ACQUISITION COMPANY HEREBY
EXPRESSLY DISCLAIMS ANY FIDUCIARY RELATIONSHIP OR OBLIGATION TO THE STOCKHOLDERS
OF SEAGATE.
FAIRNESS OF THE STOCK PURCHASE TO SEAGATE STOCKHOLDERS
For the following reasons, Suez Acquisition Company believes that the stock
purchase is fair to unaffiliated Seagate stockholders:
- the stock purchase and alternatives to the stock purchase were considered
and approved by only those members of the board of directors of Seagate
who are unaffiliated with Suez Acquisition Company;
- the board of directors of Seagate retained and was advised by its legal
counsel, Wilson Sonsini, and its financial advisor, Morgan Stanley & Co.,
in considering the stock purchase and alternatives to the stock purchase;
- the terms of the stock purchase agreement were the result of arm's-length
negotiations among members of the board of directors of Seagate
unaffiliated with Suez Acquisition Company, Suez Acquisition Company and
their respective financial and legal advisors; and
- the members of the board of directors of Seagate unaffiliated with Suez
Acquisition Company unanimously approved and recommended the stock
purchase and the terms of the stock purchase agreement.
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Suez Acquisition Company has not assigned any relative or specific weights
to the factors described above. Suez Acquisition Company has not received any
report, opinion or appraisal from any outside party that is related to the stock
purchase.
SUMMARY SEAGATE FINANCIAL PROJECTIONS
In connection with analyzing available strategic alternatives, Seagate
prepared two sets of non-public financial projections for possible distribution
to interested third parties. These projections, the material portions of which
are stated below, were provided to Suez Acquisition Company in connection with
the discussions and negotiations between Seagate and Suez Acquisition Company
described in this document. The following projections do not give effect to the
stock purchase or the financing of the stock purchase.
Seagate does not as a matter of course publicly disclose projections as to
future revenues or earnings. The projections provided to Suez Acquisition
Company were not prepared with a view to public disclosure and are included in
this document only because such information was made available to Suez
Acquisition Company. These projections were based on a variety of assumptions,
including Seagate's ability to achieve strategic goals, objectives and targets
over applicable periods. These assumptions involve judgments with respect to
future economic, competitive and regulatory conditions, financial market
conditions and future business decisions, all of which are difficult or
impossible to predict and many of which are beyond Seagate's control or, after
the stock purchase, Suez Acquisition Company's control. The projections provided
to Suez Acquisition Company and set forth below were not prepared with a view to
compliance with the published guidelines of the Securities and Exchange
Commission regarding projections, and were not prepared in accordance with the
guidelines established by the American Institute of Certified Public Accountants
for preparation and presentation of financial projections. In addition, the
projections provided to Suez Acquisition Company and set forth below were not
reviewed by an independent public accounting firm. Suez Acquisition Company did
not rely on the projections and Seagate stockholders are cautioned not to rely
on them either.
The projections provided to Suez Acquisition Company and set forth below
constitute forward looking statements which reflect numerous assumptions made by
Seagate's management, particularly with respect to Seagate's software, SAN/NAS
(XIOtech) and consumer businesses, which are still under development. In
addition, factors such as industry performance, market acceptance of new
products, changes in customer preferences, general business, economic,
regulatory, market and financial conditions, all of which are difficult to
predict, may cause the projections provided to Suez Acquisition Company and set
forth below or the underlying assumptions to such projections to be inaccurate.
Accordingly, there can be no assurance that these projections will be realized,
and actual results may be materially greater or less than those contained in
these projections. See "Summary -- Cautionary Statement Regarding Forward
Looking Statements Contained in this Joint Proxy Statement/Prospectus" on page
33 of this document.
Seagate does not intend to update or otherwise revise the following
projections to reflect circumstances existing after the date when made or to
reflect the occurrence of future events even in the event that any or all of the
assumptions underlying the following projections are shown to be in error.
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Under one scenario, Seagate projects that the revenues, gross profit and
EBITA of Seagate's operating businesses for its fiscal years ended July 2,
2000 - 2008 will be as follows:
<TABLE>
<CAPTION>
FISCAL YEARS
--------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 2008
------- ------- ------- ------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. 6,619.0 7,417.1 8,563.8 9,503.5 10,416.3 11,359.0 12,349.7 13,582.6 15,132.2
Gross profit......... 1,261.3 1,405.8 1,692.1 2,042.1 2,309.9 2,622.9 3,022.9 3,536.3 4,201.9
EBITA................ 141.3 188.8 316.1 448.9 498.6 613.9 724.2 842.1 988.2
</TABLE>
Under another scenario, Seagate projects that the revenues, gross profit
and EBITA of Seagate's operating businesses for its fiscal years ended July 2,
2000 - 2008 will be as follows:
<TABLE>
<CAPTION>
FISCAL YEARS
----------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 2008
------- ------- -------- -------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue.............. 6,619.0 8,185.1 10,145.9 11,283.1 12,626.1 13,960.5 15,404.2 17,131.5 19,298.7
Gross profit......... 1,261.3 1,592.5 2,277.1 2,599.3 2,986.8 3,421.5 3,915.1 4,585.7 5,442.4
EBITA................ 141.3 364.5 774.1 782.6 866.8 999.8 1,167.0 1,348.9 1,563.3
</TABLE>
OTHER MATERIAL CONTRACTS AND AGREEMENTS BETWEEN SEAGATE AND VERITAS
SOFTWARE ACQUISITION AGREEMENT
On May 28, 1999, Seagate, Seagate Software, the Seagate Software Network &
Storage Management Group, Inc., VERITAS and a predecessor to VERITAS, closed and
consummated an amended and restated agreement and plan of reorganization, dated
as of April 19, 1999. We occasionally refer to this amended and restated
agreement as the software acquisition agreement, and the transactions
contemplated thereby as the software acquisition, in this document. The software
acquisition agreement provided for the contribution by Seagate, Seagate
Software, and certain of their respective subsidiaries to a VERITAS predecessor
of (i) the outstanding stock of Seagate Software Network & Storage Management
Group, Inc. and certain other subsidiaries of Seagate Software, and (ii) those
assets used primarily in the network and storage management business of Seagate
Software. We occasionally refer to Seagate Software's network and storage
management business as the NSMG business in this document. In consideration for
these contributions, the VERITAS predecessor issued shares of its common stock
to Seagate Software and offered to grant stock options to purchase its common
stock to certain of Seagate Software's employees who become its employees or
employees of its subsidiaries in connection with the software acquisition. In
addition, in connection with the software acquisition, the VERITAS predecessor
assumed certain liabilities of the NSMG business. Subsequent to the consummation
of the software acquisition, all outstanding securities of the VERITAS
predecessor were assumed and converted into common stock of VERITAS with
identical rights, preferences and privileges, on a share for share basis.
As a result of the software acquisition, Seagate Software acquired a total
of 155,583,468 shares of VERITAS common stock and former employees of the NSMG
business received options to purchase an aggregate of 15,626,358 shares of
VERITAS common stock. These share and option amounts have been adjusted to
reflect the two-for-one stock dividend of VERITAS common stock effected on July
9, 1999 and the three-for-two stock dividends, effected on November 19, 1999 and
March 3, 2000.
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REGISTRATION RIGHTS AGREEMENT
In connection with the transactions contemplated by the software
acquisition agreement, Seagate, Seagate Software, the VERITAS predecessor and
VERITAS entered into a registration rights agreement. Under the registration
rights agreement, Seagate Software has the right, subject to certain
limitations, to request that VERITAS register with the Securities and Exchange
Commission the sale or other transfer of the shares of VERITAS issued to Seagate
Software in connection with the software acquisition. In addition, under the
registration rights agreement, Seagate Software has the right, subject to
certain limitations, to include the shares of VERITAS issued to Seagate Software
in connection with the software acquisition in any registration of VERITAS
equity securities with the Securities and Exchange Commission effected by
VERITAS for its own account. Seagate and VERITAS have agreed to terminate the
registration rights agreement as of the effective time of the merger.
TRANSITION SERVICES AND FACILITIES USE AGREEMENT
In connection with the transactions contemplated by the software
acquisition agreement, Seagate, Seagate Software, the VERITAS predecessor and
VERITAS entered into a transition services and facilities use agreement. We
occasionally refer to this agreement as the transition services agreement in
this document. Under the transition services agreement, VERITAS has the right to
use certain facilities and other services of Seagate and Seagate Software for a
period of two years following the closing of the software acquisition, including
certain management information services, telephone and other telecommunications
systems, engineering and administrative support services.
STOCKHOLDER AGREEMENT
In connection with the software acquisition, Seagate, Seagate Software, the
VERITAS predecessor and VERITAS entered into a stockholder agreement. Under the
terms of the stockholder agreement, so long as Seagate and Seagate Software
continue to own at least 5.0% and not more than 15.0% of the outstanding shares
of VERITAS common stock, Seagate and Seagate Software are entitled to name one
nominee to the VERITAS board of directors. So long as Seagate and Seagate
Software continue to own at least 15.0% of the outstanding shares of VERITAS
common stock, Seagate and Seagate Software are entitled to name two nominees to
the VERITAS board of directors. Each of the foregoing nominees must be
reasonably acceptable to VERITAS. Under the terms of the stockholder agreement,
VERITAS is also obligated to use its best efforts to cause to be voted the
shares held by VERITAS' management or board of directors in favor of the
nominees selected by Seagate and Seagate Software, and to cause the VERITAS
board of directors to unanimously recommend that its stockholders vote in favor
of the nominees selected by Seagate and Seagate Software.
Under the terms of the stockholder agreement, so long as Seagate and
Seagate Software collectively own at least 5.0% of the outstanding shares of
VERITAS common stock, Seagate and Seagate Software may only sell shares of
VERITAS common stock in accordance with prescribed per quarter sale limitations
running through Seagate's quarter ending June 2000. Moreover, Seagate and
Seagate Software may not transfer, assign, pledge or otherwise dispose of any
shares of VERITAS common stock acquired in the software acquisition for one year
after the closing of the software acquisition. After that date, they may not
sell their shares of VERITAS common stock except under certain prescribed
limitations, such as to VERITAS or to a person or persons that VERITAS has
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previously approved in writing, in a bona fide underwritten public offering,
under Rule 144 under the Securities Act, in other private transactions so long
as such private transactions do not result in any single person or group owning
5% or more of the total outstanding voting stock of VERITAS, in response to a
tender offer not opposed by the VERITAS board of directors, in a merger or
consolidation approved by the VERITAS board of directors in which VERITAS is
acquired, or in a plan of liquidation that is authorized by the VERITAS board of
directors.
So long as Seagate Technology and Seagate Software own at least 5.0% of the
outstanding VERITAS common stock, under the terms of the stockholder agreement
they must vote all shares of VERITAS common stock owned by them in the same
proportion as the votes cast by all other holders of VERITAS common stock.
Seagate and Seagate Software may, however, vote their shares of VERITAS common
stock in their sole discretion in certain limited circumstances. These voting
provisions do not apply, however, to any proposals relating to any
recapitalization or reorganization accomplished in connection with any merger,
acquisition, consolidation or reorganization, any transaction of a type
contemplated by Section 351 of the Internal Revenue Code or any other similar
transaction where (i) VERITAS is acquired by a third party, (ii) there has been
a "change of control" so that the stockholders of VERITAS prior to a transaction
own, in the aggregate, less than a majority of the outstanding stock of VERITAS
or the acquiring entity after the transaction, (iii) VERITAS acquires another
entity, or (iv) VERITAS acquires all or substantially all of the assets of
another entity. In addition, under the terms of the stockholder agreement,
neither Seagate nor Seagate Software may exercise dissenter's or appraisal
rights for any event described in clauses (i) through (iv) of the preceding
sentence that has been approved by the VERITAS board of directors.
Under the terms of the stockholder agreement, until the fifth anniversary
of the software acquisition, Seagate and Seagate Software may not, without
VERITAS' prior written consent:
- acquire, or enter into discussions, negotiations, arrangements or
understandings with any third party to acquire beneficial ownership of
any VERITAS voting securities if Seagate or Seagate Software would then
beneficially own and/or have the right to acquire more than the
percentage of VERITAS common stock held by it immediately after the
closing of the software acquisition, which is referred to herein as the
standstill percentage;
- make, or in any way participate in, any solicitation of proxies with
respect to the voting of any voting securities of VERITAS; or
- seek, either alone or in concert with others, to control the VERITAS
board of directors or the policies of VERITAS.
Under the terms of the stockholder agreement, the limitations described
above will be suspended upon the earlier to occur of:
- the date that a third party not affiliated with Seagate or Seagate
Software commences a tender or exchange offer, that is not withdrawn or
terminated, and that would result in a person or group beneficially
owning in the aggregate more than 50.0% of the total voting power of
VERITAS; and
- the public announcement by VERITAS that it has entered into any agreement
with respect to a merger, consolidation, reorganization or similar
transaction involving VERITAS in which all the stockholders of VERITAS
collectively will own less
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than 50.0% of the outstanding voting stock of the surviving or acquiring
entity immediately after the transaction; or
- the sale or disposition of substantially all of VERITAS' assets.
If either Seagate or Seagate Software acquires shares of VERITAS common
stock that cause it to own a percentage of the outstanding shares of VERITAS
common stock that is greater than the standstill percentage, it will not be
obliged to dispose of any VERITAS voting stock to the extent the increased
shares were acquired:
- as a result of a recapitalization of VERITAS or a repurchase or exchange
of securities by VERITAS or any other action taken by VERITAS or its
affiliates;
- as the result of any acquisition of VERITAS voting stock made during the
period when the "standstill" obligations are suspended as described
above;
- by way of stock dividend or other distribution or rights or offerings
made available to holders of shares of VERITAS voting stock generally;
- with the consent of a majority of the members of the VERITAS board of
directors that have not been designated by Seagate or Seagate Software;
or
- as part of a transaction on behalf of certain retirement plans for the
benefit of Seagate or Seagate Software employees.
Additionally, under the terms of the stockholder agreement, Seagate
Software has the right to maintain its percentage ownership of the outstanding
shares of VERITAS common stock in the event that VERITAS sells securities to a
third party as part of a strategic business relationship with that party.
Seagate and VERITAS have agreed to terminate to stockholder agreement as of the
effective time of the merger.
DEVELOPMENT LICENSE AGREEMENT
Contemporaneously with the execution of the software acquisition agreement,
Seagate entered into a development and license agreement with the VERITAS
predecessor and VERITAS. Under the development agreement, VERITAS granted to
Seagate a non-exclusive worldwide license of certain VERITAS software products,
including the software products of the NSMG business, for internal use,
modification and preparation of derivative works by Seagate and for distribution
by Seagate to end-users and distributors, subject to certain limitations. In
addition, under the development agreement, Seagate and VERITAS agreed upon
certain co-operative marketing efforts with respect to the foregoing software
products. Seagate pays royalties to VERITAS with respect to the distribution of
the foregoing software products. The development agreement further provides for
the development by VERITAS of new products or technologies, and additional
features or enhancements to the VERITAS software products requested by Seagate.
The initial term of the development agreement is 10 years, but the development
agreement is automatically renewed on an annual basis thereafter absent notice
of termination from either Seagate or VERITAS.
CROSS-LICENSE AND ORIGINAL EQUIPMENT MANUFACTURER AGREEMENT
Contemporaneously with the execution of the software acquisition agreement,
Seagate Software Information Management Group, Inc., or Seagate IMG, entered
into a cross-license and original equipment manufacturer agreement with the
VERITAS predecessor and VERITAS. Under the cross-license agreement, VERITAS
granted to Seagate IMG a non-exclusive worldwide license of certain VERITAS
software products, including the
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NSMG business products, for internal use, modification and preparation of
derivative works by Seagate IMG. In addition, under the cross-license agreement,
VERITAS granted to Seagate IMG a license to distribute certain VERITAS software
products to end-users and distributors, subject to certain limitations. Seagate
IMG pays royalties to VERITAS with respect to the distribution of certain of the
foregoing software products. Under the cross-license agreement, Seagate IMG
licenses a restricted version of Seagate IMG's Crystal Reports software product
to VERITAS on a royalty-free basis for distribution when bundled with, or
incorporated into, a product of the NSMG business. The cross-license agreement
further provides for the development by VERITAS of new products or technologies,
and additional features or enhancements to the VERITAS software products
requested by Seagate IMG. The initial term of the cross-license agreement is
three years, but the cross-license agreement is automatically renewed on an
annual basis thereafter absent notice of termination from either Seagate IMG or
VERITAS.
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THE STOCK PURCHASE AGREEMENT AND THE STOCK PURCHASE
The following is a summary description of the terms of the stock purchase
agreement and the stock purchase that we believe are important to you. However,
the following summary does not describe all of the terms of the stock purchase
agreement, only those that we believe to be material. A copy of the stock
purchase agreement is attached to this document as Annex B and is incorporated
herein by reference. We encourage you to read the stock purchase agreement in
its entirety.
THE PARTIES
The parties to the stock purchase agreement are Seagate, Seagate Software
and Suez Acquisition Company.
Seagate Software is a Delaware corporation whose current business consists
solely of the ownership (i) of shares of VERITAS common stock acquired from
VERITAS in connection with the software acquisition described under "Special
Factors Regarding the Stock Purchase and the Merger -- Other Material Contracts
and Agreements Between Seagate and VERITAS -- Software Acquisition Agreement"
beginning on page 96 of this document, and (ii) shares of Seagate IMG. The
principal executive offices of Seagate Software are located at 915 Disc Drive,
Scotts Valley, California 95066 and its telephone number is 831-438-1550.
THE ASSET TRANSFER AND THE STOCK PURCHASE
Under the terms of the stock purchase agreement, Seagate has agreed to sell
all of its operating assets and assign substantially all of its liabilities to
Suez Acquisition Company. In order to accomplish this sale of assets, Seagate
has agreed to transfer all of its operating assets and assign substantially all
of its liabilities to its subsidiaries, including a newly created subsidiary. We
refer to this newly created subsidiary as new Seagate in this document. We refer
to this transfer of assets as the asset transfer in this document. Following the
asset transfer, the only assets directly held by Seagate will be certain
designated assets, which consist of the capital stock of Seagate Software, cash
on hand in excess of approximately $775 million (subject to upward adjustment),
the capital stock of its directly held subsidiaries (including new Seagate) and
its investments in Gadzoox Networks, SanDisk Corporation, Veeco Instruments and
Dragon Systems. We refer to these assets as the designated assets in this
document. Seagate Software, which currently holds Seagate's investment in
VERITAS, will continue to hold these securities following the asset transfer.
Following the asset transfer, Seagate will sell to Suez Acquisition Company all
of its subsidiaries (including new Seagate) other than Seagate Software, and
Seagate Software will sell to Suez Acquisition Company any indirect subsidiaries
of Seagate then held by Seagate Software. We refer to the asset transfer and the
sale of these subsidiaries as the stock purchase in this document. Seagate has
agreed to cooperate with Suez Acquisition Company in any proposed restructuring
of this asset transfer under certain conditions. See "-- Covenants Relating to
Conduct of Business by Seagate Prior to the Closing" beginning on page 108 of
this document. Following the stock purchase, Seagate will continue to own
(either directly or through its continued ownership of Seagate Software) all of
the designated assets, and Suez Acquisition Company will own all of Seagate's
operating assets. Immediately following and contingent upon the stock purchase,
under the terms of the merger agreement, Seagate will merge with a wholly owned
subsidiary of VERITAS as more fully described under "The Merger Agreement and
the Merger" beginning on page 116 of this document.
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PURCHASE PRICE
In consideration for the stock purchase, Suez Acquisition Company has
agreed to assume substantially all of Seagate's liabilities and pay Seagate an
aggregate of $2 billion in cash, less the aggregate value of certain Seagate
restricted stock and stock options held by members of Seagate's senior
management team who will be participating in Suez Acquisition Company. In this
document, we occasionally refer to this Seagate restricted stock and these
Seagate stock options as the rollover equity, and the aggregate value of such
rollover equity as the rollover equity value. For a description of the
calculation of the rollover equity value, see "Special Factors Regarding the
Stock Purchase and the Merger -- Consideration of the Stock Purchase and the
Merger by Seagate -- Interests of Directors and Certain Executive Officers of
Seagate in the Stock Purchase and the Merger -- Rollover Equity" beginning on
page 80 of this document.
REQUIRED CASH
Suez Acquisition Company is not required to close the stock purchase unless
the Seagate subsidiaries to be acquired by Suez Acquisition Company have $775
million in cash on hand at the closing. Notwithstanding the foregoing, the
amount of cash that the Seagate subsidiaries are required to have at the closing
of the stock purchase is subject to upward adjustment based upon the sum of the
following:
- all accrued and unpaid taxes of Seagate and its consolidated
subsidiaries, excluding taxes resulting from the asset transfer, but
including taxes resulting from the stock purchase and any alternative
minimum taxes for which Seagate may be liable as a result of the 1999
reorganization of Seagate IMG;
- all indebtedness of Seagate and its consolidated subsidiaries, including
any interest on such indebtedness and any premiums payable as a result of
the retirement of any such debt;
- any "excess parachute payments" within the meaning of Section 280G of the
Internal Revenue Code payable as a result of the acceleration of the
vesting restrictions applicable to Seagate stock options in the manner
contemplated by the merger agreement, to the extent such payments are in
excess of $100 million;
- the aggregate amount of all year-end bonuses and profit sharing payments
required to be paid by Seagate and its consolidated subsidiaries in July
2000; and
- all fees and expenses of Seagate's investment bankers, attorneys,
consultants, accountants and advisors that are incurred in connection
with the stock purchase and the merger.
Seagate's taxes will be calculated in accordance with the principles
employed by Seagate to calculate the taxes reflected in its February 28, 2000
balance sheet.
FINANCING OF THE PURCHASE PRICE
Seagate Technology International, a wholly owned subsidiary of new Seagate,
will incur approximately $1.1 billion of long-term debt to help finance the
stock purchase, and Suez Acquisition Company will contribute approximately $800
million to finance the stock purchase.
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TERM LOAN FACILITIES AND REVOLVING FACILITY
The Chase Manhattan Bank, Goldman Sachs Credit Partners L.P. and Merrill
Lynch Capital Corporation have delivered commitment letters providing for the
establishment of senior secured credit facilities to be provided to Seagate
Technology International in accordance with the terms of a credit agreement to
be entered into simultaneously with the consummation of the stock purchase. The
senior credit facilities are to be provided by a syndicate of banks and other
financial institutions led by The Chase Manhattan Bank, as administrative agent,
and Seagate Technology International will be the borrower under the senior
credit facilities.
The terms of the commitment letters provide for two secured term loan
facilities in an aggregate principal amount of $700 million, consisting of the
$200 million term loan A facility with a maturity of five years and the $500
million term loan B facility with a maturity of six years, and a $200 million
revolving credit facility (which will not be drawn down at the closing). Seagate
Technology International will be permitted to borrow under the term loan A
facility and the term loan B facility only upon the date of closing of the
transactions. The revolving credit facility commitment will terminate five years
from the date of the closing of the senior credit facilities.
The commitment letters provide that the term loan A facility, the term loan
B facility and the revolving credit facility will initially bear interest,
subject to performance based stepdowns applicable to the term loan A facility
and the revolving credit facility, at a rate equal to (a) in the case of the
term loan A facility and the revolving credit facility, LIBOR plus 2.50% or, at
the option of Seagate Technology International, the alternate base rate (as
defined in the senior credit facilities) plus 1.50% or (b) in the case of the
term loan B facility, LIBOR plus 3.00% or, at the option of Seagate Technology
International, the alternate base rate plus 2.00%.
In addition to paying interest on outstanding principal under the senior
credit facilities, pursuant to the commitment letters, Seagate Technology
International is required to pay a commitment fee to the lenders under the
revolving credit facility in respect of the unutilized commitments thereunder at
a rate equal to .50% per annum.
The commitment letters provide that the senior credit facilities will be
subject to a mandatory prepayment with, in general:
- 100% of the net cash proceeds of certain asset sales;
- 75% of the net cash proceeds of certain incurrences of debt;
- 75% of the excess cash flow of Suez Acquisition Company and its
subsidiaries; and
- if there are borrowings outstanding under a senior subordinated credit
facility, 50% of the net cash proceeds of certain equity offerings.
Seagate Technology International may voluntarily repay outstanding loans
under the senior credit facilities without penalty other than breakage costs.
Under the commitment letters, the obligations under the senior credit
facilities and the related documents will be secured by a first priority lien
upon substantially all of the real and personal property of Seagate Technology
International, Suez Acquisition Company and each of Suez Acquisition Company's
other existing or subsequently acquired domestic, Cayman Islands and other
material subsidiaries, and a pledge of all of the capital stock of Seagate
Technology International, and all of the capital stock of Suez Acquisition
Company's other existing or subsequently acquired or organized subsidiaries
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held by Suez Acquisition Company, Seagate Technology International or any
guarantor of the senior credit facilities. The obligations of Seagate Technology
International under the senior credit facilities are guaranteed by Suez
Acquisition Company and all of Suez Acquisition Company's existing or
subsequently acquired or formed domestic, Cayman Islands and other material
subsidiaries.
The commitment letters provide that the term loan A facility will amortize
under a schedule to be agreed upon providing for nominal semi-annual
installments during the first year thereof and semi-annual installments to be
agreed upon during the remaining term thereof, and the term loan B facility will
amortize under a schedule to be agreed upon providing for nominal semi-annual
installments during the first five years thereof and semi-annual installments in
amounts to be agreed upon during the remaining term thereof.
Principal amounts outstanding under the revolving credit facility will be
due and payable in full at maturity, five years from the date of the closing of
the senior credit facilities.
The commitment letters provide that the senior credit facilities will
contain a number of covenants that, among other things, restrict the ability of
Suez Acquisition Company and its subsidiaries to:
- dispose of assets;
- incur additional indebtedness;
- incur guarantee obligations;
- repay other indebtedness;
- make certain restricted payments and dividends;
- create liens on assets;
- make investments, loans or advances;
- make certain acquisitions;
- engage in mergers or consolidations;
- make capital expenditures;
- enter into sale and leaseback transactions; or
- engage in certain transactions with affiliates.
In addition, the commitment letters provide that under the senior credit
facilities, Suez Acquisition Company will be required to comply with financial
ratios and tests to be agreed upon. The senior credit facilities will also
contain certain customary events of default.
The commitments of The Chase Manhattan Bank, Goldman Sachs Credit Partners
L.P. and Merrill Lynch Capital Corporation to provide financing under the
commitment letters are subject to a number of conditions, including:
- a dividend by Seagate Technology International to new Seagate, and a
further dividend by new Seagate to Suez Acquisition Company, of the
proceeds of the loans under the senior credit facilities and the senior
subordinated financing received by Seagate Technology International on
the date of the closing of the senior credit facilities;
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- the deposit by Seagate Technology International of $750 million into an
account with one of the lenders; and
- other customary conditions.
SENIOR SUBORDINATED NOTES FINANCING
Seagate and Suez Acquisition Company expect that approximately $400 million
of the purchase price for the stock purchase will be funded by the issuance by
Seagate Technology International of senior subordinated notes. The senior
subordinated notes will be general unsecured obligations of Seagate Technology
International, junior to all existing and future senior indebtedness of Seagate
Technology International and pari passu in right of payment to all other
existing and future senior subordinated indebtedness of Seagate Technology
International. Suez Acquisition Company and certain of its subsidiaries will
guarantee payment on the notes on an unsecured senior subordinated basis. The
interest rate, interest payment dates, maturity and other material terms of the
senior subordinated notes will be determined prior to the consummation of the
stock purchase.
ROLLOVER EQUITY
In connection with the stock purchase, Suez Acquisition Company is
requiring certain members of Seagate's senior management team to convert a
portion of their unvested Seagate stock options and restricted stock with an
aggregate value of between $150 million and $250 million (targeted at $200
million, but no less than $150 million) into unvested stock options and
restricted stock of Suez Acquisition Company. The $2 billion purchase price to
be paid to Seagate by Suez Acquisition Company in connection with the stock
purchase will be reduced by the equity rollover value because the aggregate cash
to be paid to Seagate stockholders in connection with the merger, all of which
is coming from the proceeds of the stock purchase, will be reduced by the equity
rollover value and the aggregate number of shares of Seagate common stock
entitled to a proportionate share of the merger consideration will be reduced.
For a more complete description of the rollover equity, see "Special Factors
Regarding the Stock Purchase and the Merger -- Consideration of the Stock
Purchase and the Merger by Seagate -- Interests of Directors and Certain
Executive Officers of Seagate in the Stock Purchase and Merger" beginning on
page 78 of this document.
REPRESENTATIONS AND WARRANTIES
Seagate has made certain customary representations and warranties to Suez
Acquisition Company in the stock purchase agreement, including as to the
following:
- the due organization, valid existence and good standing of Seagate and
its subsidiaries;
- the validity and compliance with the charter documents of Seagate,
Seagate Software and each other subsidiary of Seagate to be sold to Suez
Acquisition Company;
- subsidiaries of Seagate;
- the capital structure of Seagate, including Seagate's outstanding debt
securities;
- the authority of Seagate and Seagate Software to enter into the stock
purchase agreement and consummate the stock purchase;
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- the absence of conflicts between the stock purchase agreement and the
charter documents of Seagate and Seagate Software, applicable law and the
material contracts of Seagate and its subsidiaries, other than as
disclosed to Suez Acquisition Company;
- third party consents required by Seagate or its subsidiaries in
connection with the stock purchase;
- the accuracy of all forms, reports and other documents filed by Seagate
with the Securities and Exchange Commission since July 3, 1998 and the
financial statements included therein;
- the absence of certain changes or events relating to Seagate and its
subsidiaries since the date of the last audited financial statements of
Seagate filed with the Securities and Exchange Commission, other than as
disclosed to Suez Acquisition Company;
- compliance by Seagate and its subsidiaries with applicable tax laws, and
the payment of all due and payable taxes by Seagate and its subsidiaries;
- compliance by Seagate and its subsidiaries with all applicable laws and
the terms of material contracts of Seagate and it subsidiaries, other
than as disclosed to Suez Acquisition Company;
- maintenance of and compliance with all material governmental permits
applicable to Seagate and its subsidiaries;
- the absence of any material litigation involving Seagate or its
subsidiaries, other than as disclosed to Suez Acquisition Company;
- the absence of any liabilities for brokers fees or agents commissions,
other than fees payable to Morgan Stanley as more fully described under
"Special Factors Regarding the Stock Purchase and the
Merger -- Consideration of the Stock Purchase and the Merger by
Seagate -- Opinion of Seagate's Financial Advisor" beginning on page 70
of this document;
- compliance with applicable laws relating to employee matters and
employees benefit plans maintained by Seagate and its subsidiaries, other
than as disclosed to Suez Acquisition Company;
- the absence of any liens on the property and assets of Seagate and its
subsidiaries to be sold to Suez Acquisition Company under the stock
purchase agreement, other than as disclosed to Suez Acquisition Company;
- compliance with all applicable laws relating to the environment by
Seagate and its subsidiaries;
- the absence of any controversies relating to labor matters;
- material contracts of Seagate and its subsidiaries, and their compliance
with the terms of these material contracts, other than as disclosed to
Suez Acquisition Company;
- the accuracy and completeness of all information provided by Seagate and
its subsidiaries for inclusion in this document;
- certain actions of the board of directors of Seagate relating to the
stock purchase agreement and the stock purchase;
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- the absence of any state antitakeover statutes applicable to the stock
purchase agreement and the stock purchase;
- the delivery of a fairness opinion by Morgan Stanley in respect of the
merger consideration;
- intellectual property of Seagate and its subsidiaries;
- insurance of Seagate and subsidiaries; and
- the completeness of the assets being sold to Suez Acquisition Company
under the stock purchase agreement.
All of the representations and warranties of Seagate contained in the stock
purchase agreement were made after giving effect to the asset transfer, the
merger agreement and the merger, to the extent relevant. In addition, the
representations and warranties of Seagate contained in the stock purchase
agreement will not survive the closing of the stock purchase, notwithstanding
any investigation of Seagate and its subsidiaries by Suez Acquisition Company
either before or after the closing.
Suez Acquisition Company has also made certain customary representations
and warranties to Seagate in the stock purchase agreement, including as to the
following:
- due organization, valid existence and good standing of Suez Acquisition
Company;
- the validity and compliance with the charter documents of Suez
Acquisition Company;
- the authority of Suez Acquisition Company to enter into the stock
purchase agreement and consummate the stock purchase;
- the absence of conflicts between the stock purchase agreement and the
charter documents of Suez Acquisition Company, applicable law and the
material contracts of Suez Acquisition Company, other than as disclosed
to Seagate;
- third party consents required in connection with the stock purchase;
- the absence of any litigation involving Suez Acquisition Company that
could reasonably be expected to have a material adverse effect on Suez
Acquisition Company;
- the accuracy and completeness of all information provided by Suez
Acquisition Company for inclusion in this document;
- the sufficiency of Suez Acquisition Company's financing arrangements to
effect the stock purchase in accordance with the stock purchase
agreement;
- the status of Suez Acquisition Company under Section 203 of the General
Corporation Law of Delaware;
- the organization of Suez Acquisition Company solely for purposes of
effecting the stock purchase;
- the delivery to Seagate of all agreements between Suez Acquisition
Company and VERITAS; and
- the solvency, following the stock purchase, of the subsidiaries of
Seagate to be acquired by Suez Acquisition Company in connection with the
stock purchase.
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COVENANTS RELATING TO CONDUCT OF BUSINESS BY SEAGATE PRIOR TO THE CLOSING
Under the terms of the stock purchase agreement, until the closing of the
stock purchase (or the termination of the stock purchase agreement), Seagate has
agreed to:
- carry on its business and to cause its subsidiaries to carry on their
businesses diligently and in the usual, regular and ordinary course in a
manner consistent with its past practices and applicable law;
- pay and perform its liabilities and obligations when due; and
- use its commercially reasonable efforts to preserve intact its present
business organizations, keep available the services of its present
officers and employees, and preserve its relationships with its
customers, suppliers, distributors, licensors, licensees and others with
whom Seagate does business.
In addition, under the terms of the stock purchase agreement, until the
closing of the stock purchase (or the termination of the stock purchase
agreement), Seagate has agreed to certain customary restrictions on its ability
to engage in certain activities. Notwithstanding these restrictions, Seagate
will be permitted to effect the asset transfer, sell any assets to be retained
by Seagate following the stock purchase or engage in any activity to which Suez
Acquisition Company otherwise provides its consent.
In order to effectuate the stock purchase in the manner contemplated by the
parties, under the terms of the stock purchase agreement, Seagate has agreed to
effect the asset transfer prior to the closing of the stock purchase. In
addition, Seagate has agreed to cooperate with Suez Acquisition Company in any
proposed restructuring of the asset transfer or the business organizations of
Seagate to the extent requested by Suez Acquisition Company and Suez Acquisition
Company may assign its rights to one or more designees in connection with such
restructurings, provided that any such restructuring will not decrease the
consideration paid to Seagate upon the stock purchase, increase the liability to
be retained by VERITAS or otherwise create additional costs and expenses for
Seagate in connection with the stock purchase.
Due to the fact that the stock purchase and the merger are interdependent,
under the terms of the stock purchase agreement, Seagate has also agreed that it
will not amend, modify, supplement, mutually terminate, or waive any provisions
of, the merger agreement without the consent of Suez Acquisition Company.
COVENANTS RELATING TO SOLICITATIONS BY SEAGATE PRIOR TO THE CLOSING
Under the terms of the stock purchase agreement, until the closing of the
stock purchase (or the termination of the stock purchase agreement), Seagate,
its subsidiaries and their agents, advisors and representatives may not solicit,
initiate, encourage, or induce any third party to make, submit or announce, an
offer or proposal regarding any of the following:
- the acquisition by any third party of more than 15% in interest or
beneficial ownership of the voting power of the total outstanding capital
stock of Seagate through an issuance of securities by Seagate, or a
direct purchase, tender or exchange offer, merger, consolidation or other
business combination;
- a sale, lease, exchange, transfer, license or disposition by Seagate of
more than 15% of the fair market value of its consolidated property and
assets; or
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- a sale or other disposition by Seagate of more than 15% of the assets to
be sold to Suez Acquisition Company.
In addition, under the terms of the stock purchase agreement, Seagate may
not participate in any discussions or negotiations regarding any of the
transactions described above, furnish information to any third party regarding
or otherwise facilitate any such transactions. Seagate has also agreed that it
will not enter into a letter of intent or similar document, or any other
contract, agreement or commitment regarding any of the transactions described
above, or otherwise approve, recommend or endorse any such transactions.
Notwithstanding the foregoing restrictions, under the terms of the stock
purchase agreement, until the stock purchase agreement and the stock purchase
are approved by the stockholders of Seagate, Seagate may enter into a
confidentiality or non-disclosure agreement with any third party, furnish
information regarding Seagate to any third party, and enter into discussions or
negotiations with any third party regarding any of the transactions described
above if all of the following occur:
- Seagate receives a bona fide written offer from a third party regarding
any of the following transactions:
- a merger, consolidation or other business combination or transaction
involving Seagate pursuant to which Seagate's stockholders would hold
less than 50% of the surviving entity;
- a sale or other disposition by Seagate of property and assets
representing all or substantially all of Seagate's consolidated assets;
- the acquisition by any third party of beneficial ownership of more than
50% of the voting power of the total outstanding capital stock of
Seagate; or
- a sale or other disposition by Seagate of all or more than 95% of the
assets to be sold to Suez Acquisition Company in the stock purchase;
provided that the board of directors of Seagate determines, after
consultation with its outside financial advisors, that the proposed
transaction is more favorable to the stockholders of Seagate, from a
financial point of view, than the stock purchase and the merger considered
together (or the stock purchase individually in the case of a transaction
described in the final bullet point immediately above). We occasionally
refer to any of the proposals described above (as qualified by this
proviso paragraph) as a superior proposal in this document;
- Seagate, its subsidiaries and their respective agents, advisors and
representatives have not violated the terms of the stock purchase
agreement regarding restrictions on its ability to solicit third party
proposals as described above;
- the board of directors of Seagate concludes in good faith, after
consulting with its legal counsel, that it is reasonably necessary to
engage in such action in order to comply with its fiduciary obligations
to the stockholders of Seagate under applicable law;
- Seagate obtains a customary confidentiality or non-disclosure agreement
from the third party which contains terms and conditions which are
substantially the same as the terms of Seagate's confidentiality
agreement with Suez Acquisition Company; and
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- prior to furnishing any non-public information to the third party or
entering into discussions or negotiations with the third party, Seagate
notifies Suez Acquisition Company of its intention to furnish such
information or to enter into such discussions or negotiations and
provides Suez Acquisition Company with the same information (to the
extent not already provided to Suez Acquisition Company) and the terms
and conditions of any such discussions and negotiations.
COVENANTS RELATING TO EMPLOYEE MATTERS
Following the closing of the stock purchase, Suez Acquisition Company has
agreed to offer employment to all of Seagate's employees, initially on the same
terms and conditions of employment available prior to the closing.
Under the terms of the stock purchase agreement, Suez Acquisition Company
has agreed to assume sole sponsorship of and liability under all employee
benefit plans covering or providing benefits to any former or current directors,
officers and employees of Seagate or its subsidiaries, other than Seagate's
stock incentive plans. Suez Acquisition Company will assume, however, the 1999
Stock Option Plan of Seagate IMG and any Seagate stock options which are
converted into Suez Acquisition Company options under the rollover agreements
with the members of Seagate's senior management team who are participating in
Suez Acquisition Company. Suez Acquisition Company has retained the right to
amend or terminate any of the employee benefit plans it assumes from Seagate,
but if any of these plans are terminated, all Seagate employees who accept
employment following the closing will be entitled to participate in any
replacement plan provided by Suez Acquisition Company on substantially the same
terms. Moreover, if Suez Acquisition Company replaces any of the Seagate
employee benefit plans with a new plan, Suez Acquisition Company has agreed to
ensure that all Seagate employees who accept employment following the closing
will be eligible to receive full credit under these benefit plans for time
served with Seagate prior to the stock purchase, and that any otherwise
applicable preexisting condition limitations under any new benefit plans will be
waived.
COVENANT TO RECOMMEND THE STOCK PURCHASE TO THE SEAGATE STOCKHOLDERS
Under the terms of the stock purchase agreement, the board of directors of
Seagate has agreed to recommend the Seagate's stockholders vote in favor of the
stock purchase agreement and the stock purchase, as well as the merger agreement
and the merger. Moreover, Seagate's board of directors has agreed that it will
not withdraw, amend or modify its recommendation in favor of the stock purchase
agreement and the stock purchase, or the merger agreement and the merger.
Notwithstanding the foregoing commitment, the board of directors of Seagate may
withdraw, amend or modify its recommendation if all of the following occur:
- Seagate receives a superior proposal;
- Seagate, its subsidiaries and their respective agents, advisors and
representatives have not violated the terms of the stock purchase
agreement regarding restrictions on their ability to solicit third party
proposals as described above; and
- the board of directors of Seagate concludes in good faith, after
consulting with its legal counsel, that such withdrawal, amendment or
modification is necessary in order to comply with its fiduciary
obligations to the stockholders of Seagate under applicable law.
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COVENANTS RELATING TO DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE
Under the terms of the stock purchase agreement, Suez Acquisition Company
has agreed to fulfill (either directly or through one or more of the
subsidiaries it acquires from Seagate) the indemnification obligations of
Seagate and any of the foregoing subsidiaries of Seagate to their respective
directors and officers under Seagate's certificate of incorporation and bylaws
and any indemnification agreements between Seagate or any of the foregoing
subsidiaries of Seagate and their respective directors and officers. In
addition, Suez Acquisition Company has agreed to include exculpation and
indemnification clauses in its charter documents that are at least as favorable
to the covered persons as the indemnification and exculpation clauses in
Seagate's charter documents as in effect on the date of the stock purchase
agreement. Moreover, Suez Acquisition Company has agreed to use its best efforts
to maintain the directors' and officers' liability insurance policies currently
maintained by Seagate for a period of six years following the closing of the
stock purchase, provided that Suez Acquisition Company will not be required to
expend more than 150% of the annual premium currently paid for such policy in
order to maintain the policy during the foregoing six year period.
COVENANTS RELATING TO OUTSTANDING DEBT
Under the terms of the stock purchase agreement, Seagate is required to
commence a tender offer to purchase all of the principal amount of its currently
outstanding debentures. Seagate's obligations to commence the foregoing tender
offer and to accept for payment any debentures tendered pursuant to the
foregoing tender offer may be subject to customary conditions and the closing of
the stock purchase and the merger. In the event that less than 100% of the
debentures are tendered for repurchase pursuant to the foregoing tender offer,
then at the closing of the stock purchase, Suez Acquisition Company has agreed,
under the stock purchase agreement, to assume Seagate's liabilities under the
debentures, give an irrevocable notice of redemption pursuant to the terms of
the indenture governing the debentures, and deposit the principal amount of the
redemption price for the debentures with the trustee for the debentures.
THE CLOSING; CONDITIONS TO THE CLOSING
THE CLOSING
The closing date of the stock purchase will be determined by Seagate and
Suez Acquisition Company, but will be no later than the second business day
following the satisfaction or waiver of the conditions to the closing that are
to be satisfied other than on the closing date. At the closing, Seagate will
deliver all certificates representing the subsidiaries to be sold to Suez
Acquisition Company, which subsidiaries will own immediately prior to the
closing all of Seagate's property and assets (other than the designated assets
and cash in excess of $775 million (subject to upward adjustment)) and be
responsible for substantially all of Seagate's liabilities. Also at the closing,
Suez Acquisition Company will deliver the purchase price for the foregoing
property and assets, as more fully described above under "-- Purchase Price"
beginning on page 102 of this document.
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CONDITIONS TO THE CLOSING
Seagate and Suez Acquisition Company are required to close the stock
purchase only if each of the following conditions are either satisfied or
waived:
- approval of the stock purchase agreement and the stock purchase, and the
merger agreement and the merger, by the stockholders of Seagate;
- the absence of any stop order issued by the Securities and Exchange
Commission suspending the effectiveness of the registration statement of
which this document forms a part, and the absence of any similar
proceeding in respect of this document;
- the absence of any law or governmental order (including a court order)
which has the effect of making the stock purchase illegal or otherwise
prohibiting the stock purchase;
- compliance with all requirements under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, in respect of the stock purchase;
and
- satisfaction of all of the conditions to the merger contained in the
merger agreement, other than the condition that the stock purchase and
the merger be closed.
Seagate is required to close the stock purchase only if each of the
following additional conditions are either satisfied or waived:
- accuracy in all material respects of all representations and warranties
of Suez Acquisition Company contained in the stock purchase agreement as
of the date of the stock purchase agreement and as of the closing date,
except to the extent that any inaccuracies would not, in the aggregate,
reasonably be expected to have a material adverse effect on Suez
Acquisition Company;
- compliance in all material respects with, and performance in all material
respects of, all agreements and covenants required to be complied with or
performed by Suez Acquisition Company prior to the closing of the stock
purchase; and
- the continued effectiveness of the merger agreement, and the absence of
any expressed intention on the part of VERITAS to terminate the merger
agreement.
Suez Acquisition Company is required to close the stock purchase only if
each of the following additional conditions are either satisfied or waived:
- accuracy in all material respects of all representations and warranties
of Seagate contained in the stock purchase agreement as of the date of
the stock purchase agreement and as of the closing date, except to the
extent that any inaccuracies would not, in the aggregate, reasonably be
expected to have a material adverse effect on Seagate;
- compliance in all material respects with, and performance in all material
respects of, all agreements and covenants required to be complied with or
performed by Seagate prior to the closing of the stock purchase;
- receipt by Suez Acquisition Company of the proceeds of the debt financing
under its commitments from Chase Manhattan Bank and Goldman Sachs Credit
Partners, L.P.; and
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- the availability of at least $775 million in cash among the assets to be
acquired by Suez Acquisition Company in connection with the stock
purchase. We occasionally refer to this $775 million as the required cash
in this joint proxy statement/ prospectus. The required cash is subject
to adjustment to reflect the following, but only to the extent that any
of the following is not paid by Seagate prior to the closing of the stock
purchase:
- any accrued and unpaid taxes of Seagate and its subsidiaries, including
taxes payable as a result of the stock purchase, but excluding any taxes
payable as a result of the asset transfer;
- any indebtedness of Seagate, including any interest payable thereon and
any premium payable in connection with the retirement of any such
indebtedness;
- any "excess parachute payments" within the meaning of Section 280G of
the Internal Revenue Code of 1986, as amended, in excess of $100
million;
- the aggregate amount of all year-end bonuses and profit sharing payments
required to be paid by Seagate and its subsidiaries in July 2000; and
- all fees and expenses of Seagate's investment bankers, attorneys,
consultants, accountants and advisors incurred in connection with the
stock purchase agreement and the stock purchase, and the merger
agreement and the merger.
SUEZ ACQUISITION COMPANY INDEMNIFICATION OBLIGATIONS FOLLOWING THE CLOSING
Under the terms of the stock purchase agreement, Suez Acquisition Company
has agreed to indemnify Seagate as provided in the indemnification agreement.
The indemnification agreement provides, among other things, that Suez
Acquisition Company will indemnify Seagate for substantially all of the
liabilities of Seagate relating to the ownership, operations or conduct by
Seagate of its businesses, properties and assets prior to the closing of the
stock purchase.
For a more complete description of the terms of the indemnification
agreement, see "Other Agreements Relating to the Stock Purchase and the
Merger -- The Indemnification Agreement" beginning on page 140 of this document.
AMENDMENT OR WAIVER OF TERMS OF THE STOCK PURCHASE AGREEMENT
Seagate, Seagate Software and Suez Acquisition Company may amend the stock
purchase agreement at any time by mutual agreement only and only with the
consent of VERITAS (which consent is required under the terms of the merger
agreement).
TERMINATION OF THE STOCK PURCHASE AGREEMENT; TERMINATION FEES AND PAYMENTS
TERMINATION
The stock purchase agreement may be terminated under the following
conditions:
- by mutual consent, duly authorized by the board of directors of Seagate
and Suez Acquisition Company;
- by either Seagate or Suez Acquisition Company if:
- the stock purchase has not been closed by December 31, 2000, but only if
the party seeking to terminate the stock purchase agreement after
December 31,
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2000 has not been a principal cause of the failure to close the stock
purchase agreement by that date;
- any governmental authority has issued an order (including a court order)
which has the effect of permanently prohibiting the stock purchase,
provided that the governmental order has become final and nonappealable;
or
- the stockholders of Seagate fail to approve the stock purchase agreement
and the stock purchase, provided that neither party may terminate the
stock purchase agreement on this basis if the failure to obtain the
requisite approval of Seagate's stockholders was caused by the actions
of the party seeking termination and those actions constituted a
material breach of the stock purchase agreement;
- by Seagate if:
- there has been a breach of the representations and warranties of Suez
Acquisition Company contained in the stock purchase agreement, which
breach would cause a failure of the condition to closing relating to the
accuracy of the representations and warranties made by Suez Acquisition
Company in the stock purchase agreement; or
- prior to obtaining the approval of Seagate's stockholders of the stock
purchase agreement and the stock purchase:
- Seagate receives a superior proposal;
- Seagate, its subsidiaries and their agents, advisors and
representatives have not violated the terms of the stock purchase
agreement regarding restrictions on its ability to solicit third party
proposals as described above;
- the board of directors of Seagate concludes in good faith, after
consulting with its legal counsel, that the termination of the stock
purchase agreement is necessary in order to comply with its fiduciary
obligations to the stockholders of Seagate under applicable law; and
- Seagate pays Suez Acquisition Company the $80 million termination fee
described below concurrently with such termination; or
- by Suez Acquisition Company if:
- there has been a breach of the representations and warranties of Seagate
contained in the stock purchase agreement, which breach would cause a
failure of the condition to closing relating to the accuracy of the
representations and warranties made by Seagate in the stock purchase
agreement; or
- the board of directors of Seagate withdraws, modifies or amends its
recommendation in favor of the stock purchase agreement and the stock
purchase, and the merger agreement and the merger, or fails to reject
within 10 days a third party tender offer or exchange offer commenced
for more than 15% of the equity securities of Seagate.
TERMINATION FEES AND PAYMENTS
Under the terms of the stock purchase agreement, Seagate is required to pay
Suez Acquisition Company an $80 million termination fee in cash if:
- Seagate terminates the stock purchase agreement following receipt of a
superior offer;
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- Suez Acquisition Company terminates the stock purchase agreement because
the board of directors of Seagate withdraws, modifies or amends its
recommendation in favor of the stock purchase agreement and the stock
purchase, or fails to reject within 10 days a third party tender offer or
exchange offer commenced for more than 15% of the equity securities of
Seagate;
- either Seagate or Suez Acquisition Company terminates the stock purchase
agreement because (i) the stockholders of Seagate fail to approve the
stock purchase agreement and the stock purchase, (ii) a proposal to
acquire more than 15% of Seagate's outstanding capital stock or property
and assets is made prior to the Seagate special meeting, and (iii) within
twelve months following the termination of the stock purchase agreement,
Seagate enters into an agreement to effect a business combination
involving the acquisition of more than 50% of Seagate's outstanding
capital stock or assets; or
- either Seagate or Suez Acquisition Company terminates the stock purchase
agreement because (i) they have not closed the stock purchase by December
31, 2000, (ii) a proposal to acquire more than 15% of Seagate's
outstanding capital stock or property and assets is made prior to
December 31, 2000, (iii) following the foregoing proposal but before the
termination of the stock purchase agreement, Seagate shall have
intentionally breached any of the terms of the stock purchase agreement
in any material respect and such breach contributed to the failure to
close the stock purchase by December 31, 2000, and (iv) within twelve
months following the termination of the stock purchase agreement, Seagate
enters into an agreement to effect a business combination involving the
acquisition of more than 50% of Seagate's outstanding capital stock or
assets.
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THE MERGER AGREEMENT AND THE MERGER
The following is a summary description of the terms of the merger agreement
and the merger that we believe are important to you. However, the following
summary does not describe all of the terms of the merger agreement, only those
that we believe to be material. Statements made in this document with respect to
the terms of the merger agreement, the merger and the related transactions under
the merger agreement are in each case qualified in their entirety by reference
to the merger agreement. A copy of the merger agreement is attached to this
document as Annex A and is incorporated herein by reference. We encourage you to
read the merger agreement in its entirety.
THE PARTIES
The parties to the merger agreement are Seagate, VERITAS and a wholly owned
subsidiary of VERITAS. We occasionally refer to the wholly owned subsidiary of
VERITAS as merger sub in this document.
Merger sub is a Delaware corporation that was formed by VERITAS and is
wholly owned by VERITAS. Merger sub was formed solely for the purpose of
implementing the merger and will engage in no other operations. Pursuant to the
merger, merger sub will be merged with and into Seagate and will cease to exist.
Unless the context requires or specifies otherwise, the term "merger sub" refers
to Victory Merger Sub, Inc. The principal executive offices of merger sub are
located at VERITAS' principal executive offices: c/o VERITAS Software
Corporation, 1600 Plymouth Street, Mountain View, California 94043 and its
telephone number is (650) 335-8000.
TERMS OF THE MERGER
The merger will be completed when all of the conditions contained in the
merger agreement are satisfied or waived, including (i) approval and adoption by
the Seagate stockholders of the stock purchase agreement and the stock purchase,
and the merger agreement and the merger, and (ii) the approval and adoption by
the VERITAS stockholders of the issuance of new shares of VERITAS common stock
in connection with the merger.
EFFECTS OF THE MERGER
At the effective time of the merger, merger sub will be merged with and
into Seagate, merger sub will cease to exist and Seagate will continue as the
corporation surviving the merger. Seagate will then be a wholly owned subsidiary
of VERITAS. The certificate of incorporation and bylaws of merger sub
immediately prior to the effective time will remain the certificate of
incorporation and bylaws of the surviving corporation following the merger. Each
of the members of the board of directors of Seagate at the time of the merger
will resign and Mr. Jay Jones, a senior vice president of VERITAS, will be
elected as the sole director of the surviving corporation.
At the effective time, by virtue of the merger and without any action on
the part of VERITAS, merger sub or Seagate:
- each share of Seagate common stock outstanding immediately prior to the
effective time (other than shares canceled as described in the next
bullet point) will be converted into the right to receive the merger
consideration (which is described under "-- The Merger Consideration"
beginning on page 118 of this document);
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- each share of Seagate common stock held in the treasury of Seagate, or
owned by merger sub or any wholly-owned subsidiary of Seagate or of
VERITAS will be canceled;
- certain restricted shares of Seagate common stock held by members of
Seagate's senior management team who will participate in the ownership of
Suez Acquisition Company that are being converted into shares of
restricted stock of Suez Acquisition Company (as described under "Special
Factors Regarding the Stock Purchase and the Merger -- Consideration of
the Stock Purchase and the Merger by Seagate -- Interests of Directors
and certain Executive Officers of Seagate in the Stock Purchase and the
Merger -- Equity Rollover" beginning on page 80 of this document) will be
canceled;
- certain unvested options to purchase Seagate common stock held by members
of Seagate's senior management team who will participate in the ownership
of Suez Acquisition Company that are being converted into options to
purchase shares of Suez Acquisition Company (as described under "Special
Factors Regarding the Stock Purchase and the Merger -- Consideration of
the Stock Purchase and the Merger by Seagate -- Interests of Directors
and certain Executive Officers of Seagate in the Stock Purchase and the
Merger -- Equity Rollover" beginning on page 80 of this document) will be
canceled;
- the vesting restrictions applicable to all options to purchase Seagate
common stock outstanding immediately prior to the effective time under
all Seagate stock option plans (other than the options being canceled as
described in the previous bullet point) will be accelerated such that no
vesting restrictions remain; these accelerated options will be converted
into shares of Seagate common stock (the number of such shares to be
determined as described in the next paragraph), and these shares of
Seagate common stock will then be immediately converted into the right to
receive the merger consideration;
- all rights to purchase shares of Seagate common stock outstanding under
Seagate's 1999 employee stock purchase plan immediately prior to the
effective time will be exercised and each share of Seagate common stock
purchased pursuant to such exercise will be converted into the right to
receive the merger consideration; and
- each share of merger sub's common stock issued and outstanding
immediately prior to the effective time will be converted into one share
of common stock of the surviving corporation.
The number of shares of Seagate common stock that will be deemed issued in
respect of each option that is accelerated (as described in the fifth bullet
point in the previous paragraph) will equal (1) the aggregate number of shares
of Seagate common stock issuable upon the exercise in full of such option minus
(2) the number of shares equal to (a)(i) the per share exercise price of such
option, multiplied by (ii) the aggregate number of shares of Seagate common
stock issuable upon the exercise in full of such option, divided by (b) the
average closing price of a share of Seagate common stock, as reported on The New
York Stock Exchange, for the five consecutive trading days ending two trading
days immediately preceding the effective time of the merger.
Shares of Seagate common stock outstanding immediately prior to the
effective time held by a holder who has demanded and perfected his or her right
to appraisal will not be converted into the right to receive the merger
consideration. Such a holder will instead be entitle to the rights that are
afforded under the Delaware General Corporation Law. A
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description of these rights may be found under "-- Appraisal Rights" beginning
on page 134 of this document.
THE MERGER CONSIDERATION
The merger consideration payable for each outstanding share of Seagate
common stock (other than shares being canceled as described above in "-- Effects
of the Merger") will consist of an amount of cash (sometimes referred to in this
document as the cash portion) and a fraction of a share of VERITAS common stock
(sometimes referred to in this document as the stock portion) and a
proportionate interest in the tax refund amount. Neither the cash portion, the
stock portion, or the fair market value of the tax refund amount, will be
determined until the second day before the effective time of the merger. Seagate
and VERITAS have established a toll-free number which interested persons can
call to find out the cash portion the stock portion and the estimated fair
market value of the tax refund amount, as well as the aggregate number of shares
of VERITAS common stock that will be issued in the merger. This toll-free number
is 1-800- . SEAGATE STOCKHOLDERS AND VERITAS STOCKHOLDERS ARE STRONGLY
ENCOURAGED TO CALL THIS TOLL-FREE NUMBER TO RECEIVE THIS IMPORTANT INFORMATION.
The aggregate consideration payable in the merger in exchange for all
shares of Seagate common stock eligible to receive the merger consideration will
be based on four components:
- the amount of cash held by Seagate immediately prior to the effective
time of the merger;
- the number of shares of VERITAS common stock held by Seagate Software at
the time of the merger;
- the calculated value of the shares of Gadzoox Networks, SanDisk
Corporation, Veeco Instruments and Dragon Systems held by Seagate at the
effective time of the merger; and
- the value of the tax refund amount.
This aggregate consideration will then be allocated to the number of shares
of Seagate common stock to be converted in the merger, which will be based on:
- the number of shares of Seagate common stock outstanding at the time of
the merger;
- the number of restricted Seagate shares held by members of Seagate's
senior management team who will participate in the ownership of Suez
Acquisition Company that are being converted into shares of Suez
Acquisition Company (as described under "Special Factors Regarding the
Stock Purchase and the Merger -- Consideration of the Stock Purchase and
the Merger by Seagate -- Interests of Directors and Certain Executive
Officers of Seagate in the Stock Purchase and the Merger -- Equity
Rollover" beginning on page 80 of this document);
- the net number of shares of Seagate common stock issued upon acceleration
and conversion of outstanding options to purchase Seagate common stock,
as described in the fifth bullet point of the second paragraph of
"-- Effects of the Merger;" and
- the number of shares of Seagate common stock to be canceled, as described
in the second bullet point of the second paragraph of "-- Effects of the
Merger."
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VERITAS and Seagate will determine the total number of shares of Seagate
common stock to be converted in the merger on the second day prior to the
effective time of the merger. In this section, we sometimes refer to this total
number of shares to be so converted in the merger as the "Total Seagate Shares."
THE CASH PORTION
The cash portion of the merger consideration will consist of (a) an amount
of cash equal to all of the cash held by Seagate immediately prior to the
effective time, minus all cash that VERITAS elects to retain (as described in
the last paragraph of this section), divided by (b) the Total Seagate Shares.
The amount of cash that Seagate will hold immediately prior to the
effective time depends on the amount of cash required to be held by Seagate's
subsidiaries at the time they are transferred to Suez Acquisition Company in the
stock purchase. This amount will be determined as described under "The Stock
Purchase Agreement and the Stock Purchase -- Required Cash" beginning on page
102 of this document.
Seagate and VERITAS will determine the cash portion on the second day prior
to the effective time of the merger. SEAGATE STOCKHOLDERS ARE STRONGLY
ENCOURAGED TO CALL 1-800- TO FIND OUT THE EXACT AMOUNT OF THE CASH
PORTION.
The merger agreement permits VERITAS to elect to cause Seagate to retain
either $0, $500 million or $750 million in cash. VERITAS must choose one of
these amounts at least 10 days prior to the effective time of the merger.
VERITAS can elect to cause Seagate to retain $750 million only if Seagate has
sold all or a portion of its shares of Gadzoox Networks, SanDisk Corporation,
Veeco Instruments or Dragon Systems prior to the effective time of the merger
and has received aggregate gross proceeds in excess of $200 million from these
sales. If VERITAS chooses to have cash retained, it will issue additional shares
of VERITAS common stock as part of the merger consideration, as described below
under "-- The Stock Portion."
THE STOCK PORTION
The stock portion of the merger consideration will consist of a fraction of
a share of VERITAS common stock. This fraction will be determined by adding
together each of the following:
- a fraction obtained by multiplying the aggregate number of shares of
VERITAS common stock held by Seagate Software immediately prior to the
effective time of the merger by 0.853743, and then dividing this result
by the Total Seagate Shares; plus
- a fraction obtained by dividing the amount of cash, if any, that VERITAS
elects to have Seagate retain (as described above under "-- The Cash
Portion"), by the average closing price per share of VERITAS common
stock, as reported on the Nasdaq National Market, for the five
consecutive trading days ending two trading days immediately preceding
the date that VERITAS makes its election, and then dividing this result
by the Total Seagate Shares; plus
- a fraction obtained by dividing the aggregate value (determined as
described in the next paragraph) of the shares of Gadzoox Networks,
SanDisk Corporation, Veeco Instruments and Dragon Systems held by Seagate
immediately prior to the effective time by the average closing price per
share of VERITAS common stock, as reported on the Nasdaq National Market,
for the five consecutive trading days
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ending two trading days immediately preceding the effective time of the
merger, and then dividing this result by the Total Seagate Shares.
The aggregate value of the shares of Gadzoox Networks, SanDisk Corporation,
Veeco Instruments and Dragon Systems held by Seagate immediately prior to the
effective time will be determined by adding together each of the following:
- (A)(x) the average closing price of a share of Gadzoox Networks common
stock, as reported on the Nasdaq National Market, for the five
consecutive trading days ending two trading days immediately preceding
the effective time of the merger, multiplied by (y) 0.6 (the product of
(x) and (y) being the "Gadzoox Value"), minus (B) 0.4 multiplied by the
difference between the Gadzoox Value and Seagate's tax basis in a share
of Gadzoox Networks common stock; multiplied by (C) the number of shares
of Gadzoox Networks common stock held by Seagate immediately prior to the
effective time; plus
- (A)(x) the average closing price of a share of SanDisk Corporation,
common stock, as reported on the Nasdaq National Market, for the five
consecutive trading days ending two trading days immediately preceding
the effective time of the merger, multiplied by (y) 0.8 (the product of
(x) and (y) being the "SanDisk Value"), minus (B) 0.4 multiplied by the
difference between the SanDisk Value and Seagate's tax basis in a share
of SanDisk Corporation common stock; multiplied by (C) the number of
shares of SanDisk Corporation common stock held by Seagate immediately
prior to the effective time; plus
- (A)(x) the average closing price of a share of Veeco Instruments common
stock, as reported on the Nasdaq National Market, for the five
consecutive trading days ending two trading days immediately preceding
the effective time of the merger, multiplied by (y) 0.6 (the product of
(x) and (y) being the "Veeco Instruments Value"), minus (B) 0.4
multiplied by the difference between the Veeco Instruments Value and
Seagate's tax basis in a share of Veeco Instruments common stock;
multiplied by (C) the number of shares of Veeco Instruments common stock
held by Seagate immediately prior to the effective time; plus
- with respect to shares of Dragon Systems capital stock held by Seagate
immediately prior to the effective time (or any shares into which the
Dragon shares may have been converted), (i) if such shares are not listed
for trading on a national securities exchange or over-the-counter market,
then an amount mutually agreed upon by VERITAS and Seagate at least 10
days prior to date of the Seagate special meeting, (ii) if such shares
are listed for trading on a national securities exchange or
over-the-counter-market, then (A)(x) the average closing price per share,
as reported on such exchange or over-the-counter market, for the five
consecutive trading days ending two trading days immediately preceding
the effective time of the merger, multiplied by (y) 0.6 (the product of
(x) and (y) being the "Dragon Value"), minus (B) 0.4 multiplied by the
difference between the Dragon Value and Seagate's tax basis in a share,
multiplied by (C) the number of such shares held by Seagate immediately
prior to the effective time (excluding any shares subject to any escrow
agreement). If Seagate and VERITAS are unable to mutually agree on a
value pursuant to clause (i) of this bullet point, then the value
assigned to the shares of Dragon Systems capital stock will be zero, and
any proceeds realized upon the subsequent sale of all or any portion of
the Dragon shares will be included in the tax refund amount.
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Seagate and VERITAS will determine the stock portion on the second day
prior to the effective time of the merger. SEAGATE STOCKHOLDERS ARE STRONGLY
ENCOURAGED TO CALL 1-800- IN ORDER TO FIND OUT THE STOCK PORTION. VERITAS
STOCKHOLDERS ARE STRONGLY ENCOURAGED TO CALL THIS NUMBER IN ORDER TO FIND OUT
THE AGGREGATE NUMBER OF SHARES OF VERITAS COMMON STOCK TO BE ISSUED IN THE
MERGER.
Seagate stockholders should note that, because the stock portion will
consist of a fixed fractional number of a share of VERITAS common stock, and
because there will be no adjustment to this fixed fractional number based upon
changes in the market price of VERITAS common stock, the specific dollar value
of the merger consideration will depend, in part, on the market value of VERITAS
common stock, and may decrease from the date Seagate stockholders submit their
proxies. The market price of VERITAS common stock is subject to the general
price fluctuations in the market for publicly traded equity securities generally
and has experienced significant volatility.
TAX REFUND AMOUNT
A portion of the merger consideration will consist of the right to receive
the tax refund amount, which consists of:
- amounts received by Seagate with respect to certain anticipated tax
refunds and the utilization of tax credits attributable to Seagate for
taxable years or periods (or any portion of a taxable year or period)
ending on or prior to the effective time of the merger; and
- shares of Dragon Systems capital stock (or any securities or other assets
issued in exchange for such shares) being held under any escrow
arrangements, or all of the shares of Dragon Systems capital stock held
by Seagate at the effective time of the merger if such shares are not
listed on any securities exchange or other market and Seagate and VERITAS
are unable to agree on the value of these shares.
The tax refund amount will be decreased by the amount of any administrative
fees, which are limited to 1% of amounts paid to Seagate stockholders in respect
of the tax refund amount. Seagate is required to appoint a tax refund amount
administrator on or prior to the effective time of the merger. The administrator
will have the right to initiate and prosecute any claims for tax refunds or the
utilization of tax credits. VERITAS is required to cooperate with the
administrator as necessary to timely pursue any of these claims. Upon receipt of
a refund or upon the effective utilization of a tax credit, VERITAS is required
to remit any such amounts to the administrator within 10 business days of
receipt. Amounts remitted thereafter are subject to an interest charge of 8% per
annum. All funds collected by the administrator will be invested in short-term
money market instruments and paid to those persons who were Seagate stockholders
as of the effective time of the merger at the end of each calendar quarter
commencing September 30, 2000.
Each Seagate stockholder's interest in the tax refund amount is a
non-transferable right and will be evidenced by appropriate documentation as
agreed upon by Seagate and VERITAS prior to the effective time of the merger. A
person's right to receive his, her or its proportionate interest in the tax
refund amount expires on March 31, 2003. Any amounts received after such
expiration will be the property of VERITAS.
In connection with the merger, Seagate anticipates that it will recognize a
significant compensation deduction in connection with the mandatory exercise of
employee stock options. The size of this deduction will vary directly with the
value of merger
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consideration. It is anticipated, although not certain, that the deduction will
offset the net gain, if any, recognized in connection with the sale of Seagate's
operating assets and all other taxable income accrued in the tax period within
which the merger occurs (before taking into account this compensation
deduction), thus creating a net operating loss for such period. This net
operating loss, if any and to the full extent permitted by law, will be carried
back to prior taxable years in which Seagate paid federal income tax and should
be reflected in the tax refund amount.
Each share of Seagate common stock outstanding immediately prior to the
effective time of the merger (other than certain shares to be cancelled) will be
entitled to receive a proportionate share of the tax refund amount based upon
the total number of shares of Seagate common stock outstanding immediately prior
to the effective time of the merger, including:
- all shares of Seagate common stock issuable upon the acceleration and net
exercise of all stock options to acquire Seagate common stock, other than
stock options held by members of Seagate's senior management team that
are being converted into options of Suez Acquisition Company; and
- all shares of Seagate common stock issuable upon the exercise of all
rights under Seagate's employee stock purchase plan.
ADJUSTMENTS AND WITHHOLDING
The merger consideration will be adjusted to reflect the effect of any
stock split, reverse stock split, stock dividend, reorganization,
recapitalization, exchange of shares or other similar change with respect to
VERITAS common stock or Seagate common stock occurring prior to the effective
time.
The exchange agent and VERITAS are entitled to deduct and withhold from the
merger consideration payable to any holder or former holder of Seagate common
stock, or any holder of options to purchase Seagate common stock that are
accelerated immediately prior to the effective time and converted into the right
to receive the merger consideration (as described above under "-- Effects of the
Merger" beginning on page 116 of this document), such amounts as may be required
to be deducted or withheld under applicable tax or other legal requirements. Any
amounts that are withheld will be treated for all purposes under the merger
agreement as having been delivered or otherwise paid to the person to whom such
amounts would otherwise have been delivered or paid.
No fractional shares will be issued pursuant to the merger. In lieu of
issuing any fractional shares, former holders of Seagate common stock will be
entitled to receive cash equal to the product obtained by multiplying such
fractional share amount (after aggregating all fractional shares to which a
former holder of Seagate common stock would be entitled) by the average closing
price of a share of VERITAS common stock, as reported on the Nasdaq National
Market, for the five consecutive trading days ending two trading days
immediately preceding the effective time.
EFFECTIVE TIME OF THE MERGER
The merger will become effective when a certificate of merger is duly filed
with the Secretary of State of the State of Delaware in accordance with the
relevant provisions of the Delaware General Corporation Law or at such other
time as may be agreed upon in writing by VERITAS and Seagate and specified in
the certificate of merger.
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EXCHANGE AND PAYMENT PROCEDURES FOR SEAGATE STOCKHOLDERS
Prior to the effective time, VERITAS will select an exchange agent
reasonably satisfactory to Seagate. Promptly following the effective time,
VERITAS will deposit with the exchange agent the aggregate amount of cash and
the number of shares of VERITAS common stock required to pay the merger
consideration (other than the tax refund amount, which is dealt with as
described below). Promptly following the effective time, the exchange agent will
mail to each holder of record of certificates of Seagate common stock a letter
of transmittal and instructions for surrendering certificates that, prior to the
effective time, represented shares of Seagate common stock, in exchange for
certificates representing shares of VERITAS common stock issuable and cash
payable in respect of such surrendered certificates. Upon due execution and
delivery to the exchange agent and acceptance by the exchange agent of a letter
of transmittal, accompanied by certificates formerly representing shares of
Seagate common stock, the holder of such surrendered certificates will be
entitled to the merger consideration (other than the tax refund amount, which is
dealt with as described below).
SEAGATE STOCKHOLDERS SHOULD NOT DELIVER THEIR SEAGATE COMMON SHARE
CERTIFICATES NOW. SEAGATE STOCKHOLDERS SHOULD SEND THEM ONLY ACCORDING TO THE
INSTRUCTIONS INCLUDED IN THE LETTER OF TRANSMITTAL WHICH WILL BE MAILED TO
SEAGATE STOCKHOLDERS PROMPTLY AFTER THE EFFECTIVE TIME OF THE MERGER. IN ALL
CASES, THE MERGER CONSIDERATION WILL BE PROVIDED ONLY IN ACCORDANCE WITH THE
PROCEDURES SET FORTH IN THE MERGER AGREEMENT AND THE LETTER OF TRANSMITTAL.
Promptly following the effective time, the exchange agent will mail to each
holder of any option to purchase Seagate common stock that was converted into
the right to receive the merger consideration, as described above under
"-- Effects of the Merger" beginning on page 116 of this document, a letter of
transmittal and instructions for receiving certificates representing shares of
VERITAS common stock issuable and cash payable pursuant to the merger. Upon due
execution and delivery to the exchange agent of a letter of transmittal and
acceptance thereof by the exchange agent, the holder of such option will be
entitled to the merger consideration (other than the tax refund amount, which is
dealt with as described below) in respect of each share of Seagate common stock
deemed issued to such holder immediately prior to the effective time.
VERITAS strongly recommends that letters of transmittal and certificates
for Seagate common stock be sent only by registered United States mail, return
receipt requested, appropriately insured. Holders of Seagate common stock whose
certificates are lost will be required to make an affidavit claiming such
certificate or certificates have been lost, stolen or destroyed and, if required
by VERITAS, such holders will further be required to post a bond in such amount
as VERITAS may reasonably require as indemnity against any claim that may be
made against VERITAS with respect to such certificate.
Any amounts held by the exchange agent and not validly claimed by Seagate
stockholders within six months after the effective time will be delivered to
VERITAS upon its demand. Following delivery to VERITAS, any holder of
certificates formerly representing shares of Seagate common stock and any holder
of Seagate options that were deemed converted into shares of Seagate common
stock that have not complied with the terms and conditions for the receipt of
the merger consideration set forth in the merger agreement will thereafter
become general creditors of VERITAS in respect of the merger consideration.
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VERITAS will only issue to Seagate stockholders a VERITAS stock certificate
or a check in lieu of a fractional share in the name in which the surrendered
Seagate stock certificate is registered. If Seagate stockholders wish to have
their certificates issued to another name, they must present the exchange agent
with all documents required to show and effect the unrecorded transfer of
ownership and show that they paid any applicable stock transfer taxes.
Upon receipt of a refund or upon the effective utilization of a tax credit
(or, if applicable, upon receipt of any net proceeds from the sale of all or a
portion of the shares of Dragon Systems capital stock), VERITAS is required to
remit any such amounts to the administrator of the tax refund amount within 10
business days of receipt. All funds collected by the administrator will be
invested in short-term money market instruments and distributed to Seagate
stockholders at the end of each calendar quarter commencing September 30, 2000.
NO DIVIDENDS
Until they have exchanged their certificates for VERITAS certificates in
the manner described above under "-- Exchange and Payment Procedures for Seagate
Stockholders" beginning on page 123 of this document, Seagate stockholders will
not be entitled to receive any dividends or other distributions on VERITAS
common stock.
Subject to applicable laws, promptly following surrender of their Seagate
stock certificates and the issuance of the corresponding VERITAS certificates,
Seagate stockholders will be paid the amount of dividends or other
distributions, without interest, with a record date after the completion of the
merger which were previously paid with respect to their whole shares of VERITAS
common stock.
TRANSFER OF SEAGATE COMMON STOCK
No transfer of shares of Seagate common stock will be made on the stock
transfer books of Seagate after the close of business on the day immediately
prior to the effective time. If, on or after the effective time, certificates
for shares of Seagate common stock are presented, they will be canceled and
exchanged for the right to receive the merger consideration, as provided above
under "-- Exchange and Payment Procedures for Seagate Stockholders" beginning on
page 123 of this document.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties of
Seagate to VERITAS and merger sub, including with regard to the following
matters:
- the due organization and valid existence of Seagate and its subsidiaries
and similar corporate matters;
- the capitalization of Seagate and its subsidiaries;
- the due authorization, execution and delivery of the merger agreement and
the stock purchase agreement and their binding effect on Seagate;
- the absence of conflicts with respect to Seagate's charter documents,
laws, judgments or obligations by which Seagate is bound;
- that no material consents are required (other than the filing and
effectiveness of the registration statement, the filing of this document,
the filing of a certificate of merger and filings required under the
Hart-Scott-Rodino Antitrust Improvements
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Act of 1976, as amended) in connection with Seagate's execution of the
merger agreement and the stock purchase agreement;
- the completeness and accuracy of Seagate's filings with the Securities
and Exchange Commission and the accuracy of its financial statements;
- the absence of liabilities other than liabilities being retained by
Seagate under the terms of the merger agreement or arising in connection
with the transactions under the merger agreement, and other than
liabilities for which VERITAS is entitled to indemnification under the
indemnification agreement described under "Other Agreements Related to
the Stock Purchase and the Merger -- The Indemnification Agreement"
beginning on page 140 of this document;
- the absence of any material adverse effect on Seagate or its subsidiaries
since December 31, 1999;
- compliance in all material respects with laws and obligations by which
Seagate is bound;
- maintenance of and compliance with permits that are material to the
operation of Seagate's business;
- the absence of threatened or pending litigation that would reasonably be
expected to have a material adverse effect on Seagate;
- that no brokers or finders have been employed by Seagate in connection
with the merger or the stock purchase other than Morgan Stanley;
- the absence of liens or encumbrances with respect to assets that will not
be transferred to Suez Acquisition Company in connection with the stock
purchase;
- the accuracy of the information provided by Seagate for inclusion in the
registration statement or this document;
- that the board of directors of Seagate has determined that the merger,
the stock purchase and the transactions contemplated by the merger
agreement and the stock purchase agreement are fair to, advisable and in
the best interests of its stockholders, that the board has duly approved
the merger, the stock purchase, the merger agreement, the stock purchase
agreement and the other transactions contemplated by these agreements,
and has determined to recommend that the stockholders of Seagate approve
the same;
- the inapplicability of state takeover statutes to the merger, the stock
purchase, the merger agreement, the stock purchase agreement or the other
transactions contemplated by these agreements;
- the receipt of a written opinion from Morgan Stanley to the Seagate board
of directors to the effect that the merger consideration was fair to the
stockholders of Seagate from a financial point of view;
- the continuous beneficial ownership since May 28, 1999 by Seagate
Software of all shares of VERITAS common stock held, directly or
indirectly, by Seagate;
- the lack of involvement of Seagate or any of its affiliates in an
intercompany transaction with respect to the VERITAS common stock which
may be subject to gain recognition under applicable Treasury Regulations
under the Internal Revenue Code;
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- Seagate's filing of accurate tax returns and the timely payment or
establishment of an adequate reserve for the payment of taxes owed and
the absence of any proposed deficiency for any such taxes; and
- that Seagate is not a United States real property holding company, as
defined in the Internal Revenue Code.
These representations and warranties are subject, in certain cases, to
specified exceptions and qualifications.
The merger agreement also contains representations and warranties of
VERITAS and merger sub to Seagate, including with regard to the following
matters:
- the due organization and valid existence of VERITAS and its subsidiaries
and similar corporate matters;
- the capitalization of VERITAS and merger sub;
- the due authorization, execution and delivery of the merger agreement and
its binding effect on VERITAS and merger sub;
- the absence of conflicts with respect to VERITAS and merger sub's charter
documents, laws, judgments or obligations by which VERITAS or merger sub
is bound;
- that no material consents are required (other than the filing and
effectiveness of the registration statement, the filing of this document,
the filing of a certificate of merger and filings required under the
Hart-Scott-Rodino Antitrust Improvements Act) in connection with VERITAS
or merger sub's execution of the merger agreement;
- the completeness and accuracy of VERITAS' filings with the Securities and
Exchange Commission and the accuracy of its financial statements;
- the absence of any material adverse effect on VERITAS since December 31,
1998;
- the absence of threatened or pending litigation that would reasonably be
expected to have a material adverse effect on VERITAS;
- that no brokers or finders have been employed by VERITAS in connection
with the merger other than Credit Suisse First Boston Corporation;
- the accuracy of the information provided by VERITAS for inclusion in the
registration statement or this document;
- that the board of directors of VERITAS has determined that the merger and
the other transactions contemplated in the merger agreement are advisable
and in the best interests of VERITAS and its stockholders, and that the
board has duly approved the merger, the merger agreement and the other
transactions contemplated in the merger agreement, and has determined to
recommend that the stockholders of VERITAS approve the share issuance;
- the receipt of a written opinion from Credit Suisse First Boston
Corporation to the effect that the stock portion of the merger
consideration to be paid by VERITAS is fair to VERITAS from a financial
point of view; and
- that merger sub was formed solely for the purpose of engaging in
transactions contemplated by the merger agreement and has not engaged in
any business
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activities, conducted any operations or incurred any liabilities other
than in connection with the transactions contemplated under the merger
agreement.
These representations and warranties are subject, in certain cases, to
specified exceptions and qualifications.
The representations and warranties of each of the parties to the merger
agreement will expire upon completion of the merger.
COVENANTS RELATING TO SOLICITATIONS BY SEAGATE PRIOR TO THE CLOSING
Under the merger agreement, Seagate has agreed that, prior to the effective
time of the merger or the termination of the merger agreement, Seagate, its
subsidiaries and their officers, directors, agents, advisors and representatives
may not solicit, initiate, encourage, or induce any third party to make, submit
or announce, an offer or proposal regarding any of the following:
- the acquisition by any third party of more than 15% in interest or
beneficial ownership of the voting power of the total outstanding capital
stock of Seagate through an issuance of securities by Seagate, or a
direct purchase, tender or exchange offer, merger, consolidation or other
business combination;
- a sale, lease, exchange, transfer, license or disposition by Seagate of
more than 15% of the fair market value of its consolidated property and
assets; or
- the liquidation or dissolution of Seagate, excluding in all cases any
disposition of the operating assets being sold to Suez Acquisition
Company in the stock purchase.
In addition, under the terms of the merger agreement, Seagate may not
participate in any discussions or negotiations regarding any of the transactions
described above, furnish information to any third party regarding or otherwise
facilitate such transactions. Seagate has also agreed that it will not enter
into a letter of intent or similar document, or any contract, agreement or
commitment regarding any of the transactions described above, or otherwise
approve, recommend or endorse any such transactions.
Notwithstanding the foregoing restrictions, under the terms of the merger
agreement, Seagate may, prior to the date of approval of the merger agreement
and the merger by the stockholders of Seagate, enter into a confidentiality or
non-disclosure agreement with any third party, furnish information regarding
Seagate to any third party, and enter into discussions or negotiations with any
third party regarding any of the transactions described if all of the following
occur:
- Seagate receives a bona fide written offer from a third party regarding
any of the following transactions:
- a merger, consolidation or other business combination transaction
involving Seagate pursuant to which Seagate's stockholders would hold
less than fifty percent of the surviving entity;
- a sale or other disposition by Seagate of property and assets
representing all or substantially all of Seagate's consolidated assets;
or
- the acquisition by any third party of beneficial ownership of more than
fifty percent of the voting power of the total outstanding capital stock
of Seagate;
provided that the board of directors of Seagate determines, after
consultation with its outside financial advisors, that the proposed
transaction is more favorable to the
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stockholders of Seagate, from a financial point of view, than the merger
agreement and the merger;
- Seagate, its subsidiaries and their respective agents, advisors and
representatives have not violated restrictions regarding Seagate's
ability to solicit third party proposals as described above;
- the board of directors of Seagate concludes in good faith, after
consulting with its legal counsel that it is reasonably necessary to
engage in such action in order to comply with its fiduciary obligations
to the stockholders of Seagate under applicable law;
- Seagate obtains a customary confidentiality or non-disclosure agreement
from the third party which contains terms and conditions which are
substantially the same as the terms of Seagate's confidentiality
agreement with VERITAS; and
- prior to furnishing any non-public information to the third party or
entering into discussions or negotiations with the third party, Seagate
notifies VERITAS of its intention to furnish such information or to enter
into such discussions or negotiations and provides VERITAS with the same
information (to the extent not already provided to VERITAS) and the terms
and conditions of any such discussions and negotiations.
COVENANTS RELATING TO MODIFICATION OF THE STOCK PURCHASE AGREEMENT
Seagate has agreed not to waive, amend or modify, and has agreed to cause
Seagate Software not to waive, amend or modify, any terms of the stock purchase
agreement other than as specifically permitted under the stock purchase
agreement. Seagate has agreed to use its best efforts to obtain from certain
senior executive officers of Seagate a waiver of any claims he or she may have
against VERITAS or Seagate resulting from the cancellation of the restricted
shares of Seagate common stock and the unvested options to purchase shares of
Seagate stock that are being converted into shares of, or options to purchase,
as applicable, Suez Acquisition Company stock held by such executive officers of
Seagate (as described under "Special Factors Regarding the Stock Purchase and
the Merger -- Consideration of the Stock Purchase and the Merger by
Seagate -- Interests of Directors and Certain Executive Officers of Seagate in
the Stock Purchase and the Merger -- Equity Rollover" beginning on page 80 of
this document). Seagate is also obligated to use its best efforts to obtain
similar waivers from any individual that is party to any employment, severance
or change in control or similar agreement with Seagate or who participates in
any Seagate plan providing severance or change in control benefits.
COVENANT TO RECOMMEND THE MERGER TO THE SEAGATE STOCKHOLDERS AND THE VERITAS
STOCKHOLDERS
VERITAS and Seagate have agreed to seek and solicit the requisite vote of
stockholders at their respective special meetings for, in the case of Seagate,
the adoption and approval of the stock purchase agreement and the stock
purchase, and the merger agreement and the merger, and, in the case of VERITAS,
the adoption and approval of the issuance of new shares of VERITAS common stock
in connection with the merger. Both the VERITAS and the Seagate boards of
directors are obligated to recommend to their respective stockholders that they
vote in favor of such matters. Notwithstanding the
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foregoing commitment, the board of directors of Seagate may withdraw, amend or
modify its recommendation if all of the following occur:
- Seagate receives a proposal from a third party that meets one of the
criteria set forth in the first bullet point of the third paragraph under
"-- Covenants Relating to Solicitations by Seagate Prior to the Closing"
beginning on page 127 of this document;
- Seagate, its subsidiaries and their respective agents, advisors and
representatives have not violated the terms of the merger agreement
regarding restrictions on their ability to solicit third party proposals
as described above; and
- the board of directors of Seagate concludes in good faith, after
consulting with its legal counsel, that such withdrawal, amendment or
modification is necessary in order to comply with its fiduciary
obligations to the stockholders of Seagate under applicable law.
COVENANTS RELATING TO DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE
The merger agreement provides that VERITAS will fulfill and honor in all
respects the obligations of Seagate under any indemnification agreements between
Seagate and any of its directors and officers, as in effect prior to the date of
the merger agreement, but only to the extent that the obligations under such
indemnification agreements relate to approval and adoption of the merger. In
addition, the merger agreement provides that, for a period of six years after
the merger, VERITAS will cause Seagate to maintain the indemnification
obligations, and the exculpation, expense advancement and elimination of
liability provisions, contained in Seagate's certificate of incorporation and
bylaws immediately prior to the merger to the extent that such provisions apply
to the adoption and approval of the merger, and will not permit Seagate to
amend, repeal or otherwise modify these provisions in a manner that adversely
affects the rights of any directors, officers, employees or agents of Seagate,
except as otherwise required by applicable law. The merger agreement further
provides that VERITAS will use commercially reasonable efforts to maintain in
effect, for a period of six years following the merger, a policy of directors'
and officers' liability insurance for the benefit of the directors and officers
of Seagate who are currently covered under Seagate's directors' and officers'
liability insurance on terms that are comparable to those of Seagate's current
directors' and officers' insurance coverage.
THE CLOSING; CONDITIONS TO THE CLOSING
THE CLOSING
The closing date of the merger will be determined by Seagate and VERITAS,
but will be no later than the second business day following the satisfaction or
waiver of the conditions to the closing that are to be satisfied other than on
the closing date. At the closing, Seagate and VERITAS shall effect the merger by
filing a certificate of merger with the Secretary of State of the State of
Delaware in accordance with Delaware law.
CONDITIONS TO THE CLOSING
The obligations of each of Seagate, VERITAS and merger sub to consummate
the merger are subject to the fulfillment or waiver at or prior to the effective
time of certain conditions, including the following:
- approval of the merger agreement and the merger by the requisite vote of
the stockholders of Seagate at the Seagate special meeting, and approval
of the share
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issuance by the requisite vote of the stockholders of VERITAS at the
VERITAS special meeting;
- the Securities and Exchange Commission having declared the registration
statement (of which this document is a part) effective and no stop order
or similar proceeding having been initiated or threatened;
- no law, ruling, court or other order or injunction having been enacted or
issued directing that the transactions contemplated by the merger
agreement not be consummated, and all requirements under the
Hart-Scott-Rodino Antitrust Improvements Act relating to the contemplated
transactions having expired or terminated early;
- VERITAS and Seagate having received written opinions from their
respective tax counsels that the merger should constitute a
"reorganization" within the meaning of the applicable sections of the
Internal Revenue Code, and such opinions not having been withdrawn; and
- the closing of the stock purchase, and the absence of any assets or
liabilities of Seagate and Seagate Software other than the designated
assets and designated liabilities relating to the designated assets or
liabilities for which VERITAS is entitled to indemnification under the
indemnification agreement.
The obligation of Seagate to effect the merger and other transactions
contemplated under the merger agreement is further subject to the fulfillment or
waiver on or prior to the effective time of the following conditions:
- accuracy in all material respects of all representations and warranties
of VERITAS contained in the merger agreement as of the date of the merger
agreement and as of the closing date (except for representations and
warranties made only as of a specified date), except to the extent that
any inaccuracies would not, in the aggregate, reasonably be expected to
have a material adverse effect on VERITAS; and
- the performance in all material respects by VERITAS and merger sub of
their obligations under the merger agreement.
The obligation of VERITAS and merger sub to effect the merger and the other
transactions under the merger agreement is further subject to the fulfillment or
waiver at or prior to the effective time of the following conditions:
- accuracy in all material respects of all representations and warranties
of Seagate contained in the merger agreement as of the date of the merger
agreement and as of the closing date (except for representations and
warranties made only as of a specified date), except to the extent that
any inaccuracies would not, in the aggregate, reasonably be expected to
have a material adverse effect on Seagate;
- the performance in all material respects by Seagate of its obligations
under the merger agreement;
- accuracy in all material respects of the representations and warranties
of Suez Acquisition Company and its subsidiaries under the
indemnification agreement as of the date of the merger agreement and as
of the closing date and the binding effect of the indemnification
agreement on Suez Acquisition Company and each of its subsidiaries;
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- that all subsidiaries of Suez Acquisition Company have executed and
delivered a joinder agreement agreeing to be bound by the terms of the
indemnification agreement; and
- the closing of the bank financing arrangements contemplated under the
stock purchase agreement on the terms and conditions specified in the
commitment letters referred to in the stock purchase agreement, and the
absence of any material change to any term of these financing
arrangements that would adversely impact the ability of Suez Acquisition
Company and its subsidiaries to satisfy their obligations under the
indemnification agreement.
AMENDMENT OR WAIVER OF TERMS OF THE MERGER AGREEMENT
The merger agreement provides that VERITAS and Seagate may amend the merger
agreement or extend the time for performance, waive any inaccuracies in the
representations and warranties and waive compliance by the other party with any
of the agreements or fulfillment of conditions to its own obligations in whole
or in part if the waiver or extension is in writing and signed on behalf of such
party. However, under the terms of the stock purchase agreement, Seagate is not
allowed to agree to any such amendment, modification or waiver without the
consent of Suez Acquisition Company.
TERMINATION; TERMINATION FEES AND PAYMENTS
TERMINATION
The merger agreement provides that it may be terminated at any time prior
to the effective time, before or after its approval and adoption by the Seagate
stockholders and the VERITAS stockholders at their respective special meetings:
- by mutual written consent, with the authorization of the VERITAS and
Seagate boards of directors;
- by either Seagate or VERITAS:
- if the merger has not been completed by December 31, 2000, provided that
this termination right is not available to any party if the merger has
not occurred by this date principally because of a failure by that party
to fulfill its obligations under the merger agreement;
- if a governmental entity has taken any action restraining, enjoining or
prohibiting the merger; or
- if less than the required majority of Seagate stockholders votes in
favor of the merger agreement and the merger or less than the required
majority of VERITAS stockholders votes in favor of the approval of the
issuance of new shares of VERITAS common stock in connection with the
merger, provided that this termination right is not available to Seagate
if the failure to obtain the approval of Seagate stockholders was caused
by a material breach by Seagate of the merger agreement;
- by Seagate:
- if there has been a breach of the representations and warranties of
VERITAS contained in the merger agreement, which breach would cause a
failure of the condition to closing relating to the accuracy of the
representations and warranties
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made by VERITAS in the merger agreement, and VERITAS fails to cure the
breach within 35 days after Seagate delivers notice to VERITAS; or
- if the VERITAS board of directors withdraws or modifies in any manner
adverse to Seagate its recommendation in favor of the merger; or
- if, prior to the receipt of approval of the stockholders of Seagate of
the merger agreement and merger:
- Seagate receives a bona fide written offer made by a third party to
consummate (a) a merger, consolidation, business combination or other
similar transaction involving Seagate that would result in the
stockholders of Seagate prior to completion of such transaction
holding less than 50% of the equity interest in the surviving or
resulting entity of such transaction; (b) a sale of at least 50% of
Seagate's assets and properties (excluding inventory and used
equipment sold in the ordinary course of business); or (c) the
acquisition by any person or group (including by way of a tender offer
or an exchange offer or issuance by Seagate), directly or indirectly,
of beneficial ownership or a right to acquire beneficial ownership of
shares representing more than 50% of the voting power of the then
outstanding shares of capital stock of Seagate, and any financing
required to consummate the transaction contemplated by such offer is
committed or is likely in the judgment of the board of directors of
Seagate to be obtained by such third party on a timely basis;
- the Seagate board of directors reasonably determines, after
consultation with its financial advisor, that the offer is more
favorable to the stockholders of Seagate, from a financial point of
view, than the terms of the merger agreement and the merger;
- the Seagate board of directors further concludes in good faith, after
consultation with its outside counsel, that there is a reasonable
probability that the failure to accept such offer would result in a
violation of its fiduciary obligations under applicable law;
- Seagate enters into an agreement in connection with the offer; and
- Seagate pays VERITAS the termination fee described below; or
- by VERITAS:
- if there has been a breach of the representations and warranties of
Seagate contained in the merger agreement, which breach would cause a
failure of the condition to closing relating to the accuracy of the
representations and warranties made by Seagate in the merger agreement,
and Seagate fails to cure the breach within 35 days after VERITAS
delivers notice to Seagate;
- if the Seagate board of directors withdraws or modifies in any manner
adverse to VERITAS its recommendation in favor of the merger agreement
or the merger, or takes any action or makes any statement inconsistent
with its recommendation; or
- if a person unaffiliated with VERITAS commences a tender or exchange
offer relating to the securities of Seagate and Seagate, in the
statement it delivers to its securityholders as required under
applicable federal securities laws, does not recommend rejection of such
tender or exchange offer.
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In the event of termination, the merger agreement will become null and void
except that obligations relating to the payment of a termination fees as more
fully described below under "-- Termination Fees and Payments." Also, any party
that intentionally breaches any provision of the merger agreement will continue
to be liable for such breach after the merger agreement is terminated.
All fees (other than termination fees described below) and expenses
incurred in connection with the merger agreement and the transactions under the
merger agreement will be paid by the party that incurs such expenses, whether or
not the merger is consummated.
TERMINATION FEES AND PAYMENTS
Under the terms of the merger agreement, Seagate must pay VERITAS a
termination fee of $440 million in the following circumstances:
- if the Seagate board of directors withdraws or modifies in any manner
adverse to VERITAS its recommendation in favor of the merger agreement or
the merger, or takes any action or makes any statement inconsistent with
its recommendation, and VERITAS terminates the merger agreement as a
result of these actions;
- if a person unaffiliated with VERITAS commences a tender or exchange
offer relating to the securities of Seagate and Seagate, in its statement
to its securityholders required under federal securities law, does not
recommend rejection of such tender or exchange offer, and VERITAS
terminates the merger agreement as a result of Seagate's failure;
- if Seagate terminates the merger agreement following receipt of a bona
fide written offer which would allow Seagate to terminate the merger
agreement as described above;
- if VERITAS terminates the merger agreement because less than the required
majority of Seagate stockholders voted in favor of the merger agreement
and the merger and (a) prior to the time of the vote of the Seagate
stockholders, a third party had announced or communicated to Seagate a
proposal for an alternative transaction (described in the next paragraph)
and (b) within 12 months following VERITAS' termination of the merger
agreement, Seagate enters into an agreement relating to or consummates an
alternative transaction (with the termination fee being payable at the
time Seagate enters into an agreement relating to or consummates an
alternative transaction); or
- if either VERITAS or Seagate terminates the merger agreement because the
merger has not occurred on or prior to December 31, 2000 and (a) prior to
the termination date, a third party has announced or communicated to
Seagate a proposal for an alternative transaction, (b) following the
announcement or communication of this proposal, Seagate had intentionally
breached (and not cured) any of its covenants or agreements in the merger
agreement, and this breach contributed to the failure of the merger to
occur on or before December 31, 2000 and (c) within 12 months following
the termination, Seagate enters into an agreement relating to or
consummates an alternative transaction (with the termination fee being
payable at the time Seagate enters into an agreement relating to or
consummates an alternative transaction).
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An alternative transaction is any transaction or series of related
transactions (excluding any such transaction proposed by VERITAS) involving:
- any acquisition or purchase of more than 50% in interest of the total
outstanding voting securities of Seagate;
- any tender offer or exchange offer that if consummated would result in
any person or group of affiliated persons beneficially owning more than
50% of the total outstanding voting securities of Seagate;
- any merger, consolidation, business combination or similar transaction
involving Seagate pursuant to which the stockholders of Seagate
immediately preceding such transaction would hold less than 50% of the
equity interests in the surviving or resulting entity of such
transaction;
- any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of more than 50% of the assets and
properties of Seagate; or
- any liquidation or dissolution of Seagate, excluding in all cases any
disposition of the operating assets to Suez Acquisition Company under the
stock purchase agreement.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES
The shares of VERITAS common stock to be issued in the merger will be
registered under the Securities Act of 1933, as amended. These shares will be
freely transferable under the Securities Act, except for shares of VERITAS stock
issued to any person who is an affiliate of Seagate or of VERITAS. Persons who
may be deemed to be affiliates include individuals or entities that control, are
controlled by, or are under common control with Seagate or VERITAS and may
include some of their respective officers and directors, as well as their
respective principal stockholders. Affiliates may not sell their shares of
VERITAS common stock acquired in the merger except pursuant to (1) an effective
registration statement under the Securities Act covering the resale of those
shares, (2) an exemption under Rule 144 or Rule 145 under the Securities Act, as
applicable, or (3) any other applicable exemption under the Securities Act.
APPRAISAL RIGHTS
Holders of shares of VERITAS common stock are not entitled to appraisal
rights under Section 262 of the Delaware General Corporation Law in connection
with the stock purchase or the merger.
Holders of shares of Seagate common stock are entitled to appraisal rights
under Section 262 of the Delaware General Corporation Law. A holder having a
beneficial interest in shares of Seagate common stock held of record in the name
of another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect whatever appraisal rights the beneficial owner may have.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DELAWARE GENERAL CORPORATION LAW AND IS QUALIFIED
IN ITS ENTIRETY BY THE FULL TEXT OF SECTION 262, WHICH IS REPRINTED IN ITS
ENTIRETY AS ANNEX G TO THIS DOCUMENT.
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All references in Section 262 and in this summary to a "stockholder" are to
the record holder of shares of Seagate common stock as to which appraisal rights
are asserted. As used in this document, "surviving corporation" means Seagate,
the corporation surviving the merger.
Holders of shares of Seagate common stock who do not wish to accept,
pursuant to the merger, the merger consideration provided for in the merger
agreement and who follow the procedures set forth in Section 262 of the Delaware
General Corporation Law will be entitled to have their shares of Seagate common
stock appraised by the Delaware Court of Chancery and to receive payment in cash
of the "fair value" of such shares of common stock, exclusive of any element of
value arising from the accomplishment or expectation of the merger, together
with a fair rate of interest, if any, as determined by such court.
Under Section 262 of the Delaware General Corporation Law, where a merger
is to be submitted for approval and adoption at a meeting of stockholders, as in
the case of the special meeting, the corporation submitting the proposed merger
to a vote of its stockholders must notify each of its stockholders entitled to
appraisal rights that such appraisal rights are available. Such notice must be
given by the corporation to its stockholders entitled to appraisal rights no
less than 20 days prior to the meeting at which the merger proposal will be
submitted to the stockholders for a vote and such notice must include a copy of
Section 262 of the Delaware General Corporation Law. THIS DOCUMENT CONSTITUTES
SUCH NOTICE TO THE HOLDERS OF SHARES OF SEAGATE COMMON STOCK, AND THE APPLICABLE
STATUTORY PROVISIONS OF THE DELAWARE GENERAL CORPORATION LAW ARE ATTACHED TO
THIS DOCUMENT AS ANNEX G. Any holder who wishes to exercise such appraisal
rights, or who wishes to preserve his or her right to do so, should review the
following discussion and Annex G to this document carefully because failure to
timely and properly comply with the procedures specified will result in the loss
of appraisal rights under the Delaware General Corporation Law.
A HOLDER OF SHARES OF SEAGATE COMMON STOCK WISHING TO EXERCISE HIS OR HER
APPRAISAL RIGHTS MUST DELIVER TO THE SECRETARY OF SEAGATE, BEFORE THE VOTE ON
THE MERGER AND THE MERGER AGREEMENT AT THE SPECIAL MEETING, A WRITTEN DEMAND FOR
APPRAISAL OF HIS OR HER SHARES OF SEAGATE COMMON STOCK AND MUST NOT VOTE HIS OR
HER SHARES OF STOCK IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AND THE
MERGER AGREEMENT. Because a proxy which does not contain voting instructions
will, unless revoked, be voted for approval and adoption of the merger and the
merger agreement, a holder of shares of common stock who votes by proxy and who
wishes to exercise his appraisal rights must:
- vote against approval and adoption of the merger and the merger
agreement; or
- abstain from voting on approval and adoption of the merger and the merger
agreement.
Neither voting (in person or by proxy) against, abstaining from voting on
or failing to vote on the proposal to approve and adopt the merger and the
merger agreement will constitute a written demand for appraisal within the
meaning of Section 262 of the Delaware General Corporation Law. The written
demand for appraisal must be in addition to and separate from any such proxy or
vote. In addition, a holder wishing to exercise his or her appraisal rights must
continue to hold such shares of common stock from the date of the demand for
appraisal until the effective time of the merger.
Only the person who is the holder of record on the date the written demand
for appraisal is made is entitled to assert appraisal rights for the Seagate
common stock registered in that holder's name. A demand for appraisal should be
executed by or on
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behalf of the holder of record, fully and correctly, as his or her name appears
on the stock certificate(s). If the shares of Seagate common stock are owned of
record in a fiduciary capacity, such as by a trustee, guardian or custodian,
execution of the demand should be made in that capacity, and if the shares of
common stock are owned of record by more than one person, as in a joint tenancy
and tenancy-in-common, the demand should be executed by or on behalf of all
joint owners. An authorized agent, including one or more joint owners, may
execute a demand for appraisal on behalf of a holder of record; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is agent for such owner or owners.
A record holder such as a broker who holds shares of Seagate common stock
as nominee for several beneficial owners may exercise appraisal rights with
respect to the shares of Seagate common stock held for one or more beneficial
owners while not exercising such rights with respect to the shares of Seagate
common stock held for other beneficial owners. In such case, the written demand
should set forth the number of shares of Seagate common stock as to which
appraisal is sought and when no number of shares of Seagate common stock is
expressly mentioned the demand will be presumed to cover all shares of Seagate
common stock held in the name of the record owner. Holders who hold their shares
of Seagate common stock in brokerage accounts or other nominee forms and who
wish to exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal by
such a nominee.
All written demands for appraisal must be delivered to the Secretary of
Seagate, either in person or by mail (certified mail, return receipt requested,
being the recommended form of transmittal) addressed to him at: Seagate
Technology, Inc., 920 Disc Drive, Scotts Valley, California 95066. All written
demands for appraisal must be received by Seagate before the taking of the vote
on the merger agreement and the merger.
Within 10 days after the effective time of the merger, the surviving
corporation must send a notice as to the effectiveness of the merger to each
former stockholder of Seagate who has made such a written demand for appraisal
and who has not voted in favor of approval and adoption of the merger and the
merger agreement. Within 120 days after the effective time, but not thereafter,
the surviving corporation, or any holder who is entitled to appraisal rights
under Section 262 of the Delaware General Corporation Law and has complied with
the requirements of that section, may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of the shares of Seagate
common stock. The surviving corporation is under no obligation to and does not
presently intend to file a petition in respect of the appraisal of the fair
value of the shares of Seagate common stock. Accordingly, it is the obligation
of the holders to initiate all necessary action to perfect their appraisal
rights within the time prescribed in Section 262 of the Delaware General
Corporation Law.
Within 120 days after the effective time, any holder who has complied with
the requirements under Section 262 of the Delaware General Corporation Law for
exercise of appraisal rights will be entitled, upon written request, to receive
from the surviving corporation a statement setting forth the aggregate number of
shares of Seagate common stock with respect to which demands for appraisal have
been received and which have not voted in favor of approval and adoption of the
merger and the merger agreement, and the aggregate number of holders of such
shares of Seagate common stock. Such statements must be mailed within 10 days
after a written request therefor has been received by the surviving corporation.
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If a petition for appraisal is duly filed by a holder of shares of Seagate
common stock and a copy thereof is delivered to the surviving corporation, the
surviving corporation will then be obligated within 20 days to provide the
Delaware Court of Chancery with a duly verified list containing the names and
addresses of all holders of shares of Seagate common stock who have demanded
appraisal of their shares. After notice to such holders, the Delaware Court of
Chancery is empowered to conduct a hearing upon the petition to determine those
holders who have complied with Section 262 of the Delaware General Corporation
Law and who have become entitled to appraisal rights under that section. The
Delaware Court of Chancery may require the holders who have demanded payment for
their shares of Seagate common stock to submit their stock certificates to the
Register in Chancery for a notation thereon of the pendency of the appraisal
proceedings, and if any holder fails to comply with such direction, the Delaware
Court of Chancery may dismiss the proceedings as to such holder.
After determining the holders entitled to an appraisal, the Delaware Court
of Chancery will appraise the "fair value" of their shares of Seagate common
stock, exclusive of any element of value arising from the accomplishment or
expectation of the merger, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. Holders considering
seeking appraisal should be aware that the fair value of their shares of Seagate
common stock as determined under Section 262 of the Delaware General Corporation
Law could be more than, the same as or less than the consideration they would
receive pursuant to the merger agreement if they did not seek appraisal of their
shares of Seagate common stock and that investment banking opinions as to
fairness from a financial point of view are not necessarily opinions as to fair
value under Section 262 of the Delaware General Corporation Law. The Delaware
Supreme Court has 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 in the appraisal proceedings. More
specifically, the Delaware Supreme Court has stated that: "Fair value, in an
appraisal context, measures 'that which has been taken from the stockholder,
viz., his proportionate interest in a going concern.' In the appraisal process
the corporation is valued 'as an entity,' not merely as a collection of assets
or by the sum of the market price of each share of its stock. Moreover, the
corporation must be viewed as an on-going enterprise, occupying a particular
market position in the light of future prospects." In addition, Delaware courts
have decided that the statutory appraisal remedy, depending on factual
circumstances, may or may not be a dissenter's exclusive remedy. The Court also
will determine the amount of interest, if any, to be paid upon the amounts to be
received by persons whose shares of Seagate common stock have been appraised.
The costs of the action may be determined by the Court and taxed upon the
parties as the Court deems equitable. The Court also may order that all or a
portion of the expenses incurred by any stockholder in connection with an
appraisal, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all of the shares of Seagate common stock that
have effectively pursued appraisal.
From and after the effective time, a holder who has duly demanded an
appraisal in compliance with Section 262 of the Delaware General Corporation Law
will not be entitled to vote the shares of Seagate common stock subject to the
appraisal demand for any purpose or be entitled to the payment of dividends or
other distributions, if any, on those shares (except dividends or other
distributions, other than the merger consideration, payable to holders of record
of shares of Seagate common stock as of a date prior to the effective time).
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If any holder who demands appraisal of his shares of Seagate common stock
under Section 262 of the Delaware General Corporation Law fails to perfect, or
effectively withdraws or loses, his right to appraisal as provided in the
Delaware General Corporation Law, the shares of Seagate common stock of such
stockholder will be converted into the right to receive the merger consideration
in accordance with the merger agreement. A holder will fail to perfect, or
effectively lose or withdraw, his or her right to appraisal if he or she:
- fails to provide a written demand for appraisal of his or her shares of
Seagate common stock before the taking of the vote on the merger;
- votes for approval and adoption of the merger and the merger agreement
(or submits an executed proxy without voting instructions);
- does not file a petition for appraisal in the Court of Chancery within
120 days after the effective time of the merger; or
- delivers to Seagate (or, after the effective time, to the surviving
corporation) a written withdrawal of his or her demand for appraisal and
an acceptance of the merger, except that any such attempt to withdraw
made more than 60 days after the effective time will require the written
approval of the surviving corporation.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 OF THE DELAWARE GENERAL
CORPORATION LAW FOR PERFECTING APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH
RIGHTS.
LISTING ON THE NASDAQ NATIONAL MARKET OF VERITAS COMMON STOCK TO BE ISSUED IN
THE MERGER
VERITAS has agreed to cause the new shares of VERITAS common stock to be
issued in the merger to be approved for listing on the Nasdaq National Market,
subject to official notice of issuance prior to the effective time.
DELISTING AND DEREGISTRATION OF SEAGATE COMMON STOCK AFTER THE MERGER
If the merger is completed, Seagate's common stock will be delisted from
The New York Stock Exchange and will be deregistered under the Securities
Exchange Act of 1934, as amended. Seagate will thereafter no longer be required
to file quarterly, annual or other reports with the Securities and Exchange
Commission.
LITIGATION REGARDING THE MERGER
After the announcement of the stock purchase and merger, seventeen putative
class action lawsuits were filed in the Chancery Court of Delaware alleging that
Seagate and its directors breached their fiduciary duties in connection with the
stock purchase and merger. VERITAS was also named as a defendant in certain of
the lawsuits. On April 8, 2000, those seventeen lawsuits were consolidated into
one action by order of the Chancery Court (the "Delaware Action"). On April 19,
2000, Seagate and its directors were served with an amended and consolidated
class action complaint. At that time, certain of Seagate's officers, VERITAS,
and Silver Lake Partners were named as defendants. On May 1, 2000, the
plaintiffs filed a motion for class action determination, seeking certification
of the Delaware Action as a class action lawsuit. The principal relief sought in
the Delaware Action is a judgment ordering the individual defendants to carry
out their fiduciary duties and payment of an unspecified sum in damages.
Seagate, VERITAS and Silver Lake
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Partners believe that the Delaware Action is without merit and intend to contest
it vigorously.
In addition to the Delaware Action, five putative class action lawsuits
were filed in California Superior Court, also alleging that the directors and
certain of the officers of Seagate breached their fiduciary duties in connection
with the stock purchase and merger (the "California Actions"). VERITAS and
Silver Lake Partners are also named as defendants in certain of the lawsuits. No
proceedings of substance have yet occurred in the California Actions. The
principal relief sought in the California Actions is certification of the
putative class, an injunction against the stock purchase and merger, recission
of the stock purchase and merger in the event that they are consummated, and
payment of an unspecified sum in damages. Seagate, VERITAS and Silver Lake
Partners believe that the California Actions are without merit and intend to
contest them vigorously.
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OTHER AGREEMENTS RELATED TO THE STOCK PURCHASE AND THE MERGER
The following is a summary description of the terms of certain agreements
entered into in connection with the stock purchase and the merger that we
believe are important to you. However, the following summary does not describe
all of the terms of the agreements described below, only those that we believe
to be material. The following summary is qualified in its entirety by reference
to the agreements described below. A copy of the agreements described below are
attached to this document as Annex C and Annex D, respectively, and are
incorporated herein by reference. We encourage you to read the agreements
described below in their entirety.
THE INDEMNIFICATION AGREEMENT
In connection with the stock purchase and the merger, Seagate, VERITAS and
Suez Acquisition Company entered into an indemnification agreement. Under the
terms of the indemnification agreement, Suez Acquisition Company and its
subsidiaries have jointly and severally agreed to indemnify Seagate and VERITAS
and their respective affiliates from and against losses, claims, damages, fines,
expenses and other costs, including reasonable attorneys' fees and
disbursements, related to:
- all liabilities, other than designated liabilities (which are described
in the next paragraph), and liabilities relating to taxes (for which Suez
Acquisition Company has agreed to indemnify Seagate and VERITAS and their
respective affiliates to the extent set forth in the final two bullet
points of this paragraph) arising out of or related to the ownership,
operations or conduct by Seagate and its predecessors or affiliates
(other than VERITAS and its subsidiaries) of their respective businesses,
properties, assets or liabilities on or prior to the closing of the stock
purchase;
- all liabilities, other than designated liabilities, arising out of or
related to the ownership, operations or conduct by Suez Acquisition
Company or any of its subsidiaries of their respective businesses,
properties, assets or liabilities after the closing of the stock
purchase;
- the enforcement by Seagate and VERITAS and their affiliates of their
rights under the indemnification agreement;
- any breach by Suez Acquisition Company of its agreements, obligations,
covenants, representations or warranties contained in the indemnification
agreement, the stock purchase agreement or certain other agreements
relating to the indemnification agreement or the stock purchase agreement
to which Suez Acquisition Company is a party;
- all liabilities for taxes of Seagate and Seagate Software relating to
periods ending on (or treated as ending on) the date of the stock
purchase; and
- all liabilities for taxes, whenever arising, of the subsidiaries sold to
Suez Acquisition Company or attributable to the assets of Seagate
transferred to such subsidiaries (as described under "The Stock Purchase
Agreement and the Stock Purchase -- The Asset Transfer and the Stock
Purchase" beginning on page 101 of this document). Note, however, that
the cash to be included in the assets acquired by Suez Acquisition
Company in the stock purchase will be increased (thereby decreasing the
cash available to be paid to Seagate stockholders as the cash portion of
the merger consideration) by the amount of accrued and unpaid taxes of
Seagate, including taxes payable as a result of the stock purchase.
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The term "designated liabilities" refers to liabilities that Suez
Acquisition Company will not assume in connection with the stock purchase.
Instead, Seagate will retain these liabilities. These liabilities include:
- all liabilities relating to the shares common stock of VERITAS held by
Seagate Software, as well as the shares of Gadzoox Networks, SanDisk
Corporation, Veeco Instruments, Inc. and Dragon Systems held by Seagate;
- all liabilities arising from the merger and the other transactions under
the merger agreement;
- all obligations of Seagate to VERITAS in respect of the software business
that Seagate sold to VERITAS in May of 1999 in exchange for shares of
VERITAS common stock;
- all employee benefit plans of Seagate that have not been assumed by Suez
Acquisition Company (all of which plans will be terminated following the
merger); and
- all liabilities relating to Seagate's employee stock purchase plan.
Seagate, VERITAS and their respective affiliates have agreed to indemnify
Suez Acquisition Company and its subsidiaries from against all losses, claims,
damages, fines, expenses and other costs, including reasonable attorneys' fees
and disbursements, suffered by Suez Acquisition Company or its subsidiaries
related to:
- all designated liabilities;
- the ownership, operations or conduct by Seagate or Seagate Software of
their respective businesses, properties, assets or liabilities after the
closing of the merger;
- the enforcement by Suez Acquisition Company and its subsidiaries of their
rights under the indemnification agreement;
- any breach by VERITAS of its agreements, obligations, covenants,
representations or warranties contained in the indemnification agreement,
the merger agreement or other agreements entered into by VERITAS in
connection with the indemnification agreement or the merger agreement;
- all taxes of Seagate for which Suez Acquisition Company is not obligated
to indemnify VERITAS and its affiliates as described in the last two
bullet points of the second preceding paragraph of this section; and
- any taxes payable by VERITAS or its affiliates arising out of or
attributable to the breach by VERITAS of any of its representations or
covenants in the indemnification agreement.
The indemnification agreement includes representations and warranties by
Suez Acquisition Company and its subsidiaries and by VERITAS, as well as certain
covenants, including the following:
- for a period of five years from the date of the stock purchase, Suez
Acquisition Company has agreed to provide to VERITAS and its affiliates
reasonable access to Suez Acquisition Company's books and records and to
cause its auditors to provide reasonable access to their work papers;
- for a period of five years from the date of the stock purchase, Suez
Acquisition Company has agreed to provide VERITAS with true and complete
copies of the
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financing agreements between Suez Acquisition Company and its lenders and
any amendments to those financing agreements, as well as copies of any
annual or quarterly financial statements that it is required to deliver
to its senior lenders;
- Suez Acquisition Company has agreed to notify VERITAS no more than five
business days after receiving notification or obtaining knowledge of any
event that would have a material adverse effect on Suez Acquisition
Company or substantially impair the ability of Suez Acquisition Company
or any of its subsidiaries or perform its obligations under the
indemnification agreement; and
- Suez Acquisition Company has agreed that, on the date of the closing of
the stock purchase, it will cause each of its subsidiaries to execute and
deliver to VERITAS a joinder agreement agreeing to be bound by all of the
terms and provisions of the indemnification agreement.
The indemnification agreement also contains provisions about the treatment
of indemnification payments for tax purposes, the preparation of certain tax
returns relating to Seagate and Seagate Software and procedures to be followed
if there are certain tax claims and other indemnification procedures.
THE EXCLUSIVITY AGREEMENT
In connection with the stock purchase and the merger, VERITAS and Suez
Acquisition Company entered into a letter agreement. In this agreement, VERITAS
has agreed that, prior to termination of the stock purchase agreement, it will
not (and will cause its officers, directors, affiliates, employees and advisors
not to):
- solicit, initiate, encourage or induce the making, submission or
announcement of, any transaction involving a purchase by any person of
more than 15% of the outstanding voting securities of Seagate, a merger,
business combination, sale of assets, or other similar transaction
involving Seagate that meets the criteria set forth in the letter
agreement;
- participate in any discussions, negotiations or other communications with
any person regarding, or furnish to any person any information with
respect to, or take any other actions to facilitate any inquiries or the
making of any proposal that constitutes or may lead to, such a
transaction;
- approve, endorse or recommend any such transaction; or
- enter into any letter of intent, contract, agreement, understanding or
commitment relating to any such transaction.
The letter agreement provides that VERITAS is obligated to pay Suez
Acquisition Company a fee of $50 million if all of the following occur:
- the stock purchase agreement is terminated in any of the events described
in the next paragraph;
- if such termination is by Suez Acquisition Company, Suez Acquisition
Company had not, at the time of termination, materially breached any of
its representations, warranties, covenants or agreements in the stock
purchase agreement; and
- within 90 days of such termination, VERITAS enters into any agreement
with respect to a transaction described in the first bullet point of the
previous paragraph of this section.
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The termination events referenced in the first bullet point of the
preceding paragraph include:
- if the board of directors of Seagate withdraws or modifies in any manner
adverse to Suez Acquisition Company its recommendation in favor of the
stock purchase agreement and the stock purchase, or the merger agreement
and the merger, or takes any action or makes any statement inconsistent
with its recommendation, and Suez Acquisition Company terminates the
stock purchase agreement as a result of these actions;
- if a person unaffiliated with Suez Acquisition Company commences a tender
or exchange offer for in excess of 15% of the outstanding equity
securities of Seagate, and Seagate, in its statement to its
securityholders required under federal securities law, does not recommend
rejection of such tender or exchange offer, and Suez Acquisition Company
terminates the stock purchase agreement as a result of Seagate's failure;
- Seagate receives a superior proposal (as described under "The Stock
Purchase Agreement and the Stock Purchase -- Covenants Relating to
Solicitations by Seagate Prior to the Closing" beginning on page 127 of
this document);
- Seagate, its subsidiaries and their agents, advisors and representatives
have not violated the terms of the stock purchase agreement regarding
restrictions on its ability to solicit third party proposals as described
above;
- the board of directors of Seagate concludes in good faith, after
consulting with its legal counsel, that the termination of the stock
purchase agreement is necessary in order to comply with its fiduciary
obligations to the stockholders of Seagate under applicable law; and
- Seagate pays Suez Acquisition Company the $80 million termination fee (as
described under "The Stock Purchase Agreement and The Stock Purchase --
Termination of the Stock Purchase Agreement; Termination Fees and
Payments -- Termination Fees and Payments" on page 114 of this document)
concurrently with such termination.
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REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE
THE STOCK PURCHASE AND THE MERGER
In order to complete the stock purchase and the merger, Seagate and VERITAS
will each file notifications under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and will make various filings with state and foreign
governmental authorities with jurisdiction over applicable antitrust laws. It is
a condition to the obligations of Seagate, VERITAS and Suez Acquisition Company
to effect the stock purchase and the merger that they comply with the
Hart-Scott-Rodino Antitrust Improvements Act and that all applicable waiting
periods under that statute expire. Although Seagate, VERITAS and Suez
Acquisition Company do not currently anticipate any challenges to the stock
purchase or the merger based upon antitrust grounds, the Department of Justice,
the Federal Trade Commission or any state or foreign governmental authorities
could take action under various antitrust laws against the stock purchase or the
merger as they deem necessary in the public interest. Private parties may also
seek to take action under various antitrust laws against the stock purchase
and/or the merger. Based upon available information, Seagate, VERITAS and Suez
Acquisition Company believe that the stock purchase and the merger comply with
all significant federal, state and foreign antitrust laws. We cannot assure you,
however, that there will not be a challenge to the stock purchase and/or the
merger based on antitrust grounds, or that if so challenged, Seagate, VERITAS
and Suez Acquisition Company will prevail.
Seagate, VERITAS and Suez Acquisition Company are not aware of any other
significant governmental or regulatory approval required for completion of the
stock purchase or the merger, other than the effectiveness of the registration
statement of which this document forms a part, and compliance with the
applicable corporate laws of the state of Delaware.
MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER
The following discussion summarizes the material federal income tax
consequences of the exchange pursuant to the merger of shares of Seagate common
stock for the merger consideration. This discussion is based on currently
existing provisions of the Internal Revenue Code, existing Treasury regulations
thereunder and current administrative rulings and court decisions, all of which
are subject to change. Any such change, which may or may not be retroactive,
could alter the tax consequences to VERITAS, Seagate or the Seagate stockholders
as described herein.
Seagate stockholders should be aware that this discussion does not address
all federal income tax considerations that may be relevant to particular
stockholders of Seagate in light of their particular circumstances, such as
stockholders who are banks, insurance companies, tax-exempt organizations,
dealers in securities, or foreign persons, stockholders who acquired their
shares in connection with stock option or stock purchase plans or in other
compensatory transactions, who hold Seagate common stock as part of an
integrated investment (including a "straddle") comprised of shares of Seagate
common stock and one or more other positions, or who have previously entered
into a constructive sale of Seagate common stock. In addition, the following
discussion does not address the tax consequences of the merger under foreign,
state or local tax laws or the tax consequences of transactions effectuated
prior or subsequent to or concurrently with the merger (whether or not such
transactions are in connection with the merger), including, without limitation,
transactions in which Seagate common stock is acquired or VERITAS common stock
is disposed of.
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ACCORDINGLY, SEAGATE STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE
APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE
MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
Consummation of the merger is conditioned upon the receipt by VERITAS and
Seagate of opinions from their respective counsel that the merger should be
treated as a "reorganization" within the meaning of Section 368(a) of the
Internal Revenue Code. We occasionally refer to these opinions as the tax
opinions in this document. The tax opinions will be subject to certain
assumptions, limitations and qualifications, and will based upon the truth and
accuracy of certain factual representations of VERITAS, merger sub and Seagate.
Tax counsels' opinions are qualified as described in this section of the
document and, therefore, the conclusion that the merger should qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
is not free from doubt.
Assuming that the merger qualifies as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code and that the shares of Seagate
common stock surrendered in the merger were held as capital assets, then,
subject to the assumptions, limitations and qualifications referred to in this
document and in the tax opinions, the merger would result in the following
federal income tax consequences:
- In exchange for their Seagate common stock, Seagate stockholders will
receive VERITAS common stock, cash and non-transferable rights to
receive, when, as and if received by VERITAS, their proportionate
interests in the tax refund amount. A Seagate Stockholder's proportionate
interest in the tax refund amount is referred to as the tax refund right
in this section titled "Material United States Federal Income Tax
Consequences of the Merger". When Seagate stockholders exchange their
Seagate common stock for VERITAS common stock, cash and the tax refund
right, they will recognize gain, if any, only to the extent of the amount
of cash received plus the fair market value of the tax refund right
received. Seagate Stockholders can dial 1-800- to obtain
descriptions of the total merger consideration including the fair market
value of the tax refund right and the allocation of the merger
consideration between VERITAS common stock, cash and the tax refund
right. Any gain will be measured by the sum of the fair market value of
the VERITAS common stock received plus the amount of cash received plus
the fair market value of the tax refund right, minus the tax basis of the
Seagate common stock exchanged therefor. Such gain should generally be
capital gain, and should generally be long-term capital gain if the
Seagate common stock exchanged in the merger has been held for more than
one year. Seagate stockholders whose tax basis exceeds the merger
consideration will not recognize any loss upon the receipt of VERITAS
common stock, cash and the tax refund right.
- Cash payments received by holders of Seagate common stock in lieu of
fractional shares of VERITAS common stock will be treated as if
fractional shares had been issued in the merger and then redeemed by
VERITAS. A stockholder of Seagate receiving such cash will generally
recognize capital gain or loss upon such payment, equal to the difference
(if any) between such stockholder's tax basis in the fractional share and
the amount of cash received.
- The aggregate tax basis of the VERITAS common stock received by Seagate
stockholders in the merger will be the same as the aggregate tax basis of
the Seagate common stock surrendered in exchange therefor, decreased by
the tax basis
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allocated to fractional share interests for which cash is received and by
the amount of cash consideration received (other than cash received for
fractional share interests) and by the fair market value of the tax
refund amount received, and increased by the amount of gain recognized on
the exchange. The aggregate tax basis of the tax refund rights received
by Seagate stockholders in the merger will be the fair market value of
the tax refund amount at the time of the merger. Seagate Stockholders can
dial 1-800- to obtain descriptions of the total merger
consideration payable in the merger, the fair market value of the tax
refund amount and the allocation of the merger consideration between
VERITAS common stock, cash and the tax refund right.
- The holding period of the VERITAS common stock received in the merger
will include the period for which the Seagate common stock surrendered in
exchange therefor was held.
- Neither VERITAS, merger sub nor Seagate will recognize gain solely as a
result of the merger.
- VERITAS stockholders will not recognize any gain or loss on their shares
of VERITAS common stock as a result of the merger.
- Any payment in the future to a holder of a tax refund amount should be
treated as a payment under a contract for the sale or exchange of Seagate
common stock to which Section 483 of the Internal Revenue Code applies.
Given the contingent nature of the tax refund amount, it is not
anticipated that they will be treated as debt instruments for federal
income tax purposes. Under Section 483 of the Internal Revenue Code, a
portion of any payment pursuant to a tax refund amount will be treated as
interest, which will be ordinary income to the holder of the tax refund
amount. The interest amount will equal the excess of the amount received
over its present value at the effective time of the merger, calculated
using the applicable federal rate as the discount rate. The applicable
federal rate is a rate reflecting an average of market yields on Treasury
debt obligations for different ranges of maturities that is published
monthly by the Internal Revenue Service. The relevant applicable federal
rate will be the lesser of 5.80% compounded semi-annually or the lowest
applicable federal rate in effect during the 3-month period ending with
the month that includes the effective date of the merger. The maturity
range of the relevant applicable federal rate will correspond to the
period from the effective date of the merger to the date the amount is
received or deemed received. The holder of a tax refund amount must
include in income Section 483 interest using such holder's regular method
of accounting (such amount being taken into account when paid, in the
case of a cash method holder, and when fixed, in the case of an accrual
method holder. The portion of any payment pursuant to a tax refund amount
that is not treated as interest under Section 483 will be treated as
sales proceeds. The federal income tax treatment of partial payments on a
tax refund right is not provided. Therefore the tax treatment of such
payments, including the allowability of any loss prior to March 31, 2003,
is uncertain.
There are numerous requirements that must be satisfied in order for the
merger to qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code. Three of these requirements are of particular
importance given the sale of Seagate's operating assets to Suez Acquisition
Company for cash, the distribution of all or a portion of such cash to Seagate's
stockholders in connection with the merger and fluctuations in
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the trading values of Seagate and VERITAS common stock. These three requirements
are discussed in detail below.
First, the merger must satisfy the "continuity of business enterprise"
rule, which requires that the acquiring corporation continue the historic
business of the acquired corporation or use a significant portion of the
historic assets of the acquired corporation in a business. This requirement is
sometimes referred to as the business continuity requirement in this document.
The application of the business continuity requirement to a holding company is
uncertain and, according to Treasury regulations, requires an analysis of all
the facts and circumstances, including, for example, the percentage ownership of
the holding company in its subsidiaries that own operating assets. Immediately
prior to the merger, and after the sale of the operating assets to Suez
Acquisition Company, Seagate will be a holding company that owns indirectly
approximately 32.5% of the outstanding VERITAS common stock, as well as stock in
several other public and private companies. A published ruling of the Internal
Revenue Service and case law have found the business continuity requirement to
be satisfied in circumstances where a parent corporation merges into a wholly-
or majority-owned subsidiary. Such authorities do not specifically address a
situation where the parent corporation owns less than a majority of the
subsidiary's stock, as is the case with respect to Seagate's ownership of
VERITAS. The Internal Revenue Service has ruled privately that the business
continuity requirement was satisfied under such circumstances, but private
rulings are not binding on the Internal Revenue Service or any court.
Furthermore, the Internal Revenue Service temporarily suspended the issuance of
private ruling in this area from December 1994 until January 1999. Since the
ruling suspension was lifted, no private rulings involving a merger of a parent
corporation and its minority-owned subsidiary have been publicly released.
Although there can be no assurance that the Internal Revenue Service will not
take a contrary position, and the matter is not free from doubt, it is the
opinion of counsel to Seagate and VERITAS that the reasoning of the authorities
described above should apply to the merger, particularly in light of the fact
that Seagate acquired its VERITAS common stock in 1999 in a tax-free exchange
for certain assets of Seagate's software business, a business that VERITAS
continues to operate.
Second, the merger must satisfy the requirement that, following the merger,
the surviving corporation hold "substantially all" of the properties of Seagate.
For purposes of issuing private letter rulings, the Internal Revenue Service has
stated that 70% of the fair market value of the gross assets and 90% of the fair
market value of the net assets of the target corporation will be considered
"substantially all" of the target's properties, and tax counsel intend to follow
this safe harbor standard in rendering the required tax opinions. VERITAS
expects to fund at least part of the cash portion of the merger consideration
with cash of Seagate. If the cash provided from Seagate (including cash paid to
dissenters and cash used to pay transaction expenses) were to exceed 10% of the
net assets of Seagate immediately prior to the merger, the merger would not be
within the safe harbor referred to above. Accordingly, VERITAS intends to use
Seagate cash only to the extent that such cash does not exceed the safe harbor
amount, and to provide the remaining cash from its own funds. There can be no
assurance, however, the VERITAS will be able to provide such funds.
Third, VERITAS must acquire at least 80% of the Seagate common stock for
VERITAS common stock. This requirement is sometimes referred to as the 80%
requirement in this document. Because the merger consideration consists of
VERITAS common stock, cash and the tax refund amount, the percentage of the
total consideration represented by the VERITAS common stock will vary with
fluctuations in the market
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price of such stock. For example, if the market value of the VERITAS common
stock declines, the stock portion of the merger consideration will represent a
lesser percentage of the total consideration exchanged for the Seagate common
stock. In addition, the value of the tax refund amount cannot be determined
until after the merger. As a result of fluctuations in the market price of the
VERITAS common stock and/or an increase in the value of the tax refund amount,
VERITAS common stock could represent less than 80% of the total merger
consideration. If, in the judgment of tax counsel to Seagate or VERITAS, the 80%
requirement or the Internal Revenue Service ruling guidelines described in the
preceding paragraph were not satisfied as of the closing date, tax counsel would
be unable to deliver the tax opinions, and the merger would not be consummated
unless the condition requiring their delivery were waived. If the condition
requiring delivery of the tax opinions were waived, a new shareholder vote would
be solicited. Even if in the judgement of tax counsel the 80% requirement were
satisfied, since the judgment depends in part on the valuation of the tax refund
amount, it is possible that the Internal Revenue Service would disagree with
such valuation and conclude that the 80% requirement has not been satisfied.
No ruling has been or will be obtained from the Internal Revenue Service in
connection with the merger. Seagate stockholders should be aware that the tax
opinions do not bind the Internal Revenue Service and that the Internal Revenue
Service is therefore not precluded from successfully asserting a contrary
opinion. The tax opinions are also subject to certain assumptions and
qualifications and will be based on the truth and accuracy of certain
representations made by VERITAS, merger sub and Seagate, including, without
limitation, representations in certificates to be delivered to counsel by the
respective management of VERITAS, merger sub and Seagate.
A successful Internal Revenue Service challenge to the reorganization
status of the merger generally would result in Seagate stockholders recognizing
taxable capital gain or loss with respect to each share of Seagate common stock
surrendered equal to the difference between the stockholder's tax basis in such
share and the fair market value, as of the closing of the merger, of the VERITAS
common stock plus the amount of cash plus the fair market value of the tax
refund right received in exchange therefor. In such event, a stockholder's
aggregate basis in the VERITAS common stock so received generally should equal
its fair market value as of the closing of the merger and the holding period for
such stock would begin the day after the closing of the merger.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN UNITED
STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE
A COMPLETE ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO.
THUS, SEAGATE STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN REPORTING
REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FOREIGN, FEDERAL, STATE, LOCAL,
AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX
LAWS.
ACCOUNTING TREATMENT OF THE STOCK PURCHASE AND THE MERGER
The stock purchase will be accounted for using the purchase method of
accounting. The merger will be accounted for at the estimated fair value of the
assets and liabilities remaining in Seagate, immediately prior to the merger.
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THE SEAGATE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SEAGATE SPECIAL MEETING
The date, time and place of the special meeting of Seagate stockholders are
as follows:
, 2000
9:00 a.m. Pacific Time
920 Disc Drive
Scotts Valley, California 95066
PURPOSES OF THE SPECIAL MEETING
The special meeting has been called and is being held so that stockholders
of Seagate may consider and vote upon the following:
- a proposal to adopt and approve the stock purchase agreement and the
stock purchase;
- a proposal to adopt and approve the merger agreement and merger pursuant
to which a wholly owned subsidiary of VERITAS will merge with and into
Seagate and Seagate will become a wholly owned subsidiary of VERITAS; and
- any other business as may properly come before the special meeting or any
adjournment or postponement thereof.
RECORD DATE FOR THE SPECIAL MEETING; OUTSTANDING SHARES OF SEAGATE COMMON STOCK
The board of directors of Seagate has fixed the close of business on
, 2000 as the record date for the determination of stockholders
entitled to vote at the special meeting. Only holders of record of Seagate
common stock at the close of business on the record date are entitled to notice
of and to vote at the special meeting. As of the close of business on the record
date, there were shares of Seagate common stock outstanding and
entitled to vote, held of record by approximately stockholders,
although Seagate has been informed that there are in excess of
beneficial owners of Seagate common stock.
VOTE REQUIRED TO APPROVE PROPOSALS; QUORUM REQUIRED TO TRANSACT BUSINESS AT THE
SPECIAL MEETING
Holders of Seagate common stock are entitled to one vote for each share of
Seagate common stock held as of the record date for the special meeting.
Approval of each of the proposals to be voted upon by stockholders of Seagate at
the special meeting requires the affirmative vote of the holders of a majority
of the outstanding common stock of Seagate as of the record date for the special
meeting. Attendance at the special meeting in person or by proxy of a majority
of the outstanding common stock of Seagate is required for a quorum to conduct
business at the special meeting.
As of the record date, Seagate's directors, executive officers and their
affiliates as a group beneficially owned shares of Seagate common
stock, representing approximately % of the outstanding shares of Seagate
common stock. Seagate currently believes that each of its directors and
executive officers plans to vote their respective shares of Seagate common stock
in favor of the proposal to adopt and approve
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the stock purchase agreement and the stock purchase, and the proposal to adopt
and approve the merger agreement and the merger.
TREATMENT OF ABSTENTIONS AND BROKER NON-VOTES AT THE SPECIAL MEETING
Abstentions will be included in determining the number of shares present
and voting at the special meeting and will have the same effect as votes against
the proposals considered and voted upon at the special meeting. In the event
that a broker, bank, custodian, nominee or other record holder of Seagate common
stock indicates on a proxy that it does not have discretionary authority to vote
certain shares on a particular matter, which is called a broker non-vote, those
shares will not be considered for purposes of determining the number of shares
entitled to vote with respect to a particular proposal on which the broker has
expressly not voted, but will be counted for purposes of determining the
presence or absence of a quorum for the transaction of business at the special
meeting.
EXPENSES OF PROXY SOLICITATION FOR THE SPECIAL MEETING
Seagate will pay the expenses of soliciting proxies to be voted at the
special meeting. Following the original mailing of the proxies and other
solicitation materials, including this document, Seagate and its agents also may
solicit proxies by mail, telephone, telegraph or in person. In addition, Seagate
has retained Innisfree M&A Incorporated to coordinate the solicitation of such
proxies by and through such nominees for a fee of approximately $50,000, plus
reasonable out-of-pocket costs and expenses.
Following the original mailing of the proxies and other solicitation
materials (including this document), Seagate will request brokers, custodians,
nominees and other record holders of Seagate common stock to forward copies of
the proxy and other solicitation materials (including this document) to persons
for whom such brokers, custodians, nominees and other record holders hold shares
of Seagate common stock and to request authority for the exercise of proxies. In
such cases, upon the request of these record holders, Seagate will reimburse
such record holders for their reasonable expenses.
PROXIES FOR THE SPECIAL MEETING; REVOCATION OF PROXIES
The proxy accompanying this document is solicited on behalf of the board of
directors of Seagate for use at the special meeting. Please complete, date and
sign the accompanying proxy and promptly return it in the enclosed envelope or
otherwise mail it to Seagate. All properly signed proxies that Seagate receives
prior to the votes taken at the special meeting that are not revoked will be
voted at the special meeting according to the instructions indicated on the
proxies or, if no direction is indicated, to approve the stock purchase
agreement and the stock purchase, and to approve the merger agreement and the
merger. You may revoke your proxy at any time before it is voted at the special
meeting by taking any of the following actions:
- delivering a written notice to the Secretary of Seagate by any means,
including facsimile, bearing a date later than the date of the
earlier-delivered proxy, stating that the earlier delivered proxy is
revoked;
- signing and delivering a proxy relating to the same shares of Seagate
common stock and bearing a date later than the date of any
earlier-delivered proxy prior to the votes taken at the special meeting;
or
- attending the special meeting and voting in person, although attendance
at the special meeting will not, by itself, revoke a proxy. Please note,
however, that if your
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shares of Seagate common stock are held of record by a broker, bank or
other nominee and you wish to vote at the special meeting, you must bring
to the special meeting a letter from the broker, bank or other nominee
confirming your beneficial ownership of the shares.
The board of directors of Seagate is unaware of any matter that is not
referred to in this document to be presented for action at the special meeting.
If any other matters are properly brought before the special meeting, the
persons named in the proxies will have discretion to vote on such matters in
accordance with their best judgment.
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THE VERITAS SPECIAL MEETING
DATE, TIME AND PLACE OF THE VERITAS SPECIAL MEETING
, 2000
9:00 a.m. Pacific Time
900 Alta Avenue
Mountain View, California 94043
PURPOSES OF THE SPECIAL MEETING
VERITAS is furnishing this document to VERITAS stockholders in connection
with the solicitation of proxies by VERITAS' board of directors. The VERITAS
board of directors will use the proxies at the special meeting of VERITAS
stockholders and at any adjournment or postponement thereof. This joint proxy
statement/ prospectus, which includes the notice of the special meeting, and the
accompanying form of proxy are first being mailed to VERITAS stockholders on or
about , 2000.
At the special meeting, the stockholders of VERITAS will be asked to
approve the issuance of new shares of VERITAS common stock in connection with
the merger. No other business will be conducted the special meeting.
RECORD DATE AND OUTSTANDING SHARES
VERITAS' board of directors has fixed the close of business on
, 2000 as the record date for the VERITAS special meeting. Only
holders of record of VERITAS common stock at the close of business on the record
date are entitled to notice of and to vote at the meeting. As of the close of
business on the record date, there were shares of VERITAS common
stock outstanding and entitled to vote, held of record by approximately
stockholders, although VERITAS has been informed that there are
in excess of beneficial owners.
VOTE AND QUORUM REQUIRED
Holders of VERITAS common stock are entitled to one vote for each share
held as of the record date on all matters properly presented at the special
meeting.
In order to conduct business at the VERITAS special meeting, a quorum
consisting of at least a majority of VERITAS' outstanding shares of common stock
must be present in person or represented by proxy. Shares of VERITAS common
stock represented at the special meeting by a properly executed, dated and
returned proxy will be treated as present at the special meeting for purposes of
determining a quorum, regardless of whether the proxy is marked as casting a
vote on one or both of the proposals or abstaining.
VOTE REQUIRED FOR THE MERGER AND THE SHARE ISSUANCE; CERTAIN COMMON STOCK VOTING
IN FAVOR OF THE PROPOSALS
The issuance of new shares of VERITAS common stock in connection with the
merger must be approved and adopted by the affirmative vote of the holders of at
least a majority of the issued and outstanding common stock.
As of the record date, Seagate Software owned approximately % of the
outstanding shares of VERITAS common stock. Seagate has agreed to vote all of
its VERITAS shares in favor of the approval and adoption of the share issuance.
Other than Seagate Software, directors, executive officers and affiliates of
VERITAS as a group
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beneficially owned approximately % of the outstanding shares of VERITAS
common stock. VERITAS currently believes that each of its directors and
executive officers plans to vote their respective shares of VERITAS common stock
in favor of the proposal to issue additional shares of VERITAS common stock to
Seagate stockholders in connection with the merger.
All shares represented by proxies in the enclosed form that are properly
executed and returned on or before the date of the special meeting, and not
revoked, will be voted at the special meeting or any adjournment or postponement
thereof in accordance with any instructions indicated on such proxies. If no
instructions are indicated, such proxies will be voted FOR the approval of the
issuance of new shares of VERITAS common stock in connection with the merger. In
addition, the proxy holder may vote the proxy in accordance with his or her best
judgment as to any other matter that may properly come before the special
meeting.
Brokers are prohibited from exercising discretionary authority as to the
share issuance for beneficial owners who have not returned proxies to brokers
(so-called "broker non-votes"). Broker non-vote shares will be counted for the
purpose of determining if a quorum is present but will not be included in the
vote totals for matters as to which discretionary authority is prohibited.
For voting purposes at the VERITAS special meeting, only shares
affirmatively voted in favor of approval of the issuance of new shares of
VERITAS common stock in connection with the merger will be counted as favorable
votes for the approval and adoption of this proposal. Any broker non-votes and
abstaining votes will not be counted in favor of approval and adoption. Since
the vote of a majority of the outstanding VERITAS common stock is required to
approve the share issuance, broker non-votes and abstentions will have the same
effects as votes cast against the share issuance.
REVOCATION OF PROXIES
The grant of a proxy on the enclosed form does not preclude a VERITAS
stockholder from voting in person at the VERITAS special meeting. Any
stockholder who has given a proxy pursuant to this solicitation may revoke it by
attending the special meeting and giving oral notice of his or her intention to
vote in person, without compliance with any other formalities. Attendance at the
special meeting by a stockholder who has executed and delivered a proxy to
VERITAS will not in and of itself constitute a revocation of such proxy. Also,
please note that if your VERITAS shares are held of record by a broker, bank or
other nominee and you wish to vote at the meeting, you must bring to the meeting
a letter from the broker, bank or other nominee confirming your beneficial
ownership of the shares.
Any proxy given pursuant to this solicitation may be revoked at any time
prior to the special meeting by delivering to the Secretary of VERITAS a written
statement revoking it or by delivering a duly executed proxy bearing a later
date.
VERITAS management does not know of any matters other than those set forth
herein which may come before the special meeting. If any other matters are
properly presented to the special meeting for action, it is intended that the
persons named in the enclosed form of proxy and acting thereunder will vote in
accordance with their best judgment on such matters. Such matters may include an
adjournment or postponement of the special meeting from time to time in the
event the board of directors determines so to adjourn or postpone.
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SOLICITATION OF PROXIES
VERITAS will bear its own cost of the solicitation of proxies. Proxies will
be solicited initially by mail. Further solicitation may be made by directors,
officers and employees of VERITAS personally, by telephone or otherwise, but
such persons will not be specifically compensated for such services. If the
special meeting is adjourned or postponed, additional proxies may be solicited
during such adjournment period. Upon request, VERITAS will reimburse brokers,
dealers, banks or similar entities acting as nominees for reasonable expenses
incurred in forwarding copies of the proxy materials relating to the special
meeting to the beneficial owners of shares of common stock which such persons
hold of record.
Your vote is important. Please return your marked proxy card promptly so
your shares can be represented, even if you plan to attend the meeting in
person.
VERITAS STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING VERITAS
COMMON STOCK WITH THEIR PROXY CARD.
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SELECTED HISTORICAL FINANCIAL DATA
AND MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SELECTED HISTORICAL FINANCIAL DATA FOR SEAGATE
The following selected historical financial data for Seagate for fiscal
1995 through fiscal 1999 was derived from Seagate's audited financial statements
for the same periods, and the selected historical financial data for the nine
month periods ended March 31, 2000 and April 2, 1999 was derived from Seagate's
unaudited financial statements for the same periods. This financial data
reflects selected portions of the foregoing financial statements and should be
read in conjunction with the Seagate financial statements and related notes
included in this document.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
-------------------------------------------------- --------------------
JULY 2, JULY 3, JUNE 27, JUNE 28, JUNE 30, MARCH 31, APRIL 2,
1999 1998 1997 1996 1995 2000 1999
------- ------- -------- -------- -------- --------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENTS OF
OPERATIONS DATA:
Revenues................... $6,802 $6,819 $8,940 $8,588 $7,256 $4,900 $5,159
Income (loss) from
operations............... 258 (686) 858 287 459 (525) 175
Income (loss) before
extraordinary gain....... 1,176 (530) 658 213 313 79 157
Net income (loss).......... 1,176 (530) 658 213 319 79 157
Basic income (loss) per
share before
extraordinary gain....... 4.94 (2.17) 2.82 1.07 1.64 .36 .65
Basic net income (loss) per
share.................... 4.94 (2.17) 2.82 1.07 1.67 .36 .65
Diluted net income (loss)
per share before
extraordinary gain....... 4.53 (2.17) 2.62 .97 1.44 .35 .63
Diluted net income (loss)
per share................ 4.53 (2.17) 2.62 .97 1.47 .35 .63
Shares used in computing
basic net income (loss)
per share................ 237.9 243.6 233.6 199.7 190.6 218.9 242.2
Shares used in computing
diluted net income (loss)
per share................ 243.1 243.6 257.9 236.1 244.7 227.6 247.3
HISTORICAL BALANCE SHEET
DATA:
Cash, cash equivalents and
short-term investments... $1,623 $1,827 $2,283 $1,174 $1,246 $1,890 $1,601
Working capital............ 1,772 2,240 2,716 1,961 1,535 1,876 1,738
Total assets............... 7,072 5,645 6,723 5,240 4,900 7,156 5,229
Long-term obligations, net
of current portion....... 703 704 702 798 1,066 703 703
Total stockholders'
equity................... 3,563 2,937 3,476 2,466 1,936 3,714 2,357
</TABLE>
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The results of operations for fiscal 1999 include a $60 million
restructuring charge, a $78 million charge to operations for milestone payments
related to the acquisition of Quinta Corporation, $1,670 million gain on the
contribution of NSMG to VERITAS net of various transaction costs, and a $119
million charge related to Seagate's equity ownership in VERITAS. Seagate
Technology's fiscal 1998 results of operations include a $347 million
restructuring charge, a $223 million write-off of in-process research and
development incurred primarily in connection with the acquisition of Quinta
Corporation, a $76 million charge for mark-to-market adjustments on certain of
Seagate Technology's foreign currency forward exchange contracts and a $22
million reduction in the charge recorded in fiscal 1997 as a result of the
adverse judgment in the Amstrad PLC litigation. The fiscal 1997 results of
operations include a $153 million charge as a result of the adverse judgment in
the Amstrad PLC litigation. The fiscal 1996 results of operations include a $242
million restructuring charge as a result of the merger with Conner Peripherals,
Inc. and a $99 million write-off of in-process research and development
primarily incurred in connection with the acquisition of software companies. The
fiscal 1995 results of operations include a $73 million write-off of in-process
research and development incurred in connection with business acquisitions.
The results of operations for the nine months ended March 31, 2000 include
a $105 million charge for in-process research and development costs related to
our acquisition of X10tech in January 2000, a $183 million restructuring charge,
$286 million related to compensation expense with regards to the reorganization
of Seagate Software in October 1999, $37 million related to the settlement of
Rodime litigation in January 2000, a $537 million gain on the sale of VERITAS
stock, and a $515 million gain on the sale of SanDisk stock.
Prior periods have been restated to reflect the merger with Conner
Peripherals, Inc. in February 1996 on a pooling of interests basis, a
two-for-one stock split, effected in the form of a stock dividend, in November
1996, and Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" adopted in the second quarter of fiscal 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR SEAGATE'S YEAR ENDED JULY 2, 1999
The following discussion should be read in conjunction with the five-year
selected historical financial data for Seagate, and the financial statements of
Seagate and the related notes, included in this document. All references to
years represent fiscal years unless otherwise noted.
Overview
Business Combinations -- In Process Research and Development
Seagate has a history of business combinations and during the three most
recent fiscal years these included the contribution of its Network and Storage
Management Group to VERITAS in fiscal 1999 and the acquisitions of Quinta
Corporation and Eastman Storage Software Management Group in fiscal 1998. No
significant business combinations occurred in fiscal 1997. In connection with
these business combinations, Seagate has recognized significant write-offs of
in-process research and development. The completion of the underlying in-process
projects acquired within each business combination was the most significant and
uncertain assumption utilized in the valuation analysis of the in-process
research and development. Such uncertainties could give rise to unforeseen
budget over runs and/or revenue shortfalls in the event that Seagate is unable
to successfully complete a certain research and development project. Seagate is
primarily responsible for estimating the fair value of the purchased research
and development in all business combinations accounted for under the purchase
method. The nature of research and development projects acquired, the estimated
time and costs to complete the projects and significant risks associated with
the projects are described below.
Contribution of the Network and Storage Management Group to VERITAS
On May 28, 1999, Seagate, and its direct and indirect subsidiaries, Seagate
Software, Inc. and the Seagate Software Network & Storage Management Group,
closed and consummated the Agreement and Plan of Reorganization (the "Plan")
dated as of October 5, 1998 with a predecessor to VERITAS and VERITAS. The Plan
provided for the contribution by Seagate, Seagate Software, Inc., and certain of
their respective subsidiaries to the VERITAS predecessor of (i) the outstanding
stock of the Network & Storage Management Group and certain other subsidiaries
of Seagate Software, Inc. and (ii) those assets used primarily in the network
and storage management business of Seagate Software, Inc. (the "NSMG business"),
in consideration for the issuance of shares of common stock of the VERITAS
predecessor to Seagate Software, Inc. and the offer by the VERITAS predecessor
to grant options to purchase common stock of the VERITAS predecessor to certain
of Seagate Software, Inc.'s employees who become employees of the VERITAS
predecessor or its subsidiaries. As part of the Plan, the VERITAS predecessor
assumed certain liabilities of the NSMG business. The Plan was structured to
qualify as a tax-free exchange.
Subsequent to the consummation of the Plan, all outstanding securities of
the VERITAS predecessor were assumed and converted into common stock of VERITAS
with identical rights, preferences and privileges, on a share for share basis.
As a result of the contribution of the NSMG business to the VERITAS predecessor,
Seagate Software received a total of 155,583,468 shares of VERITAS common stock
and former employees of the NSMG business received options to purchase an
aggregate of 15,626,358 shares of VERITAS common stock. Share and option amounts
for VERITAS have been adjusted to
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reflect the two-for-one stock dividend effected by VERITAS on July 9, 1999 and
the three-for-two stock dividends effected by VERITAS on November 19, 1999 and
March 3, 2000.
Seagate has accounted for the contribution of NSMG to the VERITAS
predecessor as a non-monetary transaction using the fair value of the assets and
liabilities exchanged. After the transaction, Seagate Software owned
approximately 41.63% (155,583,468 shares) of the outstanding shares of VERITAS,
including the NSMG business. Because Seagate still owns a portion of the NSMG
business through its ownership of VERITAS, Seagate did not recognize 100% of the
gain on the exchange. The gain recorded is equal to the difference between
58.37% of the fair value of the VERITAS common stock received and 58.37% of
Seagate's basis in the NSMG assets and liabilities exchanged. Seagate is
accounting for its on going investment in VERITAS using the equity method. The
difference between the recorded amount of Seagate's investment in VERITAS and
the amount of its underlying equity in the net assets of VERITAS has been
allocated based upon the fair value of the underlying tangible and intangible
assets and liabilities of VERITAS. The intangible assets included amounts
allocated to in-process research and development and resulted in a $85 million
write-off included in activity related to equity interest in VERITAS in the
accompanying statement of operations. Intangible assets including goodwill are
being amortized over four years.
Seagate will include in its financial results its share of the net income
or loss of VERITAS, excluding certain NSMG purchase accounting related amounts
recorded by VERITAS, but including Seagate's amortization of the difference
between its recorded investment and the underlying assets and liabilities of
VERITAS. Because of practicality considerations, the net income or loss of
VERITAS will be included in the results of Seagate on a one quarter lag basis.
The results of VERITAS for the period from May 29, 1999 to June 30, 1999, the
period subsequent to the contribution of NSMG to VERITAS, were included in
Seagate's results of operations for the quarter ended October 1, 1999. The
results of VERITAS for the period from July 1, 1999 to September 30, 1999 were
included in Seagate's results for the quarter ended December 31, 1999.
In a separate but related transaction to the contribution of the NSMG
business to VERITAS, on June 9, 1999, Seagate exchanged 5,275,772 shares of its
common stock for 3,267,255 of the outstanding shares of Seagate Software common
stock owned by employees, directors and consultants of Seagate Software. The
exchange ratio was determined based on the estimated value of Seagate Software
common stock divided by the fair market value of Seagate common stock.
The estimated value of Seagate Software common stock exchanged into Seagate
common stock was determined based upon the sum of the fair value of the NSMG
business, as measured by the fair value of the shares received from VERITAS,
plus the estimated fair value of the Information Management Group ("IMG") of
Seagate Software as determined by the Seagate board of directors, plus the
assumed proceeds from the exercise of all outstanding Seagate Software stock
options, divided by the number of fully converted shares of Seagate Software.
The Seagate board of directors considered a number of factors in determining the
estimated fair value of the IMG business, including historical and projected
revenues, earnings and cash flows, as well as other factors and consultations
with financial advisors.
The fair value of the Seagate Software shares acquired less the original
purchase price paid by the employees was recorded as compensation expense for
those shares outstanding and vested less than six months. The purchase of
Seagate Software shares outstanding and
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vested more than six months was accounted for as the purchase of a minority
interest and, accordingly, the fair value of the shares exchanged has been
allocated to all of the identifiable tangible and intangible assets and
liabilities of Seagate Software, Inc. In connection with the acquisition,
Seagate Software, Inc. recorded the acquisition of the minority interest,
Seagate recorded compensation expense amounting to approximately $124 million
and wrote off purchased research and development amounting to $2 million in the
fourth quarter of fiscal 1999. Associated intangible assets and goodwill are
being amortized to operations over four years.
The value allocated to projects identified as in-process technology at
VERITAS and Seagate Software, Inc., for the minority interest acquired, were
charged to expense in the fourth quarter of fiscal 1999. These write-offs were
necessary because the acquired technologies had not reached technological
feasibility at the date of purchase and have no future alternative uses. Seagate
Software, Inc. expects that the acquired in-process research and development
will be successfully developed, but there can be no assurance that commercial
viability of these products will be achieved.
The nature of the efforts required to develop the purchased in-process
technology into commercially viable products principally relate to the
completion of all planning, designing, prototyping, verification and testing
activities that are necessary to establish that the product can be produced to
meet its design specifications, including functions, features and technical
performance requirements. The value of the purchased in-process technology for
VERITAS was estimated as the projected net cash flows related to such products,
including costs to complete the development of the technology and the future
revenues to be earned upon commercialization of the products, excluding revenues
attributable to future development efforts. These cash flows were then
discounted back to their net present value. The projected net cash flows from
such projects were based on management's estimates of revenues and operating
profits related to such projects.
As of the date of the contribution of the NSMG business to the VERITAS
predecessor, Seagate Software, Inc.'s management and VERITAS Software's
management anticipated the costs to complete the in-process technologies at
approximately $5.8 million and $44.2 million, respectively.
Quinta Corporation
Quinta was acquired in August 1997. Quinta's research and development
efforts revolve around Optically Assisted Winchester ("OAW") technology. OAW
refers to Quinta's newly designed recording technology that, upon completion,
would be implemented into Winchester hard disc drives. OAW combines traditional
magnetic recording technology with Winchester hard disc drives and optical
recording capabilities; optical recording technology enables greater data
storage capacity. By integrating advanced optical features along with a highly
fine and sophisticated tracking and delivery system within the head design, OAW
would multiply the areal density of disc drives.
Through August 8, 1997, the acquisition date, Quinta had demonstrated
significant achievements in developing its technology. However, further
technological milestones were required before technological feasibility could be
achieved. Quinta's development process consists of the following development
milestones: (i) route light (optical fiber), (ii) flying head use, (iii)
recording media, (iv) mirror creation and demonstration (two stage servo), (v)
complete assembly, (vi) form factor containment, (vii) design verification test,
(viii) customer qualification, and (ix) delivery. Future products were expected
to include
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fixed and removable drives and cartridges. Seagate expected to introduce
products incorporating Quinta's OAW technology within 12 months of the
acquisition date.
At the time of completing the Quinta acquisition, Seagate estimated that
additional R&D spending of $9.4 million and $3.9 million in fiscal 1998 and
1999, respectively, would be required to complete the project. Since that time,
Seagate has redirected its efforts so that Seagate is focused less on the
development of a specific product and more on the advancement of optical
technology in general. As such, the spending elements associated with the
development of optical technology are embedded in the R&D budgets of Seagate's
product design centers and component technology organizations.
At the present time Seagate has no immediate plans to release a storage
device which makes specific use of Quinta's "Optically Assisted Winchester"
technology. Delay in releasing such a storage device is not expected to
materially affect Seagate's future earnings.
Eastman Software Storage Management Group
Eastman was acquired in June 1998. Eastman develops a hierarchical storage
management product for Microsoft's Windows NT platform and its two primary
products are OPEN/stor for Windows NT and AvailHSM for NetWare. By integrating
Eastman's product line, Seagate will be able to convert its Storage Migrator
product into a stand-alone HSM application for Windows NT environments. As of
the date of acquisition, Seagate abandoned the AvailHSM product and technology
due to dated features and functionality. The valuation analysis did not include
a fair value for the AvailHSM product.
As for OPEN/stor at the date of acquisition, Seagate planned to phase out
the product over the following 12 to 15 months. Seagate's purpose for the
acquisition was for the next generation technologies that were underway at
Eastman, referenced by project names Sakkara and Phoenix. These projects were
complete re-writes of Eastman's prior generation technology that would allow the
product to be sold stand-alone upon completion. The anticipated release dates
for Sakkara and Phoenix were the 2nd quarter of fiscal year 1999 and the 4th
quarter of fiscal year 1999, respectively. As of the date of acquisition,
Seagate anticipated the costs to complete both Sakkara and Phoenix at
approximately $1.8 million. These products were not released prior to the
closing of the contribution of the NSMG business to the VERITAS predecessor.
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Results of Operations
The following table sets forth certain items in Seagate's consolidated
statements of operations as a percentage of revenue for each of the three years
in the period ended July 2, 1999.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUE
-----------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Revenue................................................... 100% 100% 100%
Cost of sales............................................. 77 85 77
--- --- ---
Gross margin.............................................. 23 15 23
Product development....................................... 9 9 5
Marketing and administrative.............................. 8 7 6
Amortization of goodwill and other intangibles............ -- 1 --
In-process research and development....................... -- 3 --
Restructuring............................................. 1 5 --
Unusual items............................................. 1 -- 2
--- --- ---
Income (loss) from operations............................. 4 (10) 10
Other income, net......................................... 23 -- --
--- --- ---
Income (loss) before income taxes......................... 27 (10) 10
Benefit (provision) for income taxes...................... (10) 2 (3)
--- --- ---
Net income (loss)......................................... 17% (8)% 7%
=== === ===
</TABLE>
1999 vs 1998 -- Revenue in 1999 was flat when compared to 1998. A higher
level of unit shipments, an increase of 9% as compared to 1998, combined with a
shift in mix to Seagate's higher priced products was offset by a continuing
decline in the average unit sales prices of Seagate's products as a result of
intensely competitive market conditions. Revenue decreased to $1.643 billion in
the fourth quarter of 1999 from $1.805 billion in the third quarter of 1999 as a
result of price erosion. Seagate's overall average unit sales price on its disc
drive products was $194, $194, $196 and $177 for the four quarters of fiscal
1999, respectively. Average price erosion from fiscal year 1998 to fiscal year
1999 was 9%. Seagate expects that price erosion in the data storage industry
will continue for the foreseeable future. This competition and continuing price
erosion may adversely affect Seagate's results of operations in any given
quarter and such an adverse effect often cannot be anticipated until late in any
given quarter.
The increase in gross margin as a percentage of revenue from the prior year
was primarily due to cost savings as a result of Seagate's restructuring
activities and an intensive program of cost reduction resulting in lower average
unit costs per disc produced. Excluding the gross margin of Seagate Software,
Inc. which subsidiary's products generally have higher gross margins, Seagate's
gross margins would have been 19% and 11% in 1999 and 1998, respectively.
Product development expenses decreased by $4 million (1%) compared with
1998, primarily due to a decrease of $23 million in occupancy costs, and a $19
million accrual in fiscal year 1998 for payments to former shareholders of
Quinta for achievement of certain product development milestones. These
decreases were substantially offset by increases of $12 million in salaries and
related costs, $12 million in profit sharing accruals and $11 million in
depreciation. The decrease of $23 million in occupancy costs from the comparable
year-ago period was primarily due to the closure of certain of Seagate's product
design centers pursuant to its January 1998 restructuring plan.
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Marketing and administrative expenses increased by $32 million (6%)
compared with 1998, primarily due to increases of $28 million related to
Seagate's software products and services, particularly those of Seagate
Software's IMG, $17 million in salaries and related costs, $8 million in legal
expenses which includes settlements in the White, Hedgcoth and Lemelson cases,
$7 million in profit sharing accruals and $6 million in depreciation. These
expenses were partially offset by decreases of $27 million in occupancy costs
and $13 million in advertising and promotion expenses. The decrease of $27
million in occupancy costs from the comparable year-ago period was primarily due
to the closure of certain of Seagate's facilities pursuant to its January 1998
restructuring plan.
Of the $223 million charge for the write-off of in-process research and
development in 1998, $214 million was a result of the August 1997 acquisition of
Quinta and $7 million was a result of the June 1998 acquisition of Eastman.
In 1999, Seagate recorded restructuring charges of $72 million and reversed
$12 million of restructuring accruals recorded in fiscal 1998, resulting in a
net restructuring charge of $60 million. The $12 million reversal was a result
of Seagate abandoning its plan to seek an agreement with an external vendor to
supply parts currently manufactured at a facility in Thailand. The $72 million
restructuring charge was a result of steps Seagate is taking to further improve
the efficiency of its operations. These actions include (i) closure of Seagate's
microchip manufacturing facility in Scotland, (ii) discontinuance of Seagate's
recording head suspension business located in Malaysia and Minnesota, (iii)
consolidation of global customer service operations by relocating such
operations in Singapore, Scotland and Costa Mesa, California to Mexico, and (iv)
closure of Seagate's recording media substrate facility in Mexico. In connection
with this restructuring, Seagate currently expects a workforce reduction of
approximately 1,250 employees. Approximately 631 of the 1,250 employees had been
terminated as of July 2, 1999. As a result of employee terminations and the
write-off or write-down of equipment and facilities in connection with
implementing the fiscal year 1999 restructuring plan, Seagate estimates that
annual salary and depreciation expense will be reduced by approximately $27
million and $16 million, respectively. Seagate anticipates that the
implementation of the restructuring plan will be substantially complete by the
end of March 2000.
The $78 million charge to unusual items in 1999 was in connection with an
amendment to the purchase agreement for the August 1997 acquisition of Quinta.
The $22 million in income in unusual items in 1998 represents a $22 million
reduction of the $153 million charge recorded in 1997 to settle a lawsuit
against Seagate by Amstrad PLC.
Net other income in 1999 increased by $1.633 billion compared with 1998.
The increase in net other income was primarily due to the net gain of $1.670
billion on the contribution of Seagate's NSMG business to VERITAS partially
offset by the charge related to Seagate's investment in VERITAS of $119 million
in the fourth quarter of 1999. The net gain of $1.670 billion consisted of a
gain of $1.806 billion net of compensation expense of $124 million and
merger-related expenses of $12 million. In addition, the increase in net other
income was due to $76 million of expenses related to mark-to-market adjustments
in 1998 on certain of Seagate's foreign currency forward exchange contracts for
the Thai baht and the Malaysian ringgit.
Seagate recorded a $697 million provision for income taxes at an effective
rate of 37% in 1999 compared with a $174 million benefit for income taxes at an
effective rate of 25% in 1998. The change in income taxes was primarily due to
income from operations in 1999 and to income taxes provided on the pre-tax gain
of $1.670 billion recorded on the contribution of Seagate's NSMG business to
VERITAS. Excluding the effects of the
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foregoing VERITAS transaction, the non-deductible charges from the Quinta
acquisition and certain non-recurring restructuring costs, the effective tax
rate was approximately 28% in 1999.
Seagate provided income taxes at the U.S. statutory rate in 1999 on
approximately 55% of its foreign earnings compared with approximately all of
such earnings in 1998. A substantial portion of Seagate's Far East manufacturing
operations at plant locations in Singapore, Thailand, Malaysia and China operate
under various tax holidays which expire in whole or in part during fiscal years
2001 through 2009. The net impact of these tax holidays was to increase net
income by approximately $35 million ($.14 per share, diluted) in 1999. The tax
holidays had no impact on the net loss in 1998.
Seagate received a statutory notice of deficiency dated June 27, 1997 from
the Internal Revenue Service relative to taxable years 1991 through 1993
assessing potential deficiencies approximating $39 million plus interest and
approximately $6 million of penalties. Seagate petitioned the United States Tax
Court on September 24, 1997 for a re-determination of the deficiencies. Seagate
believes that the likely outcome of this matter will not have a material adverse
effect on its financial position or results of operations.
Seagate received a statutory notice of deficiency dated June 12, 1998 from
the Internal Revenue Service relative to Conner's taxable years 1991 and 1992
assessing potential deficiencies approximating $11 million plus interest.
Seagate petitioned the United States Tax Court on September 10, 1998 for a
re-determination of the deficiencies. Seagate believes that the likely outcome
of this matter will not have a material adverse effect on its financial position
or results of operations.
1998 vs 1997 -- Revenue in 1998 was 24% lower than that reported in 1997.
The decrease in revenue from the prior year was due primarily to a continuing
decline in the average unit sales prices of Seagate's products as a result of
intensely competitive market conditions, a lower level of unit shipments
reflecting continuing weakness in demand for Seagate's disc drive products and a
shift in mix away from Seagate's higher priced products. The price erosion
accounted for $1.6 billion of the revenue decline while volume issues accounted
for $0.4 billion.
The decrease in gross margin as a percentage of revenue from the prior year
was primarily due to a continuing decline in the average unit sales prices of
Seagate's disc drive products, particularly its desktop products, as a result of
intensely competitive market conditions, lower consolidated revenue and a shift
in mix away from Seagate's higher performance disc drives, partially offset by
reductions in manufacturing costs. In 1997 desktop gross margins improved over
1996 primarily due to strong demand for these products. This strong demand
resulted in most of Seagate's desktop disc drive products going on allocation
and thus stabilizing prices. In 1998 the situation changed. There was excess
capacity in the industry for desktop disc drives which resulted in severe price
erosion. Because of these factors, as well as poor time-to-market performance
with respect to Seagate's products, desktop gross margins declined substantially
in 1998. Seagate's overall average unit sales price on its disc drive products
was $219, $206, $208 and $229 for the four quarters of fiscal 1998,
respectively. Additionally, there was an increase in revenue (34%) of Seagate
Software, Inc., which generally have higher gross margins. Excluding the gross
margin of Seagate Software, Inc., Seagate's gross margins would have been 11%
and 22% in 1998 and 1997, respectively.
Product development expenses increased by $126 million (27%) compared with
1997, primarily due to increases of $39 million in salaries and related costs,
$26 million in
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allocated occupancy costs and $19 million in payments or accruals for such
payments to former shareholders of Quinta, acquired by Seagate in August 1997,
for achievement of certain product development milestones, and an overall
increase in Seagate's product development efforts. Seagate's product development
activities include efforts to improve its time-to-market performance, the
development of ultra-high capacity disc drive technologies, including a new
optically-assisted Winchester (OAW) technology being developed by Quinta and
development efforts related to its software and tape drive products. These
increases in expenses were partially offset by substantially reduced employee
profit sharing and executive bonuses in 1998.
Marketing and administrative expenses increased by $9 million (2%) compared
with 1997, primarily due to increases of $22 million in advertising and
promotion expenses, $21 million in marketing and administrative expenses related
to Seagate's software products and services, particularly those of Seagate
Software's IMG and $17 million in salaries and related costs. These increases in
expenses were partially offset by decreases of $21 million in allocated
occupancy costs, $15 million in employee profit sharing and executive bonuses,
$10 million in legal expenses and $6 million in the provision for bad debts.
Amortization of goodwill and other intangibles decreased by $10 million
(20%) compared with 1997, primarily due to the inclusion in amortization expense
of the write-down of goodwill and the write-offs and write-downs in 1997 of
certain intangible assets related to past acquisitions of software companies
whose value had become permanently impaired and the resultant subsequent $13
million reduction in amortization expense, partially offset by additional
amortization of $2 million related to goodwill and intangibles arising from
Seagate's additional investment in Dragon Systems in September 1997.
Of the $223 million charge for the write-off of in-process research and
development, $214 million was a result of the August 1997 acquisition of Quinta
and $7 million was a result of the June 1998 acquisition of Eastman. In April
and June 1997, Seagate invested an aggregate of $20 million to acquire
approximately ten percent (10%) of Quinta's stock. In August 1997, Seagate
completed the acquisition of Quinta. Pursuant to the purchase agreement with
Quinta, the shareholders of Quinta, other than Seagate, received cash payments
aggregating $230 million upon the closing of the acquisition and were eligible
to receive additional cash payments aggregating $96 million upon the achievement
of certain product development and early production milestones. Of the $96
million, $19 million was paid or accrued in fiscal 1998. In July 1998, Seagate
and Quinta amended the purchase agreement to eliminate the product development
and early production milestones and provide that the former shareholders of
Quinta would be eligible to receive the remaining $77 million and the $14
million that had been accrued but unpaid in fiscal 1998. In the first quarter of
fiscal 1999, Seagate took a charge to operations for the remaining $77 million.
Seagate recognizes the uncertainty associated with the completion of purchased
in-process research and development. Such uncertainties could give rise to
unforeseen budget overruns and/or revenue shortfalls in the event that Seagate
is unable to successfully complete a given research and development project.
Seagate recorded restructuring charges of $205 million in the second
quarter of 1998 and $142 million in the third quarter of 1998. The aggregate
charges of $347 million reflect steps Seagate is taking to align worldwide
operations with current market conditions by reducing existing capacity in all
areas of Seagate and improving the productivity of its operations and the
efficiency of its development efforts by consolidating manufacturing and R&D
operations. Actions include (i) exiting production of mobile products, (ii)
early
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discontinuation of several other products, (iii) closing and selling the
Clonmel, Ireland drive manufacturing facility, (iv) closing and subleasing the
San Jose and Moorpark, California design center facilities, (v) aborting
production expansion projects in Cork, Ireland, and (vi) divesting Seagate of
the new Philippines manufacturing facility, which was nearing completion.
The restructuring charges were comprised of (i) employee related costs for
severance of $57 million, (ii) facilities costs for facilities Seagate is no
longer using for current activities which include lease termination and holding
costs of $24 million for facilities located in California and the Far East, and
the write-off or write-down of owned and leased facilities located in
California, the Philippines and Ireland of $54 million, (iii) write-off or
write-down of $137 million for excess manufacturing, assembly and test equipment
and tooling formerly utilized primarily in California, Singapore, Thailand and
Ireland, (iv) write-off of intangibles and other assets including $9 million for
capital equipment deposits and $2 million for goodwill associated with
permanently impaired equipment, (v) contract cancellations comprised of $43
million for costs incurred to cancel outstanding purchase commitments existing
prior to the plan of restructure, and (vi) other costs comprised of the
repayment of various grants to the Industrial Development Agency of Ireland of
$7 million and a contingency of $14 million for adjustments to estimates used
when the restructuring charge was recorded.
The fiscal year 1998 aggregated restructuring reserve included asset
write-offs or write-downs of tangible assets totaling $200 million and
intangible assets totaling $2 million. During the quarter ended January 2, 1998,
forecasted production needs were much lower than the current capacity of Seagate
and Seagate recognized that the recent oversupply in the marketplace was not a
short-term anomaly. This oversupply was as a result of competitors in the drive
industry completing expansion plans at the same time that customer demand
flattened out in addition to efficiency improvements achieved in Seagate's
manufacturing processes. In this period, Seagate also decided to discontinue
production of all or a portion of products within the Elite, Bali, Cuda,
Explorer and Phoenix/Futura product families, rendering test and manufacturing
equipment unique to those products as excess. Prior to this period, there was no
indication of permanent impairment of the assets associated with the recent
excess capacity of Seagate or the products to be discontinued. These assets
included owned facilities that Seagate is vacating, manufacturing, assembly and
test equipment and tooling unique to production of discontinued products and
excess equipment as a result of consolidating facilities and leasehold
improvements for leased facilities to be vacated. Discounted future cash flows
and evaluations of the resale market for certain assets were used to estimate
fair value.
The Clonmel, Ireland facility was sold in May 1998 and the majority of the
other tangible assets have been disposed of or sold. The remaining assets are
the Philippines facility, a manufacturing facility in Thailand and the
manufacturing equipment located at the Thailand facility. The Philippines
facility remains vacant and Seagate continues to actively seek a buyer. The
manufacturing facility in Thailand continues to be utilized until a satisfactory
agreement can be made with an external vendor to supply parts currently
manufactured at this location. Seagate is actively seeking such an agreement.
Until such time as a supplier is qualified, Seagate is continuing to depreciate
the Thailand facility and the equipment at this facility. When these assets are
identified as available for sale, no further depreciation will be recorded.
Seagate is marketing vacated leased facilities for sublease unless the remaining
lease term is so short as to make a sublease impractical.
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As a result of employee terminations and write-off or write-down of
equipment and facilities in connection with implementing the fiscal year 1998
restructuring plan, Seagate estimates that annual salary and depreciation
expense will be reduced by approximately $170 million and $70 million,
respectively. Certain lease termination and holding costs related to vacated
facilities continue to be incurred and charged against the restructuring reserve
until the leases expire or the facilities are subleased.
Amstrad PLC initiated a lawsuit against Seagate in 1992 concerning
Seagate's sale of allegedly defective disc drives to Amstrad. On November 6,
1997, Seagate and Amstrad settled all of the outstanding disputes. The
settlement resulted in a $22 million reduction in 1998 against the $153 million
charge recorded in 1997. The $22 million reduction and the $153 million charge
are included in unusual items in the Consolidated Statements of Operations for
1998 and 1997, respectively.
Net other income in 1998 decreased by $51 million, compared with 1997,
primarily due to charges for mark-to-market adjustments in 1998 of $76 million
on certain of Seagate's foreign currency forward exchange contracts for the Thai
baht and the Malaysian ringgit offset by $10 million of other foreign currency
transaction gains. Additionally there was an increase in interest expense of $16
million due to higher average levels of long-term debt outstanding. These
decreases in net other income were partially offset by a decrease of $10 million
in the charge for minority interest as a result of lower income in Seagate's
majority-owned subsidiary in Shenzhen, China, an $8 million gain on sales of
Seagate's investment in Overland Data, Inc. and a $6 million increase in
interest income.
Seagate recorded a $174 million benefit from income taxes at an effective
rate of 25% in 1998 compared with a $233 million provision for income taxes at
an effective rate of 26% in 1997. The change in income taxes was primarily due
to the loss from operations incurred in 1998. Excluding the acquisition of
Quinta, certain non-recurring restructuring costs and the reversal of certain
Amstrad litigation charges, the effective tax rate was approximately 28% in
1998. Excluding the Amstrad litigation charge, the effective tax rate was
approximately 28% in 1997.
Seagate provided income taxes at the U.S. statutory rate of 35% in 1998 on
substantially all of its earnings from foreign subsidiaries compared with
approximately 66% of such earnings in 1997. A substantial portion of Seagate's
Far East manufacturing operations at plant locations in Singapore, Thailand,
Malaysia and China operate under various tax holidays which expire in whole or
in part during fiscal years 1999 through 2005. The tax holidays had no impact on
the net loss in 1998. The net impact of these tax holidays was to increase net
income by approximately $71 million ($0.28 per share, diluted) in 1997.
Other
For 1999, the net loss resulting from the remeasurement of foreign
financial statements into U.S. dollars was $4 million. Such net gains (losses)
did not have a significant effect on the results of operations for 1998 or 1997.
The effect of inflation on operating results for 1999, 1998 and 1997 has been
insignificant. Seagate believes this is due to the absence of any significant
inflation factors in the industry in which Seagate participates.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 requires that all items that are required to be
recognized under
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accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This statement is effective for fiscal years beginning
after December 15, 1997, and was adopted by Seagate for its fiscal year 1999.
The adoption of SFAS 130 did not have a material impact on the Company's
financial statements.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information ("SFAS 131"). SFAS 131 replaces Statement of Financial Accounting
Standards No. 14 and changes the way public companies report segment
information. This statement is effective for fiscal years beginning after
December 15, 1997 and was adopted by Seagate for its fiscal year 1999. The
adoption of SFAS 131 did not have a material impact on Seagate's financial
statements.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that derivatives be
recognized in the balance sheet at fair value and specifies the accounting for
changes in fair value. This statement is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. Seagate is in the process of
assessing the impact of this pronouncement on its financial statements.
In the second quarter of 1998, Seagate implemented Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). All earnings
per share amounts for all periods have been presented and, where necessary,
restated to conform to the requirements of SFAS 128. The adoption of SFAS 128
did not have a material impact on Seagate's earnings per share.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR SEAGATE'S NINE MONTHS ENDED MARCH 31, 2000
Results of Operations
Revenue for the quarter ended March 31, 2000 was $1.573 billion, as
compared with $1.805 billion for the comparable year-ago quarter ended April 2,
1999, and $1.645 billion for the immediately preceding quarter ended December
31, 1999. The decrease in revenue from both comparable year-ago periods was
primarily due to a continuing decline in the average unit sales prices of
Seagate's products as a result of competitive market conditions and a shift in
mix to Seagate's lower priced products partially offset by a higher level of
unit shipments. Seagate shipped a record 10.5 million disc drives in its quarter
ended March 31, 2000. Price erosion accounted for $0.7 billion of the revenue
decline from the quarter ended April 2, 1999 partially offset by $0.5 billion in
improved sales volume. When compared to the immediately preceding quarter ended
December 31, 1999, the decrease in revenue was primarily due to price erosion
and a shift in mix to Seagate's lower priced products. Revenue for the nine
months ended March 31, 2000 was $4.900 billion, as compared with $5.159 billion
for the comparable year-ago period. Excluding the NSMG business, which was
contributed to VERITAS in May 1999, revenue for the nine months ended April 2,
1999 would have been $4.989 billion. Price erosion accounted for $2.1 billion of
the revenue decline in the nine months ended March 31, 2000. This decline was
partially offset by $2.0 billion in improved sales volume and product mix.
Seagate expects that price erosion in the data storage industry will continue
for the foreseeable future. Industry competition and continuing price erosion
could adversely affect Seagate's results of operations in any given quarter and
such adverse effects often cannot be anticipated until late in any given
quarter.
Gross margin as a percentage of revenue was 20.9% and 18.7% for the three
and nine months ended March 31, 2000, compared with 24.0% and 22.9% for the
comparable year-ago periods and 18.9% for the immediately preceding quarter
ended December 31, 1999. The decrease in gross margin as a percentage of revenue
from both year-ago periods was partially due to Seagate's contribution of the
NSMG business to VERITAS during the quarter ended July 2, 1999. Excluding the
NSMG business, Seagate's gross margins would have been 21.5% and 20.7%,
respectively, for the three and nine month periods ended April 2, 1999. In
addition, the decrease in gross margins from both year-ago periods was a result
of price erosion due to intense price competition for disc drive products in the
three and nine months ended March 31, 2000. These decreases were partially
offset by cost savings as a result of Seagate's program to implement operational
efficiencies. These efficiencies include implementation of advanced
manufacturing processes resulting in lower average unit costs per disc drive
produced. The increase in gross margin as a percentage of revenue from the
immediately preceding quarter was primarily due to these cost savings partially
offset by price erosion.
Product development expenses for the three and nine months ended March 31,
2000 were $144 million and $430 million, respectively, an increase of $1 million
and a decrease of $10 million when compared with the comparable year-ago periods
and a decrease of $2 million when compared with the immediately preceding
quarter ended December 31, 1999. These expenses represented 9.2% and 8.8%,
respectively, of revenue for the three and nine months ended March 31, 2000
compared with 7.9% and 8.5%, respectively, for the comparable year-ago periods
and 8.9% for the immediately preceding quarter ended December 31, 1999. The
increase in expenses from the comparable year-ago quarter was primarily due to
increases of $5 million in salaries and related costs, $4 million in occupancy
costs and $3 million in depreciation. These increases were partially offset by
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decreases of $9 million in product development expenses related to Seagate's
NSMG business and $2 million in equipment costs. The decrease in expenses from
the comparable year-ago nine month period was primarily due to decreases of $27
million in product development expenses related to Seagate's NSMG business, $5
million in equipment costs, $4 million in accruals for profit sharing and
management bonuses and $4 million in recruitment and relocation costs. These
decreases were partially offset by increased investment in product development
for Seagate's core business resulting in an increase of $13 million in salaries
and related costs, $9 million in occupancy costs and $8 million in depreciation.
Marketing and administrative expenses for the three and nine months ended
March 31, 2000 were $123 million and $366 million, respectively, a decrease of
$12 million and $35 million when compared with the comparable year-ago periods
and a decrease of $2 million from the immediately preceding quarter ended
December 31, 1999. These expenses represented 7.8% and 7.5%, respectively, of
revenue for the three and nine months ended March 31, 2000 compared with 7.5%
and 7.8%, respectively, for the comparable year-ago periods and 7.6% for the
immediately preceding quarter ended December 31, 1999. The decrease in expenses
from the comparable year-ago quarter was primarily due to decreases of $28
million in marketing and administrative expenses related to Seagate's NSMG
business and $5 million in advertising and promotion expenses. These decreases
were partially offset by increases of $8 million in outside services, $7 million
in salaries and related costs, $2 million in marketing and administrative
expenses related to Seagate's IMG software products and services, $2 million in
the provision for bad debts and $1 million in legal expenses. The decrease in
expenses from the comparable year-ago nine month period was primarily due to
decreases of $81 million in marketing and administrative expenses related to
Seagate's NSMG business, $15 million in advertising and promotion expenses and
$4 million in occupancy costs. These decreases were partially offset by
increases of $22 million in the provision for bad debts, $14 million in salaries
and related costs, $14 million in outside services and $13 million in marketing
and administrative expenses related to Seagate's IMG software products and
services.
Amortization of goodwill and other intangibles increased $6 million and $3
million for the three and nine months ended March 31, 2000, when compared with
the comparable year-ago periods and increased $7 million when compared with the
immediately preceding quarter ended December 31, 1999. The increase in
amortization from both the year-ago quarter and the immediately preceding
quarter was primarily due to additional amortization related to goodwill and
intangibles arising from the acquisition of XIOtech. The increase in
amortization from the comparable year-ago nine month period was primarily due to
additional amortization of $5 million related to goodwill and intangibles
arising from the acquisition of XIOtech partially offset by $2 million in
write-offs, in the nine months ended April 2, 1999, of certain intangible assets
related to past acquisitions of companies whose value had become permanently
impaired.
On January 28, 2000, Seagate acquired XIOtech, a provider of virtual
storage and Storage Area Network (SAN) solutions, for Seagate common stock with
a value of $359 million. This acquisition was accounted for as a purchase and,
accordingly, the results of operations of XIOtech have been included in the
consolidated financial statements from the date of acquisition. The purchase
price has been allocated based on the estimated fair market value of net
tangible and intangible assets acquired as well as in-process research and
development costs. As a result of the acquisition, Seagate incurred a one-time
write-off of in-process research and development of $105 million. Goodwill and
other intangibles arising from the acquisition are being amortized on a
straight-line basis over periods
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<PAGE> 179
ranging from four months to seven years. Amortization of goodwill and other
intangibles is expected to be approximately $51 million the first year and
approximately $47 million in subsequent years. XIOtech's revenue and expenses
are immaterial to Seagate's consolidated revenue and expenses.
During the nine months ended March 31, 2000, Seagate recorded restructuring
charges totaling $184 million including $49 million recorded in the quarter
ended March 31, 2000. These charges were a result of a restructuring plan
established to align Seagate's global workforce and manufacturing capacity with
existing and anticipated future market requirements and necessitated by
Seagate's improved productivity and operating efficiencies (the "fiscal 2000
restructuring plan"). These actions include workforce reductions, capacity
reductions including closure of facilities or portions of facilities, write-off
of excess equipment and consolidation of operations in Seagate's recording media
operations, disc drive assembly and test facilities, printed circuit board
assembly manufacturing, recording head operations, software operations, customer
service operations, sales and marketing activities, and research and development
activities. In connection with the restructuring activities taken to date,
Seagate plans to reduce its workforce by approximately 21,800 primarily
manufacturing employees. Approximately 17,500 of the 21,800 employees had been
terminated as of March 31, 2000. As a result of employee terminations and the
write-off of equipment and facilities in connection with the restructuring
charges recorded during the nine months ended March 31, 2000 related to the
fiscal year 2000 restructuring plan, Seagate estimates that after completion of
these restructuring activities, annual salary and depreciation expense will be
reduced by approximately $118 million and $76 million, respectively. Seagate may
implement additional actions pursuant to the fiscal 2000 restructuring plan,
and, if such additional actions are implemented, Seagate anticipates that
additional charges would be taken related to these actions. Seagate expects the
implementation of the fiscal 2000 restructuring plan will be substantially
complete by September 30, 2000. In connection with the restructuring plan
implemented in fiscal 1999, Seagate's planned workforce reduction has been
completed as of March 31, 2000 and the other restructuring activities were
substantially complete as of March 31, 2000.
Unusual items during the quarter ended December 31, 1999 consisted of a $39
million charge as a result of the settlement in the Rodime PLC litigation (see
Note 13, Litigation, to the consolidated condensed financial statements) and
$284 million for compensation expense, plus payroll taxes of $2 million, related
to the purchase of the minority interest in Seagate Software subsidiary. On
October 20, 1999, the stockholders of Seagate Software, Inc., a then
majority-owned subsidiary of Seagate, approved the merger of Seagate Daylight
Merger Corp., a wholly-owned subsidiary of Seagate, with and into Seagate
Software, Inc. Seagate Software, Inc.'s assets consisted of the assets of
Seagate's IMG and an investment in the common stock of VERITAS. The merger was
effected on October 20, 1999. As a result of the merger, Seagate Software, Inc.
became a wholly-owned subsidiary of Seagate. In connection with the merger,
Seagate Software, Inc.'s stockholders and optionees received payment in the form
of 3.23 shares of Seagate, Inc.'s common stock per share of Seagate Software,
Inc. common stock less any amounts due for the payment of the exercise price for
such options. All outstanding Seagate Software, Inc. stock options were
accelerated immediately prior to the merger. Seagate issued 9,124,046 shares to
optionees and minority stockholders of Seagate Software, Inc. ("Software
Operating Company"). Seagate Software transferred Seagate's IMG assets into
Software Operating Company. This new company, Software Operating Company, is now
the operating entity for Seagate's IMG business. In October 1999, a new stock
option plan was
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established for Software Operating Company, and employees of Seagate's IMG
business are eligible to participate in the plan. Seagate Software accounted for
the exchange of shares of its common stock as the acquisition of a minority
interest for Seagate Software common stock outstanding and vested more than six
months held by employees and all stock held by former employees and consultants.
The fair value of the shares of Seagate issued was $19 million and was recorded
as purchase price and allocated to the assets and liabilities received. Seagate
accounted for the exchange of shares of its common stock for stock options in
Seagate Software held by employees and stock held and vested by employees less
than six months as the settlement of an earlier stock award.
Net other income increased by $375 million and $769 million for the three
and nine months ended March 31, 2000, respectively, when compared with the
comparable year-ago periods and increased by $63 million when compared with the
immediately preceding quarter ended December 31, 1999. The increase in net other
income from the comparable year-ago quarter was primarily due to a gain on sale
of a portion of Seagate's investment in SanDisk Corporation common stock of $453
million partially offset by activity related to Seagate's equity interest in
VERITAS of $74 million. The increase in net other income from the comparable
year-ago nine month period was primarily due to gains on sales of portions of
Seagate's investments in VERITAS and SanDisk Corporation common stock of $537
million and $515 million, respectively, partially offset by activity related to
Seagate's equity interest in VERITAS of $256 million and a decrease of $12
million in interest income primarily resulting from lower average invested cash.
During the quarters ended October 1, 1999 and December 31, 1999, Seagate
Software sold 18,523,502 and 9,000,000 shares, respectively, of VERITAS common
stock, adjusted for 3 for 2 stock splits on November 22, 1999 and March 6, 2000,
for proceeds of $397 million and $437 million, respectively, net of underwriting
discounts and commissions. Seagate Software acquired such shares in connection
with the contribution of its NSMG business to VERITAS in May 1999. The sale of
shares of VERITAS common stock by Seagate Software in the quarters ended October
1, 1999 and December 31, 1999 resulted in pre-tax gains of $193 million and $344
million, respectively. As of March 31, 2000, Seagate Software held approximately
33% of the outstanding common stock of VERITAS. Seagate accounts for its
investment in VERITAS under the equity method and records its equity interest in
VERITAS' net income (loss) on a one-quarter lag.
During the quarters ended December 31, 1999 and March 31, 2000, Seagate
sold 2,000,000 and 12,400,000 shares, respectively, of SanDisk Corporation
common stock, adjusted for a 2 for 1 stock split on February 23, 2000, for
proceeds of $67 million and $468 million, respectively, net of underwriting
discounts and commissions. The sale of shares of SanDisk Corporation common
stock by Seagate in the quarters ended December 31, 1999 and March 31, 2000
resulted in pre-tax gains of $62 million and $453 million, respectively.
The effective tax rate used to record the provision for income taxes for
the nine months ended March 31, 2000 was 74% compared with a 32% effective tax
rate used to record the provision for income taxes for the nine months ended
April 2, 1999. The higher effective tax rate used to record the provision for
income taxes for the nine months ended March 31, 2000 resulted primarily from
the effects of net non-deductible charges associated with the acquisition of the
minority interest in Seagate Software, the acquisition of XIOtech, the net gain
from the sales of SanDisk Corporation common stock and VERITAS common stock and
activity related to Seagate's equity interest in VERITAS. Excluding these items,
and considering the effects of Seagate's settlement of litigation with
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Rodime PLC and certain non-recurring restructuring costs, the pro forma
effective tax rate used to record the provision for income taxes for the nine
months ended March 31, 2000 would have been 28%. The pro forma effective tax
rate of 28% is less than the statutory rate because a portion of Seagate's
anticipated foreign operating income is not subject to foreign income taxes and
is considered to be permanently reinvested in non-U.S. operations.
Liquidity and Capital Resources
At March 31, 2000, Seagate's cash, cash equivalents and short-term
investments totaled $1.890 billion, an increase of $267 million from the July 2,
1999 balance. This increase was primarily a result of proceeds from sales of
VERITAS and SanDisk Corporation common stock of $834 million and $535 million,
respectively. However, this increase was partially offset by expenditures for
property, equipment and leasehold improvements of $385 million and the
repurchase of 25 million shares of Seagate's common stock for $776 million.
Until required for other purposes, Seagate's cash and cash equivalents are
maintained in highly liquid investments with remaining maturities of 90 days or
less at the time of purchase. Seagate's short-term investments consist primarily
of readily marketable debt securities with remaining maturities of more than 90
days at the time of purchase.
As of March 31, 2000, Seagate had committed lines of credit of $61 million
that can be used for standby letters of credit and bankers' guarantees. At March
31, 2000, these lines of credit were fully utilized. In addition, Seagate has a
$300 million credit facility that can be used for borrowings. As of March 31,
2000 this facility was unutilized.
Seagate expects investments in property and equipment in the current fiscal
year to approximate $650 million, of which approximately $393 million had been
incurred as of March 31, 2000. Seagate plans to finance these investments from
existing cash balances and cash flows from operations. The $393 million
year-to-date investment comprised (i) $185 million for manufacturing facilities
and equipment related to Seagate's subassembly and disc drive final assembly and
test facilities in the United States and the Far East, (ii) $113 million for
manufacturing facilities and equipment for the recording head operations in the
United States, Northern Ireland, Thailand and Malaysia, (iii) $62 million to
upgrade the capabilities of Seagate's thin-film media operations in California,
Singapore, Northern Ireland and Mexico, and (iv) $33 million for other purposes.
During the nine months ended March 31, 2000, Seagate acquired approximately
25 million shares of its common stock for approximately $776 million. The
repurchase of a portion of these shares completed the June 1997 stock repurchase
program as amended in February 1999. The remainder of the shares were
repurchased under an April 1999 amendment to the program in which up to an
additional 25 million shares of Seagate's common stock may be acquired in the
open market. In November 1999, Seagate's board of directors authorized an
increase to the existing stock repurchase program pursuant to which an
additional 50 million shares of Seagate's common stock may be acquired in the
open market. Seagate effected no repurchases in the quarter ended March 31,
2000.
During the quarter ended October 1, 1999, Gadzoox Networks, a company in
which Seagate held a 19.89% interest as of that date, completed an initial
public offering of its common stock. Seagate is required to account for its
investment under Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115").
Seagate has identified this investment as
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"available-for-sale." Under SFAS 115, an available-for-sale security is recorded
at fair value on the balance sheet and unrealized holding gains and losses are
reported, net of taxes, in a separate component of stockholders' equity called
accumulated other comprehensive income, until realized. For the nine months
ended March 31, 2000, Seagate recorded net unrealized gains on securities of
$130 million, net of tax, with respect to its investment in Gadzoox Networks.
On January 28, 2000, Seagate paid $45 million to Rodime PLC in settlement
of patent litigation.
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SELECTED HISTORICAL FINANCIAL DATA FOR VERITAS
The following selected consolidated financial data are derived from
VERITAS' consolidated financial statements. Share and per share data applicable
to prior periods has been restated to give retroactive effect to VERITAS' stock
splits effected as stock dividends through March 31, 2000. This data should be
read in conjunction with the consolidated financial statements and notes thereto
attached to this document.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------ --------------------
1999 1998 1997 1996 1995 2000 1999
--------- -------- -------- -------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Total net revenue................ $ 596,112 $210,865 $121,125 $ 72,746 $ 47,826 $ 244,640 $ 71,904
Amortization of developed
technology..................... 35,659 -- -- -- -- 15,395 --
Amortization of goodwill and
other intangibles.............. 510,943 -- -- -- -- 219,759 --
Acquisition and restructuring
costs.......................... 11,000 -- 8,490 -- -- -- --
In-process research and
development.................... 104,200 600 -- 2,200 -- -- --
Income (loss) from operations.... (475,237) 53,668 20,076 11,858 1,193 (158,198) 19,494
Net income (loss)................ (502,958) 51,648 22,749 12,129 2,371 (174,383) 13,583
Net income (loss) per
share -- basic................. $ (1.59) $ 0.24 $ 0.11 $ 0.06 $ 0.01 $ (0.44) $ 0.06
Net income (loss) per share --
diluted........................ $ (1.59) $ 0.22 $ 0.10 $ 0.06 $ 0.01 $ (0.44) $ 0.06
Number of shares used in
computing per share
amounts -- basic............... 316,892 211,558 205,300 193,617 181,590 394,471 215,199
Number of shares used in
computing per share
amounts -- diluted............. 316,892 232,519 222,716 209,228 193,780 394,471 239,111
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995 MARCH 31, 2000
---------- -------- -------- --------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital................... $ 631,036 $198,842 $188,578 $ 67,413 $ 23,451 $ 757,775
Total assets...................... 4,233,277 349,117 241,880 94,524 48,100 4,157,368
Long-term obligations............. 451,640 100,773 100,911 1,468 6,205 455,086
Accumulated deficit............... (532,374) (29,416) (81,064) (103,813) (115,942) (706,757)
Stockholders' equity.............. 3,393,061 169,854 104,193 74,955 23,602 3,295,047
</TABLE>
In 1999, VERITAS acquired the NSMG business, TeleBackup and NuView. Because
VERITAS accounted for the NSMG, TeleBackup and NuView acquisitions using the
purchase method of accounting, VERITAS recorded developed technology, goodwill
and other intangible assets of approximately $3,754.9 million in total. These
assets are being amortized over their estimated useful life of four years, and
result in charges to operations of approximately $234.8 million per quarter.
VERITAS also recorded one-time non-cash charges of $104.2 million in its
statements of operations in 1999, related to the write-off of in-process
research and development. VERITAS also recorded a one-time restructuring charge
in 1999 of $11.0 million related primarily to costs for its duplicative
facilities that its plans to vacate.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF VERITAS FOR THE YEAR ENDED DECEMBER 31, 1999
The following discussion should be read in conjunction with the selected
historical financial data for VERITAS, and the financial statements of VERITAS
and related notes, included in this document.
Overview
For an overview of VERITAS' business, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations for VERITAS for the
Three Months Ended March 31, 2000" beginning on page 180 of this document.
Results of Operations
The following table sets forth, for the periods indicated, certain items in
VERITAS' statements of operations expressed as a percentage of total revenue.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net revenue:
User license fees............................... 84% 80% 79%
Services........................................ 16 20 21
--- --- ---
Total net revenue....................... 100 100 100
Cost of revenue:
User license fees............................... 4 4 4
Services........................................ 6 10 10
Amortization of developed technology............ 6 -- --
--- --- ---
Total cost of revenue................... 16 14 14
--- --- ---
Gross profit...................................... 84 86 86
Operating expenses:
Selling and marketing........................... 37 36 35
Research and development........................ 16 19 21
General and administrative...................... 6 5 7
Amortization of goodwill and other
intangibles.................................. 86 -- --
Acquisition and restructuring costs............. 2 -- 7
In-process research and development............. 17 -- --
--- --- ---
Total operating expenses................ 164 60 70
--- --- ---
Income from operations............................ (80) 26 16
Interest and other income, net.................... 4 6 4
Interest expense.................................. (2) (3) (1)
--- --- ---
Income before income taxes........................ (78) 29 19
Provision for income taxes........................ 6 4 1
--- --- ---
Net income........................................ (84)% 25% 18%
=== === ===
</TABLE>
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Net Revenue
Net revenue increased 183% to $596.1 million in 1999 from $210.9 million in
1998, when it increased 74% from $121.1 million in 1997. While VERITAS believes
that the percentage increases in net revenue achieved in these periods are not
necessarily indicative of future results, VERITAS expects net revenue to
continue to grow in 2000. VERITAS' revenue comprises user license fees and
service revenue.
User License Fees. User license fees increased 197% to $498.0 million in
1999 from $167.7 million in 1998, when it increased 75% from $95.7 million in
1997. The increase in 1999 was primarily the result of the acquisition of NSMG
in the second quarter of 1999, continued growth in market acceptance of VERITAS'
software products, a greater volume of large end-user transactions, increased
revenue from original equipment manufacturers, or OEMs, resales of bundled and
unbundled products and the introduction of new products. The increase in 1998
was primarily the result of the continued growth in market acceptance of
VERITAS' software products, a greater volume of large end-user transactions,
increased revenue from OEM resales of bundled and unbundled products and the
introduction of new products. In particular, VERITAS' user license fees from
storage products increased by approximately 187% in 1999 from 1998, and
accounted for 86% of user license fees in 1999, 88% of user license fees in 1998
and 89% of user license fees in 1997.
Service Revenue. VERITAS derives service revenue primarily from contracts
for software maintenance and technical support and, to a lesser extent,
consulting services, training services and porting fees. Porting fees are
derived from funded development efforts that are typically associated with
VERITAS' agreements with original equipment manufacturers. Service revenue
increased 127% to $98.1 million in 1999, from $43.2 million in 1998, when it
increased 70% from $25.4 million in 1997. The increases in both 1999 and 1998
were primarily due to increased sales of service and support contracts on new
licenses, renewal of service and support contracts on existing licenses, an
increase in demand for consulting and training services and, to a lesser extent
in 1999, the acquisition of NSMG in the second quarter of 1999. VERITAS expects
that service revenue will continue to grow as a percentage of its net revenue.
Cost of Revenue
Cost of revenue increased 221% to $94.6 million in 1999 from $29.5 million
in 1998, when it increased 79% from $16.4 million in 1997. Gross margin on user
license fees is substantially higher than gross margin on service revenue,
reflecting the low materials, packaging and other costs of software products
compared with the relatively high personnel costs associated with providing
maintenance, technical support, consulting, training services and development
efforts. Cost of service revenue also varies based upon the mix of maintenance,
technical support, consulting and training services.
Cost of User License Fees (including amortization of developed
technology). Cost of user license fees consists primarily of royalties, media,
manuals and distribution costs. Also included in the cost of revenue is the
amortization of developed technology acquired in the NSMG, TeleBackup and NuView
acquisitions. The estimated useful life of the developed technology acquired is
four years and VERITAS expects the amortization to be approximately $15.1
million per quarter. Cost of user license fees (including amortization of
developed technology) increased 541% to $56.4 million in 1999 from $8.8 million
in 1998, and increased 86% in 1998 from $4.7 million in 1997. The increase in
1999 was primarily the result of the amortization of developed technology, and
to a lesser extent, a
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larger percentage of license fees being generated from the sale of products with
higher royalty rates. VERITAS pays royalties for certain technology licensed
from others and incorporated in VERITAS' products. The increase in 1998 was
primarily the result of a larger percentage of license fees being generated from
the sale of products with higher royalty rates. Gross margin on user license
fees decreased to 89% in 1999 and remained constant at 95% in 1998 and 1997. The
decrease in gross margin on user license fees in 1999 was due to the
amortization of developed technology. If VERITAS excluded the amortization of
developed technology from the cost of user license fees, the gross margin would
have been 96% in 1999. The gross margin on user license fees may vary from
period to period based on the license revenue mix and certain products having
higher royalty rates than other products. VERITAS does not expect gross margin
on user license fees to increase.
Cost of Service Revenue. Cost of service revenue consists primarily of
personnel-related costs in providing maintenance, technical support, consulting
and training to customers, and development efforts in porting. Cost of service
revenue increased 85% to $38.2 million in 1999 from $20.7 million in 1998, and
increased 76% in 1998 from $11.7 million in 1997. Gross margin on service
revenue was 61% in 1999, 52% in 1998 and 54% in 1997. The increase in absolute
dollars was due primarily to personnel additions in VERITAS' customer support,
training and consulting organizations, in anticipation of increased demand for
such services. The gross margin improvement in 1999 was the result of increased
productivity and higher service revenue growth due to support fees from a larger
installed customer base.
Operating Expenses
The NSMG and the TeleBackup acquisitions have contributed to increases in
all operating expense categories. However, due to the integration that has taken
place to date, it is not possible to quantify the portion of the increase that
is related directly to these acquisitions.
Selling and Marketing. Selling and marketing expenses consist primarily of
salaries, related benefits, commissions, consultant fees and other costs
associated with VERITAS' sales and marketing efforts. Selling and marketing
expenses increased 191% to $222.0 million in 1999 from $76.4 million in 1998,
and increased 78% in 1998 from $42.9 million in 1997. Selling and marketing
expenses as a percentage of net revenue remained relatively consistent at 37% in
1999, 36% in 1998 and 35% in 1997. The increase in absolute dollars is primarily
attributable to increased sales and marketing staffing and, to a lesser extent,
increased costs associated with new marketing programs. VERITAS intends to
continue to expand its global sales and marketing infrastructure, and
accordingly, VERITAS expects its selling and marketing expenses to increase in
absolute dollars but not necessarily change significantly as a percentage of net
revenue in the future.
Research and Development. Research and development expenses consist
primarily of salaries, related benefits, third-party consultant fees and other
engineering related costs. Research and development expenses increased 135% to
$94.5 million in 1999 from $40.2 million in 1998, and increased 60% in 1998 from
$25.2 million in 1997. The increases were due primarily to increased staffing
levels associated with new hires and VERITAS' acquisitions and expansion of
development efforts for new technology. As a percentage of net revenue, research
and development expenses decreased to 16% in 1999 from 19% in 1998 and 21% in
1997. VERITAS believes that a significant level of research and development
investment is required to remain competitive, and expect these expenses
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will continue to increase in absolute dollars in future periods and may increase
slightly as a percentage of net revenue. Research and development expenses can
be expected to fluctuate from time to time to the extent that VERITAS makes
periodic incremental investments in research and development and its level of
revenue fluctuates.
General and Administrative. General and administrative expenses consist
primarily of salaries, related benefits and fees for professional services, such
as legal and accounting services. General and administrative expenses increased
225% to $34.2 million in 1999 from $10.5 million in 1998, and increased 31% in
1998 from $8.0 million in 1997. General and administrative expenses as a
percentage of revenue were 6% in 1999, 5% in 1998 and 7% in 1997. The increases
in absolute dollars in 1999 and 1998 were due to additional personnel costs,
including additional personnel related to the acquisitions in the second quarter
of 1999, and, to a lesser extent, to an increase in the provision for the
allowance for doubtful accounts and other expenses associated with enhancing our
infrastructure to support expansion of VERITAS' operations. VERITAS expects
general and administrative expenses to increase in absolute dollars, but not to
change significantly as a percentage of net revenue, as it expands its
operations.
Amortization of goodwill and other intangibles. Amortization of goodwill
and other intangibles was $510.9 million in 1999. This amount for the most part
represents seven months of amortization of goodwill, distribution channels,
trademarks and other intangibles assets recorded upon the acquisitions of NSMG
and TeleBackup and five months of amortization of goodwill and other intangibles
assets recorded upon the acquisition of NuView. The estimated useful life of the
goodwill and the other intangibles is four years and VERITAS expects the
amortization to be approximately $219.7 million per quarter.
Acquisition and restructuring costs. In 1999, upon the acquisition of NSMG,
VERITAS recorded a one-time charge to acquisition and restructuring costs of
$11.0 million, which included approximately $9.7 million in exit costs with
respect to duplicative facilities that it plans to vacate and approximately $1.3
million in severance benefits.
Acquisition and restructuring costs are summarized below (in thousands):
<TABLE>
<CAPTION>
CASH PAYMENTS OR
PROVISION NON-CASH CHARGES FROM ACCRUED AS OF
RECORDED AT ACQUISITION DATE TO DECEMBER 31,
ACQUISITION DATE DECEMBER 31, 1999 1999
---------------- --------------------- --------------
<S> <C> <C> <C>
Cancellation of facility
leases and other
contracts................ $ 8,717 $ -- $8,717
Involuntary termination
benefits................. 1,335 (897) 438
Write off of redundant
equipment and leasehold
improvements............. 948 (948) --
------- ------- ------
$11,000 $(1,845) $9,155
======= ======= ======
</TABLE>
Of the accrued balance as of December 31, 1999, $8.7 million relates to
servicing operating lease payments or negotiated buyout of operating lease
commitments on duplicative facilities, the lease terms of which will expire at
various times through the year 2012. The remaining $0.4 million is expected to
be utilized by May 2000.
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In 1997, as a result of the OpenVision merger, VERITAS incurred charges of
$8.5 million, consisting of approximately $4.2 million for transaction fees and
professional services, $1.9 million for contract terminations and asset
write-offs and $2.4 million for other costs incident to the OpenVision merger.
Of the total charge, $1.2 million resulted from the write-down of redundant
assets and facilities, primarily consisting of intangible assets related to a
prior acquisition which were redundant as a result of OpenVision having a
similar product line. The remaining $7.3 million, involving banking, legal and
accounting fees and other direct costs in connection with the elimination of
duplicative facilities, was fully paid as of December 31, 1999.
In-Process Research and Development. In-process research and development
was $104.2 million in 1999. This amount represents one-time charges of $101.2
million recorded upon the acquisition of NSMG in May 1999, $1.9 million recorded
upon the acquisition of TeleBackup in June 1999 and $1.1 million recorded upon
the acquisition of certain assets of NuView in August 1999.
VERITAS obtained outside valuations for these acquisitions, and values were
assigned to developed technology, in-process research and development and other
intangibles. The fair value of the in-process research and development for each
of the acquisitions was determined using the income approach, which discounts
expected future cash flows from projects under development to their net present
value. Each project was analyzed to determine the characteristics and
applications of the technology; the complexity, cost and time to complete the
remaining development efforts; any alternative future use or current
technological feasibility; and the stage of completion. The projected future
cash flows from the projects under development were based on management's
estimates of revenues and operating profits related to the projects. Revenues on
the projects related to in-process research and development were estimated to
begin in 1999 through 2003, with the majority of the revenues occurring between
2000 and 2002. The risk-adjusted discount rate applied to after-tax cash flows
was 20%, compared to an estimated weighted-average cost of capital of 15%.
VERITAS believes the amounts determined for in-process research and development
are representative of fair value and do not exceed the amounts an independent
third party would pay for the projects assumed.
The total charge for in-process research and technology was estimated to be
$101.2 million, for the NSMG acquisition, completed in May 1999. Seven
in-process research and development projects were identified and valued, with
two projects under the data protection product group that accounted for
approximately 71% of the value assigned to in-process research and development.
The data protection software products provide backup and restore functions,
including scheduled automated unattended data backup operations. The remaining
products identified and valued were under the application solutions and
replication product groups. The application solutions software provides
scaleable solution for managing the behavior of different types of networks
worldwide from one central location and the replication software products
deliver flexible and intelligent data replication for Windows NT environments.
Costs to complete all of the NSMG in-process research and development projects
were estimated to be $6.0 million. At the date of acquisition, the development
of all products ranged from 48% to 90% complete and averaged approximately 76%
complete, with expected completion dates through December 1999. At December 31,
1999, the completion and release of some products have been delayed through May
2000. VERITAS does not expect the delays to have any significant impacts on its
return on investments, results of operations or financial position. At December
31, 1999, VERITAS estimates approximately $1.5 million to complete the
development of the in-process research and development projects acquired from
NSMG.
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All in-process research and development projects related to the TeleBackup
and NuView acquisitions were individually insignificant and were completed or
abandoned as of December 31, 1999.
Interest and Other Income, Net. Interest and other income, net increased to
$23.3 million in 1999 from $11.8 million in 1998, and $4.9 million in 1997. The
increases were due primarily to increased amounts of interest income
attributable to the higher level of funds available for investment, primarily
from the issuance of the convertible subordinated notes in October 1997 and
August 1999 and, to a lesser extent, from the net cash provided by operating
activities. Foreign exchange transaction gains and losses that are included in
other income, net, have not had a significant effect on VERITAS' results of
operations.
Interest Expense. Interest expense increased to $15.7 million in 1999 from
$5.7 million in 1998, and $1.2 million in 1997. Interest expense in 1999, 1998
and 1997 consists primarily of interest accrued under the 1.856% convertible
subordinated notes due 2006 issued in August 1999 and the 5.25% convertible
subordinated notes due 2004 issued in October 1997.
Income Taxes. VERITAS had effective tax rates of negative 8% in 1999,
positive 14% in 1998 and positive 4% in 1997. VERITAS' 1999 effective tax rate
was negative and differed from the combined federal and state statutory rates
primarily due to acquisition related charges that were non-deductible for tax
purposes. VERITAS' 1998 and 1997 effective tax rates were lower than the
combined federal and state statutory rates primarily due to the utilization of
federal net operating loss carryforwards, other credit carryforwards and
reduction of the valuation allowance on deferred income taxes, offset by the
impact of state and foreign taxes.
New Accounting Pronouncements. In December 1998, the AICPA issued SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions. SOP 98-9 amends SOP 97-2 Software Revenue Recognition to require
recognition of revenue using the "residual method" when certain criteria are
met. VERITAS will be required to implement these provisions of SOP 98-9 for its
fiscal year ending December 31, 2000. SOP 98-9 also amends SOP 98-4, an earlier
amendment to SOP 97-2, which extended the deferral of the application of certain
passages of SOP 97-2. VERITAS does not believe the impact of SOP 98-9 will be
material to its financial position, results of operations or cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. VERITAS will be
required to implement SFAS No. 133 as of the beginning of its fiscal year 2001.
VERITAS' foreign currency exchange rate hedging activities have been
insignificant to date and it does not believe that the impact of SFAS No. 133
will be material to its financial position, results of operations or cash flows.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR VERITAS FOR THE THREE MONTHS ENDED MARCH 31, 2000
Overview
VERITAS is a leading independent supplier of storage management software.
Storage management software has grown significantly in importance and market
impact during the
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last few years. Computing operations have moved from being part of the
infrastructural background of a business enterprise to being a critical
component in the success of a business, particularly given businesses'
requirements that data remain protected and accessible at all times. VERITAS'
products help its customers manage complex and diverse computing environments
efficiently and cost-effectively, by making sure that their data is protected,
can be accessed at all times, and can be managed and used in compliance with
business policies. VERITAS' products help to improve the levels of
centralization, control, automation and manageability in computing environments,
and they allow information technology, or IT, managers to be significantly more
effective with constrained resources and limited budgets. VERITAS' products
offer protection against data loss and file corruption, allow rapid recovery
after disk or computer system failure, enable IT managers and end users to work
efficiently with large numbers of files, and make it possible to manage data
distributed on large networks of computer systems without harming productivity
or interrupting users. These products provide continuous availability of data in
clustered computer systems that share disk resources to maintain smooth business
operations and are highly scalable in order to keep up with the rapid growth of
data and technologies deployed in businesses.
VERITAS develops and sells products for most popular operating systems,
including versions of UNIX and Windows NT. VERITAS' software solutions are used
by customers across a broad spectrum of industries, including many leading
global corporations and e-commerce businesses. VERITAS also provides a full
range of services to assist its customers in planning and implementing their
storage management solutions.
VERITAS markets its products and services to original equipment
manufacturers and end user customers through a combination of direct sales and
indirect sales channels such as resellers, value-added resellers, hardware
distributors, application software vendors and systems integrators.
VERITAS derives user license fee revenue from shipments of its software
products to end-user customers through direct sales channels, indirect sales
channels and original equipment manufacturer customers. VERITAS' original
equipment manufacturer customers either bundle its products with the original
equipment manufacturer products licensed by such original equipment
manufacturers or offer them as options. Some original equipment manufacturers
also resell its products. VERITAS receives a royalty each time the original
equipment manufacturer licenses to a customer a copy of the original equipment
manufacturer's products that incorporates one or more of its products. VERITAS'
license agreements with its original equipment manufacturer customers generally
contain no minimum sales requirements and it cannot assure you that any original
equipment manufacturer will either commence or continue shipping operating
systems incorporating its products in the future. When VERITAS enters into new
agreements with original equipment manufacturer customers and resellers, a
significant period of time may elapse before VERITAS realizes any associated
revenue, due to development work that VERITAS must generally undertake under
these agreements and the time needed for the sales and marketing organizations
within these customers and distributors to become familiar with and gain
confidence in VERITAS' products.
VERITAS' services revenue consists of fees derived from annual maintenance
agreements, from consulting and training services and from porting fees.
Original equipment manufacturer maintenance agreements covering VERITAS'
products provide for technical and emergency support and minor unspecified
product upgrades for a fixed annual fee. Maintenance agreements covering
products that are licensed through channels
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other than original equipment manufacturers provide for technical support and
unspecified product upgrades for an annual service fee based on the number of
user licenses purchased and the level of service subscribed. Porting fees
consist of fees derived from porting and other non-recurring engineering efforts
when VERITAS ports, or adapts, its storage management products to an original
equipment manufacturer's operating system and when it develops new product
features or extensions of existing product features at the request of a
customer. In most cases, VERITAS retains the rights to technology derived from
porting and non-recurring engineering work and therefore generally performs this
work on a relatively low, and sometimes negative, margin.
VERITAS' international sales are generated primarily through its
international sales subsidiaries. International revenue, most of which is
collectible in foreign currencies, accounted for approximately 24% of VERITAS'
total revenue for the three months ended March 31, 2000 and 22% of its total
revenue for the three months ended March 31, 1999. VERITAS' international
revenue increased 253% to $58.9 million for the three months ended March 31,
2000 from $16.1 million for the three months ended March 31, 1999. Since much of
VERITAS' international operating expenses are also incurred in local currencies,
which is the foreign subsidiaries' functional currency, the relative impact of
exchange rates on net income or loss is less than the impact on revenues.
Although VERITAS' operating and pricing strategies take into account changes in
exchange rates over time, its operating results may be affected in the short
term by fluctuations in foreign currency exchange rates. VERITAS' international
subsidiaries purchase licenses for resale from the parent company resulting in
intercompany receivables and payables. These receivables and payables are
carried on VERITAS' books in the foreign currency that existed at the time of
the transaction. These receivables and payables are eliminated for financial
statement reporting purposes. Prior to elimination, the amounts carried in
foreign currencies are converted to the functional currency at the then current
rate, or "marked to market", which may give rise to currency remeasurement gains
and losses. Such gains or losses are recognized on VERITAS' statement of
operations as a component of other income, net. To date, such gains or losses
have not been material.
VERITAS believes that its success depends upon continued expansion of its
international operations. VERITAS currently has sales and service offices and
resellers located in North America, Europe, Asia Pacific, South America and the
Middle East and a development center in India. International expansion will
require VERITAS to establish additional foreign offices, hire more personnel and
recruit new international resellers, resulting in the diversion of significant
management attention and the expenditure of financial resources. To the extent
that VERITAS is unable to meet these additional requirements, growth in
international sales will be limited, which would have an adverse effect on its
business, operating results and financial condition. International operations
also subject VERITAS to a number of risks inherent in developing and selling
products outside the United States, including potential loss of developed
technology, limited protection of intellectual property rights, imposition of
government regulation, imposition of export duties and restrictions, cultural
differences in the conduct of business, and political and economic instability.
Furthermore, some global markets, including Asia, Russia and Latin America, are
currently undergoing significant economic turmoil that could result in deferral
of purchase of information technology products and services by potential
customers located in such markets, thereby further limiting our ability to
expand international operations.
On May 28, 1999, VERITAS acquired the NSMG business of Seagate Software,
Inc., which we refer to as NSMG. On June 1, 1999 we acquired TeleBackup Systems,
Inc., which it refers to as TeleBackup. On August 10, 1999, VERITAS acquired
certain
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assets of NuView, Inc., which it refers to as NuView. In the following
paragraphs, all share and per share data have been restated to give retroactive
effect to VERITAS' stock splits effected as stock dividends through March 31,
2000.
The NSMG business developed and marketed software products and provided
related services enabling information technology professionals to manage
distributed network resources and to secure and protect enterprise data. Its
products offered features such as system backup, disaster recovery, migration,
replication, automated client protection, storage resource management,
scheduling, event correlation and desktop management. In connection with the
NSMG acquisition, in consideration for the contribution of assets and
liabilities related to the NSMG business by Seagate Technology, Inc., Seagate
Software, Inc., and their respective subsidiaries, and based on the average
closing price of VERITAS' common stock of $20.26 per share for 5 days before and
after June 7, 1999, the measurement date for the transaction, VERITAS issued
155,583,486 shares of its common stock to Seagate Software, Inc. and issued
options to purchase 15,626,358 shares of its common stock to its employees who
were former NSMG employees. VERITAS accounted for the NSMG acquisition using the
purchase method of accounting, and it is incurring charges of $221.5 million per
quarter primarily related to the amortization of developed technology, goodwill
and other intangibles over their estimated useful life of four years. The total
NSMG purchase price was $3,464.5 million and included $3,151.4 million for the
issuance of VERITAS' common stock, $269.7 million for the exchange of options to
purchase its common stock and $43.4 million of acquisition-related costs. The
purchase price was allocated, based on an independent valuation, to goodwill of
$3,015.8 million, distribution channels of $233.8 million, original equipment
manufacturer agreements of $23.4 million, developed technology of $233.7
million, assembled workforce of $12.8 million, trademarks of $22.8 million,
in-process research and development of $101.2 million, net deferred tax
liabilities of $179.5 million, other intangibles of $1.5 million and tangible
net liabilities assumed of $1.0 million. For the three months ended March 31,
2000, VERITAS recorded $206.9 million for the amortization of goodwill and other
intangibles, and $14.6 million for the amortization of developed technology
related to this acquisition.
Acquisition-related costs consisted of direct transaction costs of $20.0
million, operating lease commitments on duplicative facilities of $8.2 million
and involuntary termination benefits of $15.2 million. Non-cash charges included
in the acquisition-related costs approximated $11.7 million. At March 31, 2000,
$17.5 million in direct transaction costs, $0.5 million in operating lease
commitments on duplicative facilities and $2.0 million in involuntary
termination benefits were paid against the acquisition-related costs accrual and
$11.7 million of non-cash involuntary termination benefits were charged against
the acquisition-related costs accrual. The remaining acquisition-related costs
accrual of $11.7 million is anticipated to be utilized primarily for servicing
operating lease payments or negotiated buyout of operating lease commitments,
the lease terms of which will expire at various times through the year 2013. In
addition, VERITAS recorded a restructuring charge of $11.0 million in 1999 as a
result of the NSMG acquisition. This restructuring charge related to exit costs
with respect to duplicative facilities that VERITAS plans to vacate, which
include $0.9 million of write-off of redundant equipment and leasehold
improvements, and involuntary termination benefits. Involuntary termination
benefits relate to the salary and fringe benefit expense for terminated
employees in research and development. The involuntarily terminated employees
represented 2% of the global workforce. At March 31, 2000, $0.9 million in
severance costs and $0.2 million of cancellation of facility leases and other
contracts were paid against the restructuring charge
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accrual and $0.9 million of write-off of redundant equipment and leasehold
improvements had been written off. The remaining restructuring charge accrual of
$9.0 million is anticipated to be utilized primarily for servicing operating
lease payments or negotiated buyout of operating lease commitments, the lease
terms of which will expire at various times through the year 2012.
TeleBackup designed, developed and marketed software solutions for local
and remote backup and recovery of electronic information stored on networked,
remote and mobile personal computers. TeleBackup became VERITAS' wholly-owned
subsidiary in exchange for the issuance of 6,842,795 shares of either VERITAS'
common stock or exchangeable shares to the holders of TeleBackup common shares
and the exchange of options to purchase 154,706 shares of VERITAS' common stock
to VERITAS employees who were former employees of TeleBackup. VERITAS accounted
for the TeleBackup acquisition using the purchase method of accounting, and it
is incurring charges of $9.0 million per quarter primarily related to the
amortization of developed technology, goodwill and other intangibles over their
estimated useful life of four years. Based on the average closing price of our
common stock of $19.60 per share for 5 days before and after June 1, 1999, the
measurement date for the transaction, the total purchase price for TeleBackup
was $143.1 million. The TeleBackup purchase price included $134.1 million
related to the issuance of VERITAS' common stock, $2.8 million for the issuance
of options to purchase VERITAS' common stock and $6.2 million in
acquisition-related costs. The acquisition costs of $6.2 million consist
primarily of direct transaction costs and involuntary termination benefits. At
March 31, 2000, of the total $6.2 million acquisition costs, VERITAS paid $5.6
million in direct transaction costs with the majority of the remaining $0.6
million anticipated to be utilized by August 2000. The purchase price was
allocated, based on an independent valuation, to goodwill of $133.1 million,
distribution channels of $1.0 million, original equipment manufacturer
agreements of $2.1 million, developed technology of $6.6 million, assembled
workforce of $0.3 million, trademarks of $1.3 million, in-process research and
development of $1.9 million, net deferred tax liabilities of $3.0 million and
tangible net liabilities assumed of $0.2 million. For the three months ended
March 31, 2000, VERITAS recorded $8.6 million for amortization of goodwill and
other intangibles, and $0.4 million for the amortization of developed technology
related to this acquisition.
Under an asset purchase agreement, VERITAS acquired certain assets of
NuView, including its Windows NT cluster management solution, Cluster X, for a
total cost of approximately $67.9 million. VERITAS accounted for the acquisition
using the purchase method of accounting, and it is incurring charges of $4.3
million per quarter primarily related to the amortization of developed
technology, goodwill and other intangibles over their estimated useful life of
four years. The purchase price included $47.7 million related to the issuance of
VERITAS' common stock, $0.8 million for the issuance of options to purchase
VERITAS' common stock to former NuView employees, $0.2 million in
acquisition-related costs and $19.2 million payable in cash, of which $12.4
million has been paid. The purchase price was allocated, based on an independent
valuation, to goodwill of $62.6 million, developed technology of $2.4 million,
assembled workforce of $0.6 million, trademarks of $0.3 million,
covenant-not-to-compete of $0.9 million and in-process research and development
of $1.1 million. For the three months ended March 31, 2000, VERITAS recorded
$4.1 million for amortization of goodwill and other intangibles, and $0.2
million for the amortization of developed technology related to this
acquisition.
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Results of Operations
The following table sets forth the percentage of total revenue represented
by certain line items from VERITAS' condensed consolidated statement of
operations for the three months ended March 31, 2000 and 1999, respectively, and
the percentage changes between the comparable periods:
<TABLE>
<CAPTION>
PERCENTAGE OF PERIOD-TO-PERIOD
TOTAL NET REVENUE PERCENTAGE CHANGE
------------------- ------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, MARCH 31, 2000
------------------- ------------------
2000 1999 COMPARED TO 1999
----- ----- ------------------
<S> <C> <C> <C>
Net revenue:
User license fees................... 84% 78% 266%
Services............................ 16 22 150%
--- ---
Total revenue............... 100 100 240%
Cost of revenue:
User license fees................... 5 3 502%
Services............................ 8 9 180%
Amortization or developed
technology....................... 6 0 n/m
--- ---
Total cost of revenue....... 19 12 436%
--- ---
Gross profit.......................... 81 88 214%
Operating expenses:
Selling and marketing............... 36 37 227%
Research and development............ 14 19 154%
General and administrative.......... 6 5 353%
Amortization of goodwill and other
intangibles...................... 90 0 n/m
--- ---
Total operating expenses.... 146 61 714%
--- ---
Income (loss) from operations......... (65) 27
Interest and other income, net........ 5 4
Interest expense...................... (3) (2)
--- ---
Income (loss) before income taxes..... (63) 29
Provision for income taxes............ 8 (10)
--- ---
Net income (loss)..................... (71)% 19%
=== ===
</TABLE>
- ---------------
n/m = not meaningful
Net Revenue. Total net revenue increased 240% from $71.9 million for the
three months ended March 31, 1999 to $244.6 million for the three months ended
March 31, 2000. VERITAS believes that the percentage increase in total revenue
achieved in this period is not necessarily indicative of future results.
VERITAS' revenue comprises user license fees and service revenue. User license
fees represented 84% of total net revenue for the three months ended March 31,
2000, and 78% of total net revenue for the three months ended March 31, 1999.
User License Fees. User license fees increased 266% from $55.8 million for
the three months ended March 31, 1999 to $204.3 million for the three months
ended March 31, 2000. The increase was primarily the result of the acquisition
of NSMG in the second quarter of 1999, continued growth in market acceptance of
VERITAS' software products, a greater volume of large end-user transactions,
increased revenue from original equipment manufacturer resales of bundled and
unbundled products and the introduction of new products. In particular, VERITAS'
user license fees from storage products increased by
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approximately 315% from $42.1 million for the three months ended March 31, 1999
to $174.7 million for the three months ended March 31, 2000, and accounted for
86% of user license fees in the three months ended March 31, 2000 and 75% of
user license fees in the three months ended March 31, 1999.
Service Revenue. Service revenue is derived primarily from contracts for
software maintenance and technical support and, to a lesser extent, consulting
services, training services and porting fees. Service revenue increased 150%
from $16.1 million for the three months ended March 31, 1999 to $40.3 million
for the three months ended March 31, 2000. The increase was primarily due to
increased sales of service and support contracts on new licenses, renewal of
service and support contracts on existing licenses and, to a lesser extent, an
increase in demand for consulting and training services and the acquisition of
NSMG.
Cost of Revenue. Total cost of revenue increased 436% from $8.5 million for
the three months ended March 31, 1999 to $45.5 million for the three months
ended March 31, 2000. Gross margin on user license fees is substantially higher
than gross margin on service revenue, reflecting the low materials, packaging
and other costs of software products compared with the relatively high personnel
costs associated with providing maintenance, technical support, consulting,
training services and development efforts. Cost of service revenue also varies
based upon the mix of maintenance, technical support, consulting and training
services. VERITAS expects gross margin to fluctuate on a quarterly basis in the
future, reflecting the timing differences between increasing VERITAS
organizational investments and the corresponding revenue growth that is expected
as a result.
Cost of User License Fees (including amortization of developed
technology). Cost of user license fees consists primarily of royalties, media,
manuals and distribution costs. Also included in the cost of user license fees
is the amortization of developed technology acquired in the NSMG, TeleBackup and
NuView acquisitions in 1999. Cost of user license fees increased 1,290% from
$2.0 million for the three months ended March 31, 1999 to $27.2 million for the
three months ended March 31, 2000. The increase in cost of user license fees is
due to the amortization of developed technology acquired in the NSMG, TeleBackup
and NuView acquisitions. Gross margin on user license fees decreased from 96%
for the three months ended March 31, 1999 to 87% for the three months ended
March 31, 2000. The decrease in gross margin on user license fees was due to the
inclusion of the amortization of developed technology. If VERITAS excluded the
amortization of developed technology from the cost of user license fees, the
gross margin would be 94% for the three months ended March 31, 2000. The gross
margin on user license fees may vary from period to period based on the license
revenue mix and certain products having higher royalty rates than other
products. VERITAS does not expect gross margin on user license fees to increase
significantly.
Cost of Service Revenue. Cost of service revenue consists primarily of
personnel-related costs in providing maintenance, technical support, consulting
and training to customers. Cost of service revenue increased 180% from $6.5
million for the three months ended March 31, 1999 to $18.3 million for the three
months ended March 31, 2000. Gross margin on service revenue decreased from 60%
for the three months ended March 31, 1999 to 55% for the three months ended
March 31, 2000. The increase in absolute dollars and the decrease in the gross
margin were primarily due to personnel additions in customer support and
training and consulting organizations, in anticipation of increased demand for
such services. VERITAS expects the cost of service revenue will continue to
increase in
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absolute dollars in future periods and the gross margin on service revenue may
increase slightly as a percentage.
Amortization of Developed Technology. Amortization of developed technology
was $15.4 million for the three months ended March 31, 2000. This amount mainly
represents the amortization of the developed technology recorded upon
acquisitions of NSMG, TeleBackup and NuView in 1999. The useful life of the
developed technology acquired in the NSMG, TeleBackup and NuView acquisitions is
four years and the amortization is expected to be approximately $15.4 million
per quarter.
Operating Expenses. The NSMG and the TeleBackup acquisitions have
contributed to increases in all operating expense categories. However, due to
the integration that has taken place to date, it is not possible to quantify the
portion of the increase that is directly related to these acquisitions.
Selling and Marketing. Selling and marketing expenses consist primarily of
salaries, related benefits, commissions, consultant fees and other costs
associated with VERITAS' sales and marketing efforts. Selling and marketing
expenses increased 227% from $26.8 million for the three months ended March 31,
1999 to $87.6 million for the three months ended March 31, 2000. Selling and
marketing expenses as a percentage of total net revenue decreased slightly from
37% for the three months ended March 31, 1999 to 36% for the three months ended
March 31, 2000. VERITAS intends to continue to expand its global sales and
marketing infrastructure, and accordingly, expects its selling and marketing
expenses to increase in absolute dollars and increase slightly as a percentage
of total revenue in the future.
Research and Development. Research and development expenses consist
primarily of salaries, related benefits, third-party consultant fees and other
engineering related costs. Research and development expenses increased 154% from
$13.8 million for the three months ended March 31, 1999 to $35.1 million for the
three months ended March 31, 2000. The increase was primarily due to increased
staffing levels associated with new hires and the acquisitions. As a percentage
of net revenue, research and development expenses decreased from 19% for the
three months ended March 31, 1999 to 14% for the three months ended March 31,
2000. VERITAS believes that a significant level of research and development
investment is required to remain competitive, and expects such expenses will
continue to increase in absolute dollars in future periods and may increase
slightly as a percentage of total net revenue. Research and development expenses
can be expected to fluctuate from time to time to the extent that VERITAS makes
periodic incremental investments in research and development and its level of
revenue fluctuates.
General and Administrative. General and administrative expenses consist
primarily of salaries, related benefits and fees for professional services, such
as legal and accounting services. General and administrative expenses increased
353% from $3.3 million for the three months ended March 31, 1999 to $14.9
million for the three months ended March 31, 2000. General and administrative
expenses as a percentage of revenue increased from 5% for the three months ended
March 31, 1999 to 6% for the three months ended March 31, 2000. The increase in
absolute dollars was primarily due to additional personnel costs, including
additional personnel related to the acquisitions in the second quarter of 1999
and, to a lesser extent, to an increase in other expenses associated with
enhancing VERITAS' infrastructure to support expansion of its operations.
General and administrative expenses are expected to increase in absolute
dollars, but not to change significantly as a percentage of revenue in the
future, as VERITAS expands its operations.
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Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles was $219.8 million for the three months ended March 31,
2000. This amount mainly represents the amortization of goodwill, distribution
channels, trademarks and other intangible assets recorded upon acquisitions of
NSMG, TeleBackup and NuView in 1999. The estimated useful life of the goodwill
and other intangibles is four years and the amortization is expected to be
approximately $219.8 million per quarter.
Interest and Other Income, Net. Interest and other income, net increased
272% from $3.0 million for the three months ended March 31, 1999 to $11.3
million for the three months ended March 31, 2000. The increase was due to
increased amounts of interest income attributable to the higher level of funds
available for investment, primarily from the net proceeds of the issuance of the
1.856% convertible subordinated notes in August 1999, and, to a lesser extent,
from the net cash provided by operating activities. Foreign exchange transaction
gains and losses which are included in other income, net, have not had a
material effect on VERITAS' results of operations.
Interest Expense. Interest expense increased 425% from $1.4 million for the
three months ended March 31, 1999 to $7.5 million for the three months ended
March 31, 2000. Interest expense consists primarily of interest accrued under
the 5.25% convertible subordinated notes issued in October 1997 and the 1.856%
convertible subordinated notes issued in August 1999.
Income Taxes. VERITAS had effective tax rates of 13% of pre-tax loss for
the three months ended March 31, 2000, compared to a tax provision of 36% for
the three months ended March 31, 1999. VERITAS' 2000 effective tax rate was
negative and differed from the combined federal and state statutory rates
primarily due to acquisition related charges that were non-deductible for tax
purposes.
New Accounting Pronouncements. In December 1998, the AICPA issued SOP 98-9,
Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions. SOP 98-9 amends SOP 97-2 Software Revenue Recognition to require
recognition of revenue using the "residual method" when certain criteria are
met. VERITAS was required to implement these provisions of SOP 98-9 on January
1, 2000. SOP 98-9 also amends SOP 98-4, an earlier amendment to SOP 97-2, which
extended the deferral of the application of certain passages of SOP 97-2. The
adoption of SOP 98-9 did not have a material impact on VERITAS' financial
position, results of operations or cash flows for the three months ended March
31, 2000 and is not expected to have a material effect for the year ending
December 31, 2000.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. VERITAS will be
required to implement SFAS No. 133 as of the beginning of its fiscal year 2001.
VERITAS' foreign currency exchange rate hedging activities have been
insignificant to date and it does not believe that the impact of SFAS No. 133
will be material to its financial position, results of operations or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" or
SAB 101. SAB 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. All registrants are expected to
apply the accounting and disclosures described in SAB 101. The impact of SAB 101
was not material on VERITAS' consolidated results
188
<PAGE> 198
of operation, financial position, and cash flows for the three months ended
March 31, 2000 and is not expected to be material for the year ending December
31, 2000.
Liquidity and Capital Resources
VERITAS' cash, cash equivalents and short-term investments totaled $851.5
million at March 31, 2000 and represented 73% of its tangible assets, net. Cash
and cash equivalents are highly liquid with original maturities of ninety days
or less. Short-term investments consist mainly of investment grade commercial
paper, medium-term notes, corporate notes, governments securities and market
auction preferreds. At March 31, 2000, VERITAS had $454.6 million of long-term
obligations and stockholders' equity was approximately $3,295.0 million.
Net cash provided by operating activities was $86.8 million in the three
months ended March 31, 2000, and $15.2 million in the three months ended March
31, 1999. For the three months ended March 31, 2000, cash provided by operating
activities resulted primarily from income, after adjustments to exclude non-cash
charges including amortization of intangibles related to acquisition activities,
and an increase in deferred revenue, offset somewhat by a decrease in deferred
income taxes and an increase in other assets. For the three months ended March
31, 1999, cash provided by operating activities resulted primarily from net
income, an increase in deferred revenue, and a reduction in accounts receivable,
offset somewhat by an increase in other assets.
VERITAS' investing activities provided cash of $29.0 million in the three
months ended March 31, 2000 primarily due to the net decrease in short-term and
long-term investments of $49.2 million partially offset by capital expenditures
of $20.2 million. VERITAS' investing activities used cash of $49.8 million in
the three months ended March 31, 1999 due to the net increase in short-term
investments of $41.1 million and capital expenditures of $8.6 million.
Financing activities provided cash of $77.5 million in the three months
ended March 31, 2000, and $7.1 million in the three months ended March 31, 1999
from the issuance of common stock under VERITAS' employee stock plans.
In October 1997, VERITAS issued $100.0 million of 5.25% convertible
subordinated notes due 2004 (the "5.25% notes"), for which it received net
proceeds of $97.5 million. VERITAS and its wholly-owned subsidiary, VERITAS
Operating Corporation, are co-obligors on the 5.25% notes. The 5.25% notes
provide for semi-annual interest payments of $2.6 million each May 1 and
November 1. The 5.25% notes are convertible into shares of VERITAS' common stock
at any time prior to the close of business on the maturity date, unless
previously redeemed or repurchased, at a conversion price of $9.56 per share,
subject to adjustment in certain events, equivalent to a conversion rate of
104.65 shares of common stock per $1,000 principal amount at maturity. On or
after November 5, 2002, the 5.25% notes will be redeemable over a period of time
until maturity at VERITAS' option at declining premiums to par. The debt
issuance costs are being amortized over the term of the 5.25% notes using the
interest method.
In August 1999, VERITAS and its wholly-owned subsidiary, VERITAS Operating
Corporation, issued $465.8 million, aggregate principal amount at maturity, of
1.856% convertible subordinated notes due 2006 (the "1.856% notes") for which
VERITAS received net proceeds of approximately $334.1 million. The interest rate
of 1.856% together with the accrual of original issue discount represent a yield
to maturity of 6.5%. VERITAS and VERITAS Operating Corporation are co-obligors
on the 1.856% notes. The 1.856%
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<PAGE> 199
notes provide for semi-annual interest payments of $4.3 million each February 13
and August 13, commencing February 13, 2000. The 1.856% notes are convertible
into shares of VERITAS' common stock at any time prior to the close of business
on the maturity date, unless previously redeemed or repurchased, at a conversion
price of $35.80 per share, subject to adjustment in certain events, equivalent
to an initial conversion rate of 27.934 shares of common stock per $1,000
principal amount at maturity. On or after August 16, 2002, the 1.856% notes will
be redeemable over a period of time until maturity at VERITAS' option at the
issuance price plus accrued original issue discount and any accrued interest.
The debt issuance costs are being amortized over the term of the 1.856% notes
using the interest method.
Following the issuance of the 5.25% notes and the 1.856% notes, VERITAS has
a ratio of long-term debt to total capitalization at March 31, 2000 of
approximately 12%. As a result of this additional indebtedness, VERITAS'
principal and interest payment obligations increased substantially. The degree
to which VERITAS will be leveraged could materially and adversely affect its
ability to obtain financing for working capital, acquisitions or other purposes
and could make it more vulnerable to industry downturns and competitive
pressures. VERITAS will require substantial amounts of cash to fund scheduled
payments of principal and interest on its indebtedness, including the 5.25%
notes and the 1.856% notes, future capital expenditures and any increased
working capital requirements. If VERITAS is unable to meet its cash requirements
out of cash flow from operations, it cannot assure you that it will be able to
obtain alternative financing.
During the first quarter of 2000, VERITAS amended and revised its existing
lease agreement for new corporate campus facilities in Mountain View,
California. These facilities will replace certain facilities VERITAS currently
leases in Mountain View. The new corporate campus facilities will be developed
in one phase for a total of 425,000 square feet and will provide space for
sales, marketing, administration and research and development functions. The
lease term for these facilities is five years beginning in March 2000, with an
option to extend the lease term for two successive periods of one year each.
VERITAS has an option to purchase the property (land and facilities) for $139.4
million or, at the end of the lease, to arrange for the sale of the property to
a third party with VERITAS retaining an obligation to the owner for the
difference between the sale price and the guaranteed residual value up to $123.8
million if the sales price is less than this amount, subject to certain
provisions of the lease. VERITAS anticipates occupying the new corporate campus
facilities and beginning the lease payments in the second quarter of 2001. The
lease agreement requires VERITAS to maintain specified financial covenants such
as earnings before interest, taxes, depreciation and amortization (EBITDA), debt
on EBITDA and quick ratio, all of which it was in compliance with as of March
31, 2000.
During the first quarter of 2000, VERITAS signed a lease agreement for its
existing facilities in Roseville, Minnesota. VERITAS will improve and expand its
existing facilities of approximately 62,000 square feet and will develop
adjacent property adding approximately 260,000 square feet to the campus, with
the first phase of approximately 142,000 square feet being completed in the
second quarter of 2001. The facilities will provide space for research and
development functions. The lease term for these facilities is five years
beginning in March 2000, with an option to extend the lease term for two
successive periods of one year each. VERITAS has an option to purchase the
property (land and facilities) for $40 million or, at the end of the lease, to
arrange for the sale of the property to a third party with VERITAS retaining an
obligation to the owner for the difference between the sale price and the
guaranteed residual value up to $34.3 million if the sales price is less than
this amount, subject to certain provisions of the lease. VERITAS
190
<PAGE> 200
anticipates occupying the new campus facilities and beginning the lease payments
in the second quarter of 2001. The lease agreement requires VERITAS to maintain
specified financial covenants such as earnings before interest, taxes,
depreciation and amortization (EBITDA), debt on EBITDA and quick ratio, all of
which it was in compliance with as of March 31, 2000.
VERITAS believes that its current cash, cash equivalents and short-term
investment balances and cash flow from operations will be sufficient to meet its
working capital and capital expenditure requirements for at least the next 12
months. After that time, VERITAS may require additional funds to support its
working capital requirements or for other purposes and may seek to raise such
additional funds through public or private equity financing or from other
sources. VERITAS cannot assure you that additional financing will be available
at all or that if available, VERITAS will be able to obtain it on terms
favorable to it.
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<PAGE> 201
SELECTED PRO FORMA FINANCIAL DATA
SELECTED UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA FOR SEAGATE AND SEAGATE'S
OPERATING ASSETS
The following unaudited pro forma condensed financial statements consist of
the unaudited pro forma condensed statements of operations of Seagate for the
year ended July 2, 1999, and the nine months ended March 31, 2000, the unaudited
pro forma condensed statements of operations of Seagate's operating assets for
the year ended July 2, 1999, and the nine months ended March 31, 2000, the
unaudited pro forma condensed balance sheet of Seagate as of March 31, 2000, and
the unaudited balance sheet of Seagate's operating assets as of March 31, 2000.
The unaudited pro forma condensed statements of operations of Seagate
include the historical results of Seagate adjusted for acquisition related
transactions that have occurred in fiscal 1999 and fiscal 2000 as if these
transactions occurred on July 4, 1998, the first day of fiscal 1999. These
transactions include the contribution of Seagate's NSMG business to VERITAS in
May 1999, the purchase of certain outstanding shares of Seagate Software common
stock in exchange for Seagate common stock in June 1999, the reorganization of
Seagate Software in October 1999, and the acquisition of XIOtech in January
2000. The Seagate unaudited pro forma condensed balance sheet gives effect to
the sale of Seagate's operating assets to Suez Acquisition Company in the stock
purchase, the merger with VERITAS, and the distribution of excess cash to
Seagate stockholders as if these transactions had taken place on March 31, 2000.
The unaudited pro forma condensed statements of operations of Seagate's
operating assets include the pro forma operations of Seagate described above,
adjusted to eliminate the amortization expenses relating to the assets exchanged
with VERITAS as of July 4, 1998, the first day of fiscal 1999.
The unaudited pro forma condensed financial statements of Seagate and of
Seagate's operating assets are not necessarily indicative of what the actual
financial results would have been had the transactions described above taken
place on July 4, 1998 or March 31, 2000, and do not purport to indicate the
future results of operations or financial position of Seagate or Seagate's
operating assets.
In May 1999, Seagate Software contributed the NSMG business to VERITAS in
exchange for shares of VERITAS and the issuance by VERITAS of stock options to
the employees of Seagate's NSMG business who became employees of VERITAS. In a
separate transaction, Seagate Software stockholders exchanged shares of Seagate
Software common stock for shares of Seagate common stock in an exchange offer.
As a result of the contribution of the NSMG business to VERITAS and the issuance
of Seagate common stock pursuant to the exchange offer, Seagate recorded a
pre-tax gain of $1,670 million, net of certain transaction expenses, and a write
off of in-process research and development of $87 million. In addition,
intangible assets and goodwill of $1,641 million were recorded to be amortized
over periods up to four years. The Seagate unaudited pro forma statements of
operations include the recurring effect of the amortization of the intangibles
and goodwill as if the contribution had occurred on July 4, 1998, and exclude
the effect of the one time net gain and the write-off of in-process research and
development recorded at the date of the exchange. The unaudited pro forma
statements of operations for Seagate's operating assets exclude all amounts
relating to the equity investment in VERITAS including the amortization of the
intangibles and goodwill and Seagate's share of the net income of VERITAS. In
addition, the unaudited pro forma statements of operations of
192
<PAGE> 202
Seagate's operating assets exclude the amortization of intangibles and goodwill
and, if applicable, equity in income associated with Seagate's investments in
Gadzoox Networks, Sandisk Corporation, Veeco Instruments and Dragon Systems.
In a transaction in October 1999, Seagate stockholders approved the merger
of Seagate Daylight Merger Corp., a wholly owned subsidiary of Seagate, with and
into Seagate Software. Seagate Software's assets consisted of the assets of
Seagate's IMG and an investment in the common stock of VERITAS. The merger was
effected on October 20, 1999. As a result of the merger, Seagate Software became
a wholly owned subsidiary of Seagate. In connection with the merger, Seagate
Software's stockholders and optionees received payment in the form of 3.23
shares of Seagate's common stock per share of Seagate Software common stock less
any amounts due for the payment of the exercise price for such options. All
outstanding Seagate Software stock options were accelerated immediately prior to
the merger. Seagate issued 9,124,046 shares to optionees and minority
stockholders of Seagate Software. In connection with the reorganization, Seagate
Software also formed a wholly owned subsidiary that assumed the name "Seagate
Software, Inc.", which we refer to in this document as Seagate IMG. Seagate
Software transferred the IMG assets into the software operating company. Seagate
Software accounted for the exchange of shares of its common stock as the
acquisition of a minority interest for Seagate Software common stock outstanding
and vested more than six months held by employees and all stock held by former
employees and consultants. The fair value of the shares of Seagate issued was
$19 million and was recorded as purchase price and allocated to the assets and
liabilities received. Seagate accounted for the exchange of shares of its common
stock for stock options in Seagate Software held by employees and stock held and
vested by employees less than six months as the settlement of an earlier stock
award. Seagate recorded compensation expense of $284 million, plus $2 million in
payroll taxes, related to the purchase of minority interest in Seagate Software.
The unaudited pro forma statements of operations of Seagate and the unaudited
pro forma statements of operations of Seagate's operating assets do not include
the effect of the one time compensation charge and related transaction costs of
this transaction.
During January 2000, Seagate acquired XIOtech, a provider of virtual
storage and storage area network (SAN) solutions, for approximately $359 million
of common stock and options to purchase common stock. As a result of this
acquisition, Seagate recorded a write off of $105 million for in-process
research and development costs. It also recorded certain intangible assets,
including developed technology of $37 million and goodwill of $214 million which
are being amortized over periods up to seven years. The unaudited pro forma
statements of operations of Seagate and the unaudited pro forma statements of
operations of Seagate's operating assets include the recurring effect of the
amortization of the related intangibles and goodwill as if the XIOtech
acquisition had occurred on July 4, 1998, and exclude the effect of the one time
write off of in-process research and development.
The Seagate unaudited pro forma condensed financial statements should be
read in conjunction with the annual and interim financial statements and notes
of Seagate that are included in this document.
193
<PAGE> 203
SEAGATE AND SEAGATE OPERATING ASSETS
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JULY 2, 1999
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-----------------------------------------------------------------------------
LESS:
NON-RECURRING PLUS:
LESS: GAIN AND EXPENSES PLUS: RECURRING AND
NETWORK & STORAGE RELATING TO NSMG EQUITY INTEREST NON-RECURRING
MANAGEMENT CONTRIBUTION TO IN OPERATIONS CHARGES RELATING TO
SEAGATE GROUP VERITAS OF VERITAS OTHER ACQUISITIONS
------- ----------------- ----------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
Revenue........................... $6,802 $202(3a) $ $ $
Cost of Revenue................... 5,250 17(3a) 10(3f)
------ ---- ------ ----- ----
Gross Margin...................... 1,552 185(3a) -- -- (10)
Operating expenses
Research and Development........ 581 33(3a)
Sales and Marketing............. 295 80(3a)
General and Administrative...... 239 18(3a)
Unusual Items................... 80 (2)(3g)
Restructuring Charges........... 60
Amortization of goodwill........ 39 9(3a) 53(3h)
------ ---- ------ ----- ----
Total operating expenses...... 1,294 140(3a) -- -- 51
------ ---- ------ ----- ----
Income/(Loss) from operations..... 258 45(3a) (61)
Interest expense.................. (48)
Interest income................... 102
Gain on contribution of NSMG to
VERITAS, net.................... 1,670 1,670(3b)
Equity income/(loss) in VERITAS... (119) (85)(3c) 29(3d)
(376)(3e)
Other............................. 10 2(3a)
------ ---- ------ ----- ----
Total other income/(expense)
net......................... 1,615 2(3a) 1,585 (347) --
------ ---- ------ ----- ----
Income/(Loss) before income
taxes........................... 1,873 47(3a) 1,585 (347) (61)
Benefit from/(provision for)
taxes........................... (697) (29)(3a) (648)(3b) (11)(3d)
33(3c) 148(3e)
------ ---- ------ ----- ----
Net Income/(Loss)................. $1,176 $ 18(3a) $ 970 $(210) $(61)
====== ==== ====== ===== ====
Basic net income (loss) per
share........................... $ 4.94
Diluted net income (loss) per
share........................... $ 4.53
Shares used in computing basic net
income per share................ 237.9
Shares used in computing diluted
net income per share............ 243.1
<CAPTION>
PRO FORMA ADJUSTMENTS
---------------------
PRO
LESS: FORMA
INCOME RELATED TO SEAGATE
PRO FORMA ASSETS EXCHANGED WITH OPERATING
SEAGATE VERITAS ASSETS
--------- --------------------- ---------
<S> <C> <C> <C>
Revenue........................... $6,600 $ $6,600
Cost of Revenue................... 5,243 5,243
------ ----- ------
Gross Margin...................... 1,357 -- 1,357
Operating expenses
Research and Development........ 548 548
Sales and Marketing............. 215 215
General and Administrative...... 221 221
Unusual Items................... 78 78
Restructuring Charges........... 60 60
Amortization of goodwill........ 83 17(3i) 66
------ ----- ------
Total operating expenses...... 1,205 17 1,188
------ ----- ------
Income/(Loss) from operations..... 152 (17) 169
Interest expense.................. (48) (48)
Interest income................... 102 102
Gain on contribution of NSMG to
VERITAS, net....................
Equity income/(loss) in VERITAS... (381) (381)(3j)
Other............................. 8 4(3k) 4
------ ----- ------
Total other income/(expense)
net......................... (319) (377) 58
------ ----- ------
Income/(Loss) before income
taxes........................... (167) (394) 227
Benefit from/(provision for)
taxes........................... 84 150(3j) (66)
------ ----- ------
Net Income/(Loss)................. $ (83) $(244) $ 161
====== ===== ======
Basic net income (loss) per
share........................... $(0.32)
Diluted net income (loss) per
share........................... $(0.32)
Shares used in computing basic net
income per share................ 260.0
Shares used in computing diluted
net income per share............ 260.0
</TABLE>
See accompanying notes to Seagate and Seagate Operating Assets Unaudited
Pro Forma Condensed Financial Statements.
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SEAGATE AND SEAGATE OPERATING ASSETS
UNAUDITED PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED MARCH 31, 2000
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PLUS: LESS:
PRO FORMA ADJUSTMENTS PRO FORMA PRO
RELATING TO RECURRING ADJUSTMENTS FORMA
AND NON-RECURRING RELATED TO ASSETS SEAGATE
CHARGES FOR ACQUISITION PRO FORMA EXCHANGED OPERATING
SEAGATE ACTIVITIES IN FISCAL 2000 SEAGATE WITH VERITAS ASSETS
------- ------------------------- --------- ----------------- ---------
<S> <C> <C> <C> <C> <C>
Revenue................................. $4,900 $4,900 $4,900
Cost of Revenue......................... 3,984 5(3f) 3,989 3,989
------ ----- ------ ----- ------
Gross Margin............................ 916 (5) 911 -- 911
Operating expenses
Research and Development.............. 430 430 430
Sales and Marketing................... 164 164 164
General and Administrative............ 202 202 202
Unusual Items......................... 430 (286)(3l) 39 39
(105)(3m)
Restructuring Charges................. 183 183 183
Amortization of goodwill.............. 32 23(3h) 55 13(3i) 42
------ ----- ------ ----- ------
Total operating expenses............ 1,441 (368) 1,073 13 1,060
------ ----- ------ ----- ------
Income/(Loss) from operations........... (525) 363 (162) (13) (149)
Interest expense........................ (39) (39) (39)
Interest income......................... 69 69 69
Activity relating to equity interest in
VERITAS............................... (256) (256) (256)(3j)
Gain on sale of VERITAS stock........... 537 537 537(3n)
Gain on sale of Sandisk Corporation
stock................................. 515 515 515(3n)
Other................................... (3) (3) (2)(3k) (1)
------ ----- ------ ----- ------
Total other income/(expense) net.... 823 -- 823 794 29
------ ----- ------ ----- ------
Income/(Loss) before income taxes....... 298 363 661 781 (120)
Benefit from/(provision for) taxes...... (219) (43)(3l) (262) 100(3j) 46
(408)(3n)
------ ----- ------ ----- ------
Net Income/(Loss)....................... $ 79 $ 320 $ 399 $ 473 $ (74)
====== ===== ====== ===== ======
Basic income per share.................. $ 0.36 $ 1.74
Diluted net income per share............ $ 0.35 $ 1.68
Shares used in computing basic net
income per share...................... 218.9 228.8
Shares used in computing diluted net
income per share...................... 227.6 237.5
</TABLE>
See accompanying notes to Seagate and Seagate Operating Assets Unaudited Pro
Forma Condensed Financial Statements.
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SEAGATE AND SEAGATE OPERATING ASSETS
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 2000
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
------------------------------------------------------------------
CONVERSION OF
SHORT-TERM
INVESTMENTS INTO
SEAGATE CASH AND CASHLESS INCOME TAXES
TECHNOLOGY, RETIREMENT OF EXERCISE OF SALE OF AND OTHER
INC. LONG-TERM DEBT STOCK OPTIONS OPERATING ASSETS ADJUSTMENTS
----------- ---------------- ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents............... $1,125 $ 765(3o) $ $ 1,850(3q) $(150)(3s)
(704)(3o) (775)(3q) (186)(3u)
(125)(3q)
(34)(3q)
Short-term Investments.................. 765 (765)(3o)
Accounts receivable, net................ 761 (761)(3q)
Income tax refund....................... -- 186(3u)
38(3z)
Tax indemnification from SAC............ 125(3w)
Inventories............................. 334 (334)(3q)
Deferred income taxes................... 247 (247)(3v)
Other Current Assets.................... 155 (155)(3q)
------ ----- ----- ------- -----
Current assets......................... 3,387 (704) -- (334) (234)
Property, equipment and leasehold
improvements, net...................... 1,539 (1,539)(3q)
Investment in VERITAS, net.............. 1,191
Goodwill and other intangibles.......... 409 (394)(3q)
Other assets............................ 629 (84)(3q)
------ ----- ----- ------- -----
TOTAL ASSETS......................... $7,155 $(704) $ -- $(2,351) $(234)
====== ===== ===== ======= =====
Accounts payable........................ $ 598 $ $ $ (598)(3q) $
Accrued employee compensation........... 193 (17)(3p) (176)(3q)
343(3p)
Accrued expenses........................ 476 (476)(3q)
Accrued income taxes.................... 244 (90)(3q) (30)(3u)
145(3u)
(307)(3u)
90(3w)
38(3z)
Payable to Seagate stockholders......... 224(3x)
Current portion of long-term debt....... 1 (1)(3o)
------ ----- ----- ------- -----
Current liabilities.................... 1,512 (1) 326 (1,340) 160
Deferred income taxes................... 1,101 (35)(3q) (429)(3v)
35(3w)
Other liabilities....................... 126 (126)(3q)
Long-term debt, less current portion.... 703 (703)(3o)
------ ----- ----- ------- -----
Total liabilities.................... 3,442 (704) 326 (1,501) (234)
------ ----- ----- ------- -----
Common stock............................ 3
Paid in capital......................... 1,919 516(3p) (17)(3q)
Deferred compensation................... (34) 17(3q)
Accumulated other comprehensive income
(loss)................................. 282
Retained earnings....................... 2,310 (842)(3p) (850)(3q) (150)(3s)
192(3u)
182(3v)
(224)(3x)
Treasury stock.......................... (767)
------ ----- ----- ------- -----
Stockholders' equity................... 3,713 -- (326) (850) --
------ ----- ----- ------- -----
LIABILITIES AND EQUITY.................. $7,155 $(704) $ -- $(2,351) $(234)
====== ===== ===== ======= =====
<CAPTION>
PRO FORMA ADJUSTMENTS
----------------------------------------------------
EQUITY INVESTMENTS,
RETAINED CASH
SEAGATE PRIOR AND OTHER
TO MERGER INCLUDED IN CASH DISTRIBUTION TAX REMAINING
WITH MERGER WITH TO SEAGATE REFUND AFTER ALL
VERITAS VERITAS STOCKHOLDERS AMOUNT TRANSACTIONS
------------- ------------------- ----------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents............... $1,766 $ (843)(3r) $ (923)(3t) $ $
Short-term Investments..................
Accounts receivable, net................
Income tax refund....................... 224 (224)(3y)
Tax indemnification from SAC............ 125 (125)(3r)
Inventories.............................
Deferred income taxes...................
Other Current Assets....................
------ ------- ------- ----- -------
Current assets......................... 2,115 (968) (923) (224) --
Property, equipment and leasehold
improvements, net......................
Investment in VERITAS, net.............. 1,191 (1,191)(3r)
Goodwill and other intangibles.......... 15 (15)(3r)
Other assets............................ 545 (545)(3r)
------ ------- ------- ----- -------
TOTAL ASSETS......................... $3,866 $(2,719) $ (923) $(224) $ --
====== ======= ======= ===== =======
Accounts payable........................ $ $ $ $ $
Accrued employee compensation........... 343 (343)(3r)
Accrued expenses........................
Accrued income taxes.................... 90 (90)(3r)
Payable to Seagate stockholders......... 224 (224)(3y)
Current portion of long-term debt.......
------ ------- ------- ----- -------
Current liabilities.................... 657 (433) -- (224) --
Deferred income taxes................... 672 (672)(3r)
Other liabilities.......................
Long-term debt, less current portion....
------ ------- ------- ----- -------
Total liabilities.................... 1,329 (1,105) -- (224) --
------ ------- ------- ----- -------
Common stock............................ 3 (3)(3r)
Paid in capital......................... 2,418 (2,418)(3r)
Deferred compensation................... (17) 17(3r)
Accumulated other comprehensive income
(loss)................................. 282 (282)(3r)
Retained earnings....................... 618 305(3r) (923)(3t)
Treasury stock.......................... (767) 767(3r)
------ ------- ------- ----- -------
Stockholders' equity................... 2,537 (1,614) (923) -- --
------ ------- ------- ----- -------
LIABILITIES AND EQUITY.................. $3,866 $(2,719) $ (923) $(224) $ --
====== ======= ======= ===== =======
</TABLE>
See accompanying notes to Seagate and Seagate Operating Assets Unaudited Pro
Forma Condensed Financial Statements.
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<PAGE> 206
SEAGATE AND SEAGATE OPERATING ASSETS
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
1. PRO FORMA BASIS OF PRESENTATION
The Seagate pro forma condensed statements of operations reflect the effect
of various significant transactions that occurred in fiscal years 1999 and 2000
as if the transactions had occurred at the beginning of fiscal 1999 including:
a. the contribution of the NSMG business to VERITAS in May 1999;
b. the acquisition of minority interest of Seagate Software, Inc. in June
1999;
c. the reorganization of Seagate Software, Inc. in October 1999; and
d. the acquisition of XIOtech in January 2000.
The unaudited pro forma condensed statements of operations for Seagate's
operating assets reflect the pro forma operations of Seagate discussed above,
adjusted to eliminate the effects of transactions a, b and c above.
The unaudited pro forma condensed balance sheet of Seagate as of March 31,
2000 reflects the historical balance sheet of Seagate adjusted to show the early
liquidation and conversion of Seagate's short-term investments into cash, the
cashless exercise of employee stock options, the sale of Seagate's operating
assets to Suez Acquisition Company in the stock purchase, the retirement of the
Seagate's long-term debt, the assets and liabilities included in the merger with
VERITAS, and the distribution of excess cash to Seagate stockholders, as if this
series of transactions had occurred on March 31, 2000. After this series of
transactions all assets and liabilities of Seagate will have been sold,
paid-off, distributed to stockholders, or merged into VERITAS and no assets or
liabilities will remain. The former stockholders of Seagate will retain certain
tax benefits of Seagate sold to VERITAS and these stockholders may receive
additional cash distributions in the future should cash refunds for the tax
benefits be received by VERITAS subsequent to the merger with VERITAS.
Pro forma adjustments to reflect prior acquisition activity of Seagate
include the following:
CONTRIBUTION OF THE NSMG BUSINESS TO VERITAS
In exchange for the contribution of Seagate Software, Inc.'s NSMG business
in May 1999 to VERITAS, Seagate acquired approximately 42% of the outstanding
shares of
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<PAGE> 207
VERITAS. Seagate acquired the following intangible assets and recorded the
following gain associated with this transaction:
ALLOCATION OF INVESTMENT IN VERITAS (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMORTIZATION ANNUAL
LIFE AMORTIZATION
----------------- ------------
<S> <C> <C> <C>
Net tangible assets..................... $ 114,236
Intangible assets:
Distribution channel.................. 74,884 4 years 18,721
Trademark and workforce............... 30,511 4 years 7,628
Developed technology.................. 138,112 3.5 - 4 years 69,056
In-process research and development... 84,707
Goodwill.............................. 1,397,144 4 years 349,286
</TABLE>
Net gain recorded in connection with contribution (dollars in thousands):
<TABLE>
<S> <C>
Pro rata gain............................................... $1,806,165
Less:
Compensation expense...................................... 123,840
Transaction costs......................................... 12,025
----------
Net gain on contribution of the NSMG business to VERITAS.... $1,670,300
</TABLE>
ACQUISITION OF MINORITY INTEREST IN SEAGATE SOFTWARE, INC.
In June 1999, Seagate purchased all outstanding shares of Seagate Software,
Inc. common stock in exchange for Seagate common stock at an exchange ratio of
1.699. The value of the Seagate Software, Inc. shares was determined based upon
the fair value of the NSMG business (as measured by the fair value of the shares
received from VERITAS) plus the estimated fair value of the IMG of Seagate
Software, Inc. of $375 million, such value determined by the Seagate Software,
Inc. board of directors, plus the proceeds from the assumed exercise of stock
options. The purchase of shares outstanding and held more than 6 months was
accounted for as a purchase of minority interest and included the following
intangible assets (in thousands):
<TABLE>
<CAPTION>
AMORTIZATION ANNUAL
LIFE AMORTIZATION
------------ ------------
<S> <C> <C> <C>
Intangible assets:
Distribution channel......................... $ 2,080 4 years $ 520
Trademark and workforce...................... 847 4 years 212
Developed technology......................... 3,836 4 years 959
In-process research and development.......... 2,353
Goodwill..................................... 45,291 4 years 11,323
Deferred tax liability......................... (2,653)
</TABLE>
The settlement in the form of Seagate common stock in return for employee
held stock options that were exchanged into common stock, and all common shares
held by employees less than six months, were treated as equivalent to the
settlement of an earlier award of stock for cash. As a result, compensation
expense related to the stock purchase from employees of $104 million was
recorded as an offset to the gain recorded on the contribution of the NSMG
business to VERITAS as outlined above.
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<PAGE> 208
REORGANIZATION OF SEAGATE SOFTWARE IN OCTOBER 1999
In October 1999, Seagate Daylight Merger Corp., a wholly-owned subsidiary
of Seagate, merged with and into Seagate Software. Seagate Software's assets
consisted of the assets of the IMG and its investment in the common stock of
VERITAS which Seagate Software acquired in May 1999 from the contribution of the
NSMG business to VERITAS described above. In connection with this merger,
Seagate Software's stockholders and optionees received payment in the form of
3.23 shares of Seagate's common stock per share of Seagate Software common stock
less any amounts due for the payment of the exercise price for such options. All
outstanding Seagate Software stock options were accelerated immediately prior to
this merger. Seagate issued 9,124,046 shares to optionees and minority
stockholders of Seagate Software. In connection with the reorganization, Seagate
Software also formed a wholly-owned subsidiary that assumed the name "Seagate
Software, Inc." and is now the operating entity for the IMG business. Seagate
Software accounted for the exchange of shares of its common stock as the
acquisition of a minority interest for Seagate Software common stock outstanding
and vested more than six months held by employees and all stock held by former
employees and consultants. The fair value of the shares of Seagate issued was
$19 million and was recorded as purchase price and allocated to the assets and
liabilities received. Due to the immateriality of the purchase price, the
allocation to intangible assets is not included here. Seagate accounted for the
exchange of shares of its common stock for stock options in Seagate Software
held by employees and stock held and vested by employees less than six months as
the settlement of an earlier stock award. As a result, during the quarter ended
December 31, 1999, Seagate recorded compensation expense of $284 million, plus
$2 million in payroll taxes, related to the settlement of the stock options of
Seagate Software.
ACQUISITION OF XIOTECH IN JANUARY 2000
On January 28, 2000, Seagate acquired XIOtech, a provider of virtual
storage and storage area network (SAN) solutions, for Seagate common stock and
options to purchase common stock with a value of $359 million. This acquisition
was accounted for as a purchase and, accordingly, the results of operations of
XIOtech have been included in the consolidated financial statements from the
date of acquisition. The purchase price has been allocated based on the
estimated fair market value of net tangible and intangible assets acquired as
well as in-process research and development costs. As a result of the
acquisition, Seagate incurred a one-time write-off of in-process research and
development of $105 million. Goodwill and other intangibles arising from the
acquisition are being amortized on a straight-line basis over periods ranging
from one to seven years. Amortization of goodwill and other intangibles is
expected to be approximately $51 million the first year and approximately $47
million in subsequent years. XIOtech's revenue and expenses are immaterial to
Seagate's consolidated revenue and expenses.
199
<PAGE> 209
ALLOCATION OF INVESTMENT IN XIOTECH (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AMORTIZATION ANNUAL
LIFE AMORTIZATION
------------ ------------
<S> <C> <C> <C>
Tangible assets less liabilities assumed...... $ 12,191
Developed technology.......................... 37,390 4.5 years $ 8,308
Tradenames.................................... 4,836 5 years 967
Assembled workforce........................... 2,183 4 years 546
Customer list................................. 1,976 1 year 1,976
In process research and development........... 104,844
Goodwill...................................... 214,189 7 years 30,598
Deferred tax liability........................ (18,197)
</TABLE>
In addition to the pro forma adjustments described above, the pro forma
adjustments also include amounts related to certain equity investments held by
Seagate in Gadzoox Networks, Sandisk Corporation, CVC, Inc. (subsequently
converted into shares of Veeco Instruments) and Dragon Systems. These equity
investments are being retained by Seagate after the sale of Seagate's operating
assets to Suez Acquisition Company in the stock purchase and will be included in
the exchange of Seagate common stock for VERITAS common stock in the merger
between Seagate and VERITAS.
2. THE PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING FOR SEAGATE ASSUMES THE
FOLLOWING:
For the year ended July 2, 1999:
<TABLE>
<S> <C>
Weighted average actual shares outstanding for the year
ended July 2, 1999........................................ 237,862,113
Shares issued in connection with acquisition of minority
interest of Seagate Software and settlement of employee
stock awards in June 1999, as adjusted for shares already
included.................................................. 4,942,413
Shares issued in connection with reorganization of Seagate
Software and the settlement of employee stock awards in
October 1999.............................................. 9,124,046
Shares issued in exchange for the acquisition of XIOtech in
January 2000.............................................. 8,031,804
-----------
Total pro forma shares assumed outstanding for the year
ended July 2, 1999 -- basic and diluted............... 259,960,376
</TABLE>
For the nine months ended March 31, 2000:
<TABLE>
<S> <C>
Weighted average actual shares outstanding for the nine
months ended March 31, 2000............................... 218,947,140
Shares issued in connection with reorganization of Seagate
Software and the settlement of employee stock awards in
October 1999, as adjusted for shares already included..... 3,676,356
Shares issued in exchange for the acquisition of XIOtech in
January 2000, as adjusted for shares already included..... 6,178,311
-----------
Total pro forma shares assumed outstanding for the nine
months ended March 31, 2000 -- basic.................. 228,801,807
Incremental common shares attributable to exercise of
outstanding options (assuming proceeds would be used to
purchase treasury stock).................................. 8,645,000
-----------
Total pro forma shares assumed outstanding for the nine
months ended March 31, 2000 -- diluted.................... 237,446,807
-----------
</TABLE>
200
<PAGE> 210
Seagate's operating assets do not have a formal capital structure nor
shares outstanding. Accordingly, no pro forma earnings per share information is
provided for Seagate's operating assets.
3. PRO FORMA ADJUSTMENTS
The unaudited pro forma condensed statements give effect to the following
pro forma adjustments:
(a) To eliminate the operations of the NSMG business for the 11 months
ended May 28, 1999, included in the Seagate statement of operations
for the year ended July 2, 1999 as such business was contributed to
VERITAS in May 1999.
(b) To eliminate the gain, net of related compensation expense and
transaction costs and related income tax effects recorded in
association with the contribution of the NSMG business to VERITAS in
May 1999.
(c) To eliminate the write-off of in-process research and development and
related income tax effects recorded in association with the
contribution of the NSMG business to VERITAS in May 1999.
(d) To record Seagate's share in the income of VERITAS prior to the
effect of the amortization of intangible assets and goodwill
associated with the contribution of the NSMG business to VERITAS.
(e) To record an additional 11 months of amortization and income tax
effects for fiscal 1999 relating to intangible assets and goodwill
recorded as a result of the contribution of the NSMG business to
VERITAS in May 1999.
(f) To record 12 months of amortization expense in fiscal 1999, and an
additional seven months of amortization expense in the nine months
ended March 31, 2000, associated with developed technology acquired
in the XIOtech acquisition in January 2000.
(g) To eliminate the write off of in-process research and development
recorded in association with the acquisition of minority interest by
Seagate in June 1999.
(h) To record additional pro forma amortization of other intangibles and
goodwill relating to acquisitions in fiscal 1999 and the first nine
months of fiscal 2000 as follows:
<TABLE>
<S> <C>
FOR THE 12 MONTHS ENDED JULY 2, 1999
XIOtech, 12 months of amortization........................ $36
Minority interests acquired in May 1999, 11 months of
amortization........................................... 12
Minority interests acquired in October 1999, 12 months of
amortization........................................... 5
---
$53
</TABLE>
Only 11 months of additional amortization is required for the
Minority Interests acquired in May 1999, since one month's
amortization is already included in the historical results of
Seagate.
201
<PAGE> 211
<TABLE>
<S> <C>
FOR THE NINE MONTHS ENDED MARCH 31, 2000
XIOtech, 7 months of amortization......................... $21
Minority interests acquired in October 1999, 5 months of
amortization........................................... 2
---
$23
</TABLE>
Amortization expense for the minority interests acquired in May 1999
is already included in the historical results of Seagate for the nine
months ended March 31, 2000 and no pro forma adjustment is required.
Pro forma additional amortization expense for the XIOtech acquisition
and the minority interests acquired in October 1999 are less than a
full nine months of amortization expense because the historical
results of Seagate only include amortization for these acquisitions
starting from the date of their acquisition.
(i) To eliminate all equity income and amortization expense for
intangible assets and goodwill relating to the equity investments
that will be included in the merger with VERITAS as follows:
<TABLE>
<CAPTION>
12 MONTHS NINE MONTHS
ENDED ENDED
JULY 2, 1999 MARCH 31, 2000
------------ --------------
<S> <C> <C>
Minority interest acquired in June 1999... $13 $10
Amortization of intangibles related to
Dragon.................................. 3 2
Amortization of intangibles related to
Sandisk................................. 1 1
--- ---
$17 $13
</TABLE>
Amortization of intangibles related to Seagate's investment in CVC,
Inc. (subsequently converted into shares of Veeco Instruments) are
not material. Seagate has no intangible assets and goodwill
associated with its investment in Gadzoox Networks because the
investment is accounted for at cost, as adjusted to market value
through other comprehensive income.
(j) To eliminate equity in the income of VERITAS and all amortization
expense for intangible assets and goodwill and income tax affects
relating to the equity investment in VERITAS as follows:
<TABLE>
<CAPTION>
12 MONTHS NINE MONTHS
ENDED ENDED
JULY 2, 1999 MARCH 31, 2000
------------ --------------
<S> <C> <C>
Amortization of other intangible assets
and goodwill related to the investment
in VERITAS.............................. $410 $276
Equity in VERITAS income.................. (29) (20)
---- ----
$381 $256
</TABLE>
(k) To eliminate Seagate's equity in the income of SanDisk Corporation
and Dragon Systems. Seagate's equity in the income and losses of CVC,
Inc. (subsequently converted into shares of Veeco Instruments) are
immaterial.
(l) To eliminate compensation expense and related income tax benefit
recorded in October 1999, relating to the exchange of Seagate stock
for shares of Seagate Software, Inc. held by employees less than 6
months.
202
<PAGE> 212
(m) To eliminate the write-off of in-process research and development
expenses in connection with the acquisition of XIOtech in January
2000.
(n) To eliminate the gains and related income tax expense recognized by
Seagate upon the sale of a portion of its equity investments in the
common stocks of Sandisk Corporation and VERITAS.
(o) To reflect the presumed liquidation and conversion of short-term
investments to cash and the retirement of long-term debt by Seagate
prior to the merger with VERITAS.
(p) Prior to the merger with VERITAS, all employee options, except those
representing the rolled option value, will be accelerated and assumed
net exercised. The "net exercise" does not require any payment to
Seagate for the exercise price of the option or the tax withholding
required upon exercise. Instead, Seagate will deduct from the total
number of shares issuable upon exercise in full of the option a
number of shares equal to the number of shares derived from dividing
the sum of the aggregate exercise price and tax withholding by the
average closing price of a share of Seagate common stock for the five
consecutive trading days ending two trading days immediately
preceding the closing of the merger.
> In addition to the above, all share equivalents under the employee
stock purchase plan will be assumed net purchased and exchanged for
merger consideration.
An employer and employee payroll withholding tax liability amounting
to $343 million will arise as a result of the cashless exercise of
options by employees.
(q) This column represents all assets and liabilities of Seagate's
operating assets that are being sold to Suez Acquisition Company
including $775 million of cash (subject to increase pursuant to the
stock purchase agreement), and all remaining assets and liabilities
of Seagate except for equity investments in VERITAS, Gadzoox
Networks, SanDisk Corporation, Veeco Instruments and Dragon Systems,
long-term debt to be extinguished, cash to be retained by VERITAS,
and cash and other rights, including the tax refund amount, to be
distributed to Seagate stockholders.
The estimated cash to be received from Suez Acquisition Company is
determined as follows (in millions):
<TABLE>
<S> <C>
Cash proceeds before adjustment............................ $2,000
Less: Rolled option value adjustment....................... (150)
------
Estimated cash to be received from Suez Acquisition
Company............................................... $1,850
</TABLE>
Cash includes $125 million for tax related indemnifications provided
by Suez Acquisition Company to Seagate for certain tax liabilities.
These tax liabilities are expected to be paid by VERITAS after the
merger and in return, VERITAS is to be reimbursed by Suez Acquisition
Company. Cash also includes $34 million relating to accrued
management bonuses to be paid by Suez Acquisition Company after the
merger.
(r) This column includes Seagate's equity investments in VERITAS
Software, Gadzoox Networks, SanDisk Corporation, Veeco Instruments
and Dragon Systems, cash, and other assets and liabilities of
Seagate included in the
203
<PAGE> 213
VERITAS merger. This column excludes cash amounts to be distributed
to Seagate stockholders at the time of the merger and it excludes
the tax refund amount.
Cash to be retained by VERITAS is comprised of (in millions):
<TABLE>
<S> <C>
Amounts to pay for employer and employee payroll withholding
tax liabilities........................................... $343
Amounts retained by VERITAS in return for additional VERITAS
shares issued to Seagate stockholders in the merger....... 500
----
$843
</TABLE>
Under the terms of the merger agreement with VERITAS, VERITAS has
the right to cause Seagate to retain certain cash amounts in
addition to amounts necessary to pay for Seagate employer and
employee payroll withholding tax liabilities. VERITAS may retain
cash of $0 or $500 million in return for additional VERITAS shares
to be issued to Seagate stockholders. VERITAS may retain up to an
additional $250 million of cash if Seagate receives proceeds in
excess of $200 million from sales prior to the merger of some or all
of its investments in Gadzoox Networks, SanDisk Corporation, Veeco
Instruments, or Dragon Systems. The pro forma financial statements
presume that VERITAS will elect to retain $500 million of cash and
that Seagate will not dispose of any of its investments in Gadzoox
Networks, SanDisk Corporation, Veeco Instruments or Dragon Systems
prior to the merger.
The tax indemnification from Suez Acquisition Company of $125
million relates to certain additional income tax liabilities of
Seagate which are expected to be paid by VERITAS after the merger
and for which VERITAS will be indemnified and reimbursed by Suez
Acquisition Company. The final determination of the value of the tax
indemnification is subject to a valuation process including but not
limited to completion of the financing arrangements and negotiation
of covenants and other terms and conditions currently underway
between Suez Acquisition Company and its potential lenders. For
purposes of pro forma presentation, the tax indemnification asset is
reflected at its book value based upon Seagate's preliminary
assessment and may change upon completion of the final financing
arrangements.
The book value of Seagate's investment in VERITAS is included in the
amount entitled Investment in VERITAS of $1,191 million. The book
value of Seagate's investments in Gadzoox Networks, SanDisk
Corporation, Veeco Instruments and Dragon Systems are included in
Goodwill and other intangibles of $15 million and Other assets of
$545 million. Other assets includes a mark-to-market adjustment of
$282 million, net of related income taxes, for the market value of
Seagate investments in Gadzoox Networks and SanDisk Corporation.
Accrued employee compensation of $343 million relates to employer
and employee payroll withholding tax liabilities resulting from the
cashless exercise of Seagate stock options prior to the merger.
Accrued income taxes of $90 million relate to Seagate income tax
liabilities to be paid by VERITAS after the merger and reimbursed by
indemnification from Suez Acquisition Company.
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<PAGE> 214
The deferred income taxes relate to the difference between Seagate's
book and tax basis in its VERITAS investment, deferred taxes for the
mark-to-market adjustment on the investments in Sandisk and Gadzoox
stock, and $35 million of other tax liabilities of Seagate to be
paid by VERITAS for which VERITAS will be reimbursed through
indemnification by Suez Acquisition Company.
All Seagate capital accounts are shown as eliminated in this column
except for amounts related to cash to be distributed to Seagate
stockholders.
(s) Estimated transaction costs are $150 million and will be paid at the
time of closing or shortly thereafter.
(t) Excess cash to be distributed to former Seagate stockholders. A
summary of cash available for distribution is as follows (in
millions):
<TABLE>
<S> <C>
Seagate cash and cash equivalents at March 31, 2000........ $1,125
Cash provided by:
Sale of Seagate Operating Assets...................... 1,850
Conversion of Short-term investments to cash.......... 765
Cash used for:
Tender of long-term debt.............................. (704)
Foreign tax obligations resulting from the 1999
reorganization of Seagate Software.................. (186)
Transaction costs..................................... (150)
Cash retained by Seagate Operating Assets for
operations.......................................... (775)
Tax indemnification payable by Suez Acquisition
Company to VERITAS.................................. (125)
Cash retained by Seagate Operating Assets to pay for
year end employee bonuses........................... (34)
Payroll taxes arising from cashless exercise of stock
options............................................. (343)
VERITAS issuance of additional stock to Seagate
stockholders........................................ (500)
------
Cash available for distribution to Seagate stockholders.... $ 923
======
</TABLE>
(u) To reflect the payment of the $186 million foreign tax liability
resulting from the reorganization of Seagate Software in October
1999, income tax refund receivable of $224 million, and additional
tax effects as follows (in millions):
<TABLE>
<S> <C>
Tax benefit from stock option activity..................... $ 307
Tax benefit from transaction costs......................... 30
Tax (liability) from sale of Seagate's operating assets to
Suez Acquisition Company................................. (145)
-----
Total...................................................... $ 192
=====
</TABLE>
For purposes of computing the proforma income tax liability from the
sale of Seagate's operating assets to Suez Acquisition Company, it
is assumed that Suez Acquisition Company and Seagate will make
certain joint income tax elections to treat the sale by Seagate of
certain of its subsidiaries as a deemed sale of their underlying
assets. Pursuant to the terms of the stock purchase agreement, Suez
Acquisition Company controls the right to determine if such tax
elections will be made. In the event that these elections are not
made in
205
<PAGE> 215
whole or in part for the affected subsidiaries, the tax liability from the sale
of Seagate's operating assets will increase and will reduce cash available for
distribution to Seagate stockholders.
(v) To eliminate accrued and deferred income taxes resulting from the
stock purchase and the merger.
(w) To record tax indemnification by Suez Acquisition Company provided
to VERITAS.
(x) To record payable to Seagate stockholders for amounts included in
the tax refund amount.
(y) To record former Seagate stockholders' right to receive the tax
refund amount.
(z) To reclass income taxes refundable to tax refund amount.
206
<PAGE> 216
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL DATA FOR
VERITAS
The following unaudited pro forma combined condensed consolidated financial
statements consist of the VERITAS unaudited pro forma combined condensed
consolidated statement of operations for the year ended December 31, 1999 and
the three months ended March 31, 2000 and the VERITAS unaudited pro forma
combined condensed consolidated balance sheet as of March 31, 2000.
SEAGATE TRANSACTION
The VERITAS unaudited pro forma combined condensed consolidated financial
statements give effect to the issuance of VERITAS common stock and cash for all
of the outstanding common stock of Seagate Technology Inc., immediately after
the sale of all of the operating assets and liabilities of Seagate to Suez
Acquisition Company. The effect of the transactions is that VERITAS is not
acquiring any business of Seagate but is acquiring only certain assets and
assuming only certain liabilities of Seagate which are held by Seagate after the
sale of the operating assets and liabilities to Suez Acquisition Company. The
assets of Seagate being acquired by VERITAS include VERITAS common stock
obtained by Seagate Software, a subsidiary of Seagate, upon the acquisition by
VERITAS of the Network and Storage Management Group, referred to as NSMG, of
Seagate Software in May 1999, equity securities of Gadzoox Networks, SanDisk
Corporation, Veeco Instruments and Dragon Systems and cash and cash equivalents,
all of which are referred to as the designated assets.
The VERITAS unaudited pro forma combined condensed consolidated balance
sheet as of March 31, 2000 combines the historical balance sheet of VERITAS as
of March 31, 2000 and the pro forma balance sheet of Seagate as of March 31,
2000 which gives effect to the sale of its operating assets and liabilities to
Suez Acquisition Company, assuming the transactions took place on March 31,
2000.
The VERITAS unaudited pro forma combined condensed consolidated statement
of operations for the three months ended March 31, 2000 shows certain pro forma
adjustments to the VERITAS historical statement of operations for the three
months ended March 31, 2000 as a result of the acquisition of the designated
assets of Seagate. Since VERITAS is not acquiring a business of Seagate, there
is no statement of operations of Seagate to combine with the statement of
operations of VERITAS. The VERITAS unaudited pro forma combined condensed
consolidated statement of operations for the year ended December 31, 1999 shows
certain pro forma adjustments to the VERITAS pro forma statement of operations
for the year ended December 31, 1999 as a result of the acquisition of the
designated assets of Seagate and also give effect to the acquisitions by VERITAS
during 1999 of NSMG, TeleBackup and NuView as described below.
NSMG, TELEBACKUP AND NUVIEW ACQUISITIONS
The VERITAS unaudited pro forma combined condensed consolidated statement
of operations for the year ended December 31, 1999 combines VERITAS' historical
results of operations for the year ended December 31, 1999 with NSMG's
historical results of operations for the period from January 1, 1999 to May 28,
1999 and TeleBackup's historical results of operations from January 1, 1999 to
June 1, 1999, the respective closing dates of the transactions, and give effect
to the acquisitions of NSMG, TeleBackup and NuView using the purchase method of
accounting assuming that the acquisitions took place on January 1, 1999. The
results of operations of NuView from January 1, 1999 to the date of acquisition
have been excluded as they were not significant; however, the pro
207
<PAGE> 217
forma adjustments give effect to the acquisition of NuView using the purchase
method of accounting.
The VERITAS unaudited pro forma combined condensed consolidated financial
statements should be read in conjunction with the related notes included in this
document and the audited financial statements of VERITAS that are included
elsewhere in this document, and the audited financial statements of NSMG and
TeleBackup that are incorporated by reference. The VERITAS unaudited pro forma
combined condensed consolidated financial statements do not necessarily indicate
what the actual operating results or financial position would have been had the
NSMG, TeleBackup, NuView acquisitions and the acquisition of the designated
assets of Seagate taken place on January 1, 1999. They also do not purport to
indicate VERITAS' future results of operations or financial position.
208
<PAGE> 218
VERITAS UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
VERITAS
PRO FORMA
COMBINED
VERITAS YEAR
YEAR ENDED NSMG AND TELEBACKUP ENDED SEAGATE
DECEMBER 31, JANUARY 1, 1999 PRO FORMA DECEMBER 31, PRO FORMA
1999 THROUGH ACQUISITION DATE ADJUSTMENTS 1999 ADJUSTMENTS
------------ ------------------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net revenue:
User license fees.............. $ 498 99 $ -- $ 597 --
Services....................... 98 6 (1)(a) 103 --
------ ---- ----- ------ ---
Total net revenue........... 596 105 (1) 700 --
Cost of revenue:
User license fees.............. 20 6 -- 26 --
Services....................... 38 1 -- 39 --
Amortization of developed
technology.................. 36 1 24(b) 61 --
1(c)
(1)(e)
------ ---- ----- ------ ---
Total cost of revenue....... 94 8 24 126 --
------ ---- ----- ------ ---
Gross profit..................... 502 97 (25) 574 --
Operating expenses:
Selling and marketing.......... 222 39 -- 261 --
Research and development....... 95 15 -- 110 --
General and administrative..... 34 9 -- 43 --
Amortization of goodwill and
other intangibles........... 511 3 345(b) 878 --
14(c)
8(d)
(3)(e)
Acquisition and restructuring
costs....................... 11 -- (11)(f)
In-process research and
development................. 104 -- (104)(f) -- --
------ ---- ----- ------ ---
Total operating expenses.... 977 66 249 1,292 --
------ ---- ----- ------ ---
Income (loss) from operations.... (475) 31 (274) (718) --
Interest and other income, net... 23 1 -- 24 27(h)
Interest expense................. (16) -- -- (16) --
------ ---- ----- ------ ---
Income (loss) before income
taxes.......................... (468) 32 (274) (710) 27
Provision for (benefit from)
income taxes................... 35 8 (15)(g) 28 10(h)
------ ---- ----- ------ ---
Net income (loss)................ (503) 24 $(259) (738) 17
====== ==== ===== ====== ===
Net income (loss) per share --
basic.......................... $(1.59) $(1.93)
====== ======
Net income (loss) per share --
diluted........................ $(1.59) $(1.93)
====== ======
Number of shares used in
computing per share
amounts -- basic............... 317 383 (10)(q)
====== ====== ===
Number of shares used in
computing per share
amounts -- diluted............. 317 383 (10)(q)
====== ====== ===
<CAPTION>
VERITAS
PRO FORMA
INCLUDING SEAGATE
YEAR ENDED
DECEMBER 31,
1999
-----------------
<S> <C>
Net revenue:
User license fees.............. $ 597
Services....................... 103
------
Total net revenue........... 700
Cost of revenue:
User license fees.............. 26
Services....................... 39
Amortization of developed
technology.................. 61
------
Total cost of revenue....... 126
------
Gross profit..................... 574
Operating expenses:
Selling and marketing.......... 261
Research and development....... 110
General and administrative..... 43
Amortization of goodwill and
other intangibles........... 878
Acquisition and restructuring
costs.......................
In-process research and
development................. --
------
Total operating expenses.... 1,292
------
Income (loss) from operations.... (718)
Interest and other income, net... 51
Interest expense................. (16)
------
Income (loss) before income
taxes.......................... (683)
Provision for (benefit from)
income taxes................... 38
------
Net income (loss)................ (721)
======
Net income (loss) per share --
basic.......................... $(1.93)
======
Net income (loss) per share --
diluted........................ $(1.93)
======
Number of shares used in
computing per share
amounts -- basic............... 373
======
Number of shares used in
computing per share
amounts -- diluted............. 373
======
</TABLE>
See accompanying Notes to VERITAS Unaudited Pro Forma Combined Condensed
Financial Statements.
209
<PAGE> 219
VERITAS UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
VERITAS
VERITAS PRO FORMA
THREE MONTHS INCLUDING SEAGATE
ENDED SEAGATE YEAR ENDED
MARCH 31, PRO FORMA MARCH 31,
2000 ADJUSTMENTS 2000
------------ ----------- -----------------
<S> <C> <C> <C>
Net revenue:
User license fees....................................... $ 204 $ -- $ 204
Services................................................ 40 -- 40
------ ---- ------
Total net revenue.................................... 244 -- 244
Cost of revenue:
User license fees....................................... 12 -- 12
Services................................................ 18 -- 18
Amortization of developed technology.................... 15 -- 15
------ ---- ------
Total cost of revenue................................ 45 -- 45
------ ---- ------
Gross profit.............................................. 199 199
Operating expenses:
Selling and marketing................................... 87 -- 87
Research and development................................ 35 -- 35
General and administrative.............................. 15 -- 15
Amortization of goodwill and other intangibles.......... 220 -- 220
------ ---- ------
Total operating expenses............................. 357 -- 357
------ ---- ------
Income (loss) from operations............................. (158) -- (158)
Interest and other income, net............................ 11 7 (h) 18
Interest expense.......................................... (7) -- (7)
------ ---- ------
Income (loss) before income taxes......................... (154) 7 (147)
Provision for (benefit from) income taxes................. 20 3 (h) 23
------ ---- ------
Net income (loss)......................................... $ (174) $ 4 $ (170)
====== ==== ======
Net income (loss) per share -- basic...................... $(0.44) $(0.44)
====== ======
Net income (loss) per share -- diluted.................... $(0.44) $(0.44)
====== ======
Number of shares used in computing per share
amounts -- basic........................................ 394 (10)(q) 384
====== ==== ======
Number of shares used in computing per share
amounts -- diluted...................................... 394 (10)(q) 384
====== ==== ======
</TABLE>
See accompanying Notes to VERITAS Unaudited Pro Forma Combined Condensed
Financial Statements.
210
<PAGE> 220
VERITAS UNAUDITED PRO FORMA COMBINED
CONDENSED BALANCE SHEET
(IN MILLIONS)
<TABLE>
<CAPTION>
VERITAS
PRO
FORMA
VERITAS SEAGATE COMBINED
MARCH 31, MARCH 31, PRO FORMA MARCH 31,
2000 2000 ADJUSTMENTS 2000
--------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents................................. $ 341 $1,766 $ (923)(i) $1,184
Short-term investments.................................... 511 -- -- 511
Accounts receivable....................................... 126 -- -- 126
Other current assets...................................... 43 224 -- 267
------ ------ -------- ------
Total current assets.................................. 1,021 1,990 (923) 2,088
Long-term investments....................................... 49 -- -- 49
Investment in VERITAS stock................................. -- 1,191 (1,191)(j) --
Property and equipment, net................................. 88 -- -- 88
Goodwill and other intangibles, net......................... 2,991 15 (15)(k) 2,991
Other non-current assets.................................... 8 545 29(k) 582
------ ------ -------- ------
Total assets.......................................... $4,157 $3,741 $ (2,100) $5,798
====== ====== ======== ======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.......................................... 33 -- 50(l) 83
Payable to Seagate stockholders........................... -- 224 -- 224
Accrued liabilities....................................... 99 343 -- 442
Customer advances......................................... 7 -- -- 7
Deferred revenue.......................................... 124 -- -- 124
------ ------ -------- ------
Total current liabilities............................. 263 567 50 880
Convertible subordinated notes.............................. 455 -- -- 455
Deferred income taxes and other non-current liabilities..... 145 762 (434)(m) 473
Stockholders' equity:
Common stock and additional paid-in capital............... 4,004 1,637 (1,637)(n) 4,700
11,647(o)
(10,951)(p)
Accumulated deficit....................................... (707) 493 (493)(n) (707)
Accumulated other comprehensive loss...................... (3) 282 (282)(n) (3)
------ ------ -------- ------
Total stockholders' equity............................ 3,294 2,412 (1,716) 3,990
------ ------ -------- ------
Total liabilities and stockholders' equity............ $4,157 $3,741 $ (2,100) $5,798
====== ====== ======== ======
</TABLE>
See accompanying Notes to VERITAS Unaudited Pro Forma Combined Condensed
Financial Statements.
211
<PAGE> 221
NOTES TO VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRO FORMA PRESENTATION
SEAGATE TRANSACTION
The VERITAS unaudited pro forma combined condensed consolidated financial
statements reflect the issuance of 118.2 million shares of VERITAS common stock
and $923 million of cash for all of the outstanding common stock of Seagate,
immediately after the sale of all of the operating assets and liabilities of
Seagate to Suez Acquisition Company. The effect of the transactions is that
VERITAS is not acquiring any business of Seagate but is acquiring only certain
assets and assuming only certain liabilities of Seagate which are held by
Seagate after the sale of the operating assets and liabilities to Suez
Acquisition Company. The assets of Seagate being acquired by VERITAS include
VERITAS common stock obtained by Seagate Software, a subsidiary of Seagate, upon
the acquisition by VERITAS of NSMG in May 1999, equity securities of Gadzoox
Networks, SanDisk Corporation, Veeco Instruments and Dragon Systems, and cash
and cash equivalents, all of which are referred to as the designated assets.
The actual number of shares of VERITAS stock to be issued will depend on
the actual number of shares of the equity securities of the four enterprises
held by Seagate at closing, the market value of the four equity securities
immediately prior to closing, the amount of cash VERITAS elects to have Seagate
retain and the market value of VERITAS' common stock immediately prior to
closing. The amount of cash to be paid to the Seagate shareholders will be equal
to Seagate's cash at closing, which will include the net proceeds received and
retained by Seagate in connection with the sale of its operating assets and
liabilities to Suez Acquisition Company, after transferring approximately $775
million in cash, subject to upward adjustment, to Suez Acquisition Company and
less the cash VERITAS may elect to have Seagate retain in exchange for
additional shares of VERITAS common stock. The VERITAS unaudited pro forma
combined condensed consolidated financial statements have been based on amounts
as of March 31, 2000 for both VERITAS and Seagate and assume that VERITAS will
elect to have Seagate retain $500 million in cash immediately prior to the
closing. For purposes of these pro forma statements, all calculations have been
made using the closing market price as of May 3, 2000 of VERITAS' common stock
and the equity securities of the four enterprises.
In addition, the Seagate shareholders have the right to receive the value
of certain tax refunds claimed and credits utilized by VERITAS that are
attributable to Seagate and relate to periods ending on or prior to the
effective time of the transaction and, in certain instances, net proceeds
realized upon the sale by Seagate of its shares in one of its equity
investments. A tax refund of $224 million has been reflected in the VERITAS
unaudited pro forma combined condensed consolidated financial statements as a
payable to the Seagate stockholders.
The cash and equity securities obtained by VERITAS has been reflected in
the VERITAS unaudited pro forma combined condensed consolidated balance sheet at
their respective estimated fair values. The equity securities include an
estimated discount from market value to reflect the selling restrictions and the
large block of stock owned by VERITAS. The estimated fair value of the equity
securities for accounting purposes is preliminary and will depend upon the
results of an independent valuation to be subsequently performed. VERITAS does
not currently have sufficient information to assign
212
<PAGE> 222
NOTES TO VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
a value to the tax indemnification from Suez Acquisition Company which will be
subject to a subsequent valuation and is, therefore, subject to change. The
VERITAS unaudited pro forma combined condensed consolidated balance sheet give
effect to the proposed merger of Dragon Systems, Inc with Lernout & Hauspie
announced on March 28, 2000. The acquisition of the VERITAS common stock held by
Seagate Software has been treated by VERITAS as a treasury stock transaction,
and amounts in excess of par value have been reflected as a reduction in
additional paid-in capital.
NSMG, TeleBackup and NuView acquisitions
NSMG acquisition
The VERITAS unaudited pro forma combined condensed financial statements
reflect the contribution of assets and liabilities of NSMG and the issuance of
155,583,486 shares of VERITAS common stock which was based on the average
closing price of VERITAS common stock of $20.26 per share for 5 days before and
after June 7, 1999, the measurement date for the transaction. In addition,
VERITAS issued options to purchase 15,626,358 shares of its common stock to its
employees who were former NSMG employees. The value of the options issued by
VERITAS in exchange for the Seagate Software options was determined by
estimating their fair value as of May 28, 1999 using the Black-Scholes option
pricing model with the following weighted average assumptions:
- risk free interest rate of 5.15%;
- dividend yield of 0.0%;
- expected option life of 0.5 years for vested options;
- expected option life of 3.0 years for unvested options; and
- volatility factor of the expected market price of VERITAS common stock of
0.65.
The NSMG acquisition has been accounted for under the purchase method of
accounting.
TeleBackup acquisition
The VERITAS unaudited pro forma combined condensed financial statements
also reflect the issuance of 6,842,795 shares for the outstanding equity
interest of TeleBackup based on the capitalization of VERITAS and TeleBackup as
of June 1, 1999 and the average closing price of VERITAS common stock of $19.60
per share for 5 days before and after June 1, 1999, the closing date of the
transaction. In addition, VERITAS exchanged options to purchase 154,706 shares
of its common stock to its employees who were former employees of TeleBackup.
The value of the options issued by VERITAS in the exchange for the TeleBackup
options, was determined by estimating their fair value as of June 1, 1999 using
the Black-Scholes option pricing model with the following weighted average
assumptions:
- risk-free interest rate of 5.15%;
- dividend yield of 0.0%;
- expected option life of 0.5 years; and
- volatility factor of the expected market price of VERITAS common stock of
0.65.
213
<PAGE> 223
NOTES TO VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
The TeleBackup acquisition has been accounted for under the purchase method
of accounting.
NuView acquisition
The VERITAS unaudited pro forma combined condensed financial statements
reflect the acquisition of certain assets of NuView and the issuance of
1,435,525 shares of VERITAS common stock which was based on the average closing
price of VERITAS common stock of $33.25 per share. In addition, VERITAS issued
options to purchase 57,076 shares of its common stock to its employees who were
former employees of NuView. In the acquisition cost, VERITAS assumed only a
portion of the value of the unvested options issued. The value of the unvested
options issued by VERITAS in exchange for the NuView unvested options was
determined by estimating their fair value as of August 10, 1999 using the
Black-Scholes option pricing model with the following weighted average
assumptions:
- risk free interest rate of 6.46%;
- dividend yield of 0.0%;
- expected option life of 2.5 years for unvested options; and
- volatility factor of the expected market price of VERITAS common stock of
.58.
The NuView acquisition has been accounted for under the purchase method of
accounting.
The VERITAS unaudited pro forma combined condensed financial statements
have been prepared on the basis of assumptions relating to the allocation of the
amount of consideration paid, to the assets and liabilities of NSMG, TeleBackup
and NuView based
214
<PAGE> 224
NOTES TO VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
on estimates of their fair value. Below is a table of the acquisition cost,
purchase price allocation and annual amortization of the intangible assets
acquired, in thousands:
NSMG
<TABLE>
<CAPTION>
ANNUAL
AMORTIZATION AMORTIZATION
LIFE OF INTANGIBLES
------------ --------------
<S> <C> <C> <C>
Acquisition cost
Value of securities issued
Common stock................... $3,151,350
Stock options.................. 269,741
Acquisition costs................. 43,381
----------
Total acquisition cost....... $3,464,472
==========
Purchase price allocation
Tangible net liabilities
assumed........................ $ (952)
Intangible assets acquired
Distribution channel/OEM
agreements................... 257,200 4 $ 64,300
Developed technology........... 233,700 4 58,425
Trademark/assembled
workforce/other
intangibles.................. 37,110 4 9,278
In-process research and
development.................. 101,200
Goodwill....................... 3,015,733 4 753,933
Deferred tax liabilities....... (179,519)
---------- --------
Total........................ $3,464,472 $885,936
========== ========
</TABLE>
215
<PAGE> 225
NOTES TO VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
TELEBACKUP
<TABLE>
<CAPTION>
ANNUAL
AMORTIZATION AMORTIZATION
LIFE OF INTANGIBLES
------------ --------------
<S> <C> <C> <C>
Acquisition cost
Value of securities issued
Common stock................ $134,100
Stock options............... 2,762
Acquisition costs.............. 6,200
--------
Total acquisition cost.... $143,062
========
Purchase price allocation
Tangible net liabilities
assumed..................... $ (243)
Intangible assets acquired
Distribution channel/OEM
agreements................ 3,100 4 $ 775
Developed technology........ 6,600 4 1,650
Trademark/assembled
workforce................. 1,630 4 407
In-process research and
development............... 1,900
Goodwill.................... 133,107 4 33,277
Deferred tax liabilities.... (3,032)
-------- -------
Total..................... $143,062 $36,109
======== =======
</TABLE>
NUVIEW
<TABLE>
<CAPTION>
ANNUAL
AMORTIZATION AMORTIZATION
LIFE OF INTANGIBLES
------------ --------------
<S> <C> <C> <C>
Acquisition cost
Value of securities issued
Cash........................ $ 19,200
Common stock................ 47,732
Stock options............... 796
Acquisition costs.............. 150
--------
Total acquisition cost.... $ 67,878
========
Purchase price allocation
Tangible net assets acquired... $ 39
Intangible assets acquired
Developed technology........ 2,400 4 $ 600
Trademark/assembled
workforce/other
intangibles............... 1,750 4 437
In-process research and
development............... 1,100
Goodwill.................... 62,589 4 15,647
-------- -------
Total..................... $ 67,878 $16,684
======== =======
</TABLE>
Tangible net liabilities of the NSMG business assumed principally include
accounts payable, accrued compensation and other current liabilities. Assets
acquired principally include cash, accounts receivable, fixed assets and other
current assets.
216
<PAGE> 226
NOTES TO VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
Tangible net liabilities of TeleBackup assumed principally include accounts
payable and other current liabilities. Assets acquired principally include cash
and fixed assets.
Tangible net assets acquired from NuView include principally property and
equipment.
The value of the distribution channels and original equipment manufacturer
agreements was determined by considering, among other factors, the size of the
current and potential future customer bases, the quality of existing
relationships with customers, the historical costs to develop customer
relationships, the expected income and associated risks. Associated risks
included the inherent difficulties and uncertainties in transitioning the
business relationships from the acquired entity to VERITAS and risks related to
the viability of and potential changes to future target markets.
To determine the value of the developed technology, the expected future
cash flows attributable to all existing technology was discounted, taking into
account risks related to the characteristics and applications of the technology,
existing and future markets, and assessments of the life cycle stage of the
technology. The analysis resulted in a valuation for developed technology which
had reached technological feasibility and therefore was capitalizable. The
developed technology is being amortized on the straight-line basis over its
estimated useful life of four years which is expected to exceed the ratio of
current revenues to the total of current and anticipated revenues.
The value of trademarks was determined by considering, among other factors,
the assumption that in lieu of ownership of a trademark, a company would be
willing to pay a royalty in order to exploit the related benefits of such
trademark.
The value of the assembled workforce was derived by estimating the costs to
replace the existing employees, including recruiting, hiring, and training costs
for each category of employee.
The value allocated to projects identified as in-process research and
development of the NSMG business, TeleBackup and NuView was charged to expense
in 1999 but has not been reflected in the VERITAS unaudited pro forma combined
condensed statements of operations as it is non-recurring in nature.
The write-offs were necessary because the acquired in-process research and
development had not yet reached technological feasibility and had no future
alternative uses. VERITAS expects that the acquired in-process research and
development will be successfully developed, but these products may not achieve
commercial viability.
The nature of the efforts required to develop the purchased in-process
research and development into commercially viable products principally relate to
the completion of all planning, designing, prototyping, verification and testing
activities that are necessary to establish that the product can be produced to
meet its design specifications, including functions, features and technical
performance requirements.
The value of the purchased in-process research and development was
determined by estimating the projected net cash flows related to the products,
including costs to complete the development of the technology and the future
revenues to be earned upon commercialization of the products. These cash flows
were then discounted back to their
217
<PAGE> 227
NOTES TO VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
net present value. The projected net cash flows from the projects were based on
management's estimates of revenues and operating profits related to the
projects.
The total charge for in-process research and technology was estimated to be
$101.2 million, for the NSMG acquisition, completed in May 1999. Seven
in-process research and development projects were identified and valued, with
two projects under the data protection product group that accounted for
approximately 71% of the value assigned to in-process research and development.
The data protection software products provide backup and restore functions,
including scheduled automated unattended data backup operations. The remaining
products identified and valued were under the application solutions and
replication product groups. The application solutions software provides
scaleable solution for managing the behavior of different types of networks
worldwide from one central location and the replication software products
deliver flexible and intelligent data replication for Windows NT environments.
Costs to complete all of the NSMG in-process research and development projects
were estimated to be $6.0 million. At the date of acquisition, the development
of all products ranged from 48% to 90% complete and averaged approximately 76%
complete, with expected completion dates through December 1999. At March 31,
2000 the completion and release of some products have been delayed through May
2000. We do not expect the delays to have any significant impacts on our return
on investments, results of operations or financial position. At March 31, 2000,
we estimate approximately $1.5 million to complete the development of the
in-process research and development projects acquired from NSMG. All in-process
research and development projects related to the TeleBackup and NuView
acquisitions were individually insignificant and were completed or abandoned as
of March 31, 2000.
Goodwill is determined based on the residual difference between the amount
paid and the values assigned to identified tangible and intangible assets.
2. PRO FORMA NET LOSS PER SHARE
The VERITAS unaudited pro forma combined condensed statements of operations
have been prepared as if the NSMG, TeleBackup and NuView acquisitions and the
Seagate merger had occurred at the beginning of the periods presented. The pro
forma basic and diluted net loss per share are based on the weighted average
number of shares of VERITAS common stock outstanding during each period and the
number of shares of VERITAS common stock issued in connection with the NSMG,
TeleBackup and NuView acquisitions and the number of shares to be issued in the
Seagate transaction based on amount as of March 31, 2000, less the amount of
VERITAS treasury shares acquired in the Seagate transaction. The effect of stock
options and other potential common securities have not been included in the
computation of pro forma diluted net loss per share because their effect would
be antidilutive.
3. CONVERSION OF TELEBACKUP TO U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
AND US$
The financial statements for TeleBackup which were prepared in accordance
with Canadian generally accepted accounting principles have been conformed to
U.S. generally accepted accounting principles for purposes of including them in
the VERITAS unaudited
218
<PAGE> 228
NOTES TO VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
3. CONVERSION OF TELEBACKUP TO U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
AND US$ (CONTINUED)
pro forma combined condensed financial statements. None of the adjustments
necessary to conform the TeleBackup financial statements to U.S. generally
accepted accounting principles were material to either the historical financial
statements of TeleBackup or the VERITAS unaudited pro forma combined condensed
financial statements. The balance sheet and statements of operations for
TeleBackup were translated to U.S. dollars using average exchange rates for the
VERITAS unaudited pro forma combined condensed statements of operations and
period-end and historical exchange rates for the VERITAS unaudited pro forma
combined condensed balance sheet, as applicable.
4. PRO FORMA ADJUSTMENTS
(a) To eliminate the effect of the intercompany transactions between
VERITAS and TeleBackup.
(b) To reflect amortization of goodwill, distribution channel/original
equipment manufacturer agreements, developed technology and trademark/assembled
workforce/other intangibles related to the NSMG acquisition for the period from
January 1, 1999 to May 28, 1999, the closing date of the transaction.
(c) To reflect amortization of goodwill, distribution channel/original
equipment manufacturer agreements, developed technology, and trademark/assembled
workforce related to the TeleBackup acquisition for the period from January 1,
1999 to June 1, 1999, the closing date of the transaction.
(d) To reflect amortization of goodwill, developed technology,
trademark/assembled workforce/other intangibles related to the NuView
acquisition for the period from January 1, 1999 to August 10, 1999, the closing
date of the transaction.
(e) To reflect the elimination of NSMG's amortization of developed
technology, goodwill and other intangibles.
(f) To eliminate the non-recurring in-process research and development
charges related to the NSMG, TeleBackup and NuView acquisitions and the
restructuring charge related to the NSMG acquisition.
(g) To adjust to the tax provision for VERITAS based upon pro forma losses
incurred.
(h) To reflect the interest income on the assumed $500 million that VERITAS
elects to retain in Seagate and the related tax provision on this interest
income.
(i) Cash to be distributed to former Seagate stockholders.
(j) Elimination of Seagate's investment in VERITAS shares of common stock.
(k) To adjust the investments in Gadzoox Networks, SanDisk Corporation,
Veeco Instruments and Lernout & Hauspie (proposed merger with Dragon Systems) to
their estimated fair value. Such estimated fair value is preliminary and will
depend upon the results of an independent valuation. VERITAS does not currently
have sufficient information to assign a value to the tax indemnification from
Suez Acquisition Company
219
<PAGE> 229
NOTES TO VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
4. PRO FORMA ADJUSTMENTS (CONTINUED)
which will also be subject to a subsequent valuation and is, therefore, subject
to change.
(l) Estimated transaction costs are $50 million and will be paid at the of
closing or shortly thereafter.
(m) To eliminate the deferred taxes liabilities associated with the
investment in VERITAS and adjust the deferred taxes liabilities associated with
the investments in Gadzoox Networks, SanDisk Corporation, Veeco Instruments and
Lernout & Hauspie (proposed merger with Dragon Systems).
(n) To eliminate all equity accounts of Seagate.
(o) To record the 118.2 million shares to be issued by VERITAS to the
former Seagate stockholders.
(p) To record the 128.1 million shares of VERITAS treasury stock acquired
in the transaction.
(q) To reflect the difference between the 128.1 million shares of VERITAS
treasury stock acquired in the transaction less an estimated 118.2 million
shares of VERITAS to be issued to the Seagate stockholders.
220
<PAGE> 230
COMPARISON OF RIGHTS OF HOLDERS OF
SEAGATE COMMON STOCK AND
VERITAS COMMON STOCK
The following is a summary of certain differences between the rights of
holders of Seagate common stock and holders of VERITAS common stock. While we
believe that the description covers the material differences, this summary may
not contain all of the information that is important to holders of Seagate
common stock who will receive VERITAS common stock in connection with the
merger. Seagate stockholders should read the following summary and the other
documents referred to carefully for a more complete understanding of the
differences between the rights of holders of Seagate common stock and holders of
VERITAS common stock.
The rights of holders of Seagate common stock with respect to such stock
are governed by the certificate of incorporation and bylaws of Seagate, each as
currently in effect, and the General Corporation Law of the State of Delaware.
At the effective time of the merger, all outstanding shares of Seagate common
stock will be converted into the right to receive the consideration described in
this document, including shares of VERITAS common stock. As a result, at the
effective time of the merger, Seagate stockholders will become VERITAS
stockholders. As VERITAS stockholders, the rights of former holders of Seagate
common stock who acquire shares of VERITAS common stock will be governed by the
certificate of incorporation and bylaws of VERITAS, each as in effect as of the
effective time of the merger, and the General Corporation Law of the State of
Delaware.
APPLICABLE STATE CORPORATE LAW
Both Seagate and VERITAS are incorporated under the laws of the State of
Delaware and is governed by the General Corporation Law of the State of
Delaware. As a result, from and after the effect time of the merger, the rights
of former holders of Seagate common stock who acquire shares of VERITAS common
stock in connection with the merger will continue to be governed by the General
Corporation Law of the State of Delaware.
CERTIFICATES OF INCORPORATION AND BYLAWS
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Seagate has two classes of authorized capital stock, designated "common
stock" and "preferred stock," each with a par value of $0.01 per share. Seagate
is authorized to issue 600,000,000 shares of common stock and, as of March 31,
2000, there were 227,222,348 shares of common stock outstanding. Seagate is
authorized to issue 1,000,000 shares of preferred stock, with any rights that
the board of directors of Seagate may determine. However, there are no shares of
Seagate preferred stock outstanding.
VERITAS has three classes of authorized capital stock, designated "Common
Stock" and "Preferred Stock," each with a par value of $0.001 per share, and
"Special Voting Stock" with a par value of $1.00 per share. VERITAS is
authorized to issue 2,000,000,000 shares of common stock and, as of April 30,
2000, there were 398,670,619 shares of common stock outstanding. VERITAS is
authorized to issue 10,000,000 shares of preferred stock, with any rights the
board of directors of VERITAS may determine. However, there are no shares of
VERITAS preferred stock outstanding. Further, VERITAS is authorized
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to issue one share of special voting stock, which is currently outstanding and
held by a trustee.
VOTING RIGHTS
Except with respect to the election of directors, holders of Seagate common
stock are entitled to one vote on all matters submitted to Seagate stockholders
for their approval for each share of common stock held. Holders of Seagate
common stock are entitled to cumulate votes for the election of directors. In
other words, with respect to the election of directors, each holder of Seagate
common stock is entitled to that number of votes which is equal to the total
number of shares of Seagate common stock held, multiplied by the number of
directors being elected. The foregoing votes may be allocated by each Seagate
stockholder in any manner, including for a single director, or for two or more
directors, at the discretion of each such Seagate stockholder.
Holders of VERITAS common stock are also entitled to one vote on all
matters submitted to VERITAS stockholders for their approval for each share
held. However, holders of VERITAS common stock are not entitled to cumulate
votes for the election of directors. The holder of VERITAS' special voting
stock, who is entitled to one vote for each share of non-voting stock issued by
one of VERITAS' subsidiaries and not held by VERITAS (1,973,999 shares as of
March 24, 2000), votes together with holders of VERITAS common stock on all
matters submitted to VERITAS stockholders for their approval.
BOARD OF DIRECTORS
Board Size
Under the certificate of incorporation of Seagate, the size of Seagate's
board of directors is determined by Seagate's bylaws. Currently, Seagate's
bylaws provide that the board of directors of Seagate will consist of seven
directors. The size of Seagate's board of directors may only be changed by
amending either the certificate of incorporation or bylaws of Seagate. However,
because Seagate's board of directors is authorized to amend Seagate's bylaws,
the board of directors may change the size of the board of directors without the
approval of Seagate stockholders.
Under the certificate of incorporation of VERITAS, the size of VERITAS'
board of directors is determined by resolution of the board of directors.
Currently, VERITAS' board of directors consists of 10 directors, and there are
two vacant seats. The size of VERITAS' board of directors may only be changed by
a resolution of the board of directors itself.
Board Classification
The board of directors of Seagate is not classified into groups.
Accordingly, all seven directors are elected at each successive annual meeting
of Seagate stockholders. The board of directors of VERITAS, however, is
classified into three groups. Each group of directors consists of an equal
number of directors to the extent possible, each holding office for a period of
three years. Thus, approximately a third of the members of the VERITAS' board of
directors are elected at each successive annual meeting of VERITAS stockholders.
Board Vacancies
Under the bylaws of Seagate, any vacancy on Seagate's board of directors,
whether resulting from the death, resignation or removal of a director or an
increase in the size of
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the board of directors, may be filled only by the remaining members of the board
of directors (even if less than a quorum), or the sole remaining director. In
the event that a director resigns as of a future date, the vacancy created by
the resignation of such director may be filled by a vote of the board of
directors including the resigning director.
Under the certificate of incorporation of VERITAS, any vacancy on VERITAS'
board of directors, whether from the death, resignation or removal of a director
or an increase in the size of the board of directors, may also be filled only by
the remaining members of the board of directors (even if less than a quorum), or
the sole remaining director. Any director so elected will hold office until the
expiration of the term of the director group to which such director was
appointed, provided that each such director will be appointed to the director
group with the longest remaining term to the extent consistent with the even
apportionment of directors among director groups.
Removal of Directors
Under the bylaws of Seagate, any member of Seagate's board of directors, or
the entire board of directors, may be removed with or without cause by the
holders of a majority of the outstanding shares of Seagate capital stock
entitled to vote generally for the election of directors. Notwithstanding the
foregoing, if less than the entire board of directors is removed, no director
may be removed if the votes cast against his or her removal would be sufficient
to elect such director if voted cumulatively.
Under the certificate of incorporation of VERITAS, members of the board of
directors, or the entire board of directors, may only be removed for cause and
only by the holders of at least two-thirds of the voting power of VERITAS'
outstanding capital stock entitled to vote generally for the election of VERITAS
directors, voting together as a single class.
STOCKHOLDER ACTION BY WRITTEN CONSENT
Under the Seagate bylaws, Seagate stockholders may take formal action at a
meeting of Seagate stockholders duly called and held in accordance with the
Seagate bylaws and applicable law, or pursuant to a written consent signed by
Seagate stockholders holding at least that number of shares of Seagate capital
stock that would be required to authorize or take such action at a meeting of
Seagate stockholders at which all shares of Seagate capital stock entitled to
vote on such action were present and voted.
Under the certificate of incorporation of VERITAS, the VERITAS stockholders
may only take formal action at a meeting of VERITAS stockholders duly called and
held in accordance with the VERITAS bylaws and applicable law, and may not take
action by written consent.
ABILITY TO CALL SPECIAL MEETINGS
Under the bylaws of Seagate, a special meeting of Seagate stockholders may
be called by the board of directors of Seagate, the chairman of the board of
directors, Seagate's president, or the holders of at least 10% of the
outstanding shares of Seagate capital stock entitled to vote at the meeting. If
any person or group of persons other than the Seagate board of directors desires
to call a special meeting of Seagate stockholders, the person or group must give
timely notice to the Secretary of Seagate. Such notice is timely made only if
delivered to Seagate's principal executive offices at least 90 days, but not
more than 120 days, before the date of the proposed special meeting. The
foregoing notice must also contain detailed information regarding the proposed
purpose for the special meeting and, if
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directors are to be elected at the special meeting, detailed information
regarding nominees for election to the board of directors.
Under the bylaws of VERITAS, a special meeting of VERITAS stockholders may
be called only by a majority of the members of the board of directors, the
chairman of the board of directors or the chief executive officer of VERITAS.
ADVANCE NOTICE PROVISIONS FOR STOCKHOLDER NOMINATIONS AND PROPOSALS
Under the bylaws of Seagate, stockholder proposals (and nominations of
directors) will not be considered at any meeting of Seagate stockholders unless
timely made. Stockholder proposals (and nominations of directors) are timely
made only if delivered to Seagate's principal executive offices at least 120
days before the date of the then current year corresponding to the date of
Seagate's proxy statement delivered to its stockholders in connection with the
previous annual meeting of Seagate stockholders. If no annual meeting of Seagate
stockholders was held during the previous year or if the date of the annual
meeting of Seagate stockholders during the previous year was changed by more
than 30 days from the date contemplated by Seagate's proxy statement delivered
to its stockholders in connection with such meeting, then stockholder proposals
are timely made only if delivered to Seagate's principal executive offices by
the later of 120 days in advance of such annual meeting or 10 days following the
date on which such annual meeting is first publicly announced. In addition,
valid stockholder proposals (or nominations of directors) must contain detailed
information regarding the proposal and, if nominations of directors are made,
detailed information regarding nominees for election to the board of directors.
Under the bylaws of VERITAS, stockholder proposals (and nominations of
directors) will not be considered at any annual meeting of VERITAS stockholders
unless timely made. Stockholder proposals (and nominations of directors) are
timely made only if delivered to the VERITAS' principal executive offices at
least 60 days, but not more than 90 days, before the first anniversary of the
prior year's annual meeting of VERITAS stockholders. Notwithstanding the
foregoing, if the annual meeting of VERITAS stockholders is more than 30 days
before or more than 60 days after such anniversary date, stockholder proposals
(and nominations for directors) are timely made only if they are delivered to
VERITAS' principal executive offices at least 60 days, but not more than 90
days, prior to such annual meeting or 10 days following the date on which such
annual meeting is first publicly announced. In addition, valid stockholder
proposals (or nominations of directors) must contain detailed information
regarding the proposal and, if nominations of directors are made, detailed
information regarding nominees for election to the board of directors.
In addition to the foregoing, under the VERITAS bylaws, if the size of
VERITAS' board of directors is to be increased and VERITAS fails to publicly
announce the board increase or the nominees for director on the increased board
at least 70 days before the first anniversary of the preceding year's annual
meeting of VERITAS stockholders (or, if such annual meeting is to be held more
than 30 days before, or 60 days after, such anniversary date, at least 70 days
before the date of such annual meeting), then stockholder nominations of
directors for any new vacancies created by the increased board are timely made
if delivered to VERITAS' principal executive offices no later than 10 days
following the date on which the increase in the size of the board of directors
is first publicly announced.
The bylaws of VERITAS also provide that the only business that may be
conducted at a special meeting of VERITAS stockholders is such business as is
set forth in the
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notice of the special meeting, provided that, if a special meeting of VERITAS
stockholders is validly called and the board of directors determines that
directors will be elected at the special meeting, then stockholder nominations
of directors for such election will be accepted, but only if timely made. Such
nominations will be timely only if delivered to VERITAS' principal executive
offices at least 60 days, but not more than 90 days, prior to such special
meeting or no later than 10 days after the date on which such special meeting is
announced.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS
Under Seagate's certificate of incorporation, Seagate has reserved the
right to amend, alter, change or repeal any provision of its certificate of
incorporation in accordance with applicable provisions of the General
Corporation Law of the State of Delaware, which generally require the
affirmative vote of the holders of a majority of outstanding capital stock
entitled to vote to approve an amendment to a certificate of incorporation.
Under Seagate's certificate of incorporation, the board of directors of Seagate
is authorized to make, alter, amend or repeal any bylaws of Seagate.
Under VERITAS' certificate of incorporation, VERITAS has reserved the right
to amend, alter, change or repeal any provision of its certificate of
incorporation in accordance with applicable provisions of the General
Corporation Law of the State of Delaware, which generally require the
affirmative vote of the holders of a majority of outstanding capital stock
entitled to vote to approve an amendment to a certificate of incorporation.
However, the certificate of incorporation of VERITAS also requires the holders
of at least two-thirds of the voting power of all outstanding capital stock of
VERITAS entitled to vote generally in the election of directors, voting together
as a single class, to adopt any provision which is inconsistent with the
provisions of VERITAS' certificate of incorporation relating to directors, the
ability of VERITAS' board of directors and stockholders to amend the bylaws of
VERITAS, the prohibition on the ability of VERITAS stockholders to act by
written consent, and amendments to VERITAS' certificate of incorporation. Under
VERITAS' certificate of incorporation, the board of directors and the
stockholders of VERITAS are authorized to make, alter, amend or repeal any
bylaws of VERITAS. However, the certificate of incorporation also provides that
the VERITAS stockholders may amend the bylaws only with the affirmative vote of
the holders of two-thirds of the voting power of all outstanding capital stock
of VERITAS entitled to vote for the election of directors generally, voting
together as a single class.
LIMITATION OF LIABILITY OF DIRECTORS
The General Corporation Law of the State of Delaware permits a corporation
to include a provision in its certificate of incorporation or bylaws enabling
the corporation to limit or eliminate the personal liability of its directors to
the corporation or its stockholders for damages arising out of a breach of the
directors' fiduciary duties, subject to certain limitations.
Under the certificate of incorporation of Seagate, the personal liability
of Seagate's directors to Seagate and its stockholders, for monetary damages
arising out of a breach of the directors' fiduciary duties as a director, has
been expressly eliminated to the fullest extent permitted by the General
Corporation Law of the State of Delaware.
Under the certificate of incorporation of VERITAS, the personal liability
of VERITAS' directors to VERITAS and its stockholders, for monetary damages
arising out of a breach of the directors' fiduciary duties as a director, also
has been expressly
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eliminated to the fullest extent permitted by the General Corporation Law of the
State of Delaware. In addition, VERITAS' certificate of incorporation provides
that if the General Corporation Law of the State of Delaware is amended to
authorize the further elimination or limitation of the liability of a director,
then the liability of VERITAS' directors will be eliminated or limited to the
fullest extent permitted by the General Corporation Law of the State of Delaware
as so amended.
While these provisions provide the directors of Seagate and VERITAS with
protection against awards for monetary damages arising out of a breach of
fiduciary duties, they do not eliminate the duty itself. Accordingly, these
provisions will have no effect on the availability of equitable remedies such as
an injunction or rescission based upon a director's breach of his or her
fiduciary duties.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The General Corporation Law of the State of Delaware permits a corporation
to indemnify its directors, officers, employees and agents for any liability
arising out of an action or threatened action, other than an action by or in the
right of the corporation, to which such person is a party due to his or her
service as a director, officer, employee or agent, provided that such person
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, which he or she had no reason to believe was unlawful. The
General Corporation Law of the State of Delaware permits a corporation to
indemnify its directors, officers, employees and agents for any liability
arising out of an action or threatened action by or in the right of the
corporation to which such person is a party due to his or her service as a
director, officer, employee or agent, provided that such person 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, except that there may be no such
indemnification if the person is found liable to the corporation unless, in such
a case, the court determines that the person is entitled to indemnification.
Under Seagate's bylaws, Seagate must indemnify any person who is or was a
director, officer, employee or agent of Seagate for any expenses, judgments and
fines actually incurred and amounts paid in settlement in connection with any
third party action, suit or other proceeding (other than a suit by or in the
right of Seagate) to the fullest extent permitted by the General Corporation Law
of the State of Delaware. Under Seagate's bylaws, Seagate must also indemnify
any person who is or was a director, officer, employee or agent of Seagate for
expenses actually and reasonably incurred in connection with the defense or
settlement of any action, suit or other proceeding by or in the right of Seagate
to the fullest extent permitted by the General Corporation Law of the State of
Delaware. In the later case, however, Seagate is not required to indemnify any
person who is adjudicated to be liable to Seagate unless otherwise required by a
court of competent jurisdiction. To the extent that Seagate is required to
indemnify a person for expenses in accordance with the foregoing, Seagate's
bylaws require Seagate to advance such expenses to a person entitled to
indemnification during a proceeding if the person provides Seagate with an
undertaking to repay such expenses if it is ultimately determined that the
person is not entitled to indemnification under Seagate's bylaws. The
indemnification provisions of Seagate's bylaws are not exclusive of any other
rights that a person may have under any bylaws, agreements between Seagate and
such person, or vote of Seagate stockholders or disinterested directors or
otherwise.
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Under VERITAS' bylaws, VERITAS must indemnify any person who is or was a
director or officer of VERITAS (or any predecessor of VERITAS) for any expenses,
liabilities and losses reasonably incurred in connection with any action, suit
or proceeding to the fullest extent permitted by the General Corporation Law of
the State of Delaware. Notwithstanding the foregoing, VERITAS is required to
indemnify the foregoing persons only if the actions taken by a person and giving
rise to such action, suit or proceeding were authorized by VERITAS' board of
directors. To the extent that VERITAS is required to indemnify a person for
expenses in accordance with the foregoing, VERITAS is also required to advance
expenses during a proceeding if the person provides VERITAS with an undertaking
to repay such expenses if it is ultimately determined that such person is not
entitled to indemnification under VERITAS' bylaws. Notwithstanding the
foregoing, VERITAS is not required to advance expenses to any person against
whom VERITAS brings a claim alleging that such person has breached his or her
fiduciary duty of loyalty to VERITAS, committed an act or omission not in good
faith or that involves intentional misconduct or a knowing violation of the law,
or derived an improper personal benefit.
DELAWARE ANTITAKEOVER LAWS
Seagate and VERITAS are each subject to the provisions of Section 203 of
the General Corporation Law of the State of Delaware. Under certain
circumstances, the provisions of Section 203 may make the consummation of
various business transactions by "interested stockholders," as defined in
Section 203, with either Seagate or VERITAS more difficult for a three-year
period following the time that a stockholder becomes an "interested
stockholder." Under Section 203, a corporation may waive the protective
provisions of Section 203 in its certificate of incorporation or bylaws.
However, neither Seagate nor VERITAS has so waived the provisions of Section
203.
ADDITIONAL INFORMATION REGARDING SEAGATE
In addition to the financial information contained in this document, you
can find additional information about Seagate in the reports, proxy and
information statements and other documents filed by Seagate with the Securities
and Exchange Commission. For more information on how you can obtain copies of
these filings, see "Where You Can Find Additional Information" beginning on page
227 of this document.
ADDITIONAL INFORMATION REGARDING VERITAS
In addition to the financial information contained in this document, you
can find additional information about VERITAS in the reports, proxy and
information statements and other documents filed by VERITAS with the Securities
and Exchange Commission. For more information on how you can obtain copies of
these filings, see "Where You Can Find Additional Information" beginning on page
227 of this document.
OTHER STOCKHOLDER PROPOSALS
PROPOSALS BY SEAGATE STOCKHOLDERS
If the merger is consummated, there will be no public stockholders of
Seagate and no public participation in any future meetings of stockholders of
Seagate. However, if the merger is not consummated, Seagate's public
stockholders will continue to be entitled to attend and participate in meetings
of Seagate's stockholders.
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If the merger is not consummated, the next annual meeting of Seagate
stockholders is expected to be held on or about October 26, 2000. In the event
that the merger is not completed, any Seagate stockholder that wishes Seagate to
consider a proposal for inclusion in its proxy statement for the 2000 annual
meeting of Seagate stockholders must deliver a copy of such proposal to the
Secretary of Seagate at its principal executive offices located at 920 Disc
Drive, Scotts Valley, California 95066 no later than May 28, 2000. If any
Seagate stockholder intends to present a proposal at the 2000 annual meeting of
Seagate stockholders, but does not intend to submit the proposal for inclusion
in the Seagate proxy statement relating to the annual meeting, such stockholder
must deliver a copy of the proposal to the Secretary of Seagate at its principal
executive offices listed above no later than August 8, 2000. If, however, the
date of the 2000 annual meeting of Seagate stockholders is more than 30 days
before or after October 26, 2000, delivery of the proposal will be timely if
received by Seagate not later than the close of business on the later of the
120th calendar day in advance of the 2000 annual meeting of Seagate stockholders
or the 10th calendar day following the day Seagate publicly announces the date
of the annual meeting. If Seagate does not receive the proposal within this time
frame, Seagate's management will use its discretionary authority to vote the
shares it represents by proxy as the board of directors may recommend.
PROPOSALS BY VERITAS STOCKHOLDERS
The next annual meeting of VERITAS stockholders is expected to be held on
or about May 11, 2001. Any VERITAS stockholder that wishes VERITAS to consider
including a proposal in its proxy statement for its 2001 annual stockholders
meeting must deliver a copy of such proposal to the Secretary of VERITAS at its
principal executive offices at 1600 Plymouth Street, Mountain View, California
94043 no later than December 11, 2000.
If any VERITAS stockholder intends to present a proposal at its 2001 annual
stockholders meeting, but does not intend to have it included in VERITAS' proxy
statement relating to this meeting, such stockholder must deliver a copy of the
proposal to the Secretary of VERITAS at its principal executive offices listed
above no later than March 11, 2001, and no earlier than February 9, 2001. If,
however, the date of the 2001 annual stockholders meeting is more than 30 days
before or more than 60 days after May 10, 2001, delivery of the proposal will be
timely if received by VERITAS by the close of business not earlier than the 90th
day prior to the 2001 annual stockholders meeting and by the later of the 60th
day prior to this meeting or the 10th day following the day VERITAS publicly
announces the date of this meeting. If VERITAS does not receive the proposal
within this time frame, VERITAS management will use its discretionary authority
to vote the shares it represents by proxy as the board of directors may
recommend.
LEGAL MATTERS
The validity of the shares of VERITAS common stock to be issued in
connection with the merger and offered by this document, and certain of the
United States federal income tax consequences of the merger, will be passed upon
Willkie Farr & Gallagher, legal counsel to VERITAS. Certain of the United States
federal income tax consequences of the merger will also be passed upon Wilson
Sonsini Goodrich & Rosati, Professional Corporation, counsel to Seagate.
Investment partnerships composed of members of and
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persons associated with Wilson Sonsini have committed to make investments in
Silver Lake Partners in the amount of $5 million. These commitments were made
substantially before Wilson Sonsini began advising Seagate regarding the
transactions described herein.
EXPERTS
The consolidated financial statements (including the schedule incorporated
by reference) of Seagate Technology, Inc. at July 2, 1999 and July 3, 1998 and
for each of the three years in the period ended July 2, 1999 appearing in this
document and in the Seagate Technology Annual Report (Form 10-K) for the year
ended July 2, 1999, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and as
set forth in their report included in the Form 10-K and incorporated herein by
reference. Such consolidated financial statements are included herein and
incorporated herein by reference in reliance upon such reports given on the
authority of such firm as experts in accounting and auditing.
The consolidated financial statements and schedule of VERITAS Software
Corporation at December 31, 1999 and 1998, and for each of the three years in
the period ended December 31, 1999 appearing herein have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein. Such consolidated financial statements and schedule are
included herein in reliance upon such report given on the authority of such firm
as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Seagate and VERITAS file reports, proxy and information statements and
other information with the Securities and Exchange Commission. Copies of these
reports, proxy and information statements and other information may be inspected
and copied at the public reference facilities maintained by the Securities and
Exchange Commission at the following locations:
<TABLE>
<S> <C> <C>
Washington, D.C. Chicago, Illinois New York, New York
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
Copies of these reports, proxy and information statements and other
information can also be obtained by mail at prescribed rates from the Public
Reference Section of the Securities and Exchange Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549, or by calling the Securities and Exchange
Commission at 1-800-SEC-0330. The Securities and Exchange Commission also
maintains a website, located at http://www.sec.gov, which contains reports,
proxy and information statements and other information regarding each of Seagate
and VERITAS, including the reports, proxy and information statements and other
information incorporated by reference herein as more fully described below.
VERITAS has filed a registration statement under the Securities Act of
1933, as amended, with the Securities and Exchange Commission with respect to
the shares of VERITAS common stock to be issued to Seagate stockholders in
connection with the merger. This document constitutes the prospectus of VERITAS
filed as part of the registration statement. This document, however, does not
contain all of the information contained in the registration statement because
certain parts have been omitted in
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accordance with the rules and regulations of the Securities and Exchange
Commission. You may inspect and copy the registration statement at any of the
Securities and Exchange Commission locations listed above.
Seagate, VERITAS and Suez Acquisition Company have filed a Schedule 13E-3
under the Securities and Exchange Act of 1934, as amended, in connection with
stock purchase and the merger. You may inspect and copy the Schedule 13E-3 at
any of the Securities and Exchange Commission locations listed above.
ADDITIONAL DOCUMENTS AND OTHER INFORMATION
INCORPORATED BY REFERENCE
INCORPORATION BY REFERENCE OF CERTAIN SEAGATE REPORTS, PROXY AND INFORMATION
STATEMENTS AND OTHER INFORMATION
The rules and regulations of the Securities and Exchange Commission allow
Seagate to incorporate into this document by reference certain reports, proxy
and information statements and other information, which means that important
information may be disclosed to you by Seagate by referring you to another
report, proxy or information statement or other information filed separately by
Seagate with the Securities and Exchange Commission. The reports, proxy and
information statements and other information incorporated into this document by
reference are deemed to be part of this document, except for any information
superseded by information contained in, or incorporated by reference into, this
document. This document hereby incorporates by reference the reports, proxy and
information statements and other information listed below, which have been
previously filed by Seagate with the Securities and Exchange Commission. The
following reports, proxy and information statements and other information
contain information about Seagate and its financial condition, results of
operations and business that are important to you, and we encourage you to read
them carefully in connection with your review of this document.
(1) Annual Report on Form 10-K, filed by Seagate with the Securities and
Exchange Commission on August 25, 1999 to report results for its fiscal
year ended July 2, 1999.
(2) Quarterly Report on Form 10-Q, filed by Seagate with the Securities and
Exchange Commission on October 27, 1999 to report results for its
fiscal quarter ended October 1, 1999.
(3) Quarterly Report on Form 10-Q, filed by Seagate with the Securities and
Exchange Commission on February 3, 2000 to report results for its
fiscal quarter ended December 31, 1999.
(4) Quarterly Report on Form 10-Q, filed by Seagate with the Securities and
Exchange Commission on April 28, 2000 to report results for its fiscal
quarter ended March 31, 2000.
Seagate is also incorporating by reference all additional reports, proxy
and information statements and other information filed by Seagate with the
Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, between the date of this
document and the special meeting of stockholders of Seagate described herein.
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Seagate has supplied all information contained in or incorporated by
reference in this document relating to Seagate.
You may have been sent some of the reports, proxy and information
statements and other information incorporated by reference in this document by
Seagate, but you can also obtain any of them through the Securities and Exchange
Commission at the locations described above, or through Seagate at the following
address:
SEAGATE TECHNOLOGY, INC.
920 Disc Drive
Scotts Valley, California 95066
(831) 438-6550
If you would like to request any reports, proxy and information statements
or other information from Seagate, please do so by , 2000 to
receive them before the special meeting of stockholders of Seagate described
herein.
INCORPORATION BY REFERENCE OF CERTAIN VERITAS REPORTS, PROXY AND INFORMATION
STATEMENTS AND OTHER INFORMATION
The rules and regulations of the Securities and Exchange Commission allow
VERITAS to incorporate into this document by reference certain reports, proxy
and information statements and other information, which means that important
information may be disclosed to you by VERITAS by referring you to another
report, proxy or information statement or other information filed separately by
VERITAS with the Securities and Exchange Commission. The reports, proxy and
information statements and other information incorporated into this document by
reference are deemed to be part of this document, except for any information
superseded by information contained in, or incorporated by reference into, this
document. This document hereby incorporates by reference the reports, proxy and
information statements and other information listed below, which have been
previously filed by VERITAS with the Securities and Exchange Commission. The
following reports, proxy and information statements and other information
contain information about VERITAS and its financial condition, results of
operations and business that are important to you, and we encourage you to read
them carefully in connection with your review of this document.
(1) Definitive Proxy Statement on Schedule 14A, filed with the Securities and
Exchange Commission on April 23, 1999.
(2) Description of VERITAS' common stock contained in Item 1 of Form 8-A, filed
with the Securities and Exchange Commission on June 2, 1999 (which Item 1
refers to the section "Description of New VERITAS Capital Stock" contained
in VERITAS' (formerly named "VERITAS Holding Corporation") Form S-4, filed
with the Securities and Exchange Commission on April 16, 1999) and any
amendments or reports filed for the purpose of updating such description.
(3) Annual Report on Form 10-K, filed by VERITAS with the Securities and
Exchange Commission on March 30, 2000, to report results for its fiscal year
ended December 31, 1999.
(4) Current Report on Form 8-K, filed by VERITAS with the Securities and
Exchange Commission on January 28, 2000.
(5) Current Report on Form 8-K, filed by VERITAS with the Securities and
Exchange Commission on April 5, 2000.
231
<PAGE> 241
(6) Proxy Statement filed by VERITAS with the Securities and Exchange Commission
on April 6, 2000.
(7) Current Report on Form 8-K, filed by VERITAS with the Securities and
Exchange Commission on April 20, 2000.
(8) Quarterly Report on Form 10-Q, filed by VERITAS with the Securities and
Exchange Commission on May 12, 2000, to report results for its fiscal
quarter ended March 31, 2000.
VERITAS is also incorporating by reference all additional reports, proxy
and information statements and other information filed by VERITAS with the
Securities and Exchange Commission under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934, as amended, between the date of this joint
proxy statement/ prospectus and the special meeting of stockholders of VERITAS
described herein.
VERITAS has supplied all information contained in or incorporated by
reference in this document relating to VERITAS.
You may have been sent some of the reports, proxy and information
statements and other information incorporated by reference in this document by
VERITAS, but you can also obtain any of them through the Securities and Exchange
Commission at the locations described above, or through VERITAS at the following
address:
VERITAS SOFTWARE CORPORATION
1600 Plymouth Drive
Mountain View, California 94043
(650) 335-8000
If you would like to request any reports, proxy statements or other
information from VERITAS, please do so by , 2000 to receive them
before the special meeting of stockholders of VERITAS described herein.
CAUTIONARY STATEMENT REGARDING INFORMATION
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS
This document does not constitute an offer to sell, or a solicitation of an
offer to purchase, the VERITAS common stock or the solicitation of a proxy in
any jurisdiction to or from any person to whom or from whom it is unlawful to
make the offer, solicitation of an offer or proxy solicitation in that
jurisdiction. Neither the delivery of this document nor any distribution of
securities means, under any circumstances, that there has been no change in the
information set forth or incorporated in this document by reference or in the
affairs of Seagate or VERITAS since the date of this document.
The information contained in this document with respect to Suez Acquisition
Company was provided by Suez Acquisition Company.
232
<PAGE> 242
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SEAGATE TECHNOLOGY, INC. -- For Years Ended June 30, 1999,
1998 and 1997 (audited)
Report of Ernst & Young LLP, Independent Auditors......... F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Operation...................... F-4
Consolidated Statements of Stockholders' Equity........... F-5
Consolidated Statements of Cash Flows..................... F-6
Notes to Consolidated Financial Statements................ F-7
SEAGATE TECHNOLOGY, INC. -- For the Nine Months Ended March
31, 2000 and April 2, 1999 (unaudited)
Consolidated Condensed Balance Sheets at March 31, 2000
and July 2, 1999....................................... F-47
Consolidated Condensed Statements of Operations
Three and nine months ended March 31, 2000 and April 2,
1999................................................... F-48
Consolidated Condensed Statements of Cash Flows
Nine months ended March 31, 2000 and April 2, 1999..... F-49
Notes to Consolidated Condensed Financial Statements...... F-50
VERITAS SOFTWARE CORPORATION -- CONSOLIDATED FINANCIAL
STATEMENTS
Report of Ernst & Young LLP, Independent Auditors...... F-61
Consolidated Balance Sheets
As of December 31, 1999 and 1998..................... F-62
Consolidated Statements of Operations
Years Ended December 31, 1999, 1998 and 1997......... F-63
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997......... F-64
Consolidated Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997......... F-65
Notes to Consolidated Financial Statements............. F-66
Schedule II -- Valuation and Qualifying Accounts....... F-86
VERITAS SOFTWARE CORPORATION -- CONDENSED FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheet as of March 31,
2000.................................................. F-87
Consolidated Condensed Statements of Operations for the
Three Months Ended March 31, 2000 and 1999............ F-88
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended March 31, 2000 and 1999............ F-89
Notes to Consolidated Condensed Financial Statements... F-90
</TABLE>
F-1
<PAGE> 243
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Seagate Technology, Inc.
We have audited the accompanying consolidated balance sheets of Seagate
Technology, Inc. as of July 2, 1999 and July 3, 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended July 2, 1999. These consolidated
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Seagate Technology, Inc. at July 2, 1999 and July 3, 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended July 2, 1999, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
Ernst & Young LLP
San Jose, California
July 15, 1999, except for the Subsequent Events note,
as to which the date is August 17, 1999.
F-2
<PAGE> 244
SEAGATE TECHNOLOGY
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JULY 2, JULY 3,
1999 1998
------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 396 $ 666
Short-term investments...................................... 1,227 1,161
Accounts receivable, net.................................... 872 799
Inventories................................................. 451 508
Deferred income taxes....................................... 252 243
Other current assets........................................ 114 238
------ ------
Total Current Assets................................... 3,312 3,615
------ ------
Property, equipment and leasehold improvements, net......... 1,687 1,669
Investment in VERITAS Software, net......................... 1,745 --
Goodwill and other intangibles, net......................... 144 169
Other assets................................................ 184 192
------ ------
Total Assets........................................... $7,072 $5,645
====== ======
LIABILITIES
Accounts payable............................................ $ 714 $ 577
Accrued employee compensation............................... 205 175
Accrued expenses............................................ 414 405
Accrued warranty............................................ 163 197
Accrued income taxes........................................ 43 20
Current portion of long-term debt........................... 1 1
------ ------
Total Current Liabilities.............................. 1,540 1,375
------ ------
Deferred income taxes....................................... 1,103 435
Accrued warranty............................................ 126 161
Other liabilities........................................... 37 33
Long-term debt, less current portion........................ 703 704
------ ------
Total Liabilities...................................... 3,509 2,708
------ ------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value -- 1,000,000 shares
authorized; none issued or outstanding.................... -- --
Common stock, $.01 par value -- 600,000,000 shares
authorized; shares issued 251,890,019 in 1999 and 1998.... 3 3
Additional paid-in capital.................................. 1,991 1,929
Retained earnings........................................... 2,355 1,298
Accumulated other comprehensive income (loss)............... (7) --
Deferred compensation....................................... (43) (55)
Treasury common stock at cost; 23,172,130 shares in 1999 and
7,132,867 shares in 1998.................................. (736) (238)
------ ------
Total Stockholders' Equity............................. 3,563 2,937
------ ------
Total Liabilities and Stockholders' Equity............. $7,072 $5,645
====== ======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 245
SEAGATE TECHNOLOGY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------
JULY 2, JULY 3, JUNE 27,
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Revenue............................................ $6,802 $6,819 $8,940
Cost of sales...................................... 5,250 5,830 6,918
Product development................................ 581 585 459
Marketing and administrative....................... 534 502 493
Amortization of goodwill and other intangibles..... 39 40 50
In-process research and development................ 2 223 3
Restructuring...................................... 60 347 (7)
Unusual items...................................... 78 (22) 166
------ ------ ------
Total Operating Expenses......................... 6,544 7,505 8,082
------ ------ ------
Income (Loss) from Operations.................... 258 (686) 858
Interest income.................................... 102 98 92
Interest expense................................... (48) (51) (35)
Gain on contribution of NSMG to VERITAS, net....... 1,670 -- --
Activity related to equity interest in VERITAS..... (119) -- --
Other, net......................................... 10 (65) (24)
------ ------ ------
Other Income (Expense), net...................... 1,615 (18) 33
Income (loss) before income taxes.................. 1,873 (704) 891
Benefit (provision) for income taxes............... (697) 174 (233)
------ ------ ------
Net Income (Loss)................................ $1,176 $ (530) $ 658
====== ====== ======
Net income (loss) per share:
Basic............................................ $ 4.94 $(2.17) $ 2.82
Diluted.......................................... 4.53 (2.17) 2.62
Number of shares used in per share computations:
Basic............................................ 237.9 243.6 233.6
Diluted.......................................... 243.1 243.6 257.9
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 246
SEAGATE TECHNOLOGY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
FOR THE YEARS ENDED COMMON STOCK ADDITIONAL OTHER TREASURY
JULY 2, 1999, JULY 3, --------------- PAID-IN RETAINED COMPREHENSIVE DEFERRED COMMON
1998, AND JUNE 27, 1997 SHARES AMOUNT CAPITAL EARNINGS INCOME COMPENSATION STOCK TOTAL
----------------------- ------ ------ ---------- -------- ------------- ------------ -------- ------
IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 28, 1996............. 213 $2 $1,133 $1,390 $(1) $(58) $ -- $2,466
Comprehensive income
Net income......................... 658 658
Unrealized gain on marketable
securities....................... 1 1
Foreign currency translation....... -- --
------
Comprehensive income............... 659
Purchase of treasury stock at cost... (582) (582)
Sale of stock........................ 4 42 (71) 113 84
Issuance of restricted stock, net of
cancellations...................... 7 (7) (7) 7 --
Amortization of deferred
compensation....................... 8 8
Income tax benefit from stock options
exercised.......................... 52 52
Conversion of debentures to common
stock.............................. 35 1 669 (24) 143 789
--- -- ------ ------ --- ---- ----- ------
Balance at June 27, 1997............. 252 3 1,903 1,946 -- (57) (319) 3,476
Comprehensive income
Net loss........................... (530) (530)
Unrealized gain on marketable
securities....................... 1 1
Foreign currency translation....... (1) (1)
------
Comprehensive income (loss)........ (530)
Purchase of treasury stock at cost... (105) (105)
Sale of stock........................ (98) 166 68
Issuance of restricted stock, net of
cancellations...................... 6 (20) (6) 20 --
Amortization of deferred
compensation....................... 8 8
Income tax benefit from stock options
exercised.......................... 12 12
Other stock-based compensation....... 8 8
--- -- ------ ------ --- ---- ----- ------
Balance at July 3, 1998.............. 252 3 1,929 1,298 -- (55) (238) 2,937
Comprehensive income
Net income......................... 1,176 1,176
Unrealized gain on marketable
securities....................... (6) (6)
Foreign currency translation....... (1) (1)
------
Comprehensive income............... 1,169
Purchase of treasury stock at cost... (859) (859)
Sale of stock........................ (106) 204 98
Issuance of restricted stock, net of
cancellations...................... (2) (6) 2 6 --
Amortization of deferred
compensation....................... 10 10
Income tax benefit from stock options
exercised.......................... 26 26
Other stock-based compensation....... 38 (7) 151 182
--- -- ------ ------ --- ---- ----- ------
Balance at July 2, 1999.............. 252 $3 $1,991 $2,355 $(7) $(43) $(736) $3,563
=== == ====== ====== === ==== ===== ======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 247
SEAGATE TECHNOLOGY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------
JULY 2, JULY 3, JUNE 27,
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $ 1,176 $ (530) $ 658
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 696 664 607
Deferred income taxes.................................. 661 (33) 96
In-process research and development.................... 2 223 3
Non-cash portion of restructuring charge............... 35 203 --
Activity related to equity interest in VERITAS......... 119 -- --
Gain on contribution of NSMG to VERITAS, net........... (1,670) -- --
Amstrad litigation charge.............................. -- -- 153
Other, net............................................. 36 41 79
Changes in operating assets and liabilities:
Accounts receivable.................................. (114) 242 30
Inventories.......................................... 29 213 (84)
Accounts payable..................................... 104 (278) 169
Accrued expenses, employee compensation and
warranty.......................................... (124) (262) (63)
Accrued income taxes................................. 52 (37) 72
Other assets and liabilities......................... 198 54 160
------- ------- -------
Net cash provided by operating activities................. 1,200 500 1,880
INVESTING ACTIVITIES
Acquisition of property, equipment and leasehold
improvements, net......................................... (603) (709) (941)
Purchases of short-term investments......................... (6,596) (4,810) (4,473)
Maturities and sales of short-term investments.............. 6,519 4,889 3,907
Acquisitions of businesses, net of cash acquired............ -- (204) --
Equity investments.......................................... (5) (27) (44)
Other, net.................................................. (21) 13 19
------- ------- -------
Net cash used in investing activities..................... (706) (848) (1,532)
FINANCING ACTIVITIES
Issuance of long-term debt.................................. -- -- 699
Repayment of long-term debt................................. -- (1) (8)
Sale of common stock........................................ 98 67 84
Purchase of treasury stock.................................. (859) (105) (582)
------- ------- -------
Net cash provided by (used in) financing activities....... (761) (39) 193
Effect of exchange rate changes on cash and cash
equivalents............................................... (3) 6 2
------- ------- -------
Increase (decrease) in cash and cash equivalents.......... (270) (381) 543
Cash and cash equivalents at the beginning of the year...... 666 1,047 504
------- ------- -------
Cash and cash equivalents at the end of the year............ $ 396 $ 666 $ 1,047
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 248
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations -- Seagate Technology, Inc. (the "Company" or
"Seagate") designs, manufactures and markets products for storage, retrieval and
management of data on computer and data communications systems. The Company has
three operating segments, disc drives, software and tape drives, however, only
the disc drive and software businesses are reportable segments under the
criteria of SFAS No. 131. The Company sells its products to original equipment
manufacturers ("OEM") for inclusion in their computer systems or subsystems, and
to distributors who typically sell to small OEMs, dealers, system integrators
and other resellers.
Accounting Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ materially from
those estimates.
The actual results with regard to warranty expenditures could have a
material unfavorable impact on the Company if the actual rate of unit failure or
the cost to repair a unit is greater than what the Company has used in
estimating the warranty expense accrual.
The actual results with regard to restructuring charges could have a
material unfavorable impact on the Company if the actual expenditures to
implement the restructuring plan are greater than what the Company estimated
when establishing the restructuring accrual.
Given the volatility of the markets in which the Company participates, the
Company makes adjustments to the value of inventory based on estimates of
potentially excess and obsolete inventory after considering forecasted demand
and forecasted average selling prices. However, forecasts are subject to
revisions, cancellations, and rescheduling. Actual demand will inevitably differ
from such anticipated demand, and such differences may have a material effect on
the financial statements.
Basis of Consolidation -- The consolidated financial statements include the
accounts of the Company and its wholly-owned and majority-owned subsidiaries
after eliminations. Total outstanding minority interests are not material for
any period presented.
The Company operates and reports financial results on a fiscal year of 52
or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 1999
ended on July 2, 1999, fiscal 1998 ended on July 3, 1998 and fiscal 1997 ended
on June 27, 1997. Fiscal year 1999 comprised 52 weeks, fiscal year 1998
comprised 53 weeks and fiscal year 1997 comprised 52 weeks. All references to
years in these notes to consolidated financial statements represent fiscal years
unless otherwise noted.
Certain amounts in prior year financial statements and notes thereto have
been reclassified to conform to current year presentation.
Foreign Currency Translation -- The U.S. dollar is the functional currency
for most of the Company's foreign operations. Gains and losses on the
translation into U.S. dollars of amounts denominated in foreign currencies are
included in net income for those operations
F-7
<PAGE> 249
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
whose functional currency is the U.S. dollar and as a separate component of
stockholders' equity for those operations whose functional currency is the local
currency.
Derivative Financial Instruments -- Seagate transacts business in various
foreign countries. Its primary currency cash flows are in emerging market
countries in Asia and in certain European countries. During 1998 and 1997,
Seagate employed a foreign currency hedging program utilizing foreign currency
forward exchange contracts and purchased currency options to hedge local
currency cash flows for payroll, inventory, other operating expenditures and
fixed asset purchases in Singapore, Thailand, and Malaysia. These local currency
cash flows were designated as either firm commitments or as anticipated
transactions depending upon the contractual or legal nature of local currency
commitments in Singapore, Thailand, Malaysia and Northern Ireland. Anticipated
transactions were hedged with purchased currency options and with foreign
currency forward exchange contracts; firm commitments were hedged with foreign
currency forward exchange contracts.
The Company may enter into foreign currency forward exchange and option
contracts to manage exposure related to certain foreign currency commitments,
certain foreign currency denominated balance sheet positions and anticipated
foreign currency denominated expenditures. The Company does not enter into
derivative financial instruments for trading purposes. Foreign currency forward
exchange contracts designated and effective as hedges of firm commitments and
option contracts designated and effective as hedges of firm commitments or
anticipated transactions are treated as hedges for accounting purposes. Gains
and losses related to qualified accounting hedges of firm commitments or
anticipated transactions are deferred and are recognized in income or as
adjustments to the carrying amounts when the hedged transaction occurs. All
other foreign currency forward exchange contracts are marked-to-market and
unrealized gains and losses are included in current period net income as a
component of other income (expense).
Premiums on foreign currency option contracts used to hedge firm
commitments and anticipated transactions are amortized on a straight-line basis
over the life of the contract. Forward points on foreign currency forward
exchange contracts which qualify as hedges of firm commitments are recognized in
income as adjustments to the carrying amount when the hedged transaction occurs.
The Company may, from time to time, adjust its foreign currency hedging
position by taking out additional contracts or by terminating or offsetting
existing foreign currency forward exchange and option contracts. These
adjustments may result from changes in the Company's underlying foreign currency
exposures or from fundamental shifts in the economics of particular exchange
rates, as occurred in the first and second quarters of fiscal 1998 with respect
to the Thai baht, Malaysian ringgit and Singapore dollar. For foreign currency
forward exchange and option contracts qualifying as accounting hedges, gains or
losses on terminated contracts and offsetting contracts are deferred and are
recognized in income as adjustments to the carrying amount of the hedged item in
the period the hedged transaction occurs. For foreign currency forward exchange
and option contracts not qualifying as accounting hedges, gains and losses on
terminated contracts, or on contracts that are offset, are recognized in income
in the period of contract termination or offset.
F-8
<PAGE> 250
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition and Product Warranty -- Revenue from sales of products
is generally recognized upon shipment to customers. The Company warrants its
products against defects in design, materials and workmanship generally for
three to five years depending upon the capacity category of the disc drive, with
the higher capacity products being warranted for the longer periods. A provision
for estimated future costs relating to warranty expense is recorded when
products are shipped.
The Company's software revenue is primarily derived from the sale of
product licenses, software maintenance, technical support, training and
consulting. During the first quarter of fiscal 1999, the Company began
recognizing license revenue in accordance with the American Institute of
Certified Public Accountant's Statement of Position 97-2, "Software Revenue
Recognition." Revenue from software license agreements is primarily recognized
at the time of product delivery, provided that fees are fixed or determinable,
evidence of an arrangement exists, collectibility is probable and the Company
has vendor-specific objective evidence of fair value. Revenue from resellers,
including VARs, OEMs and distributors, are primarily recognized at the time of
product delivery to the reseller. The Company's policy is to defer such revenue
if resale contingencies exist. Some of the factors that are considered to
determine the existence of such contingencies include payment terms,
collectibility and past history with the customer. Product returns are reserved
for in accordance with SFAS 48. Such returns are estimated based on historical
return rates. The Company considers other factors such as fixed and determinable
fees, resale contingencies, arms length contract terms and the ability to
reasonably estimate returns to ensure compliance with SFAS 48. Service revenue
from customer maintenance fees for ongoing customer support and product updates
is recognized ratably over the maintenance term, which is typically 12 months.
Service revenue from training and consulting is recognized when such services
are performed.
Inventory -- Inventories are valued at the lower of standard cost (which
approximates actual cost using the first-in, first-out method) or market.
Property, Equipment, and Leasehold Improvements -- Land, equipment,
buildings and leasehold improvements are stated at cost. Equipment and buildings
are depreciated using the straight-line method over the estimated useful lives
of the assets. Leasehold improvements are amortized using the straight-line
method over the shorter of the estimated life of the asset or the remaining term
of the lease.
Advertising Expense -- The cost of advertising is expensed as incurred.
Advertising costs were $56 million, $68 million and $41 million in 1999, 1998
and 1997, respectively.
Stock-Based Compensation -- The Company accounts for employee stock-based
compensation under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APBO 25") and related interpretations. Pro forma
net income and net income per share are disclosures required by Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") and are included in the Stock-Based Benefit
Plans -- Pro Forma Information note to the consolidated financial statements.
Impact of Recently Issued Accounting Standards -- In June 1997, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130
F-9
<PAGE> 251
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS 130 is effective for fiscal years beginning after December 15,
1997 and was adopted by the Company for its fiscal 1999. The adoption of SFAS
130 did not have a material impact on the Company's financial statements.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures About Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 131 replaces Statement of Financial Accounting
Standards No. 14 and changes the way public companies report segment
information. SFAS 131 is effective for fiscal years beginning after December 15,
1997 and was adopted by the Company for its fiscal 1999 which commenced July 4,
1998. The adoption of SFAS 131 did not have a material impact on the Company's
financial statements.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that derivatives
be recognized in the balance sheet at fair value and specifies the accounting
for changes in fair value. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999 and will be adopted by the Company
for its fiscal year 2000. The Company is in the process of assessing the impact
of this pronouncement on its financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance on capitalization of the costs incurred for computer software developed
or obtained for internal use. It also provides guidance for determining whether
computer software is internal-use software and on accounting for the proceeds of
computer software originally developed or obtained for internal use and then
subsequently sold to the public. SOP 98-1 will be effective for Seagate's fiscal
year ending June 30, 2000. The Company is in the process of assessing the impact
of this pronouncement on its financial statements.
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions. SOP 98-9
amends SOP 97-2 Software Revenue Recognition to require recognition of revenue
using the "residual method" when certain criteria are met. Seagate Technology
will be required to implement these provisions of SOP 98-9 for its fiscal year
ending June 30, 2000. SOP 98-9 also amends SOP 98-4, an earlier amendment to SOP
97-2, which extended the deferral of the application of certain passages of SOP
97-2 provided by SOP 98-4. The Company is in the process of assessing the impact
of this pronouncement on its financial statements.
Cash, Cash Equivalents and Short-Term Investments -- The Company considers
all highly liquid investments with a remaining maturity of 90 days or less at
the time of purchase to be cash equivalents. Cash equivalents are carried at
cost, which approximates fair value. The Company's short-term investments
primarily comprise readily marketable debt securities with remaining maturities
of more than 90 days at the time of purchase. The Company has classified its
entire investment portfolio as available-for-sale. Available-
F-10
<PAGE> 252
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for-sale securities are classified as cash equivalents or short-term investments
and are stated at fair value with unrealized gains and losses included in
stockholders' equity. The amortized cost of debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity. Such
amortization and accretion are included in interest income. Realized gains and
losses are included in other income (expense). The cost of securities sold is
based on the specific identification method.
Concentration of Credit Risk -- The Company's customer base for disc drive
products is concentrated with a small number of systems manufacturers and
distributors. Financial instruments which potentially subject the Company to
concentrations of credit risk are primarily accounts receivable, cash
equivalents and short-term investments. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. The allowance for noncollection of accounts
receivable is based upon the expected collectibility of all accounts receivable.
The Company places its cash equivalents and short-term investments in investment
grade, short-term debt instruments and limits the amount of credit exposure to
any one commercial issuer.
FINANCIAL INSTRUMENTS
The following is a summary of the fair value of available-for-sale
securities at July 2, 1999 and July 3, 1998:
<TABLE>
<CAPTION>
JULY 2, JULY 3,
1999 1998
------- -------
IN MILLIONS
<S> <C> <C>
Money market mutual funds................................... $ 74 $ 71
U.S. government and agency obligations...................... 310 398
Repurchase agreements....................................... -- 81
Auction rate preferred stock................................ 222 167
Municipal bonds............................................. 109 102
Corporate securities........................................ 514 612
Mortgage-backed and asset-backed securities................. 300 152
Euro time deposits.......................................... 48 149
------ ------
$1,577 $1,732
====== ======
Included in short-term investments.......................... $1,227 $1,161
Included in cash and cash equivalents....................... 350 571
------ ------
$1,577 $1,732
====== ======
</TABLE>
The fair value of all available-for-sale securities approximates amortized
cost. Gross realized and unrealized gains and losses on the sale of
available-for-sale securities were not material for each of the three years in
the period ended July 2, 1999.
F-11
<PAGE> 253
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The fair value of the Company's investment in debt securities, by
contractual maturity, is as follows:
<TABLE>
<CAPTION>
JULY 2, JULY 3,
1999 1998
------- -------
IN MILLIONS
<S> <C> <C>
Due in less than 1 year..................................... $ 486 $ 771
Due in 1 to 3 years......................................... 794 723
------ ------
$1,280 $1,494
====== ======
</TABLE>
Fair Value Disclosures -- The carrying value of cash and cash equivalents
approximates fair value. The fair values of short-term investments, notes,
debentures (see Long-Term Debt and Lines of Credit footnote) and foreign
currency forward exchange and option contracts are estimated based on quoted
market prices.
The carrying values and fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
JULY 2, JULY 3,
1999 1998
--------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
IN MILLIONS
<S> <C> <C> <C> <C>
Cash and cash equivalents................. $ 396 $ 396 $ 666 $ 666
Short-term investments.................... 1,227 1,227 1,161 1,161
7.125% senior notes, due 2004............. (200) (194) (200) (199)
7.37% senior notes, due 2007.............. (200) (189) (200) (198)
7.45% senior debentures, due 2037......... (200) (188) (200) (198)
7.875% senior debentures, due 2017........ (100) (92) (100) (98)
Italian Lira debentures, 14.65% to
15.25%.................................. -- -- (1) (1)
Foreign currency forward exchange and
option contracts........................ -- -- (18) (18)
</TABLE>
Derivative Financial Instruments -- The Company may enter into foreign
currency forward exchange and option contracts to manage exposure related to
certain foreign currency commitments, certain foreign currency denominated
balance sheet positions and anticipated foreign currency denominated
expenditures. The Company does not enter into derivative financial instruments
for trading purposes. Based on uncertainty in the Southeast Asian foreign
currency markets, beginning in the second quarter of 1998 the Company
temporarily suspended its hedging program. At July 3, 1998, the Company had
effectively closed out all of its foreign currency forward exchange contracts by
purchasing offsetting contracts. As of July 2, 1999, the Company had no
outstanding foreign currency forward exchange or purchased currency option
contracts.
Net foreign currency transaction losses included in the determination of
net income (loss) were $1 million, $252 million and $2 million for 1999, 1998,
and 1997, respectively. The Company transacts business in various foreign
countries. Its primary foreign currency cash flows are in emerging market
countries in Asia and in certain European countries. During 1998 and 1997, the
Company employed a foreign currency hedging program
F-12
<PAGE> 254
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
utilizing foreign currency forward exchange contracts and purchased currency
options to hedge local currency cash flows for payroll, inventory, other
operating expenditures and fixed asset purchases in Singapore, Thailand and
Malaysia. During fiscal 1998 the Singapore dollar, Thai baht, and Malaysian
ringgit declined in value relative to the U.S. dollar. The transaction loss of
$252 million for fiscal 1998 primarily included losses incurred on closing out
these foreign currency forward exchange contracts.
ACCOUNTS RECEIVABLE
Accounts receivable are summarized below:
<TABLE>
<CAPTION>
1999 1998
---- ----
IN MILLIONS
<S> <C> <C>
Accounts receivable......................................... $925 $853
Less allowance for noncollection............................ (53) (54)
---- ----
$872 $799
==== ====
</TABLE>
INVENTORIES
Inventories are summarized below:
<TABLE>
<CAPTION>
1999 1998
---- ----
IN MILLIONS
<S> <C> <C>
Components.................................................. $143 $172
Work-in-process............................................. 54 87
Finished goods.............................................. 254 249
---- ----
$451 $508
==== ====
</TABLE>
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED USEFUL LIFE 1999 1998
------------------------ ------- -------
IN MILLIONS
<S> <C> <C> <C>
Land.................................. $ 40 $ 33
Equipment............................. 1 1/2 - 4 years 2,365 2,187
Building and leasehold improvements... Life of lease - 30 years 932 854
Construction in progress.............. 196 168
------- -------
3,533 3,242
Less accumulated depreciation and
amortization........................ (1,846) (1,573)
------- -------
$ 1,687 $ 1,669
======= =======
</TABLE>
Equipment and leasehold improvements include assets under capitalized
leases. Amortization of leasehold improvements is included in depreciation
expense. Depreciation expense was $574 million, $549 million and $451 million in
1999, 1998 and 1997, respectively.
F-13
<PAGE> 255
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GOODWILL AND OTHER INTANGIBLES
Goodwill represents the excess of the purchase price of acquired companies
over the estimated fair value of the tangible and specifically identified
intangible net assets acquired. Other intangible assets consist of trademarks,
assembled workforces, distribution networks, developed technology, customer
bases, and covenants not to compete related to acquisitions accounted for by the
purchase method. Amortization of purchased intangibles, other than acquired
developed technology, is provided on the straight-line basis over the respective
useful lives of the assets ranging from 36 to 60 months for trademarks, 24 to 48
months for assembled workforces and distribution networks, 12 to 36 months for
customer bases and 18 to 24 months for covenants not to compete. In-process
research and development without alternative future use is expensed when
acquired.
In accordance with SFAS 121, the carrying value of other intangibles and
related goodwill is reviewed if the facts and circumstances suggest that they
may be permanently impaired. If this review indicates these assets' carrying
value will not be recoverable, as determined based on the undiscounted net cash
flows of the entity acquired over the remaining amortization period, the
Company's carrying value is reduced to its estimated fair value, first by
reducing goodwill, and second by reducing long-term assets and other intangibles
(generally based on an estimate of discounted future net cash flows). Goodwill
and other intangibles are being amortized on a straight-line basis over periods
ranging from two to fifteen years. Accumulated amortization was $177 million and
$201 million as of July 2, 1999 and July 3, 1998, respectively.
DEVELOPED TECHNOLOGY
The Company applies Statement of Financial Accounting Standards No. 86
("SFAS 86"), "Accounting for the Costs of Computer Software to Be Sold, Leased,
or Otherwise Marketed," to software technologies developed internally, acquired
in business acquisitions, and purchased.
Internal development costs are included in research and development and are
expensed as incurred. SFAS 86 requires the capitalization of certain internal
development costs once technological feasibility is established, which based on
the Company's development process generally occurs upon the completion of a
working model. As the time period between the completion of a working model and
the general availability of software has been short, capitalization of internal
development costs has not been material to date. Capitalized costs are amortized
based on the greater of the straight-line basis over the estimated product life
(generally 30 to 48 months) or the ratio of current revenue to the total of
current and anticipated future revenue.
Purchased developed technology is amortized based on the greater of the
straight-line basis over the estimated useful life (30 to 48 months) or the
ratio of current revenue to the total of current and anticipated future revenue.
The recoverability of the carrying value of purchased developed technology is
reviewed periodically. The carrying value of developed technology is compared to
the estimated future gross revenue from that product reduced by the estimated
future costs of completing and disposing of that product, including the costs of
performing maintenance and customer support (net undiscounted
F-14
<PAGE> 256
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
cash flows) and to the extent that the carrying value exceeds the undiscounted
cash flows the difference is written off.
LONG-TERM DEBT AND LINES OF CREDIT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
IN MILLIONS
<S> <C> <C>
7.125% senior notes, due 2004............................... $200 $200
7.37% senior notes, due 2007................................ 200 200
7.45% senior debentures, due 2037........................... 200 200
7.875% senior debentures, due 2017.......................... 100 100
Italian lira debentures, 14.65% to 15.25% notes and loans
due through 1999.......................................... -- 1
Capitalized lease obligations with interest at 14% to 19.25%
collateralized by certain manufacturing equipment and
buildings................................................. 4 4
---- ----
704 705
Less current portion........................................ 1 1
---- ----
$703 $704
==== ====
</TABLE>
At July 2, 1999, future minimum principal payments on long-term debt and
capitalized lease obligations were as follows:
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
2000........................................ $ 1
2001........................................ --
2002........................................ 1
2003........................................ 1
2004........................................ 201
After 2004.................................. 500
----
$704
====
</TABLE>
The Company's 7.125% senior notes due 2004, 7.37% senior notes due 2007 and
7.875% senior debentures due 2017 are redeemable at the option of the Company at
any time, at a redemption price equal to the greater of (i) 100% of their
principal amount plus accrued interest or (ii) the sum of the present values of
the remaining scheduled payments of principal and interest discounted to the
date of redemption at a discount rate (the "discount rate") as set forth in the
indenture governing the notes and debentures plus 10 basis points. The Company's
7.45% senior debentures due 2037 are redeemable at the option of the Company at
any time, at a redemption price equal to the greater of (i) 100% of their
principal amount plus accrued interest, (ii) the sum of the present values of
the remaining scheduled payments of principal and interest discounted to the
date of redemption at the discount rate plus 10 basis points, calculated as if
the principal amount were payable in full on March 1, 2009, or (iii) the sum of
the present values of the remaining scheduled payments of principal and interest
discounted to the date of redemption at the discount rate plus 10 basis points.
In addition, the Company's 7.45%
F-15
<PAGE> 257
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
senior debentures due 2037 will be redeemable on March 1, 2009, at the option of
the holders thereof, at 100% of their principal amount, together with interest
payable to the date of redemption. The Company's 7.125% senior notes due 2004,
7.37% senior notes due 2007 and 7.875% senior debentures due 2017 will not be
redeemable at the option of the holders thereof prior to maturity. These
securities were issued in February 1997 in an offering registered under the
Securities Act of 1933, as amended.
As of July 2, 1999, the Company had committed lines of credit of $84
million that can be used for standby letters of credit or bankers' guarantees.
At July 2, 1999, $67 million of these lines of credit were utilized.
NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------
JULY 2, JULY 3, JUNE 27,
1999 1998 1997
------- ------- --------
IN MILLIONS, EXCEPT
PER SHARE DATA
<S> <C> <C> <C>
Basic Net Income (Loss) Per Share Computation
Numerator:
Net income (loss).................................... $1,176 $ (530) $ 658
------ ------ ------
Denominator:
Weighted average number of common shares outstanding
during the period................................. 237.9 243.6 233.6
------ ------ ------
Basic net income (loss) per share...................... $ 4.94 $(2.17) $ 2.82
====== ====== ======
Diluted Net Income (Loss) Per Share Computation
Numerator:
Net income (loss).................................... $1,176 $ (530) $ 658
Add convertible subordinated debentures interest, net
of income tax effect.............................. -- -- 17
Adjustment to net income for dilutive effect of
subsidiary Seagate Software, Inc.'s outstanding
stock options..................................... (75) -- --
------ ------ ------
Total........................................... $1,101 $ (530) $ 675
------ ------ ------
Denominator:
Weighted average number of common shares outstanding
during the period................................. 237.9 243.6 233.6
Incremental common shares attributable to exercise of
outstanding options (assuming proceeds would be
used to purchase treasury stock).................. 5.2 -- 7.4
Incremental common shares attributable to conversion
of convertible subordinated debentures............ -- -- 16.9
------ ------ ------
Total........................................... 243.1 243.6 257.9
------ ------ ------
Diluted net income (loss) per share.................... $ 4.53 $(2.17) $ 2.62
====== ====== ======
</TABLE>
F-16
<PAGE> 258
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Options to purchase 6.2 million, 9.7 million and 1.3 million shares of
common stock were outstanding during 1999, 1998 and 1997, respectively, but were
not included in the computation of diluted net income per share because the
options' exercise price was greater than the average market price of the common
shares and, therefore, the effect would be antidilutive.
EMPLOYEE PROFIT SHARING AND EXECUTIVE BONUS PLANS
The Company allocates a certain percentage of adjusted quarterly pretax
profits to its Employee Profit Sharing Plan which is currently distributed to
employees, excluding officers, employed for the full quarter. The Company also
allocates a certain percentage of adjusted quarterly pretax profits to its
Executive Bonus Plan. Distributions to corporate officers under this plan are
subject to the discretion of the Board of Directors. Charges to operations for
distributions to employees and/or corporate officers under these Plans during
1999, 1998 and 1997 were $27 million, $3 million and $115 million, respectively.
TAX-DEFERRED SAVINGS PLAN
The Company has a tax-deferred savings plan, the Seagate Technology, Inc.
Savings and Investment Plan ("the 40l(k) plan"), for the benefit of qualified
employees. The 40l(k) plan is designed to provide employees with an accumulation
of funds at retirement. Qualified employees may elect to make contributions to
the 401(k) plan on a monthly basis. The Company may make annual contributions to
the 401(k) plan at the discretion of the Board of Directors. During the fiscal
year ended July 2, 1999, the Company made contributions totaling approximately
$14 million to the 401(k) plan. No material contributions were made by the
Company during fiscal years 1998 and 1997.
STOCK-BASED BENEFIT PLANS
Stock Option Plans -- Options granted under the Company's stock option
plans are granted at fair market value, expire ten years from the date of the
grant and generally vest in four equal annual installments, commencing one year
from the date of the grant.
F-17
<PAGE> 259
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Following is a summary of stock option activity for the three years ended
July 2, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
--------- ----------------
SHARES IN MILLIONS
<S> <C> <C>
Balance June 28, 1996................................. 23.7 $16.91
Granted............................................... 6.0 36.31
Exercised............................................. (5.2) 12.15
Canceled.............................................. (2.5) 20.42
-----
Balance June 27, 1997................................. 22.0 22.92
Granted............................................... 18.3 27.10
Exercised............................................. (2.4) 13.34
Canceled.............................................. (11.9) 32.62
-----
Balance July 3, 1998.................................. 26.0 22.30
Granted............................................... 14.1 23.98
Exercised............................................. (4.3) 15.15
Canceled.............................................. (1.9) 25.49
-----
Balance July 2, 1999.................................. 33.9 $23.73
=====
</TABLE>
In fiscal 1998, the Company offered to all optionees below the level of
Senior Vice President, who held options with an exercise price higher than the
prevailing fair market value of the Company's common stock the right to exchange
their options for new options exercisable at such fair market value. In
connection with this transaction, 8.4 million options were exchanged. The number
of options shown as granted and canceled in the above table reflects this
exchange of options. Such options had a weighted average exercise price before
repricing of $34.20 and the new options were granted at a weighted average price
of $24.45.
Options available for grant were 5.0 million at July 2, 1999; 13.6 million
at July 3, 1998; and 5.1 million at June 27, 1997. On October 30, 1997, the
stockholders approved an amendment to the 1991 Incentive Stock Option Plan to
increase the number of shares of common stock reserved for issuance thereunder
by 15 million.
The following table summarizes information about options outstanding at
July 2, 1999.
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
--------------------------------------------- --------------------------
SHARES IN MILLIONS WEIGHTED AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL LIFE AVERAGE NUMBER AVERAGE
EXERCISE PRICES OF SHARES (IN YEARS) EXERCISE PRICE OF SHARES EXERCISE PRICE
- ------------------ --------- ---------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$ .00 - $16.63 3.6 4.42 $10.76 3.6 $10.69
16.82 - 23.88 12.2 8.60 21.85 1.4 21.99
23.94 - 28.94 14.1 8.12 25.37 5.4 24.95
29.00 - 51.50 4.0 8.20 35.48 1.3 35.79
---- ---- ------ ---- ------
$ .00 - $51.50 33.9 7.90 $23.74 11.7 $21.41
</TABLE>
F-18
<PAGE> 260
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On March 4, 1998, the Board of Directors approved the adoption of the 1998
Nonstatutory Stock Option Plan and the reservation of 3.5 million shares of
common stock for issuance thereunder.
Executive Stock Plan -- The Company has an Executive Stock Plan under which
senior executives of the Company are granted the right to purchase shares of the
Company's common stock at $.01 per share. The difference between the fair market
value of the shares on the measurement date and the exercise price is recorded
as deferred compensation and is charged to operations over the vesting period of
five or ten years. The Company has the right to repurchase the restricted stock
from an executive upon his or her voluntary or involuntary termination of
employment with the Company for any reason at the same price paid by the
executive. If an executive voluntarily resigns at or above age 65, the Company
may release from the repurchase option, or if his or her employment terminates
as a result of death, disability, termination by the Company other than for
cause or constructive termination within the two-year period following a change
of control, the Company will release from the repurchase option a pro rata
number of shares based on the number of months that have passed since the grant
date divided by the number of months in the vesting period. The following is a
summary of restricted stock activity under the Executive Stock Plan for the
three years ended July 2, 1999:
<TABLE>
<CAPTION>
RESTRICTED SHARES OUTSTANDING
-----------------------------
SHARES IN THOUSANDS
<S> <C>
Balance June 28, 1996......................... 2,021
Granted..................................... 249
Repurchased................................. (85)
-----
Balance June 27, 1997......................... 2,185
Granted..................................... 454
Repurchased................................. (254)
-----
Balance July 3, 1998.......................... 2,385
Granted..................................... 145
Repurchased................................. (216)
-----
Balance July 2, 1999.......................... 2,314
=====
</TABLE>
At July 2, 1999, 186,000 shares were available for future grants. In
addition, the Company has a Restricted Stock Plan which also has a deferred
compensation component. Under this plan the deferred compensation is amortized
over a period of seven years. There are two employees remaining in the plan and
no shares are available for future grant. The aggregate amount charged to
operations for amortization of deferred compensation under both plans was $10
million, $8 million and $8 million in 1999, 1998 and 1997, respectively.
Stock Purchase Plan -- The Company also maintains an Employee Stock
Purchase Plan. A total of 19,600,000 shares of common stock have been authorized
for issuance under the Purchase Plan. The Purchase Plan permits eligible
employees who have completed thirty days of employment prior to the inception of
the offering period to purchase common stock through payroll deductions
generally at the lower of 85% of the fair market value of the common stock at
the beginning or at the end of each six-month
F-19
<PAGE> 261
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
offering period. Under the plan, 1,604,000; 1,348,000 and 1,054,000 shares of
common stock were issued in 1999, 1998 and 1997, respectively. Common stock
reserved for future issuance under the Company's Employee Stock Purchase Plan
aggregated 5,822,000 shares at July 2, 1999.
Pro Forma Information -- The Company has elected to follow APBO 25 and
related interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
123 requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APBO 25, the Company generally recognized
no compensation expense with respect to such options.
Pro forma information regarding net income and earnings per share is
required by SFAS 123 for stock options granted after June 30, 1995 as if the
Company had accounted for its stock options under the fair value method of SFAS
123. The fair value of the Company's stock options was estimated using a
Black-Scholes option valuation model. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options which have
no vesting restrictions and are fully transferable. In addition, the
Black-Scholes model requires the input of highly subjective assumptions,
including the expected stock price volatility. Because the Company's stock
options granted to employees have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options granted to employees.
The fair value of the Company's stock options granted to employees was
estimated assuming no expected dividends and the following weighted average
assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Stock Option Plan Shares
Expected life (in years)............................ 3.8 3.2 3.5
Risk-free interest rate............................. 5.3% 5.5% 6.2%
Volatility.......................................... .56 .45 .45
Employee Stock Purchase Plan Shares
Expected life (in years)............................ .5 .6 .5
Risk-free interest rate............................. 4.6% 5.5% 5.4%
Volatility.......................................... .80 .63 .46
</TABLE>
The weighted average fair value of stock options granted under the
Company's Stock Option Plans was $11.09, $10.05 and $14.57 per share in 1999,
1998 and 1997, respectively. The weighted average fair value of shares granted
under the Company's Employee Stock Purchase Plan was $10.18, $12.03 and $8.89
per share in 1999, 1998 and 1997, respectively. The weighted average purchase
price of shares granted under the Company's Employee Stock Purchase Plan was
$22.72, $26.99 and $27.95 per share in 1999, 1998 and 1997, respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period (for stock options) and
the six month purchase
F-20
<PAGE> 262
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
period for stock purchases under the Stock Purchase Plan. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -----
IN MILLIONS, EXCEPT
PER SHARE DATA
<S> <C> <C> <C>
Pro forma net income (loss).......................... $1,018 $ (600) $ 610
Pro forma basic net income (loss) per share.......... 4.60 (2.46) 2.61
Pro forma diluted net income (loss) per share........ 4.27 (2.46) 2.45
</TABLE>
The effects on pro forma disclosures of applying SFAS 123 are not likely to
be representative of the effects on pro forma disclosures of future years.
Because SFAS 123 is applicable only to options granted subsequent to June 30,
1995, the pro forma effect was not fully reflected in fiscal years prior to
1999.
INCOME TAXES
The provision for (benefit from) income taxes consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ----- ----
IN MILLIONS
<S> <C> <C> <C>
Current Tax Expense (Benefit)
Federal.............................................. $ 20 $(157) $122
State................................................ 1 -- 6
Foreign.............................................. 15 16 9
---- ----- ----
36 (141) 137
---- ----- ----
Deferred Tax Expense (Benefit)
Federal.............................................. 573 (19) 65
State................................................ 86 (20) 14
Foreign.............................................. 2 6 17
---- ----- ----
661 (33) 96
---- ----- ----
Provision for (Benefit from) Income Taxes.............. $697 $(174) $233
==== ===== ====
</TABLE>
The income tax benefit related to the exercise of stock options reduces
taxes currently payable and is credited to additional paid-in capital. Such
amounts approximated $26 million, $12 million, and $52 million for 1999, 1998
and 1997, respectively.
Income (loss) before income taxes consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- ----
IN MILLIONS
<S> <C> <C> <C>
Federal............................................... $1,547 $(778) $ 41
Foreign............................................... 326 74 850
------ ----- ----
$1,873 $(704) $891
====== ===== ====
</TABLE>
F-21
<PAGE> 263
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Company's deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
JULY 2, JULY 3,
1999 1998
------- -------
IN MILLIONS
<S> <C> <C>
DEFERRED TAX ASSETS
Accrued warranty............................................ $ 114 $ 151
Inventory valuation accounts................................ 31 38
Receivable reserves......................................... 28 29
Accrued compensation and benefits........................... 31 27
Depreciation................................................ 32 37
Restructuring reserves...................................... 17 25
Other reserves and accruals................................. 42 40
Acquisition related items................................... 38 36
Net operating loss and tax credit carry-forwards............ 69 87
Other assets................................................ 3 9
------- -----
Total Deferred Tax Assets.............................. 405 479
Valuation allowance......................................... (56) (82)
------- -----
Net Deferred Tax Assets................................ 349 397
------- -----
DEFERRED TAX LIABILITIES
Unremitted income of foreign subsidiaries................... (558) (549)
Acquisition related items................................... (14) (19)
Deferred gain on VERITAS.................................... (615) --
Other liabilities........................................... (13) (21)
------- -----
Total Deferred Tax Liabilities......................... (1,200) (589)
------- -----
Net Deferred Tax Liabilities........................... $ (851) $(192)
======= =====
AS REPORTED ON THE BALANCE SHEET
Deferred Income Tax Assets.................................. $ 252 $ 243
Deferred Income Tax Liabilities............................. (1,103) (435)
------- -----
Net Deferred Tax Liability............................. $ (851) $(192)
======= =====
</TABLE>
The valuation allowance has been provided for deferred tax assets related
to certain foreign net operating loss carry-forwards, foreign tax credit
carry-forwards and future tax benefits associated with the acquisition of
certain software companies. The valuation allowance decreased in 1999 by $26
million, and increased by $25 million and $20 million in 1998 and 1997,
respectively.
The Company, as of July 2, 1999, has domestic, foreign and state net
operating loss carry-forwards of approximately $40 million, $22 million and $500
million, respectively, expiring in 2003 through 2013 if not used to offset
future taxable income. The Company, as of July 2, 1999, also has tax credit
carry-forwards of approximately $26 million expiring in 2003 through 2013 if not
used to offset future tax liabilities.
F-22
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SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The differences between the provision for (benefit from) income taxes at
the U.S. statutory rate and the effective rate are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ----- ----
IN MILLIONS
<S> <C> <C> <C>
Provision (benefit) at U.S. statutory rate............. $656 $(246) $312
State income tax provision (benefit), net of federal
income tax benefit................................... 72 (15) 19
Benefit from net earnings of foreign subsidiaries
considered to be permanently invested in non-U.S.
operations........................................... (68) -- (97)
Write-off of in-process research and development....... 21 75 --
VERITAS................................................ (10) -- --
Valuation reserve...................................... 17 25 19
Other individually immaterial items.................... 9 (13) (20)
---- ----- ----
Provision for (benefit from) income taxes.............. $697 $(174) $233
==== ===== ====
</TABLE>
A substantial portion of the Company's Far East manufacturing operations in
Singapore, Thailand, Malaysia and China operate under various tax holidays which
expire in whole or in part during fiscal years 2001 through 2010. Certain tax
holidays may be extended if specific conditions are met. The net impact of these
tax holidays was to increase net income by approximately $35 million ($.14 per
share, diluted) in 1999. The tax holidays had no impact on the net loss in 1998.
The net impact of these tax holidays was to increase net income by approximately
$71 million ($0.28 per share, diluted) in 1997. Cumulative undistributed
earnings of the Company's Far East subsidiaries for which no income taxes have
been provided aggregated approximately $1.634 billion at July 2, 1999. These
earnings are considered to be permanently invested in non-U.S. operations.
Additional federal and state taxes of approximately $585 million would have to
be provided if these earnings were repatriated to the U.S.
The Company received a statutory notice of deficiency dated June 27, 1997
from the Internal Revenue Service relative to taxable years 1991 through 1993
assessing potential deficiencies approximating $39 million plus interest and
approximately $6 million of penalties. The Company petitioned the United States
Tax Court on September 24, 1997 for a re-determination of the deficiencies. The
Company believes that the likely outcome of this matter will not have a material
adverse effect on its financial position or results of operations.
The Company received a statutory notice of deficiency dated June 12, 1998
from the Internal Revenue Service relative to Conner's taxable years 1991 and
1992 assessing potential deficiencies approximating $11 million plus interest.
The Company petitioned the United States Tax Court on September 10, 1998 for a
re-determination of the deficiencies. The Company believes that the likely
outcome of this matter will not have a material adverse effect on its financial
position or results of operations.
Certain of the Company's foreign and state tax returns for various fiscal
years are under examination by taxing authorities. The Company believes that
adequate amounts of tax have been provided for any final assessments which may
result from these examinations.
F-23
<PAGE> 265
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACQUISITIONS
The Company has a history of acquisitions and during the three most recent
fiscal years significant acquisitions included Quinta Corporation and Eastman
Storage Software Management Group in fiscal 1998. No significant acquisitions
occurred in fiscal 1999 or 1997. The following details information specific to
these acquisitions including purchase price allocation, appraisal methods used
and significant assumptions used in valuing assets acquired.
Valuation Methodology
In accordance with the provisions of APB Opinion 16, all identifiable
assets, including identifiable intangible assets, were assigned a portion of the
cost of the acquired enterprise (purchase price) on the basis of their
respective fair values. This included the portion of the purchase price properly
attributed to incomplete research and development projects expensed according to
the requirements of Interpretation 4 of SFAS No. 2.
Valuation of acquired intangible assets. Intangible assets were identified
through (i) analysis of the acquisition agreement, (ii) consideration of the
Company's intentions for future use of the acquired assets, and (iii) analysis
of data available concerning Quinta's and Eastman's (collectively referred to as
the "Targets") products, technologies, markets, historical financial
performance, estimates of future performance and the assumptions underlying
those estimates. The economic and competitive environment in which the Company
and the Targets operate was also considered in the valuation analysis.
To determine the value of in-process research and development, the Company
considered, among other factors, the state of development of each project, the
time and cost needed to complete each project, expected income, associated risks
which included the inherent difficulties and uncertainties in completing each
project and thereby achieving technological feasibility and risks related to the
viability of and potential changes to future target markets. This analysis
resulted in amounts assigned to in-process research and development for projects
that had not yet reached technological feasibility and which did not have
alternative future uses. The Income Approach, which includes analysis of
markets, cash flows, and risks associated with achieving such cash flows, was
the primary technique utilized in valuing each in-process research and
development project. The underlying in-process projects acquired were the most
significant and uncertain assumptions utilized in the valuation analysis of
in-process research and development projects.
To determine the value of developed technologies, the expected future cash
flows of existing product technologies were evaluated, taking into account risks
related to the characteristics and applications of each product, existing and
future markets and assessments of the life cycle stage of each product. Based on
this analysis, the existing technologies that had reached technological
feasibility were capitalized.
To determine the value of the distribution networks and customer bases,
Seagate Technology, considered, among other factors, the size of the current and
potential future customer bases, the quality of existing relationships with
customers, the historical costs to develop customer relationships, the expected
income and associated risks. Associated risks included the inherent difficulties
and uncertainties in transitioning the business relation-
F-24
<PAGE> 266
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ships from the acquired entity to Seagate and risks related to the viability of
and potential changes to future target markets.
To determine the value of trademarks, the Company considered, among other
factors, the assumption that in lieu of ownership of a trademark, Seagate would
be willing to pay a royalty in order to exploit the related benefits of such
trademark.
To determine the value of assembled workforces, the Company considered,
among other factors, the costs to replace existing employees including search
costs, interview costs and training costs.
Goodwill is determined based on the residual difference between the amount
paid and the values assigned to identified tangible and intangible assets. If
the values assigned to identified tangible and intangible assets exceed the
amounts paid, including the effect of deferred taxes, the values assigned to
long-term assets were reduced proportionately.
The underlying in-process projects acquired within each acquisition was the
most significant and uncertain assumption utilized in the valuation analysis.
Such uncertainties could give rise to unforeseen budget over runs and/or revenue
shortfalls in the event that the Company is unable to successfully complete a
certain research and development project. Seagate management recognizes that the
Company is primarily responsible for estimating the fair value of the purchased
research and development in all acquisitions accounted for under the purchase
method.
The following details specific information about significant acquisitions
including related assumptions used in the purchase price allocation.
ACQUISITION OF QUINTA CORPORATION
In April and June 1997, the Company invested an aggregate of $20 million to
acquire approximately ten percent (10%) of the outstanding stock of Quinta
Corporation ("Quinta"), a developer of ultra-high capacity disc drive
technologies, including a new optically-assisted Winchester (OAW) technology. In
August 1997, the Company completed the acquisition of Quinta. Pursuant to the
purchase agreement with Quinta, the shareholders of Quinta, other than Seagate,
received cash payments aggregating $230 million upon the closing of the
acquisition and were eligible to receive additional cash payments aggregating
$96 million upon the achievement of certain product development and early
production milestones. Of the $96 million, $19 million was charged to operations
in fiscal 1998. Of the $19 million charged to operations, $5 million was paid in
fiscal 1998. In July 1998, the Company and Quinta amended the purchase agreement
to eliminate the product development and early production milestones and provide
that the former shareholders of Quinta will be eligible to receive the remaining
$77 million and the $14 million that had been accrued but unpaid in fiscal 1998.
In the first quarter of fiscal 1999, the Company recorded a charge to operations
for the remaining $77 million.
Quinta's research and development project revolves around an OAW
technology. OAW refers to Quinta's newly designed recording technology that,
upon completion, would be implemented into Winchester hard disk drives. OAW
combines traditional magnetic recording technology with Winchester hard disc
drives and optical recording capabilities; optical recording technology enables
greater data storage capacity. By integrating advanced
F-25
<PAGE> 267
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
optical features along with a highly fine and sophisticated tracking and
delivery system within the head design, OAW would multiply the real density of
disc drives.
Through August 8, 1997, the acquisition date, Quinta had demonstrated
significant achievements in developing its technology. However, further
technological milestones were required before technological feasibility could be
achieved. Quinta's development process consists of the following development
milestones: (i) route light (optical fiber), (ii) flying head use, (iii)
recording media, (iv) mirror creation and demonstration (two stage servo), (v)
complete assembly, (vi) form factor containment, (vii) design verification test,
(viii) customer qualification, and (ix) delivery.
Assumptions used in estimating the fair value of intangible assets:
Revenue
Future revenue estimates were generated for the following product that the
OAW technology would be utilized in: (i) fixed drives, (ii) removable drive,
(iii) fixed/removable drives, and (iv) cartridges. No revenue was expected
through fiscal 1998 since the underlying technology was anticipated not to be
technologically feasible until fiscal 1999. Revenue was estimated to be
approximately $26.6 million in fiscal 1999 and to increase to approximately $212
million for fiscal year 2000 when the in-process project was expected to be
complete and shipping. Revenue growth was expected to decline to a sustainable
20% growth by fiscal 2005. The estimated revenue growth is consistent with the
introduction of new technology. Revenue estimates were based on (i) aggregate
revenue growth rates for the business as a whole, (ii) individual product
revenue, (iii) growth rates for the disc drive market, (iv) the aggregate size
of the disc drive market, (v) anticipated product development and introduction
schedules, (vi) product sales cycles, and (vii) the estimated life of a
product's underlying technology. Quinta's development cycle, in total, is
expected to take approximately 18 to 24 months.
Operating expenses
Estimated operating expenses used in the valuation analysis of Quinta
included (i) cost of goods sold, (ii) general and administrative expense, (iii)
selling and marketing expense, and (iv) research and development expense. In
developing future expense estimates, an evaluation of Seagate's overall business
model, specific product results, including both historical and expected direct
expense levels (as appropriate), and an assessment of general industry metrics
was conducted. Due to Quinta's limited operating history, an analysis of
Quinta's historical performance was not meaningful.
Cost of goods sold. Estimated cost of goods sold, expressed as a percentage
of revenue, for the in-process technologies ranged from approximately 65% to
80%.
General and administrative ("G&A") expense. Estimated G&A expense,
expressed as a percentage of revenue, for the in-process technologies ranged
from 2.6% in fiscal 2000 to a sustainable 3.5% in fiscal 2001 and beyond. For
fiscal 1999, however, when the OAW technology would become commercially
available, G&A expense was estimated to be 6.4% due to the relatively low
revenue expectation in the initial commercialization period.
F-26
<PAGE> 268
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Selling and marketing ("S&M") expense. Estimated S&M expense, expressed as
a percentage of revenue, for the in-process technologies ranged from 3.3% in
fiscal 2000 to a sustainable 3.5% in fiscal 2001 and beyond. For fiscal 1999,
however, when the OAW technology would become commercially available, S&M
expense was estimated to be 8.7% due to the relatively low revenue expectation
in the initial commercialization period.
Research and development ("R&D") expense. Estimated R&D expense consists of
the costs associated with activities undertaken to correct errors or keep
products updated with current information (also referred to as "maintenance"
R&D). Maintenance R&D includes all activities undertaken after a product is
available for general release to customers to correct errors or keep the product
updated with current information. These activities include routine changes and
additions. The maintenance R&D expense was estimated to be 0.5% of revenue for
the in-process technologies throughout the estimation period.
Effective tax rate
The effective tax rate utilized in the analysis of the in-process
technologies was 38%, which reflects the Company's combined federal and state
statutory income tax rates, exclusive of non-recurring charges at the time of
the acquisition and estimated for future years.
Discount rate
The discount rates selected for Quinta's in-process technology was 25%. In
the selection of the appropriate discount rates, consideration was given to (i)
the Weighted Average Cost of Capital (WACC) of approximately 15% at the date of
acquisition and (ii) the Weighted Average Return on Assets of approximately 25%.
The discount rate utilized for the in-process technology was determined to be
higher than Seagate's WACC due to the fact that the technology had not yet
reached technological feasibility as of the date of valuation. In utilizing a
discount rate greater than the Company's WACC, management has reflected the risk
premium associated with achieving the forecasted cash flows associated with
these projects.
As a result of this acquisition, the Company incurred a one-time write-off
of in-process research and development of approximately $214 million. Intangible
assets arising from the acquisition of Quinta are being amortized on a
straight-line basis over two years. This acquisition was accounted for as a
purchase and, accordingly, the results of operations of Quinta have been
included in the Company's consolidated financial statements from the date of
acquisition.
The following is a summary of the purchase price allocation (in millions):
<TABLE>
<S> <C>
Tangible assets less liabilities assumed.................... $ 34
In-process research and development......................... 214
Assembled workforce......................................... 2
----
$250
====
</TABLE>
F-27
<PAGE> 269
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ACQUISITION OF EASTMAN SOFTWARE STORAGE MANAGEMENT GROUP, INC.
In June 1998, the Company acquired Eastman Software Storage Management
Group, Inc.("Eastman"), a subsidiary of Eastman Kodak Company, the developer of
storage migration software technology for distributed networks, for $10 million.
Eastman Software SMG's two primary products are OPEN/stor for Windows NT
and AvailHSM for NetWare. By integrating Eastman's product line, Seagate will be
able to convert their Storage Migrator product into a stand-alone HSM
application for Windows NT environments. As of the date of acquisition, the
Company abandoned the AvailHSM product and technology due to dated features and
functionality; the valuation analysis did not include a fair value for the
AvailHSM product.
As for OPEN/stor at the date of acquisition, the Company planned to phase
out the product over the following 12 to 15 months. The Company's purpose for
the acquisition was for the next generation technologies that were underway at
Eastman, referenced by project names Sakkara and Phoenix. These projects were
complete re-writes of Eastman's prior generation technology that would allow the
product to be sold stand-alone upon completion.
In accordance with SFAS 86, paragraph 38 ("Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed"), "the cost of
software purchased to be integrated with another product or process will be
capitalized only if technological feasibility was established for the software
component and if all research and development activities for the other
components of the product or process were completed at the time of the
purchase." Although Seagate purchased existing products from Eastman, the
existing products did not operate on a stand-alone basis. Therefore, as
mentioned above, all of the original underlying code and base technology for the
next generation products were in the process of being completely re-written as
date of valuation.
Assumptions used in estimating the fair value of intangible assets:
Revenue
Future revenue estimates were generated for the following technologies: (i)
OPEN/stor, (ii) Sakkara, and (iii) Phoenix. Aggregate revenue for existing
Eastman products was estimated to be approximately $167,000 for the one month
ending June 30, 1998. Revenue was estimated to increase to approximately $3.9
million and $7.1 million for fiscal years 1999 and 2000 when most of the
in-process projects were expected to be complete and shipping. Thereafter,
revenue was estimated to increase at rates ranging from 20% to 30% for fiscal
years 2001 through 2006. Revenue estimates were based on (i) aggregate revenue
growth rates for the business as a whole, (ii) individual product revenue, (iii)
growth rates for the storage management software market, (iv) the aggregate size
of the storage management software market, (v) anticipated product development
and introduction schedules, (vi) product sales cycles, and (vii) the estimated
life of a product's underlying technology.
F-28
<PAGE> 270
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Operating expenses
Estimated operating expenses used in the valuation analysis of Eastman
included (i) cost of goods sold, (ii) general and administrative expense, (iii)
selling and marketing expense, and (iv) research and development expense. In
developing future expense estimates, an evaluation of both Seagate's and
Eastman's overall business model, specific product results, including both
historical and expected direct expense levels, and an assessment of general
industry metrics was conducted.
Cost of goods sold. Cost of goods sold, expressed as a percentage of
revenue, for the developed and in-process technologies was estimated to be
approximately 5% throughout the estimation period.
General and administrative ("G&A") expense. G&A expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be approximately 10% throughout the estimation period.
Selling and marketing ("S&M") expense. S&M expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be 27% throughout the estimation period.
Research and development ("R&D") expense. R&D expense consists of the costs
associated with activities undertaken to correct errors or keep products updated
with current information (also referred to as "maintenance" R&D). Maintenance
R&D includes all activities undertaken after a product is available for general
release to customers to correct errors or keep the product updated with current
information. These activities include routine changes and additions. The
maintenance R&D expense was estimated to be 5% of revenue for the developed and
in-process technologies throughout the estimation period.
In addition, as of the date of acquisition, Seagate Software management
anticipated the costs to complete the in-process technologies at approximately
$1.8 million.
Effective tax rate
The effective tax rate utilized in the analysis of developed and in-process
technologies was 38%, which reflects the Company's combined federal and state
statutory income tax rates, exclusive of non-recurring charges at the time of
the acquisition and estimated for future years.
Discount rate
The discount rates selected for Eastman's developed and in-process
technologies were 15% and 20%, respectively. In the selection of the appropriate
discount rates, consideration was given to (i) the Weighted Average Cost of
Capital (WACC) of approximately 15% at the date of acquisition and (ii) the
Weighted Average Return on Assets of approximately 18%. The discount rate
utilized for the in-process technology was determined to be higher than the
Company's WACC due to the fact that the technology had not yet reached
technological feasibility as of the date of valuation. In utilizing a discount
rate greater than the Company's WACC, management has reflected the risk premium
associated with achieving the forecasted cash flows associated with these
projects.
F-29
<PAGE> 271
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The purchase price allocation was based upon the anticipated release date,
as of the valuation date, of significant projects acquired, such as Sakkara and
Phoenix. Such release dates were estimated from the second quarter of the
Company's fiscal year 1999 through the fourth quarter of fiscal 1999. Material
net cash inflows from such related projects were expected to commence
immediately after their respective release dates. As a result of the
acquisition, the Company incurred a one-time write-off of in-process research
and development of $7 million.
The following is a summary of the purchase price allocation (in millions):
<TABLE>
<S> <C>
Current assets and other tangible assets.................... $ .5
Liabilities assumed......................................... (.5)
Assembled workforce......................................... .4
Developed technology........................................ .5
In-process research and development......................... 6.8
Microsoft agreement......................................... 1.5
Goodwill.................................................... .8
-----
$10.0
=====
</TABLE>
In 1998, the Company increased its investment in Dragon Systems, a maker of
voice recognition software, by $18 million. Goodwill arising from the equity
investment in Dragon Systems is being amortized on a straight-line basis over
seven years.
CONTRIBUTION OF THE NETWORK & STORAGE MANAGEMENT GROUP TO NEW VERITAS AND THE
PURCHASE OF OUTSTANDING SHARES OF SEAGATE SOFTWARE BY SEAGATE TECHNOLOGY.
Contribution of the Network & Storage Management Group to New VERITAS
On May 28, 1999, Seagate Technology, and its direct and indirect
subsidiaries, Seagate Software and the Seagate Software Network & Storage
Management Group, closed the Agreement and Plan of Reorganization (the "Plan")
dated as of October 5, 1998 with VERITAS Holding Corporation ("New VERITAS") and
VERITAS Software Corporation ("VERITAS"). The Plan provided for the contribution
by Seagate Technology, Seagate Software, and certain of their respective
subsidiaries to New VERITAS of (a) the outstanding stock of the Network &
Storage Management Group and certain other subsidiaries of Seagate Software and
(b) those assets used primarily in the network and storage management business
of Seagate Software (the "NSMG business"), in consideration for the issuance of
shares of common stock of New VERITAS to Seagate Software and the offer by New
VERITAS to grant options to purchase common stock of New VERITAS to certain of
Seagate Software's employees who become employees of New VERITAS or its
subsidiaries. As part of the Plan, New VERITAS assumed certain liabilities of
the NSMG business. The Plan was structured to qualify as a tax-free exchange.
Subsequent to the consummation, all outstanding securities of New VERITAS
were assumed and converted into common stock of VERITAS with identical rights,
preferences and privileges, on a share for share basis. As a result of the
contribution of the NSMG business to New VERITAS, Seagate Software received a
total of 69,148,208 shares of
F-30
<PAGE> 272
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
VERITAS common stock and former employees of the NSMG business received options
to purchase an aggregate of 6,945,048 shares of VERITAS common stock. Share and
option amounts for VERITAS have been adjusted to reflect the two-for-one stock
split effective July 9, 1999 by VERITAS.
Seagate Technology has accounted for the contribution of NSMG to New
VERITAS as a non-monetary transaction using the fair value of the assets and
liabilities exchanged. After the transaction, Seagate Software owns
approximately 41.63% (69,148,208 shares) of the outstanding shares of VERITAS,
including the NSMG business. Because Seagate Technology still owns a portion of
the NSMG business through its ownership of VERITAS, Seagate Technology did not
recognize 100% of the gain on the exchange. The gain recorded is equal to the
difference between 58.37% of the fair value of the VERITAS common stock received
and 58.37% of Seagate Technology's basis in the NSMG assets and liabilities
exchanged. Seagate Technology is accounting for its on going investment in
VERITAS using the equity method. The difference between the recorded amount of
Seagate Technology's investment in VERITAS and the amount of its underlying
equity in the net assets of VERITAS has been allocated based upon the fair value
of the underlying tangible and intangible assets and liabilities of VERITAS. The
intangible assets included amounts allocated to in-process research and
development and resulted in a $85 million write-off included in activity related
to equity interest in VERITAS in the accompanying statement of operations.
Intangible assets including goodwill are being amortized over four years
Seagate Technology will include in its financial results its share of the
net income or loss of VERITAS, excluding certain NSMG purchase accounting
related amounts recorded by VERITAS, but including Seagate Technology's
amortization of the difference between its recorded investment and the
underlying assets and liabilities of VERITAS. Because of practicality
considerations, the net income or loss of VERITAS will be included in the
results of Seagate Technology on a one quarter lag basis. The results of VERITAS
for the period from May 29, 1999 to June 30, 1999, the period subsequent to the
contribution of NSMG to VERITAS, will be included in the Company's results of
operations for the quarter ended October 1, 1999. The results of VERITAS for the
period from July 1, 1999 to September 30, 1999 will be included in the Company's
results for the quarter ended December 31, 1999.
Seagate Technology exchange offer
In a separate but related transaction to the NSMG contribution to VERITAS,
on June 9, 1999, the Company exchanged 5,275,772 shares of its common stock for
3,267,255 of the outstanding shares of Seagate Software common stock owned by
employees, directors and consultants of Seagate Software. The exchange ratio was
determined based on the estimated value of Seagate Software common stock divided
by the fair market value of Seagate Technology common stock.
The estimated value of Seagate Software common stock exchanged into Seagate
Technology common stock was determined based upon the sum of the fair value of
the NSMG business, as measured by the fair value of the shares received from
VERITAS, plus the estimated fair value of the Information Management Group
("IMG") of Seagate Software as determined by the Seagate Technology Board of
Directors, plus the assumed
F-31
<PAGE> 273
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
proceeds from the exercise of all outstanding Seagate Software stock options,
divided by the number of fully converted shares of Seagate Software. The Board
of Directors of Seagate Technology considered a number of factors in determining
the estimated fair value of the IMG business, including historical and projected
revenues, earnings and cash flows, as well as other factors and consultations
with financial advisors.
The fair value of the Seagate Software shares acquired less the original
purchase price paid by the employees was recorded as compensation expense for
those shares outstanding and vested less than six months. The purchase of
Seagate Software shares outstanding and vested more than six months was
accounted for as the purchase of a minority interest and, accordingly, the fair
value of the shares exchanged has been allocated to all of the identifiable
tangible and intangible assets and liabilities of Seagate Software. In
connection with the acquisition, Seagate Technology recorded compensation
expense amounting to approximately $124 million and wrote off purchased research
and development amounting to $2 million in the fourth quarter of fiscal 1999.
Associated intangible assets and goodwill are being amortized to operations over
four years.
Computation of pro rata gain on contribution of NSMG to New VERITAS
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
Fair value of shares received............................... $3,151
Times: pro rata percentage accounted for at fair value...... 58.37%
------
Adjusted fair value of securities received.................. $1,839
------
Book value of NSMG.......................................... $ 57
Times: pro rate percentage accounted for at fair value...... 58.37%
------
Book value exchanged........................................ 33
------
Pro rata gain............................................... $1,806
======
</TABLE>
Computation of original investment in VERITAS
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
Book value of NSMG.......................................... $ 57
Times: pro rata percentage accounted for at fair value...... 41.63%
Portion of investment in VERITAS with no step up in basis... 24
Plus: Adjusted fair value of securities received............ 1,839
------
Investment in VERITAS....................................... $1,863
======
</TABLE>
F-32
<PAGE> 274
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Allocation of original investment in VERITAS
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
Allocation of investment to VERITAS assets and liabilities:
Net tangible assets....................................... $ 114
Intangible assets:
Distribution channel................................... 9
Developed technology................................... 46
Trademark and workforce................................ 16
In-process research and development.................... 40
Allocation of investment to NSMG assets and liabilities:
Net tangible assets....................................... 24
Intangible assets:
Distribution channel................................... 66
Developed technology................................... 92
Trademark and workforce................................ 14
In-process research and development.................... 45
Goodwill.................................................. 1,397
------
Total original investment in VERITAS........................ $1,863
======
</TABLE>
Value of minority interest
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA
---------------------
<S> <C>
Number of Seagate Software shares and options exchanged for
Seagate Technology stock held by former employees,
consultants and shares held more than six months by
employees................................................. 1,010,010
Times: Exchange ratio into Seagate Technology stock......... 1.699
----------
Number of Seagate Technology shares issued.................. 1,716,007
Value per share of Seagate Technology common stock as of
June 9, 1999.............................................. $ 30.75
----------
Total value Seagate Technology shares issued................ $ 53
Less: Proceeds from assumed exercise of Seagate Software
stock options............................................. (1)
----------
Total value of minority interest............................ $ 52
==========
</TABLE>
F-33
<PAGE> 275
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Allocation of minority interest purchase price to the intangible assets of
Seagate Software
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
Distribution channel........................................ $ 2
Developed technology........................................ 4
Trademark and workforce..................................... 1
In-process research and development......................... 2
Goodwill.................................................... 45
---
Subtotal.................................................. 54
Deferred tax liability...................................... (2)
---
Total..................................................... $52
===
</TABLE>
Compensation relating to stock purchased from employees
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA
---------------------
<S> <C>
Seagate Software options exercised and exchanged for Seagate
Technology stock.......................................... 2,240,470
Plus: Seagate Software stock held for less than 6 months and
exchanged for Seagate Technology stock.................... 16,775
----------
Total Seagate Software shares exchanged..................... 2,257,245
Times: Exchange ratio into Seagate Technology stock......... 1.699
----------
Number of Seagate Technology shares issued.................. 3,835,059
----------
Value per share of Seagate Technology common stock on June
9, 1999................................................... $ 30.75
Less: Average price paid per Seagate Technology share....... $ (4.01)
----------
Average compensation expense per Seagate Technology share
issued.................................................... $ 26.74
----------
Total compensation expense.................................. $ 103
==========
</TABLE>
Reconciliation of amounts included in Gain on contribution of NSMG to
VERITAS, net
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
Pro rata gain............................................... $1,806
Less:
Compensation expense...................................... 124
Transaction costs......................................... 12
------
Gain on contribution of NSMG to VERITAS, net................ $1,670
======
</TABLE>
F-34
<PAGE> 276
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Activity related to equity interest in VERITAS
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
Write-off of in-process research and development............ $ 85
Amortization of intangible assets including goodwill........ 34
----
Activity related to equity interest in VERITAS.............. $119
====
</TABLE>
All activity related to the equity interest in VERITAS was recorded in the
fourth quarter of fiscal 1999.
ALLOCATION OF TANGIBLE AND INTANGIBLE ASSETS AND LIABILITIES RELATED TO NSMG
AND VERITAS
OVERVIEW
NSMG offers network and storage management software solutions, which focus
on the information availability component of Enterprise Information Management
("EIM") by enabling IT professionals to manage distributed network resources and
to secure and protect enterprise data. NSMG's products include features such as
system backup, disaster recovery, migration, replication, automated client
protection, storage resource management, scheduling, event correlation and
desktop management.
VERITAS develops, markets and supports advanced storage management and high
availability products for open system environments. VERITAS' products provide
performance improvement and reliability enhancement features that are critical
for many commercial applications. Some of the key features of storage management
products include protection against data loss and file corruption, rapid
recovery after disk or system failure, the ability to process large files
efficiently and the ability to manage the storage systems without interrupting
users. The high availability products provide an automated failover between
computer systems organized in clusters sharing disk resources.
In accordance with the provisions of Accounting Principles Board ("APB")
Opinions No. 16 and 17, all identifiable assets acquired were analyzed to
determine their Fair Market Values. As the basis for identifying the in-process
research and development ("R&D"), the development projects were evaluated in the
context of Interpretation 4 of Financial Accounting Standards Board Statement
No. 2. In accordance with these provisions, the developmental projects were
examined to determine if there were any alternative future uses. Such evaluation
consisted of a specific review of the efforts, including the overall objectives
of the project, progress toward the objectives, and the uniqueness of the
developments of these objectives. Further, each in-process R&D project was
reviewed to determine if technological feasibility had been achieved.
DESCRIPTION OF METHODOLOGY
Tangible net assets of VERITAS principally include cash and investments,
accounts receivable, fixed assets and other current assets. Liabilities
principally include accounts payable, accrued compensation, and other accrued
liabilities.
To estimate the value of the developed technology, the expected future cash
flows attributable to all existing technology was discounted, taking into
account risks related to
F-35
<PAGE> 277
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the characteristics and applications of the technology, existing and future
markets, and assessments of the life cycle stage of the technology. The
developed technology is being amortized on the straight-line basis over its
estimated useful life (four years) which is expected to exceed the ratio of
current revenues to the total of current and anticipated revenues.
The value of the distribution networks and original equipment manufacturer
agreements was estimated by considering, among other factors, the size of the
current and potential future customer bases, the quality of existing
relationships with customers, the historical costs to develop customer
relationships, the expected income and associated risks. Associated risks
included the inherent difficulties and uncertainties in transitioning business
relationships and risks related to the viability of and potential changes to
future target markets.
The value of trademarks was estimated by considering, among other factors,
the assumption that in lieu of ownership of a trademark, a company would be
willing to pay a royalty in order to exploit the related benefits of such
trademark.
The value of the assembled workforce was estimated as the costs to replace
the existing employees, including recruiting, hiring, and training costs for
each category of employee.
The value allocated to projects identified as in-process technology at
VERITAS and Seagate Software, for the minority interest acquired, were charged
to expense in the fourth quarter of fiscal 1999. These write-offs were necessary
because the acquired technologies had not reached technological feasibility at
the date of purchase and have no future alternative uses. Seagate Software
expects that the acquired in-process research and development will be
successfully developed, but there can be no assurance that commercial viability
of these products will be achieved.
The nature of the efforts required to develop the purchased in-process
technology into commercially viable products principally relate to the
completion of all planning, designing, prototyping, verification and testing
activities that are necessary to establish that the product can be produced to
meet its design specifications, including functions, features and technical
performance requirements. The value of the purchased in-process technology for
VERITAS was estimated as the projected net cash flows related to such products,
including costs to complete the development of the technology and the future
revenues to be earned upon commercialization of the products, excluding revenues
attributable to future development efforts. These cash flows were then
discounted back to their net present value. The projected net cash flows from
such projects were based on management's estimates of revenues and operating
profits related to such projects.
Goodwill is calculated as the residual difference between the estimated
amount paid and the values assigned to identified tangible and intangible assets
and liabilities.
VALUATION ASSUMPTIONS
Revenue
Revenue estimates were based on (i) aggregate revenue growth rates for the
businesses as a whole, (ii) growth rates for the storage management software
market,
F-36
<PAGE> 278
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(iii) the aggregate size of the storage management software market, (iv)
anticipated product development and introduction schedules, (v) product sales
cycles, and (vi) the estimated life of a product's underlying technology.
Future revenue estimates were generated based on the worldwide storage
management software market and the backup, restore and archive market. The
overall storage management software market is forecasted to increase at a
compound annual growth rate of 14.2%, from a 1997 value of $2.543 billion to a
2002 value of $4.941 billion. The backup, restore and archive software segment
of storage management software, in which NSMG competes, is expected to grow much
faster than other segments.
NSMG is positioned for continued growth in its backup, restore, and archive
software products. The backup, restore, and archive segment is the fastest
growing in the storage management software market. Moreover, NSMG competes, and
is one of the leaders in providing this type of software for the Windows NT
operating environment. Revenue for Windows 95 and Windows NT is projected to
grow at a 43.3% compound annual growth rate (1997 through 2002), higher than for
any other operating environment.
Revenue for NSMG was forecasted by product line for the years 1999 through
2001. Revenue was expected to be $350 million for the 1999 calendar year.
Thereafter, NSMG is expected to grow slightly greater than the 43.3% industry
average through 2003. The revenue by product was allocated between existing,
in-process, and future technology; indicating a four-year life cycle (revenue
contribution from technology), which is consistent with NSMG's past experience
with technology life cycles.
VERITAS is an open systems supplier. The market for open systems suppliers
grew 101.2% between 1996 and 1997. In addition, VERITAS looks to growth and
increase its market share through positioning itself as a provider of software
services in the Windows NT operating environment. As above, revenue for Windows
is projected to grow at a 43.3% compound annual growth rate (1997 through 2002).
Revenue for VERITAS was forecasted by product line for the years 1999
through 2001. Revenue was expected to be $270 million for the 1999 calendar
year. Thereafter, VERITAS is expected to grow at 67.9% and 58.4% for years 2000
and 2001, respectively, a rate greater than the 43.3% industry average. For
years 2002 through 2005, revenues are expected to level off at a 40% growth
rate. The revenue by product was allocated between existing, in-process, and
future technology indicating a four-year life cycle (revenue contribution from
technology) for NT based products and a three-year life cycle for Unix based
products which is consistent with VERITAS' past experience with technology life
cycles.
OPERATING EXPENSES
Estimated operating expenses used in the valuation analysis of NSMG and
VERITAS included (i) cost of goods sold, (ii) general and administrative
expense, (iii) sales and marketing expense, and (iv) research and development
expense. In developing future expense estimates, an evaluation of both NSMG and
VERITAS's overall business models, specific product results, including both
historical and expected direct expense levels (as appropriate), and an
assessment of general industry metrics was conducted.
F-37
<PAGE> 279
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cost of goods sold. Cost of goods sold, for the developed and in-process
technologies was estimated to be approximately 8.6% of revenues from 2000 to
2006 for NSMG. Cost of goods sold, for the developed and in-process technologies
was estimated to be approximately 14.7% of revenues from 2000 to 2005 for
VERITAS.
General and administrative ("G&A") expense. G&A expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be 9.2% in 1999 and expected to be reduced to 6.7% by 2002 for
NSMG. G&A expense for VERITAS, expressed as a percentage of revenue, for the
developed and in-process technologies was held constant at 4.4% of revenues for
the forecast period of 2000 to 2005.
Selling and marketing ("S&M") expense. S&M expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be 37.4% for years 2000 to 2006 related to NSMG. S&M expense for
VERITAS, expressed as a percentage of revenue, for the developed and in-process
technologies was estimated to be 34.7% for years 2000 to 2005.
Research and development ("R&D") expense. R&D expense consists of the costs
associated with activities undertaken to correct errors or keep products updated
with current information (also referred to as "maintenance" R&D). Maintenance
R&D includes all activities undertaken after a product is available for general
release to customers to correct errors or keep the product updated with current
information. These activities include routine changes and additions. The
maintenance R&D expense was estimated to be 17.4% of revenue for the developed
and in-process technologies for the years 2000 to 2006 for NSMG. R&D expense for
VERITAS was estimated as 18.2% of revenue in 1999 and was reduced to 16% by
2002, continuing at that rate until 2005.
In addition, as of the date of the contribution of NSMG to New VERITAS,
Seagate Software's management and VERITAS Software's management anticipated the
costs to complete the in-process technologies at approximately $5.8 million and
$44.2 million, respectively.
EFFECTIVE TAX RATE
The effective tax rate utilized in the analysis of developed and in-process
technologies was 33%, which reflects VERITAS's combined effective federal and
state statutory income tax rates, exclusive of non-recurring charges at the time
of the contribution and estimated for future years.
DISCOUNT RATE
The discount rates selected for the developed and in-process technologies
were 12% and 17%, respectively. In the selection of the appropriate discount
rates, consideration was given to (i) the Weighted Average Rate of Return
(approximately 14% at the date of acquisition) and (ii) the Weighted Average
Return on Assets (approximately 18%) that investors expect for company's with
similar anticipated growth rates and other characteristics as the NSMG and
VERITAS businesses. The discount rate utilized for the in-process technology was
determined to be higher than the WARR due to the fact that the technology had
not yet reached technological feasibility as of the date of valuation. In
utilizing a discount rate greater than the WARR, management has reflected the
risk
F-38
<PAGE> 280
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
premium associated with achieving the forecasted cash flows associated with
these projects. The discount rate was adjusted downward from the WARR for the
developed technologies to reflect less technological and/or market risk
associated with forecasted sales of the existing products.
Allocation of tangible and intangible assets and liabilities related to the
Seagate Software minority interest acquired by Seagate Technology
Seagate Software's investment in VERITAS comprises over 85% of the fair
value of Seagate Software. Accordingly, the assumptions utilized in the
allocation of the purchase price of the minority interest of Seagate Software
acquired by Seagate Technology were materially the same as those used in the
allocation of the tangible and intangible assets and liabilities of NSMG and
VERITAS.
Pro forma financial information
The pro forma financial information presented below is presented as if the
contribution of NSMG to VERITAS and the purchase of the Seagate Software
minority interest by Seagate Technology had occurred at the beginning of fiscal
1998. The pro forma statements of operations for the twelve months ended July 2,
1999 and July 3, 1998, include the historical results of Seagate Technology less
the historic results of the NSMG business, plus Seagate Technology's equity
interest in the pro forma results of VERITAS, including recurring amortization
of related goodwill and intangibles plus recurring amortization of goodwill and
intangibles associated with the purchase of shares of Seagate Software stock by
Seagate Technology. Non-recurring transactions, such as the gain on the NSMG
contribution to VERITAS, compensation expense relating to the acquisition of
stock held less than six months by employees of Seagate Software, transaction
costs and the write-off of in-process research and development are excluded from
the pro forma presentation. The pro forma financial results are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------
JULY 2, 1999 JULY 3, 1998
------------ ------------
IN MILLIONS, EXCEPT
PER SHARE DATA
<S> <C> <C>
Revenue............................................... $6,600 $ 6,644
Loss before income taxes.............................. (110) (1,127)
Net loss.............................................. (34) (789)
Net loss per share -- basic and diluted............... $(0.14) $ (3.24)
</TABLE>
RESTRUCTURING
During the third quarter of fiscal 1999, the Company recorded a
restructuring charge of $72 million as a result of steps the Company is taking
to further improve the efficiency of its operations. These actions include
closure of the Company's microchip manufacturing facility in Scotland;
discontinuance of the Company's recording head suspension business located in
Malaysia and Minnesota; consolidation of global customer service operations by
relocating such operations in Singapore, Scotland and Costa Mesa, California to
Reynosa, Mexico; and closure of the Company's recording media substrate facility
in Mexico. The restructuring charges were comprised of $37 million for the
write-off or write-down of
F-39
<PAGE> 281
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
excess manufacturing, assembly and test equipment formerly utilized in Scotland,
Malaysia and Minnesota; $16 million for lease termination and holding costs for
facilities located in Scotland and Singapore; $10 million for employee
termination costs; $3 million for the write-off of goodwill associated with the
recording media substrate operation in Mexico; $2 million for the write-down of
owned facilities located in Malaysia; $1 million for the write-down of leasehold
improvements in Singapore; $1 million for the write-off of tooling; $1 million
for contract cancellations associated with the suspension business; and $1
million for repayment of various grants previously received from the Scottish
government. Prior to this period, there was no indication of permanent
impairment of the assets associated with the closure and consolidation of
facilities. Evaluations of the resale market for certain assets were used to
estimate fair value.
As of July 2, 1999, all of the equipment located at the microchip facility
in Scotland has been sold and the lease on this facility has been terminated.
The Company is in the final stages of disposing all of the assets for its
suspension business. The facility that was previously occupied by the suspension
operations is currently being used for other operations.
In connection with the fiscal 1999 restructuring, the Company currently
expects a workforce reduction of approximately 1,250 employees. Approximately
631 of the 1,250 employees had been terminated as of July 2, 1999. As a result
of employee terminations and the write-off or write-down of equipment and
facilities in connection with implementing the fiscal year 1999 restructuring
plan, the Company estimates that annual salary and depreciation expense will be
reduced by approximately $27 million and $16 million, respectively. The Company
anticipates that the implementation of the 1999 restructuring plan will be
substantially complete by the end of March 2000.
In 1999, the Company reversed $12 million of its restructuring accruals
originally recorded in fiscal year 1998 as a result of the Company abandoning
its plan to seek an agreement with an external vendor to supply parts currently
manufactured at a facility in Thailand. This reversal included $10 million of
valuation reserves classified elsewhere on the balance sheet and reversal of
amounts included in the restructuring reserve of $1 million for facility lease
costs and $1 million for contract cancellations. In addition, reclassifications
between cost categories within the restructuring reserve were made as a result
of differences between original estimates and amounts actually incurred or
expected to be incurred. This was primarily a result of an increase in the
period of time estimated to obtain a suitable sub-lessee for certain leased
buildings located at the former San Jose, California design facility offset by
lower severance and benefits costs than originally estimated.
In the second and third quarters of fiscal 1998, the Company recorded
restructuring charges aggregating $347 million. The Company had experienced
reductions in revenue from the third quarter of fiscal year 1997 to the fourth
quarter of fiscal year 1997 of 21%, from the fourth quarter of fiscal year 1997
to the first quarter of fiscal year 1998 of 4% and from the first quarter of
fiscal year 1998 to the second quarter of fiscal year 1998 of an additional 12%.
During the second quarter of fiscal 1998, forecasted production needs were much
lower than the current capacity of the Company and the Company recognized that
the recent oversupply in the marketplace was not a short-term anomaly. In this
period, the
F-40
<PAGE> 282
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company also decided to discontinue production of several products, rendering
test and manufacturing equipment unique to those products obsolete. Prior to
this period, there was no indication of permanent impairment of these assets
associated with the recent excess capacity of the Company or the products to be
discontinued. These charges reflect steps the Company is taking to align
worldwide operations with current market conditions by reducing existing
capacity in all areas of the Company and improving the productivity of its
operations and the efficiency of its development efforts by consolidating
manufacturing and R&D operations. Actions include exiting production of mobile
products; early discontinuation of several other products; closing and selling
the Clonmel, Ireland drive manufacturing facility; closing and subleasing the
San Jose and Moorpark, California design center facilities; aborting production
expansion projects in Cork, Ireland; and divesting the Company of the new
Philippines manufacturing facility, which was nearing completion. Included in
the restructuring charge are the write-down and write-off of tangible assets
comprised of manufacturing, assembly and test equipment and tooling formerly
utilized in California, Singapore, Thailand, Ireland and facilities located in
California, the Philippines and Thailand totaling $200 million and intangible
assets totaling $2.5 million for goodwill associated with permanently impaired
media manufacturing equipment.
The majority of the tangible assets have been disposed of or sold including
the disposal of the Clonmel, Ireland facility in May 1998 and the sublease of
one of the five buildings at the San Jose, California design center. The Company
is marketing three additional buildings in the San Jose, California design
center for sublease. The fifth building has a remaining lease term so short as
to make a sublease impractical. Equipment formerly utilized at these facilities,
in addition to equipment associated with restructuring actions in Singapore and
Thailand, has been relocated to other sites or scrapped. Of the $137 million in
write-offs and write-downs of equipment, $109 million was scrapped and $28
million is awaiting final disposition. In addition, $10 million of equipment was
transferred at net book value for use in operations at other sites. Subsequent
to the recording of the restructuring reserve, depreciation related to certain
assets that continued in use, was included in operations. At the time these
assets were identified as available for sale no further depreciation was
recorded. The write-off of intangibles and other assets includes capital
equipment deposits and goodwill associated with permanently impaired equipment.
Costs associated with aborting production expansion projects in Cork, Ireland
include primarily architect costs, lease termination costs associated with
equipment leased by contractors, and lease termination costs for temporary
housing used by contractor personnel.
Certain facilities including design centers in California, as well as
manufacturing facilities in Thailand continued in use after restructuring
amounts were recorded. The Moorpark, California product design center remained
in use for six months after the write-down of leasehold improvements and
equipment totaling $9 million. This facility has been subleased for a portion of
the remaining minimum lease term. One Thailand manufacturing facility continues
to be utilized until a satisfactory agreement can be made with an external
vendor to supply parts currently manufactured at this location. At the time the
decision to exit this facility was made, the Company believed that it had
identified a supplier for parts. It was subsequently determined that the
supplier could not meet the Company's quality standards.
F-41
<PAGE> 283
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of January 1, 1999, the Company's planned workforce reduction associated
with the fiscal 1998 restructuring of approximately 15,000 employees had been
completed. The implementation of the 1998 restructuring plan was substantially
complete as of July 2, 1999.
The following table summarizes the Company's restructuring activities:
<TABLE>
<CAPTION>
SEVERANCE INTANGIBLES
AND EXCESS AND OTHER CONTRACT
BENEFITS FACILITIES EQUIPMENT ASSETS CANCELLATIONS OTHER TOTAL
--------- ---------- --------- ----------- ------------- ----- -----
IN MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C>
FY98 restructuring charge....... $ 57 $ 78 $ 137 $ 11 $ 43 $ 21 $ 347
Cash charges.................... (48) (3) -- -- (38) (11) (100)
Non-cash charges................ -- (55) (137) (11) -- -- (203)
---- ---- ----- ---- ---- ---- -----
Reserve balances, July 3,
1998.......................... $ 9 $ 20 $ -- $ -- $ 5 $ 10 $ 44
FY99 restructuring charge....... 10 19 37 4 1 1 72
Cash charges.................... (12) (20) -- -- -- (1) (33)
Non-cash charges................ -- (4) (37) (4) -- -- (45)
Adjustments and
reclassifications............. (3) 3 -- -- (3) 1 (2)
---- ---- ----- ---- ---- ---- -----
Reserve balances, July 2,
1999.......................... $ 4 $ 18 $ -- $ -- $ 3 $ 11 $ 36
==== ==== ===== ==== ==== ==== =====
</TABLE>
BUSINESS SEGMENT AND GEOGRAPHIC INFORMATION
The Company designs, manufactures and markets products for storage,
retrieval and management of data on computer and data communications systems.
These products include disc drives and disc drive components, tape drives and
software. The Company has three operating segments, disc drives, software and
tape drives, however, only the disc drive and software businesses are reportable
segments under the criteria of SFAS No. 131. The "other" category in the
following revenue and gross profit tables consists of tape drives and
out-of-warranty repair. The CEO evaluates performance and allocates resources
based on revenue and gross profit from operations. Gross profit from operations
is defined as revenue less cost of sales. The Company does not evaluate or
allocate assets or depreciation by operating segment, nor does the CEO evaluate
segments on these criteria. The CEO has been identified as the Chief Operating
Decision Maker as defined by SFAS No. 131.
F-42
<PAGE> 284
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the Company's operations by business
segment:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
IN MILLIONS
<S> <C> <C> <C>
Revenue:
Disc Drives.................................. $ 6,101 $ 6,152 $ 8,079
Software..................................... 343 293 218
Other........................................ 358 374 643
-------- -------- -------
Consolidated................................. $ 6,802 $ 6,819 $ 8,940
======== ======== =======
Gross Profit:
Disc Drives.................................. $ 1,163 $ 667 $ 1,668
Software..................................... 291 242 173
Other........................................ 98 80 181
-------- -------- -------
Consolidated................................. $ 1,552 $ 989 $ 2,022
======== ======== =======
Total Assets:
Disc Drives.................................. $ 16,553 $ 16,685 $15,321
Software..................................... 2,032(1) 212 180
Other........................................ 299 80 53
Eliminations................................. (11,812) (11,332) (8,831)
-------- -------- -------
Consolidated................................. $ 7,072 $ 5,645 $ 6,723
======== ======== =======
</TABLE>
- -------------------------
(1) Includes $1.745 billion equity investment in VERITAS Software.
In 1999, 1998 and 1997, Compaq Computer Corporation accounted for more than
10% of consolidated revenue for a total of $1.144 billion, $873 million and $995
million, respectively. Sales to Compaq Computer Corporation were from the
Company's disc drive segment.
Enterprise-wide information is provided in accordance with SFAS No. 131.
Long-lived assets consist of property, equipment and leasehold improvements,
capital leases, equity investments, goodwill and other intangibles, and other
non-current assets as recorded by the Company's operations in each area.
F-43
<PAGE> 285
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the Company's operations by geographic area:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
IN MILLIONS
<S> <C> <C> <C>
Revenue from external customers:(1)
United States..................................... $3,440 $3,641 $5,216
The Netherlands................................... 1,361 1,447 1,704
Singapore......................................... 1,194 1,119 713
Other............................................. 807 612 1,307
------ ------ ------
Consolidated...................................... $6,802 $6,819 $8,940
====== ====== ======
Long-lived Assets:
United States..................................... $2,571(2) $ 771 $ 852
Singapore......................................... 546 607 583
Other............................................. 643 652 735
------ ------ ------
Consolidated...................................... $3,760 $2,030 $2,170
====== ====== ======
</TABLE>
- -------------------------
(1) Revenue is attributed to countries based on the shipping location.
(2) Includes $1.745 billion equity investment in VERITAS Software.
COMMITMENTS
Leases -- The Company leases certain property, facilities and equipment
under non-cancelable lease agreements. Land and facility leases expire at
various dates through 2015 and contain various provisions for rental adjustments
including, in certain cases, a provision based on increases in the Consumer
Price Index. All of the leases require the Company to pay property taxes,
insurance and normal maintenance costs.
Future minimum lease payments for operating leases with initial or
remaining terms of one year or more were as follows at July 2, 1999:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
IN MILLIONS
<S> <C>
2000........................................ $ 46
2001........................................ 41
2002........................................ 31
2003........................................ 25
2004........................................ 21
After 2004.................................. 138
----
$302
====
</TABLE>
Total rent expense for all land, facility and equipment operating leases
was approximately $56 million, $58 million and $51 million for 1999, 1998 and
1997, respectively.
Capital Expenditures -- The Company's commitments for construction of
manufacturing facilities and equipment approximated $78 million at July 2, 1999.
F-44
<PAGE> 286
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1999 1998 1997
------ ---- ----
IN MILLIONS
<S> <C> <C> <C>
Cash Transactions:
Cash paid for interest................................ $ 52 $52 $ 26
Cash paid for income taxes, net of refunds............ (107) (1) 59
Non-Cash Transactions:
Contribution of NSMG to VERITAS....................... $1,806 $-- $ --
Acquisition of minority interest...................... 52 -- --
Conversion of debentures.............................. -- -- 788
</TABLE>
SUBSEQUENT EVENTS
The Company is in the process of developing a restructuring plan designed
to realign its manufacturing capacity and increase productivity. Some minor
restructuring activities have taken place during the first quarter of fiscal
2000; however, as this plan is further developed, the Company expects there to
be additional restructuring activities that could be substantial. As a result,
the Company will be required to record a potentially substantial charge to
operations associated with this restructuring in its fiscal quarter ended
October 1, 1999.
In July 1999, the Board of Directors approved the adoption of the 1999
Stock Option Plan (the "Plan"), subject to stockholder approval at the 1999
Annual Meeting of Stockholders. The number of shares of common stock that will
be reserved for issuance under the Plan is estimated to be approximately 11
million.
Pursuant to a registration statement declared effective by the Securities
and Exchange Commission on August 9, 1999, the Company's Seagate Software
subsidiary sold an aggregate of 8,232,667 shares of VERITAS common stock for
proceeds of $396.8 million, net of underwriting discounts and commissions and
before expenses. Seagate Software acquired such shares in connection with the
contribution of the Network & Storage Management Group business to VERITAS. The
underwriters have an option to acquire an additional 909,833 shares of VERITAS
common stock to cover over-allotments from Seagate Software prior to September
8, 1999 at a per share price of $48.1925 (net of underwriting discounts and
commissions). In connection with the sale of the VERITAS shares, Seagate
Software agreed that it would not sell or otherwise dispose of any additional
shares of VERITAS common stock prior to November 7, 1999. Certain exceptions to
this limitation apply, including transfers to affiliated entities and the sale
of the remaining over-allotment option noted above.
On August 17, 1999, SanDisk Corporation, a company in which Seagate holds
an equity interest, filed a registration statement with the Securities and
Exchange Commission in connection with a public offering of 3,000,000 shares of
its common stock. Of the 3,000,000 shares, 2,750,000 will be sold by SanDisk and
250,000 will be sold by the Company.
Concurrent with the equity offering, the Company will enter into a prepaid
forward contract with the SanDisk PEPS Trust in connection with a public
offering of an aggregate of $200 million of Premium Exchangeable Participating
Shares, or PEPS, of the Trust.
F-45
<PAGE> 287
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The SanDisk PEPS Trust will offer the underwriters an option to purchase an
additional $30 million of PEPS to cover any over-allotments in connection with
the PEPS offering.
In addition, Thomas F. Mulvaney, senior vice president, general counsel and
secretary of Seagate Technology, resigned from SanDisk's board of directors on
August 13, 1999.
F-46
<PAGE> 288
SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JULY 2,
2000 1999(1)
--------- -------
<S> <C> <C>
ASSETS
Cash and cash equivalents.................................. $1,125 $ 396
Short-term investments..................................... 765 1,227
Accounts receivable, net................................... 761 872
Inventories................................................ 334 451
Deferred income taxes...................................... 248 252
Other current assets....................................... 155 114
------ ------
Total Current Assets..................................... 3,388 3,312
Property, equipment and leasehold improvements, net........ 1,539 1,687
Investment in VERITAS Software, net........................ 1,191 1,745
Goodwill and other intangibles, net........................ 409 144
Other assets............................................... 629 184
------ ------
Total Assets............................................. $7,156 $7,072
====== ======
LIABILITIES
Accounts payable........................................... $ 598 $ 714
Accrued employee compensation.............................. 193 205
Accrued expenses........................................... 476 577
Accrued income taxes....................................... 244 43
Current portion of long-term debt.......................... 1 1
------ ------
Total Current Liabilities................................ 1,512 1,540
Deferred income taxes...................................... 1,101 1,103
Other liabilities.......................................... 126 163
Long-term debt, less current portion....................... 703 703
------ ------
Total Liabilities........................................ 3,442 3,509
------ ------
STOCKHOLDERS' EQUITY
Common stock............................................... 3 3
Additional paid-in capital................................. 1,919 1,991
Retained earnings.......................................... 2,311 2,355
Accumulated other comprehensive income (loss).............. 282 (7)
Deferred compensation...................................... (34) (43)
Treasury common stock at cost.............................. (767) (736)
------ ------
Total Stockholders' Equity............................... 3,714 3,563
------ ------
Total Liabilities and Stockholders' Equity............... $7,156 $7,072
====== ======
</TABLE>
- -------------------------
(1) The information in this column was derived from the Company's audited
consolidated balance sheet as of July 2, 1999.
See notes to consolidated condensed financial statements.
F-47
<PAGE> 289
SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED NINE MONTHS ENDED
-------------------- --------------------
MARCH 31, APRIL 2, MARCH 31, APRIL 2,
2000 1999 2000 1999
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenue..................................... $1,573 $1,805 $4,900 $5,159
Cost of sales............................... 1,245 1,371 3,984 3,976
Product development......................... 144 143 430 440
Marketing and administrative................ 123 135 366 401
Amortization of goodwill and other
intangibles............................... 15 9 32 29
In-process research and development......... 105 -- 105 --
Restructuring costs......................... 49 60 183 60
Unusual items............................... -- -- 325 78
------ ------ ------ ------
Total Operating Expenses.................. 1,681 1,718 5,425 4,984
Income (Loss) from Operations............. (108) 87 (525) 175
Interest income............................. 27 28 69 81
Interest expense............................ (13) (12) (39) (37)
Activity related to equity interest in
VERITAS................................... (74) -- (256) --
Gain on sale of VERITAS stock............... -- -- 537 --
Gain on sale of SanDisk stock............... 453 -- 515 --
Other....................................... -- 2 (3) 10
------ ------ ------ ------
Other Income (Expense), net............... 393 18 823 54
------ ------ ------ ------
Income before income taxes.................. 285 105 298 229
Provision for income taxes.................. 149 23 219 72
------ ------ ------ ------
Net Income................................ $ 136 $ 82 $ 79 $ 157
====== ====== ====== ======
NET INCOME PER SHARE:
Basic..................................... $ 0.61 $ 0.35 $ 0.36 $ 0.65
Diluted................................... 0.58 0.34 0.35 0.63
NUMBER OF SHARES USED IN
PER SHARE COMPUTATIONS:
Basic..................................... 223.4 236.6 218.9 242.2
Diluted................................... 235.6 243.9 227.6 247.3
</TABLE>
See notes to consolidated condensed financial statements.
F-48
<PAGE> 290
SEAGATE TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------
MARCH 31, APRIL 2,
2000 1999
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 79 $ 157
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 541 507
Deferred income taxes................................... (223) 73
In-process research and development..................... 105 --
Non-cash portion of restructuring charge................ 88 34
Activity related to equity interest in VERITAS.......... 256 --
Gain on sale of VERITAS stock........................... (537) --
Gain on sale of SanDisk stock........................... (515) --
Compensation expense for SSI exchange offer............. 284 --
Other, net.............................................. 34 38
Changes in operating assets and liabilities:
Accounts receivable.................................. 106 (118)
Inventories.......................................... 94 129
Accounts payable..................................... (125) 20
Accrued income taxes................................. (9) 13
Accrued expenses and employee compensation........... (216) (23)
Other assets and liabilities, net.................... (17) 170
------- -------
Net cash provided by (used in) operating activities..... (55) 1,000
INVESTING ACTIVITIES:
Acquisition of property, equipment and leasehold
improvements, net....................................... (385) (420)
Purchases of short-term investments....................... (1,796) (5,332)
Maturities and sales of short-term investments............ 2,249 5,243
Proceeds from sale of VERITAS stock....................... 834 --
Proceeds from sale of SanDisk stock....................... 535 --
Other, net................................................ (14) (31)
------- -------
Net cash provided by (used in) investing activities..... 1,423 (540)
FINANCING ACTIVITIES:
Sale of common stock...................................... 138 74
Purchase of treasury stock................................ (776) (843)
Other, net................................................ -- (1)
------- -------
Net cash used in financing activities................... (638) (770)
Effect of exchange rate changes on cash and cash
equivalents............................................. (1) (2)
------- -------
Increase (decrease) in cash and cash equivalents.......... 729 (312)
Cash and cash equivalents at the beginning of the
period.................................................. 396 666
------- -------
Cash and cash equivalents at the end of the period........ $ 1,125 $ 354
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
F-49
<PAGE> 291
SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated condensed financial statements have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes the disclosures included in the unaudited
consolidated condensed financial statements, when read in conjunction with the
consolidated financial statements of the Company as of July 2, 1999 and notes
thereto, are adequate to make the information presented not misleading.
The consolidated condensed financial statements reflect, in the opinion of
management, all material adjustments necessary to summarize fairly the
consolidated financial position, results of operations and cash flows for such
periods. Such adjustments are of a normal recurring nature.
The results of operations for the three and nine month periods ended March
31, 2000 are not necessarily indicative of the results that may be expected for
the entire fiscal year ending June 30, 2000.
The Company operates and reports financial results on a fiscal year of 52
or 53 weeks ending on the Friday closest to June 30. Accordingly, fiscal 1999
was 52 weeks and ended on July 2, 1999 and fiscal 2000 will be 52 weeks and will
end on June 30, 2000.
F-50
<PAGE> 292
SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income (loss) per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
MARCH 31, APRIL 2, MARCH 31, APRIL 2,
2000 1999 2000 1999
--------- -------- --------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Numerator:
Net income........................... $ 136 $ 82 $ 79 $ 157
------ ------ ------ ------
Denominator:
Denominator for basic net income per
share -- weighted average shares
outstanding....................... 223.4 236.6 218.9 242.2
Incremental common shares
attributable to exercise of
outstanding options (assuming
proceeds would be used to purchase
treasury stock)................... 12.2 7.3 8.7 5.1
------ ------ ------ ------
Denominator for diluted net income
per share -- adjusted weighted
average shares.................... 235.6 243.9 227.6 247.3
====== ====== ====== ======
Basic net income per share............. $ 0.61 $ 0.35 $ 0.36 $ 0.65
====== ====== ====== ======
Diluted net income per share........... $ 0.58 $ 0.34 $ 0.35 $ 0.63
====== ====== ====== ======
</TABLE>
Options to purchase 0.1 million shares and 1.6 million shares of common
stock were outstanding during the quarter and nine months ended March 31, 2000,
respectively, but were not included in the computation of diluted net income per
share because the options' exercise price was greater than the average market
price of the common stock and, therefore, the effect would be antidilutive.
Options to purchase 1.6 million shares and 7.2 million shares of common stock
were outstanding during the quarter and nine months ended April 2, 1999,
respectively, but were not included in the computation of diluted net income per
share because the options' exercise price was greater than the average market
price of the common stock and, therefore, the effect would be antidilutive.
F-51
<PAGE> 293
SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
MARCH 31, JULY 2,
2000 1999
--------- -------
(IN MILLIONS)
<S> <C> <C>
Accounts Receivable:
Accounts receivable..................................... $ 835 $ 925
Allowance for non-collection............................ (74) (53)
------- -------
$ 761 $ 872
------- -------
Inventories:
Components.............................................. $ 118 $ 143
Work-in-process......................................... 64 54
Finished goods.......................................... 152 254
------- -------
$ 334 $ 451
======= =======
Property, Equipment and Leasehold Improvements:
Property, equipment and leasehold improvements.......... $ 3,580 $ 3,533
Allowance for depreciation and amortization............. (2,041) (1,846)
------- -------
$ 1,539 $ 1,687
======= =======
</TABLE>
4. INCOME TAXES
The effective tax rate used to record the provision for income taxes for
the nine months ended March 31, 2000 was 74% compared with a 32% effective tax
rate used to record the provision for income taxes for the nine months ended
April 2, 1999. The higher effective tax rate used to record the provision for
income taxes for the nine months ended March 31, 2000 resulted primarily from
the effects of net non-deductible charges associated with the acquisition of the
minority interest in Seagate Software, the acquisition of XIOtech Corporation
("XIOtech"), the net gain from the sales of SanDisk Corporation ("SanDisk") and
VERITAS Software Corporation ("VERITAS") common stock and activity related to
the Company's equity interest in VERITAS. Excluding these items, and considering
the effects of the Company's settlement of litigation with Rodime PLC (the
"Rodime Settlement") and certain non-recurring restructuring costs, the pro
forma effective tax rate used to record the provision for income taxes for the
nine months ended March 31, 2000 would have been 28%. The pro forma effective
tax rate of 28% is less than the statutory rate because a portion of the
Company's anticipated foreign operating income is not subject to foreign income
taxes and is considered to be permanently reinvested in non-U.S. operations.
F-52
<PAGE> 294
SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------
MARCH 31, APRIL 2,
2000 1999
--------- --------
(IN MILLIONS)
<S> <C> <C>
Cash Transactions:
Cash paid for interest................................... $52 $ 52
Cash paid for income taxes, net of refunds............... 447 (115)
Non-Cash Transactions:
Acquisition of minority interest......................... 19 --
Acquisition of XIOtech................................... 359 --
</TABLE>
6. RESTRUCTURING COSTS
During the nine months ended March 31, 2000, the Company recorded
restructuring charges totaling $184 million including $49 million recorded in
the quarter ended March 31, 2000. These charges were a result of a restructuring
plan established to align the Company's global workforce and manufacturing
capacity with existing and anticipated future market requirements and
necessitated by the Company's improved productivity and operating efficiencies
(the "fiscal 2000 restructuring plan"). These actions include workforce
reductions, capacity reductions including closure of facilities or portions of
facilities, write-off of excess equipment and consolidation of operations in the
Company's recording media operations, disc drive assembly and test facilities,
printed circuit board assembly manufacturing, recording head operations,
software operations, customer service operations, sales and marketing
activities, and research and development activities. The restructuring charges
were comprised of $60 million for the write-off of excess manufacturing,
assembly and test equipment formerly utilized in Singapore, Thailand and
Northern California; $81 million for employee termination costs; $29 million for
the write-off of owned facilities located in Singapore; $7 million in lease
termination and holding costs; $5 million in renovation costs to restore
facilities in Singapore and Northern California to their pre-lease condition;
and $2 million in contract cancellations associated with one of the Singapore
facilities. Prior to this period, there was no indication of permanent
impairment of the assets associated with the closure and consolidation of
facilities.
In connection with the restructuring activities taken to date, the Company
plans to reduce its workforce by approximately 21,800 primarily manufacturing
employees. Approximately 17,500 of the 21,800 employees had been terminated as
of March 31, 2000. As a result of employee terminations and the write-off of
equipment and facilities in connection with the restructuring charges recorded
during the nine months ended March 31, 2000 related to the fiscal 2000
restructuring plan, the Company estimates that after completion of these
restructuring activities, annual salary and depreciation expense will be reduced
by approximately $118 million and $76 million, respectively. The Company may
implement additional actions pursuant to the fiscal 2000 restructuring plan,
and, if such additional actions are implemented, the Company anticipates that
additional charges
F-53
<PAGE> 295
SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
would be taken related to these actions. The Company expects the implementation
of the fiscal 2000 restructuring plan will be substantially complete by
September 30, 2000.
In connection with the restructuring plan implemented in fiscal 1999, the
Company's planned workforce reduction has been completed as of March 31, 2000
and the other restructuring activities were substantially complete as of March
31, 2000.
The following table summarizes the Company's restructuring activities for
the nine months ended March 31, 2000:
<TABLE>
<CAPTION>
SEVERANCE EXCESS CONTRACT
AND BENEFITS FACILITIES EQUIPMENT CANCELLATIONS OTHER TOTAL
------------ ---------- --------- ------------- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Reserve balances, July 2,
1999......................... $ 4 $ 18 $ -- $3 $11 $ 36
Q1FY00 restructuring charge.... 27 33 48 2 2 112
Q2FY00 restructuring charge.... 19 1 -- -- 3 23
Q3FY00 restructuring charge.... 35 2 12 -- -- 49
Cash charges................... (62) (11) -- -- (2) (75)
Non-cash charges............... -- (28) (60) -- -- (88)
Adjustments and
reclassifications............ (2) -- -- -- 2 --
---- ---- ---- -- --- ----
Reserve balances, March 31,
2000......................... $ 21 $ 15 $ -- $5 $16 $ 57
==== ==== ==== == === ====
</TABLE>
7. BUSINESS SEGMENTS
The Company has three operating segments, disc drives, software and tape
drives, however, only the disc drive business is a reportable segment under the
criteria of SFAS 131. The "other" category in the following tables consists of
tape drives, software, and out-of-warranty repair. The Chief Executive Officer
(the "CEO") has been identified as the Chief Operating Decision Maker as defined
by SFAS 131. The CEO evaluates performance and allocates resources based on
revenue and gross profit from operations. Gross profit from operations is
defined as revenue less cost of sales. The following tables summarize the
Company's operations by business segment:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
MARCH 31, APRIL 2, MARCH 31, APRIL 2,
2000 1999 2000 1999
--------- -------- --------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Revenue:
Disc Drives....................... $ 1,468 $ 1,614 $4,568 $4,627
Other............................. 105 191 332 532
-------- -------- ------ ------
Consolidated...................... $ 1,573 $ 1,805 $4,900 $5,159
======== ======== ====== ======
Gross Profit:
Disc Drives....................... $ 279 $ 322 $ 768 $ 885
Other............................. 49 112 148 298
-------- -------- ------ ------
Consolidated...................... $ 328 $ 434 $ 916 $1,183
======== ======== ====== ======
</TABLE>
F-54
<PAGE> 296
SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JULY 2,
2000 1999
--------- --------
<S> <C> <C>
Total Assets:
Disc Drives............................................ $ 19,122 $ 16,553
Other.................................................. 504 586
-------- --------
Operating Segments..................................... 19,626 17,139
Investment in VERITAS.................................. 1,191 1,745
Eliminations........................................... (13,661) (11,812)
-------- --------
Consolidated........................................... $ 7,156 $ 7,072
======== ========
</TABLE>
8. COMPREHENSIVE INCOME
During the quarter ended October 1, 1999, Gadzoox Networks Inc.
("Gadzoox"), a company in which Seagate Technology held a 19.89% interest as of
that date, completed an initial public offering of its common stock. The Company
is required to account for its investment under Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). The Company has identified this investment as
"available-for-sale". Under SFAS 115, an available-for-sale security is recorded
at fair value on the balance sheet and unrealized holding gains and losses are
reported, net of taxes, in a separate component of stockholders' equity called
accumulated other comprehensive income, until realized. For the nine months
ended March 31, 2000, the Company recorded net unrealized gains on securities of
$130 million, net of tax, with respect to its investment in Gadzoox.
During the quarter ended December 31, 1999, the Company identified its
investment in SanDisk as "available-for-sale" after it had sold 2,000,000 shares
of stock it held in SanDisk, adjusted for a 2 for 1 stock split on February 23,
2000, resulting in an ownership percentage of 15.8% as of December 31, 1999. The
Company recorded an unrealized gain on securities, net of tax, of $97 million to
record its investment in SanDisk at fair value as of December 31, 1999. For the
nine months ended March 31, 2000, the Company recorded unrealized gains on
securities of $162 million, net of tax, with respect to its investment in
SanDisk.
Between March 31, 2000 and April 26, 2000, the Company experienced a
decline in the market values on its investments in SanDisk and Gadzoox of $133
million and $69 million, respectively. On an after tax basis, these unrealized
losses were $81 million and $42 million, respectively.
F-55
<PAGE> 297
SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The components of comprehensive income, net of related tax, for the three
and nine months ended March 31, 2000 and April 2, 1999 were as follows (in
millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- ---------------------
MARCH 31, APRIL 2, MARCH 31, APRIL 2,
2000 1999 2000 1999
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net income............................ $136 $82 $ 79 $157
Unrealized gain (loss) on
securities.......................... 78 (3) 289 (2)
Foreign currency translation
adjustments......................... -- -- -- (1)
---- --- ---- ----
Comprehensive income.................. $214 $79 $368 $154
==== === ==== ====
</TABLE>
The components of accumulated other comprehensive income (loss), net of
related tax, at March 31, 2000 and July 2, 1999 were as follows (in millions):
<TABLE>
<CAPTION>
MARCH 31, JULY 2,
2000 1999
--------- -------
<S> <C> <C>
Unrealized gain (loss) on securities........................ $284 $(5)
Foreign currency translation adjustments.................... (2) (2)
---- ---
Accumulated other comprehensive income (loss)............... $282 $(7)
==== ===
</TABLE>
9. EQUITY INVESTMENT IN VERITAS SOFTWARE CORPORATION
During the quarters ended October 1, 1999 and December 31, 1999, Seagate
Software sold 18,523,502 and 9,000,000 shares, respectively, of VERITAS common
stock, adjusted for 3 for 2 stock splits on November 22, 1999 and March 6, 2000,
for proceeds of $397 million and $437 million, respectively, net of underwriting
discounts and commissions. Seagate Software acquired such shares in connection
with the contribution of its Network & Storage Management Group business to
VERITAS in May 1999. The sale of shares of VERITAS common stock by Seagate
Software in the quarters ended October 1, 1999 and December 31, 1999 resulted in
pre-tax gains of $193 million and $344 million, respectively. As of March 31,
2000, Seagate Software held approximately 33% of the outstanding common stock of
VERITAS. The Company accounts for its investment in VERITAS under the equity
method and records its equity interest in VERITAS' net income (loss) on a
one-quarter lag.
Summarized income statement information for VERITAS for the three and nine
months ended December 31, 1999 is as follows (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1999
------------------ -----------------
<S> <C> <C>
Revenue.................................. $ 226 $ 524
Gross profit............................. 188 438
Net loss................................. (171) (517)
</TABLE>
The Company's recorded equity in the net income of VERITAS for the three
and nine months ended March 31, 2000 was $12 million and $20 million,
respectively, and
F-56
<PAGE> 298
SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
differs from the Company's proportionate share of VERITAS' reported net loss for
the three and nine months ended December 31, 1999. This difference is primarily
because the Company eliminates from VERITAS' net income (loss) the effect of
VERITAS' accounting for the Network & Storage Management Group business
contribution, including VERITAS' amortization expense related to intangible
assets.
The Company's activity related to equity interest in VERITAS for the three
and nine months ended March 31, 2000 consisted of the recorded equity in the net
income of VERITAS of $12 million and $20 million, respectively, as described
above, and the Company's amortization expense for goodwill and other intangible
assets relating to the investment in VERITAS amounting to $86 million and $276
million, respectively.
10. SEAGATE SOFTWARE REORGANIZATION
On October 20, 1999, the stockholders of Seagate Software, a majority-owned
subsidiary of the Company, approved the merger of Seagate Daylight Merger Corp.,
a wholly-owned subsidiary of the Company, with and into Seagate Software.
Seagate Software's assets consisted of the assets of the Information Management
Group ("IMG") and its investment in the common stock of VERITAS Software
Corporation. The merger was effected on October 20, 1999. As a result of the
merger, Seagate Software became a wholly-owned subsidiary of the Company. In
connection with the merger, Seagate Software's stockholders and optionees
received payment in the form of 3.23 shares of the Company's common stock per
share of Seagate Software common stock less any amounts due for the payment of
the exercise price for such options. All outstanding Seagate Software stock
options were accelerated immediately prior to the merger. Seagate Technology
issued 9,124,046 shares to optionees and minority stockholders of Seagate
Software.
In connection with the reorganization, Seagate Software also formed a
wholly-owned subsidiary that assumed the name "Seagate Software, Inc."
("Software Operating Company"). Seagate Software transferred the IMG assets into
Software Operating Company. This new company, Software Operating Company, is now
the operating entity for the IMG business. In October 1999, a new stock option
plan was established for Software Operating Company, and employees of the IMG
business are eligible to participate in the plan.
Seagate Software accounted for the exchange of shares of its common stock
as the acquisition of a minority interest for Seagate Software common stock
outstanding and vested more than six months held by employees and all stock held
by former employees and consultants. The fair value of the shares of Seagate
Technology issued was $19 million and was recorded as purchase price and
allocated to the assets and liabilities received. The Company accounted for the
exchange of shares of its common stock for stock options in Seagate Software
held by employees and stock held and vested by employees less than six months as
the settlement of an earlier stock award. During the quarter ended December 31,
1999, the Company recorded compensation expense of $284 million, plus $2 million
in payroll taxes, related to the purchase of minority interest in Seagate
Software.
F-57
<PAGE> 299
SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
ALLOCATION OF MINORITY INTEREST PURCHASE PRICE TO THE INTANGIBLE ASSETS OF
SEAGATE SOFTWARE
<TABLE>
<CAPTION>
IN MILLIONS
-----------
<S> <C>
Distribution channel........................................ $ 1
Developed technology........................................ 1
Goodwill.................................................... 18
---
Subtotal.................................................. 20
Deferred tax liability...................................... (1)
---
Total....................................................... $19
===
</TABLE>
COMPENSATION RELATING TO STOCK PURCHASED FROM EMPLOYEES
<TABLE>
<CAPTION>
DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA
------------------------------------------
<S> <C>
Seagate Software options exercised and exchanged for Seagate
Technology stock.......................................... 3,723,015
Plus: Seagate Software stock held for less than 6 months and
exchanged for Seagate Technology stock.................... 17,952
-----------
Total Seagate Software shares exchanged..................... 3,740,967
Times: Exchange ratio into Seagate Technology stock......... 3.23
-----------
Number of Seagate Technology shares issued.................. 12,083,323
-----------
Value per share of Seagate Technology common stock on
October 20, 1999.......................................... $ 29.00
Less: Average price paid per Seagate Technology share....... $ (5.50)
-----------
Average compensation expense per Seagate Technology share
issued.................................................... $ 23.50
-----------
Total compensation expense.................................. $ 284
===========
</TABLE>
11. ACQUISITION OF XIOTECH CORPORATION
On January 28, 2000, the Company acquired XIOtech Corporation ("XIOtech"),
a provider of virtual storage and Storage Area Network (SAN) solutions, for
Seagate Technology common stock with a value of $359 million. This acquisition
was accounted for as a purchase and, accordingly, the results of operations of
XIOtech have been included in the consolidated financial statements from the
date of acquisition. The purchase price has been allocated based on the
estimated fair market value of net tangible and intangible assets acquired as
well as in-process research and development costs. As a result of the
acquisition, the Company incurred a one-time write-off of in-process research
and development of $105 million. Goodwill and other intangibles arising from the
acquisition are being amortized on a straight-line basis over periods ranging
from four months to seven years. Amortization of goodwill and other intangibles
is expected to be approximately $51 million the first year and approximately $47
million in subsequent years. XIOtech's revenue and expenses are immaterial to
the Company's consolidated revenue and expenses.
F-58
<PAGE> 300
SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following is a summary of the purchase price allocation (in millions):
<TABLE>
<S> <C>
Tangible assets less liabilities assumed.................... $ 12
Developed technology........................................ 90
Tradenames.................................................. 5
Assembled workforce......................................... 2
Customer list............................................... 2
In-process research and development......................... 105
Goodwill.................................................... 182
Deferred tax liability...................................... (39)
----
$359
====
</TABLE>
12. STOCK PURCHASE AGREEMENT AND MERGER AGREEMENT
On March 29, 2000, Seagate Technology, Seagate Software Holdings, Inc.
("Seagate Software") and Suez Acquisition Company (Cayman) Limited ("SAC"), an
entity affiliated with, among others, Silver Lake Partners and Texas Pacific
Group entered into a Stock Purchase Agreement (the "Stock Purchase Agreement"),
and Seagate Technology, VERITAS and a wholly owned subsidiary of VERITAS entered
into an Agreement and Plan of Merger and Reorganization (the "Merger
Agreement").
Under the Stock Purchase Agreement, SAC has agreed to purchase, in exchange
for $2 billion in cash, all of the assets of Seagate Technology and its
consolidated subsidiaries, including Seagate's disc drive, tape drive and
software businesses and operations, but excluding the approximately 128 million
shares of VERITAS common stock currently held by Seagate Software and Seagate
Technology's equity investments in Gadzoox Networks, SanDisk Corporation, CVC,
Inc. and Dragon Systems, Inc., a privately held company. In addition, under the
Stock Purchase Agreement, SAC has agreed to assume substantially all of the
liabilities of Seagate Technology and its consolidated subsidiaries. This
transaction is referred to herein as the SAC transaction.
Under the Merger Agreement, immediately following and contingent upon the
consummation of the SAC transaction, a wholly-owned subsidiary of VERITAS will
merge with and into Seagate Technology, with Seagate Technology to survive the
merger and to become a wholly-owned subsidiary of VERITAS. This transaction is
referred to herein as the Merger. VERITAS is not acquiring Seagate Technology's
disc drive business or any other Seagate operating business. In the Merger, the
Seagate stockholders will receive merger consideration consisting of:
- Approximately 109.3 million shares of VERITAS common stock issued in
exchange for the approximately 128 million shares of VERITAS common stock
that Seagate currently holds,
- additional shares of VERITAS common stock issued in exchange for the
investment securities, and, at VERITAS' election, for up to $750 million
in retained cash, and
F-59
<PAGE> 301
SEAGATE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
- all cash on the Seagate balance sheet in excess of $800 million
(including cash generated from the SAC transaction) and after giving
effect to VERITAS retained cash, debt repayment, taxes and other
liabilities.
The Merger is intended to qualify as a tax-free reorganization.
On March 29, 2000, Seagate Technology, VERITAS and SAC entered into an
Indemnification Agreement, pursuant to which these entities and certain other
subsidiaries of Seagate Technology have agreed to certain indemnification
provisions regarding tax and other matters that may arise in connection with the
SAC transaction and the Merger. Also on March 29, 2000, VERITAS and SAC entered
into a letter agreement, pursuant to which VERITAS agreed to a no-shop provision
and an alternative termination fee provision.
All of the transactions contemplated by the SAC transaction and the Merger
are herein referred to as the Veritas/Silver Lake transaction. The
Veritas/Silver Lake transaction is expected to close in the first quarter of
fiscal year 2001, subject to the approval of VERITAS and Seagate stockholders,
funding of the debt commitments and clearance by the U.S. Securities and
Exchange Commission, as well as clearance under antitrust laws and other
customary closing conditions. The Company expects that while the Veritas/Silver
Lake transaction is pending, the value of Seagate common stock will depend
primarily on the value of VERITAS common stock.
13. LITIGATION
Following the Company's announcement of the Veritas/Silver Lake
transaction, a number of stockholders filed lawsuits against the Company, the
individual members of the Board of Directors and certain executive officers in
both Delaware and California. As of April 11, 2000, 17 complaints had been filed
in the Chancery Court of Delaware. In California, three complaints were filed in
Santa Clara County Superior Court and two complaints were filed in Santa Cruz
County Superior Court. The complaints in these jurisdictions each allege that
the members of the Company's Board of Directors breached their fiduciary duties
to the Company's shareholders by entering into the Veritas/Silver Lake
transaction. The complaints also allege that the Company's directors and
executive officers have conflicting financial interests and did not secure the
highest possible price for the Company's shares. All the complaints are styled
as class actions, and seek to enjoin the Veritas/Silver Lake transaction and
secure damages from all defendants. The Company believes that none of the
lawsuits has any merit and intends to defend all these claims vigorously.
In late 1992, Rodime PLC filed a complaint alleging infringement on a
certain patent. The process of litigation ensued and elapsed through January
2000. On January 18, 2000, the U.S. Supreme Court denied the Company's petition
for certiorari. On the following day, through a mediation process, the Company
and Rodime agreed to a settlement amount of $45 million to bring the related
litigation to an end. As a result, a previously recorded estimate of related
settlement costs was revised and a charge of $39 million was recorded in the
three months ended December 31, 1999. See Part II, Item 1 of this Form 10-Q for
a description of legal proceedings.
F-60
<PAGE> 302
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Stockholders and Board of Directors
VERITAS Software Corporation
We have audited the accompanying consolidated balance sheets of VERITAS
Software Corporation as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the index at page F-1. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of VERITAS
Software Corporation at December 31, 1999 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
/s/ ERNST & YOUNG LLP
San Jose, California
January 25, 2000
F-61
<PAGE> 303
VERITAS SOFTWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1999 1998
---------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 148,244 $139,086
Short-term investments.................................... 544,137 72,040
Accounts receivable, net of allowance for doubtful
accounts of $5,693 and $2,572, respectively............ 132,180 52,697
Deferred income taxes..................................... 23,803 4,272
Other current assets...................................... 13,381 9,237
---------- --------
Total current assets.............................. 861,745 277,332
Long-term investments....................................... 65,036 31,925
Property and equipment, net................................. 76,958 26,518
Goodwill and other intangibles, net......................... 3,226,749 4,005
Deferred income taxes....................................... -- 7,928
Other assets................................................ 2,789 1,409
---------- --------
$4,233,277 $349,117
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 30,229 $ 4,958
Accrued compensation and benefits......................... 35,560 11,267
Accrued acquisition and restructuring costs............... 24,202 478
Other accrued liabilities................................. 41,727 10,718
Income taxes payable...................................... 6,804 13,424
Customer advances......................................... 5,208 --
Deferred revenue.......................................... 86,979 37,645
---------- --------
Total current liabilities......................... 230,709 78,490
Convertible subordinated notes.............................. 451,044 100,000
Deferred income taxes....................................... 157,867 --
Other non-current liabilities............................... 596 773
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value:
10,000 shares authorized: none issued and
outstanding.......................................... -- --
Common stock, $.001 par value:
500,000 shares authorized; 390,898 and 214,329 shares
issued and outstanding at December 31, 1999 and
1998................................................. 391 214
Additional paid-in capital................................ 3,926,554 199,644
Accumulated deficit....................................... (532,374) (29,416)
Deferred compensation..................................... -- (32)
Accumulated other comprehensive loss...................... (1,510) (556)
---------- --------
Total stockholders' equity........................ 3,393,061 169,854
---------- --------
$4,233,277 $349,117
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-62
<PAGE> 304
VERITAS SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Net revenue:
User license fees.............................. $ 498,014 $167,703 $ 95,714
Services....................................... 98,098 43,162 25,411
--------- -------- --------
Total net revenue...................... 596,112 210,865 121,125
Cost of revenue:
User license fees.............................. 20,735 8,798 4,731
Services....................................... 38,161 20,663 11,714
Amortization of developed technology........... 35,659 -- --
--------- -------- --------
Total cost of revenue.................. 94,555 29,461 16,445
--------- -------- --------
Gross profit..................................... 501,557 181,404 104,680
Operating expenses:
Selling and marketing.......................... 221,989 76,392 42,868
Research and development....................... 94,477 40,239 25,219
General and administrative..................... 34,185 10,505 8,027
Amortization of goodwill and other
intangibles................................. 510,943 -- --
Acquisition and restructuring costs............ 11,000 -- 8,490
In-process research and development............ 104,200 600 --
--------- -------- --------
Total operating expenses............... 976,794 127,736 84,604
--------- -------- --------
Income (loss) from operations.................... (475,237) 53,668 20,076
Interest and other income, net................... 23,328 11,821 4,889
Interest expense................................. (15,659) (5,700) (1,206)
--------- -------- --------
Income (loss) before income taxes................ (467,568) 59,789 23,759
Provision for income taxes....................... 35,390 8,141 1,010
--------- -------- --------
Net income (loss)................................ $(502,958) $ 51,648 $ 22,749
========= ======== ========
Net income (loss) per share -- basic............. $ (1.59) $ 0.24 $ 0.11
========= ======== ========
Net income (loss) per share -- diluted........... $ (1.59) $ 0.22 $ 0.10
========= ======== ========
Number of shares used in computing per share
amounts -- basic............................... 316,892 211,558 205,300
========= ======== ========
Number of shares used in computing per share
amounts -- diluted............................. 316,892 232,519 222,716
========= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-63
<PAGE> 305
VERITAS SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES ACCUMULATED
COMMON STOCK ADDITIONAL RECEIVABLE OTHER
---------------- PAID-IN ACCUMULATED FROM DEFERRED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDERS COMPENSATION INCOME (LOSS)
------- ------ ---------- ----------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996......... 202,676 $203 $ 179,207 $(103,813) $(282) $(97) $ (263)
Components of comprehensive income:
Net income (loss)................ -- -- -- 22,749 -- -- --
Foreign currency translation
adjustment..................... -- -- -- -- -- -- (303)
Total comprehensive income..... -- -- -- -- -- -- --
Exercise of stock options.......... 3,750 4 3,266 -- -- -- --
Issuance of common stock under
employee stock purchase plan..... 1,147 1 2,506 -- -- -- --
Payments on notes receivable from
stockholders..................... -- -- -- -- 282 -- --
Amortization of deferred
compensation..................... -- -- -- -- -- 33 --
Tax benefit related to stock
options.......................... -- -- 700 -- -- -- --
------- ---- ---------- --------- ----- ---- -------
BALANCE AT DECEMBER 31, 1997......... 207,573 208 185,679 (81,064) -- (64) (566)
Components of comprehensive income:
Net income (loss)................ -- -- -- 51,648 -- -- --
Foreign currency translation
adjustment..................... -- -- -- -- -- -- 10
Total comprehensive income..... -- -- -- -- -- -- --
Exercise of stock options.......... 5,547 5 10,398 -- -- -- --
Issuance of common stock under
employee stock purchase plan..... 1,209 1 3,567 -- -- -- --
Amortization of deferred
compensation..................... -- -- -- -- -- 32 --
------- ---- ---------- --------- ----- ---- -------
BALANCE AT DECEMBER 31, 1998......... 214,329 214 199,644 (29,416) -- (32) (556)
Components of comprehensive income:
Net income (loss)................ -- -- -- (502,958) -- -- --
Foreign currency translation
adjustment..................... -- -- -- -- -- -- (954)
Total comprehensive income..... -- -- -- -- -- -- --
Exercise of stock options.......... 11,909 12 101,940 -- -- -- --
Issuance of common stock under
employee stock purchase plan..... 798 1 6,973 -- -- -- --
Issuance of common stock related to
the NSMG acquisition............. 155,583 156 3,151,196 -- -- -- --
Issuance of options to purchase
shares of common stock related to
the NSMG acquisition............. -- -- 281,418 -- -- -- --
Issuance of common stock related to
the TeleBackup acquisition....... 6,842 7 134,095 -- -- -- --
Issuance of options to purchase
shares of common stock related to
the TeleBackup acquisition....... -- -- 2,762 -- -- -- --
Issuance of common stock related to
the NuView acquisition........... 1,436 1 48,526 -- -- -- --
Amortization of deferred
compensation..................... -- -- -- -- -- 32 --
------- ---- ---------- --------- ----- ---- -------
BALANCE AT DECEMBER 31, 1999......... 390,898 $391 $3,926,554 $(532,374) $ -- $ -- $(1,510)
======= ==== ========== ========= ===== ==== =======
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
BALANCE AT DECEMBER 31, 1996......... $ 74,955
Components of comprehensive income:
Net income (loss)................ 22,749
Foreign currency translation
adjustment..................... (303)
----------
Total comprehensive income..... 22,446
Exercise of stock options.......... 3,270
Issuance of common stock under
employee stock purchase plan..... 2,507
Payments on notes receivable from
stockholders..................... 282
Amortization of deferred
compensation..................... 33
Tax benefit related to stock
options.......................... 700
----------
BALANCE AT DECEMBER 31, 1997......... 104,193
Components of comprehensive income:
Net income (loss)................ 51,648
Foreign currency translation
adjustment..................... 10
----------
Total comprehensive income..... 51,658
Exercise of stock options.......... 10,403
Issuance of common stock under
employee stock purchase plan..... 3,568
Amortization of deferred
compensation..................... 32
----------
BALANCE AT DECEMBER 31, 1998......... 169,854
Components of comprehensive income:
Net income (loss)................ (502,958)
Foreign currency translation
adjustment..................... (954)
----------
Total comprehensive income..... (503,912)
Exercise of stock options.......... 101,952
Issuance of common stock under
employee stock purchase plan..... 6,974
Issuance of common stock related to
the NSMG acquisition............. 3,151,352
Issuance of options to purchase
shares of common stock related to
the NSMG acquisition............. 281,418
Issuance of common stock related to
the TeleBackup acquisition....... 134,102
Issuance of options to purchase
shares of common stock related to
the TeleBackup acquisition....... 2,762
Issuance of common stock related to
the NuView acquisition........... 48,527
Amortization of deferred
compensation..................... 32
----------
BALANCE AT DECEMBER 31, 1999......... $3,393,061
==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-64
<PAGE> 306
VERITAS SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (502,958) $ 51,648 $ 22,749
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................... 24,126 7,346 3,113
Amortization of goodwill and other intangibles.......... 510,943 -- --
Amortization of developed technology.................... 35,659 -- --
In-process research and development..................... 104,200 600 --
Restructuring costs..................................... 948 -- 1,218
Amortization of original issue discount on convertible
notes................................................. 5,402 -- --
Deferred income taxes................................... (36,775) (8,000) (4,200)
Changes in operating assets and liabilities, net of
effects of business acquisitions:
Accounts receivable................................... (77,174) (22,127) (14,601)
Other receivable...................................... 22,935 -- --
Other assets.......................................... (3,367) (8,136) (267)
Accounts payable...................................... 19,389 3,469 (208)
Accrued compensation and benefits..................... 17,539 4,611 3,480
Accrued acquisition and restructuring costs........... (15,269) -- --
Other accrued liabilities............................. 10,169 2,525 2,387
Income taxes payable.................................. (8,956) 10,694 3,779
Customer advances and deferred revenue................ 37,203 20,167 9,370
---------- --------- ---------
Net cash provided by operating activities................... 144,014 62,797 26,820
Cash flows from investing activities:
Purchases of investments.................................. (764,097) (284,819) (144,907)
Investment maturities..................................... 258,891 296,048 79,921
Payment received on note.................................. -- -- 108
Purchase of property and equipment........................ (59,671) (23,424) (6,181)
Cash acquired from Seagate Software....................... 1,044 -- --
Cash acquired from TeleBackup............................. 1,493 -- --
Purchase of NuView, Inc. ................................. (11,400) -- --
Purchase of Frontier Software Devel. Pvt. Ltd. ........... (1,325) -- --
Purchase of Windward Technologies, Inc. .................. -- (1,250) --
Purchase of other businesses and technologies............. (1,900) -- --
---------- --------- ---------
Net cash used for investing activities...................... (576,965) (13,445) (71,059)
Financing activities:
Proceeds from issuance of common stock.................... 108,926 13,971 5,777
Net proceeds from issuance of convertible debt............ 334,137 -- 97,500
Payments of notes payable................................. -- -- (612)
Payments on notes receivable from stockholders............ -- -- 282
---------- --------- ---------
Net cash provided by financing activities................... 443,063 13,971 102,947
Effect of exchange rate changes............................. (954) 134 (490)
---------- --------- ---------
Net increase in cash and cash equivalents................... 9,158 63,457 58,218
Cash and cash equivalents at beginning of year.............. 139,086 75,629 17,411
---------- --------- ---------
Cash and cash equivalents at end of year.................... $ 148,244 $ 139,086 $ 75,629
========== ========= =========
Supplemental disclosures:
Cash paid for interest.................................... $ 5,300 $ 5,521 $ --
========== ========= =========
Cash paid for income taxes................................ $ 15,834 $ 6,245 $ 1,703
========== ========= =========
Supplemental schedule of noncash investing and financing
transactions:
Issuance of common stock and options for business
acquisitions............................................ $3,618,161 $ -- $ --
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-65
<PAGE> 307
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VERITAS Software Corporation (the Company), a Delaware corporation, is a
leading independent supplier of storage management software. The Company's
products help its customers manage complex and diverse computing environments
efficiently and cost-effectively by making sure that their data is protected,
can be accessed at all times, and can be managed and used in compliance with
business policies. The Company's products help to improve the levels of
centralization, control, automation and manageability in computing environments,
they allow information technology, or IT, managers to be more effective with
constrained resources and limited budgets. Its products offer protection against
data loss and file corruption, allow rapid recovery after disk or computer
system failure, enable IT managers and end users to work efficiently with large
numbers of files, and make it possible to manage data distributed on large
networks of computer systems without harming productivity or interrupting users.
In addition, the Company's products provide continuous availability of data in
clustered computer systems that share disk resources to maintain smooth business
operations. Its products are highly scalable in order to keep up with the rapid
growth of data and technologies deployed in businesses. The Company develops and
sells products for all popular operating systems, including versions of UNIX and
Windows NT. Its software solutions are used in a broad spectrum of industries,
including many leading global corporations and e-commerce businesses. The
Company also provides a full range of services to assist its customers in
planning and implementing their storage management solutions. The Company
markets its products and services to original equipment manufacturers and end
user customers through a combination of direct sales and indirect sales channels
such as resellers, value-added resellers, hardware distributors, application
software vendors and systems integrators.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
Stock splits
On June 7, 1999, the Company announced a two-for-one stock split in the
form of a stock dividend paid on July 8, 1999 to stockholders of record on June
18, 1999. On October 14, 1999, the Company announced a three-for-two split in
the form of a stock dividend paid on November 19, 1999 to stockholders of record
on November 2, 1999. On January 27, 2000, the Company announced a three-for-two
split in the form of a stock dividend paid on March 3, 2000 to stockholders of
record on February 18, 2000. All share and per share data have been restated to
give retroactive effect to the these stock splits.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
F-66
<PAGE> 308
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Cash, Cash Equivalents and Short-Term Investments
Cash and cash equivalents include cash and highly liquid investments with
insignificant interest rate risk and with original maturities of three months or
less when purchased. The Company invests its excess cash in diversified
instruments maintained primarily in U.S. financial institutions in an effort to
preserve principal and to maintain safety and liquidity.
Short-term investments include investments with original maturities of one
year or less when purchased. The Company has determined its short-term
investments are held to maturity under the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", (SFAS No. 115) and accordingly such amounts are recorded at
amortized cost.
At December 31, 1999, amortized cost approximated fair value for all cash
equivalents and short-term investments. To date, there have been no significant
realized or unrealized gains or losses on the short-term investments.
Long-Term Investments
Investments with remaining maturities greater than one year from date of
purchase are classified as long-term. The Company accounts for its long-term
investments in accordance with SFAS No. 115 and these investments are classified
as held to maturity as of the balance sheet date. At December 31, 1999,
amortized cost approximated fair value for all long-term investments and, to
date, there have been no significant realized or unrealized gains or losses on
the Company's long-term investments.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization
are calculated using the straight-line method over the estimated useful lives
or, in the case of leasehold improvements, the term of the related lease, if
shorter. The estimated useful lives of furniture and equipment and computer
equipment is generally three to five years. The Company also depreciates a
building located in India over fifteen years. Depreciation and amortization of
property and equipment charged to costs and expenses was approximately $23.1
million for the year ended December 31, 1999, $6.9 million for the year ended
December 31, 1998 and $3.1 million for the year ended December 31, 1997.
Goodwill and other intangibles
Goodwill represents the excess of the purchase price of net tangible and
intangible assets acquired in business combinations over their estimated fair
value. Other intangibles mainly represent distribution channels, original
equipment manufacturer agreements, developed technology, assembled workforce and
trademarks acquired in business combinations. Goodwill and other intangibles are
being amortized on a straight-line basis over their estimated useful life of
four years. The Company reviews goodwill and other intangibles to assess
recoverability from future operations using undiscounted cash flows. In
management's opinion, no material impairment exists at December 31, 1999.
Accumulated amortization of goodwill and other intangibles was $548.6 million as
of December 31, 1999 and $0.5 million as of December 31, 1998.
F-67
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VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition
In October of 1997 the Accounting Standards Executive Committee issued
Statement of Position (SOP) 97-2 "Software Revenue Recognition", which has been
amended by SOP 98-4 and SOP 98-9. These statements set forth generally accepted
accounting principles for recognizing revenue on software transactions. SOP
97-2, as amended by SOP 98-4, was effective for revenue recognized under
software license and service arrangements beginning January 1, 1998. SOP 98-9
amends SOP 97-2 and requires recognition of revenue using the "residual method"
when certain criteria are met. The implementation of these provisions of SOP
98-9 will be effective for the Company's fiscal year ending December 31, 2000.
The Company does not believe the impact of SOP 98-9 will be material to its
financial position, results of operations and cash flows.
The Company derives revenue from software licenses and customer support and
other services. Service revenue includes contracts for software maintenance and
technical support, consulting, training, and porting fees. In software
arrangements that include rights to multiple software products and/or services,
the Company allocates the total arrangement fee among each of the deliverables
based on the relative fair value of each of the deliverables, determined based
on vendor-specific objective evidence of fair value.
The Company recognizes revenue from licensing of software products to an
end user upon delivery of the software product to the customer, unless the fee
is not fixed or determinable, or collectibility is not considered probable. For
licensing of the Company's software to OEMs, revenue is not recognized until the
software is sold by the OEM to an end-user customer. For licensing of the
Company's software through our indirect sales channels, revenue is recognized
when the software is sold by the reseller, value-added reseller or distributor
to an end-user customer. The Company considers all arrangements with payment
terms extending beyond twelve months and other arrangements with payment terms
longer than normal not to be fixed or determinable. If collectibility is not
considered probable, revenue is recognized when the fee is collected.
Customer support revenue is recognized on a straight-line basis over the
period that the support is provided. Other software service arrangements are
evaluated to determine whether those services are essential to the functionality
of the other elements of the arrangement. When software services are considered
essential, revenue under the arrangement is recognized using contract
accounting. When software services are not considered essential, the revenue
allocable to the software services is recognized as the services are performed.
The Company generally considers software services essential unless the software
is paid for before the services commence and the services are limited to
training or normal installation.
Revenue is recognized using contract accounting for arrangements involving
customization or modification of the software or where software services are
considered essential to the functionality of the software. Revenue from these
software arrangements is recognized using the percentage-of-completion method
with progress-to-completion measured using labor cost inputs.
F-68
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VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Software Development Costs
Under Statement of Financial Accounting Standards No. 86 "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
certain software development costs incurred subsequent to the establishment of
technological feasibility are capitalized and amortized over the estimated lives
of the related products. Technological feasibility is established upon
completion of a working model, which is typically demonstrated by initial beta
shipment. The period between the achievement of technological feasibility and
the general release of the Company's products has been of short duration. As of
December 31, 1999 such capitalizable software development costs were
insignificant and all software development costs have been charged to research
and development expense in the accompanying consolidated statements of
operations.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of investments in debt
securities and trade receivables. The Company primarily invests its excess cash
in commercial paper rated A-1/P-1, medium-term notes, corporate notes,
government securities, market auction preferreds with approved financial
institutions, and other specific money market instruments of similar liquidity
and credit quality. The Company is exposed to credit risks in the event of
default by the financial institutions or issuers of investments to the extent
recorded on the balance sheet. The Company generally does not require
collateral. The Company maintains allowances for credit losses, and such losses
have been within management's expectations. For the years ended December 31,
1999 and 1997 no customer accounted for greater than 10% of revenues. For the
year ended December 31, 1998, one customer accounted for approximately 12% or
$25.8 million of the Company's revenue.
Net Income Per Share
Basic earnings per share is computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed using the weighted average number of common shares and dilutive
potential common shares outstanding during the period. Dilutive common shares
consist of employee stock options using the treasury stock method and common
shares issued assuming conversion of the convertible subordinated notes, if
dilutive.
Accounting for Stock-Based Compensation
The Company accounts for employee stock based compensation in accordance
with APB Opinion No. 25 "Accounting for Stock Issued to Employees" and related
interpretations. Pro forma net income and net income per share disclosures
required by Statement of Financial Accounting Standards No. 123, Accounting for
Stock Based Compensation", are included in Note 9.
Translation of Foreign Currencies
Assets and liabilities of certain foreign subsidiaries, whose functional
currency is the local currency, are translated at year-end exchange rates.
Income and expense items are
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VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
translated at the average rates of exchange prevailing during the year. The
adjustment resulting from translating the financial statements of such foreign
subsidiaries is reflected as a separate component of stockholder's equity.
Certain other transaction gains or losses, which have not been material, are
reported in results of operations.
Impairment of Long-Lived Assets
The Company reviews the assets for impairment and determines whether an
event or change in facts and circumstances indicates that the carrying amount of
property and equipment or other long-lived assets may not be recoverable. The
Company determines recoverability of the assets by comparing the carrying amount
of the asset to net future undiscounted cash flows that the asset is expected to
generate. The impairment recognized is the amount by which the carrying amount
exceeds the fair market value of the asset. No events or changes in facts and
circumstances occurred during the year that would indicate that any impairment
of assets existed.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133). SFAS No. 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. The Company will be required to implement SFAS No. 133 as of
the beginning of its fiscal year 2001. The Company's exchange rate hedging
activities have been insignificant to date and the Company does not believe the
impact of SFAS No. 133 will be material to its financial position, results of
operations or cash flows.
In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions". SOP 98-9
amends SOP 97-2 "Software Revenue Recognition" to require recognition of revenue
using the "residual method" when certain criteria are met. The Company will be
required to implement these provisions of SOP 98-9 for its fiscal year ending
December 31, 2000. SOP 98-9 also amends SOP 98-4, an earlier amendment to SOP
97-2, which extended the deferral of the application of certain passages of SOP
97-2. The Company does not believe the impact of SOP 98-9 will be material to
the Company's financial position, results of operations or cash flows.
NOTE 2. BUSINESS COMBINATIONS
On May 28, 1999, the Company acquired the Network & Storage Management
Group business of Seagate Software, Inc., which the Company refers to as "NSMG."
The NSMG business develops and markets software products and provides related
services enabling information technology professionals to manage distributed
network resources and to secure and protect enterprise data. Its products offer
features such as system backup, disaster recovery, migration, replication,
automated client protection, storage resource management, scheduling, event
correlation and desktop management. In connection with the NSMG acquisition, in
consideration for the contribution of assets and liabilities related to the NSMG
business by Seagate Technology, Inc., Seagate Software, Inc., and their
respective subsidiaries, and based on the average closing price of our common
stock of
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VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$20.26 per share for 5 days before and after June 7, 1999, the measurement date
for the transaction, the Company issued 155,583,486 shares of its common stock
to Seagate Software, Inc. and issued options to purchase 15,626,358 shares of
its common stock to its employees who were former NSMG employees. The Company
accounted for the NSMG acquisition using the purchase method of accounting, and
incurs charges of $221.5 million per quarter primarily related to the
amortization of developed technology, goodwill and other intangibles over their
estimated useful life of four years. The total NSMG purchase price was $3,464.5
million and included $3,151.4 million for the issuance of our common stock,
$269.7 million for the exchange of options to purchase our common stock and
$43.4 million of acquisition-related costs. The purchase price was allocated,
based on an independent valuation, to goodwill of $3,015.8 million, distribution
channels of $233.8 million, original equipment manufacturer agreements of $23.4
million, developed technology of $233.7 million, assembled workforce of $12.8
million, trademarks of $22.8 million, in-process research and development of
$101.2 million, net deferred tax liabilities of $179.5 million, other
intangibles of $1.5 million and tangible net liabilities assumed of $1.0
million. For 1999, the Company recorded $482.5 million for the amortization of
goodwill and other intangibles, and $34.1 million for the amortization of
developed technology related to this acquisition. The Consolidated Statements of
Operations include the results of operations of NSMG subsequent to the
acquisition date.
Acquisition-related costs consist of direct transaction costs of $20.0
million, operating lease commitments on duplicative facilities of $8.2 million
and involuntary termination benefits of $15.2 million. Non-cash charges included
in the acquisition-related costs approximate $11.7 million. At December 31,
1999, $17.4 million in direct transaction costs, $0.3 million in operating lease
commitments on duplicative facilities and $1.8 million in involuntary
termination benefits were paid against the acquisition-related costs accrual and
$11.7 million of non-cash involuntary termination benefits were charged against
the acquisition-related costs accrual. The remaining acquisition-related costs
accrual of $12.2 million is anticipated to be utilized primarily for servicing
operating lease payments or negotiated buyout of operating lease commitments,
the lease terms of which will expire at various times through the year 2013. In
addition, the Company recorded a restructuring charge of $11.0 million in 1999
as a result of the NSMG acquisition. This restructuring charge related to exit
costs with respect to duplicative facilities that the Company plans to vacate,
which include $0.9 million of write-off of redundant equipment and leasehold
improvements, and involuntary termination benefits. Involuntary termination
benefits relate to the salary and fringe benefit expense for terminated
employees in research and development. Involuntarily terminated employees
represented approximately 2% of the global workforce. At December 31, 1999, $0.9
million in severance costs were paid against the restructuring charge accrual
and $0.9 million of write-off of redundant equipment and leasehold improvements
had been written off. The remaining restructuring charge accrual of $9.2 million
is anticipated to be utilized primarily for servicing operating lease payments
or negotiated buyout of operating lease commitments, the lease terms of which
will expire at various times through the year 2012.
On June 1, 1999 the Company acquired TeleBackup Systems, Inc., which the
Company refers to as "TeleBackup." TeleBackup designs, develops and markets
software solutions for local and remote backup and recovery of electronic
information stored on networked, remote and mobile personal computers.
TeleBackup became a wholly owned
F-71
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VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
subsidiary of the Company in exchange for the issuance of 6,842,795 shares of
either its common stock or exchangeable shares to the holders of TeleBackup
common shares and the exchange of options to purchase 154,706 shares of its
common stock to its employees who were former employees of TeleBackup. The
Company accounted for the TeleBackup acquisition using the purchase method of
accounting, and incurs charges of $9.0 million per quarter primarily related to
the amortization of developed technology, goodwill and other intangibles over
their estimated useful life of four years. Based on the average closing price of
our common stock of $19.60 per share for 5 days before and after June 1, 1999,
the measurement date for the transaction, the total purchase price for
TeleBackup was $143.1 million. The TeleBackup purchase price included $134.1
million related to the issuance of our common stock, $2.8 million for the
issuance of options to purchase our common stock and $6.2 million in
acquisition-related costs. The acquisition costs of $6.2 million consist
primarily of direct transaction costs and involuntary termination benefits. At
December, 1999, of the total $6.2 million acquisition costs, the Company paid
$5.3 million in direct transaction costs with the majority of the remaining $0.9
million anticipated to be utilized by May 2000. The purchase price was
allocated, based on an independent valuation, to goodwill of $133.1 million,
distribution channels of $1.0 million, original equipment manufacturer
agreements of $2.1 million, developed technology of $6.6 million, assembled
workforce of $0.3 million, trademarks of $1.3 million, in-process research and
development of $1.9 million, net deferred tax liabilities of $3.0 million and
tangible net liabilities assumed of $0.2 million. For 1999, the Company recorded
$20.1 million for amortization of goodwill and other intangibles, and $1.0
million for the amortization of developed technology related to this
acquisition. The Consolidated Statements of Operations include the results of
operations of TeleBackup subsequent to the acquisition date.
On August 10, 1999, the Company acquired certain assets of NuView, Inc.,
which the Company refers to as "NuView". Under an asset purchase agreement, the
Company acquired certain assets of NuView, including its Windows NT cluster
management solution, Cluster X, for a total cost of approximately $67.9 million.
The Company accounted for the acquisition using the purchase method of
accounting, and incurs charges of $4.3 million per quarter primarily related to
the amortization of developed technology, goodwill and other intangibles over
their estimated useful life of four years. The purchase price included $47.7
million related to the issuance of the Company's common stock, $0.8 million for
the issuance of options to purchase the Company's common stock to former NuView
employees, $0.2 million in acquisition-related costs and $19.2 million payable
in cash, of which $11.4 million has been paid. The purchase price was allocated,
based on an independent valuation, to goodwill of $62.6 million, developed
technology of $2.4 million, assembled workforce of $0.6 million, trademarks of
$0.3 million, covenant-not-to-compete of $0.9 million and in-process research
and development of $1.1 million. For 1999, the Company recorded $8.1 million for
amortization of goodwill and other intangibles, and $0.3 million for the
amortization of developed technology related to this acquisition. The
Consolidated Statements of Operations include the results of operations of
NuView subsequent to the acquisition date.
The following unaudited pro forma summary results of operations data have
been prepared assuming that the NSMG, TeleBackup and NuView acquisitions had
occurred at the beginning of the periods presented. The consolidated results are
not necessarily
F-72
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VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
indicative of results of future operations nor of results that would have
occurred had the acquisitions been consummated as of the beginning of the
periods presented. The pro forma information excludes the impact of the one-time
charges related to in-process research and development costs of $104.2 million
and the restructuring charges of $11.0 million recorded in 1999 (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net revenue................................ $ 700,027 $ 409,998
========= =========
Net loss................................... $(738,049) $(814,993)
========= =========
Basic and diluted net loss per share....... $ (1.93) $ (2.18)
========= =========
</TABLE>
Effective April 25, 1997, the Company merged with OpenVision, a
publicly-held company that provided storage management applications and services
for client/server computing environments. This transaction was accounted for as
a pooling of interests. Approximately 65,745,000 shares of the Company's common
stock were issued in the OpenVision merger and the Company reserved
approximately 9,780,000 shares of its common stock for issuance pursuant to the
assumption of outstanding options, warrants and other rights to purchase
OpenVision common stock.
The following information shows revenue and net income of the separate
companies during the periods preceding the merger (in thousands):
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Net revenue:
VERITAS................................................ $ 12,454
OpenVision............................................. 13,156
Combined company....................................... 95,515
--------
$121,125
========
Net income:
VERITAS................................................ $ 3,752
OpenVision............................................. 1,665
Combined company....................................... 17,332
--------
$ 22,749
========
</TABLE>
Note: April 1, 1997 was used as an approximation of the effective date of
the Merger.
As a result of the OpenVision merger, the Company incurred charges to
operations of $8.5 million during the second quarter of 1997, consisting of
approximately $4.2 million for transaction fees and professional services, $1.9
million for contract terminations and asset write-offs and $2.4 million for
other costs incident to the merger. Of the total charge, $1.2 million resulted
from the write-down of redundant assets and facilities, primarily consisting of
intangible assets related to a prior acquisition which became redundant as a
result of OpenVision having a similar product line. The remaining $7.3 million,
involving banking, legal and accounting fees and other direct costs and payments
in connection with the elimination of duplicative facilities, was fully paid as
of December 31, 1999.
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VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. CASH, CASH EQUIVALENTS AND INVESTMENTS
Cash, cash equivalents and short-term investments consist of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Cash and cash equivalents:
Cash....................................... $ 55,233 $ 6,893
Money market funds......................... 5,234 172
Commercial paper........................... 77,771 132,021
Corporate notes............................ 10,006 --
-------- --------
Cash and cash equivalents.................... 148,244 139,086
-------- --------
Short-term investments:
Commercial paper........................... 207,465 1,357
Market auction preferreds.................. 11,713 20,659
Government securities...................... 91,599 --
Corporate notes............................ 233,360 50,024
-------- --------
Short-term investments....................... 544,137 72,040
-------- --------
Cash, cash equivalents and short-term
investments................................ $692,381 $211,126
======== ========
</TABLE>
Long-term investments consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
------- -------
<S> <C> <C>
Long-term investments:
Government securities....................... $18,838 $ 9,497
Medium-term corporate notes................. 46,198 22,428
------- -------
Long-term investments......................... $65,036 $31,925
======= =======
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Furniture and equipment...................... $ 24,176 $ 6,962
Computer equipment........................... 96,828 34,251
Building..................................... 1,445 1,008
Leasehold improvements....................... 17,266 3,765
-------- --------
139,715 45,986
Less -- accumulated depreciation and
amortization............................... (62,757) (19,468)
-------- --------
Property and equipment, net.................. $ 76,958 $ 26,518
======== ========
</TABLE>
NOTE 5. CONVERTIBLE SUBORDINATED NOTES
In October 1997, the Company issued $100.0 million of 5.25% convertible
subordinated notes due 2004 (the "5.25% notes"), for which the Company received
net
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VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
proceeds of $97.5 million. The Company and its wholly-owned subsidiary, VERITAS
Operating Corporation, are co-obligors on the 5.25% notes. The 5.25% notes
provide for semi-annual interest payments of $2.6 million each May 1 and
November 1. The 5.25% notes are convertible into shares of the Company's common
stock at any time prior to the close of business on the maturity date, unless
previously redeemed or repurchased, at a conversion price of $9.56 per share,
subject to adjustment in certain events, equivalent to a conversion rate of
104.65 shares of common stock per $1,000 principal amount at maturity. On or
after November 5, 2002, the 5.25% notes will be redeemable over the period of
time until maturity at our option at declining premiums to par. The debt
issuance costs are being amortized over the term of the 5.25% notes using the
interest method. The fair value of the 5.25% notes as of December 31, 1999 was
$1,000.9 million.
In August 1999, the Company and its wholly-owned subsidiary, VERITAS
Operating Corporation, issued $465.8 million, aggregate principal amount at
maturity, of 1.856% convertible subordinated notes due 2006 (the "1.856% notes")
for which the Company received net proceeds of approximately $334.1 million. The
interest rate of 1.856% together with the accrual of original issue discount
represent a yield to maturity of 6.5%. VERITAS and VERITAS Operating Corporation
are co-obligors on the 1.856% notes. The 1.856% notes provide for semi-annual
interest payments of $4.3 million each February 13 and August 13, commencing
February 13, 2000. The 1.856% notes are convertible into shares of the Company's
common stock at any time prior to the close of business on the maturity date,
unless previously redeemed or repurchased, at a conversion price of $35.80 per
share, subject to adjustment in certain events, equivalent to a conversion rate
of 27.934 shares of common stock per $1,000 principal amount at maturity. On or
after August 16, 2002, the 1.856% notes will be redeemable over the period of
time until maturity at the Company's option at issuance price plus accrued
original issue discount and any accrued interest. The debt issuance costs are
being amortized over the term of the 1.856% notes using the interest method. The
fair value of the 1.856% notes as of December 31, 1999 was $1,259.3 million.
NOTE 6. SUMMARY FINANCIAL INFORMATION OF SUBSIDIARY
VERITAS and its wholly-owned subsidiary, VERITAS Operating Corporation, are
co-obligors on VERITAS' 5.25% convertible subordinated notes due 2004 and 1.856%
convertible subordinated notes due 2006. In accordance with Staff Accounting
Bulletin No. 53, Financial Statement Requirements in Filings Involving the
Guarantee of Securities by the Parent, VERITAS provides the following unaudited
summary financial information with respect to VERITAS Operating Corporation. The
following presents the operations of, and the assets held by, the legal entity
VERITAS Operating Corporation and does not necessarily, nor is it intended to,
represent the operations of VERITAS Operating
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VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Corporation had it continued as a separate entity absent the NSMG acquisition
(in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total net revenue.................................... $451,095 $210,865
Amortization of goodwill and other intangibles....... 28,441 --
In-process research and development.................. 3,000 --
Acquisition and restructuring costs.................. -- --
Income from operations............................... 96,714 53,668
Net income........................................... 65,488 51,648
BALANCE SHEET DATA:
Working capital...................................... $530,672 $198,842
Goodwill and other intangibles....................... 199,590 --
Total assets......................................... 987,359 349,117
Long-term obligations................................ 451,629 100,773
Retained earnings (accumulated deficit).............. 36,072 (29,416)
Stockholders' equity................................. 433,478 169,854
</TABLE>
NOTE 7. COMMITMENTS AND CONTINGENCIES
The Company currently has operating leases for its facilities through
October 31, 2012. Rental expense under operating leases was approximately $15.6
million, $6.1 million and $4.3 million for the years ended December 31, 1999,
1998, and 1997, respectively. In addition to the basic rent, the Company is
responsible for all taxes, insurance and utilities related to the facilities.
The approximate minimum lease payments as of December 31, 1999 are as follows
(in thousands):
<TABLE>
<S> <C>
2000..................................... $ 23,549
2001..................................... 21,453
2002..................................... 18,195
2003..................................... 17,039
2004..................................... 15,267
Thereafter............................... 39,599
--------
Minimum lease payments................... $135,102
========
</TABLE>
In the ordinary course of business, various lawsuits and claims have been
filed against the Company. While the outcome of these matters is currently not
determinable, management believes that the ultimate resolution of these matters
will not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.
NOTE 8. BENEFIT PLANS
The Company has adopted a retirement savings plan (the VERITAS Software
401(k) Plan), qualified under Section 401(k) of the Internal Revenue Code, which
is a pretax savings plan covering substantially all United States employees.
Under the plan employees may contribute up to 20% of their pretax salary,
subject to certain limitations. Employees
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VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
are eligible to participate beginning the first day of the month following their
date of hire. The Company matches approximately 50% of the employee
contributions up to $2,500 per year and contributed approximately $3.1 million
in 1999. For 1998 and 1997, the Company matched approximately 25% of the
employee contributions up to $1,200 per year and contributed approximately $0.6
million in 1998 and $0.3 million in 1997.
NOTE 9. STOCK COMPENSATION PLANS
At December 31, 1999, the Company had three stock-based compensation plans,
which are described below. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plans. Since the exercise price of options
granted under such plans is generally equal to the market value on the date of
grant, no compensation cost has been recognized for grants under its stock
option plans and stock purchase plans. If compensation cost for the Company's
stock-based compensation plans had been determined consistent with SFAS No. 123,
the Company's net income (loss) and earnings (loss) per share would have been
reduced to the pro forma amounts indicated below (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------- -------
<S> <C> <C> <C>
Net income (loss)
As reported.............................. $(502,958) $51,648 $22,749
Pro forma................................ $(540,474) $32,102 $12,358
Basic earnings (loss) per share
As reported.............................. $ (1.59) $ 0.24 $ 0.11
Pro forma................................ $ (1.71) $ 0.15 $ 0.06
Diluted earnings (loss) per share
As reported.............................. $ (1.59) $ 0.22 $ 0.10
Pro forma................................ $ (1.71) $ 0.14 $ 0.06
</TABLE>
SFAS No. 123 is only applicable to options granted subsequent to January 1,
1995. As a result, the pro forma effect of adopting SFAS No. 123 is not fully
reflected until the year ending December 31, 1999.
Stock Option Plans
The Company has two stock option plans. The Company's 1993 Equity Incentive
Plan (the 1993 Plan) provides for the issuance of either incentive or
nonstatutory stock options to employees and consultants of the Company. The
options generally are granted at the fair market value of the Company's common
stock at the date of grant, expire ten years from the date of grant, vest over a
four-year period and are exercisable immediately upon vesting. The Company has
reserved 89,596,000 shares of common stock for issuance under the 1993 Plan. The
Company has also reserved 2,531,250 shares for issuance under the Company's 1993
Director's Stock Option Plan (the Director's Plan). Generally options expire ten
years from date of grant, vest over the term of each directors board membership
and are exercisable immediately upon vesting. As of December 31, 1999,
39,840,353 shares were available for future grant under the plans.
For the pro forma amounts determined under SFAS No. 123, as set forth
above, the fair value of each option grant is estimated on the date of grant
using the Black-Scholes
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VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
option-pricing model with the following weighted-average assumptions used for
grants in 1999, 1998 and 1997: risk-free interest rates averaging 5.55% in 1999,
5.15% in 1998 and 6.19% in 1997; a dividend yield of 0.0% for all years; a
weighted-average expected life of 5 years for all years; and a volatility factor
of the expected market price of the Company's common stock of 0.65 for 1999,
0.65 for 1998 and 0.60 for 1997.
A summary of the status of the Company's stock option plans (including the
options assumed in the Acquisitions and the Merger) as of December 31, 1999,
1998 and 1997 and changes during the years ended on those dates is presented
below (number of shares in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- ---------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
NUMBER EXERCISE NUMBER EXERCISE NUMBER EXERCISE
OF SHARES PRICE OF SHARES PRICE OF SHARES PRICE
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year...................... 36,948 $ 4.88 34,601 $2.86 25,817 $1.58
Granted..................... 16,717 $23.36 10,469 $9.76 14,369 $4.68
Assumed in business
combinations.............. 15,896 $ 3.40 -- $ -- -- $ --
Exercised................... (11,909) $ 3.21 (5,547) $1.88 (3,474) $0.92
Forfeited................... (3,230) $ 9.07 (2,575) $4.03 (2,111) $2.94
-------- ------ ------- ----- ------- -----
Outstanding at end of
year...................... 54,422 $10.28 36,948 $4.88 34,601 $2.86
======== ====== ======= ===== ======= =====
Options exercisable at year
end....................... 22,625 15,201 11,516
Weighted-average fair value
of options granted during
the year.................. $ 13.93 $ 5.75 $ 2.69
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999 (number of shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------- --------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
RANGE OF DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
EXERCISE PRICES 1999 LIFE PRICE 1998 PRICE
- --------------- -------------- ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C>
$ 0.01 - $ 1.66 5,637 5.34 $ 0.99 5,326 $ 0.98
$ 1.68 - $ 2.42 6,285 6.91 $ 2.06 4,243 $ 2.08
$ 2.43 - $ 3.68 5,964 6.81 $ 2.73 3,641 $ 2.68
$ 3.70 - $ 4.79 7,265 8.01 $ 4.49 3,058 $ 4.55
$ 4.84 - $ 8.58 6,319 7.88 $ 6.31 2,779 $ 6.08
$ 8.70 - $11.33 5,519 8.48 $10.11 1,795 $10.01
$12.00 - $17.56 6,286 9.24 $16.09 973 $15.69
$17.94 - $21.81 7,891 9.50 $20.67 775 $20.35
$23.33 - $62.83 3,001 9.74 $37.87 35 $30.35
$72.12 - $72.13 255 9.96 $72.13 -- $72.13
------ ---- ------ ------ ------
$ 0.01 - $72.13 54,422 7.97 $10.28 22,625 $ 4.63
====== ==== ====== ====== ======
</TABLE>
F-78
<PAGE> 320
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EMPLOYEE STOCK PURCHASE PLANS
Under the Company's 1993 Employee Stock Purchase Plan (the 1993 Purchase
Plan), the Company is authorized to issue up to 21,910,295 shares of common
stock to its full-time employees, nearly all of whom are eligible to
participate. Under the terms of the 1993 Purchase Plan, employees can choose to
have up to 10% of their wages withheld to purchase the Company's common stock.
The purchase price of the stock is 85% of the lower of the subscription date
fair market value and the purchase date fair market value.
Substantially all of the eligible employees have participated in the either
the 1993 Purchase Plan or the 1996 Purchase Plan in 1999, 1998 and 1997. Under
the 1993 Purchase Plan, the Company issued 796,495 shares to employees in 1999,
764,573 shares in 1998, and 672,075 shares in 1997.
In accordance with APB 25, the Company does not recognize compensation cost
related to employee purchase rights under the Plan. To comply with the pro forma
reporting requirements of SFAS No. 123, compensation cost is estimated for the
fair value of the employees' purchase rights using the Black-Scholes
option-pricing model with the following assumptions for these rights granted in
1999, 1998 and 1997: a dividend yield of 0.0% for all years; an expected life
ranging up to 2 years for all years; an expected volatility factor of 0.65 in
1999, 0.65 in 1998 and 0.60 in 1997; and risk-free interest rates ranging from
4.57% to 5.77% in 1999, from 5.14% to 5.39% in 1998 and from 5.27% to 5.84% in
1997. The weighted-average fair value of the purchase rights granted was $8.70
in 1999, $3.15 in 1998 and $2.06 in 1997.
NOTE 10. STOCKHOLDERS' EQUITY
On October 4, 1998, the Board of Directors of the Company adopted a
Stockholder Rights Plan, declaring a dividend of one preferred share purchase
right (a Right) for each outstanding share of common stock, par value $0.001 per
share, of VERITAS. The rights are initially attached to the Company's common
stock and will not trade separately. If a person or group acquires 20 percent or
more of the Company's common stock, or announces an intention to make a tender
offer for the Company's common stock the consummation of which would result in
acquiring 20 percent or more of the Company's common stock, then the rights will
be distributed and will then trade separately from the common stock. Each Right
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock, par value $0.001 per
share, of the Company. The rights expire October 5, 2008, unless the expiration
date is extended or unless the rights are earlier redeemed or exchanged by the
Company.
The Company is authorized to issue up to 10,000,000 shares of undesignated
preferred stock. No such preferred shares have been issued to date.
Total common shares reserved for issuance at December 31, 1999 under all
stock compensation plans are 114,037,545 shares (see Note 9).
F-79
<PAGE> 321
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Federal
Current................................... $ 64,452 $11,858 $ 539
Deferred.................................. (35,245) (8,075) (3,500)
State
Current................................... 9,340 2,514 1,939
Deferred.................................. (5,077) 75 (700)
Foreign..................................... 1,920 1,769 2,732
-------- ------- -------
Total............................. $ 35,390 $ 8,141 $ 1,010
======== ======= =======
</TABLE>
The tax benefits associated with the disqualifying disposition of stock
options or employee stock purchase plan shares reduced the income taxes
currently payable by $63.0 million for 1999. Such benefits are credited to
additional paid-in capital when realized.
The provision for income taxes differs from the amount computed by applying
the federal statutory rate as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Federal tax at statutory rate.............................. 35.0% 35.0% 35.0%
Benefit of loss carryforwards.............................. -- (9.3) (35.9)
State taxes................................................ (0.9) 4.2 5.4
Foreign taxes.............................................. (0.4) 3.0 9.4
Change in valuation allowance.............................. -- (13.4) (17.7)
Acquisition and restructuring costs........................ -- -- 6.5
In-process research and development charge and
non-deductible goodwill.................................. (42.2) -- --
Alternative minimum tax, net............................... -- -- 2.3
Tax credits................................................ 0.5 (7.1) --
Other...................................................... 0.4 1.2 (0.7)
----- ----- -----
Total............................................ (7.6)% 13.6% 4.3%
===== ===== =====
</TABLE>
F-80
<PAGE> 322
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......... $ 26,946 $ 23,276 $ 22,499
Reserves and accruals not currently
deductible............................. 28,315 6,146 2,205
Acquired intangibles..................... 12,521 1,895 2,114
Tax credit carryforwards................. 2,861 -- 2,246
Other.................................... 2,170 1,655 887
--------- -------- --------
Total.......................... 72,813 32,972 29,951
Valuation allowance...................... (11,602) (20,772) (25,751)
--------- -------- --------
Net deferred tax assets.................. $ 61,211 $ 12,200 $ 4,200
========= ======== ========
Deferred tax liabilities:
Acquired intangibles..................... (195,275) -- --
--------- -------- --------
Net deferred tax assets (liabilities).... $(134,064) $ 12,200 $ 4,200
========= ======== ========
</TABLE>
The valuation allowance decreased by approximately $9.2 million in 1999,
$5.0 million in 1998 and $13.6 million in 1997. As of December 31, 1999, the
$11.6 million valuation allowance reflected above relates to the tax benefits of
certain assets acquired with the acquisition of NSMG and will be credited to
goodwill if realized.
As of December 31, 1999, the Company had federal tax loss carryforwards of
approximately $74.0 million and federal tax credit carryforwards of
approximately $2.9 million. The federal tax loss carryforwards will expire in
2008 through 2011, and the federal tax credit carryforwards will expire in 2003
through 2014, if not utilized. Because of the change in ownership provisions of
the Internal Revenue Code, a substantial portion of the Company's net operating
loss and credit carryforwards may be subject to annual limitations. The annual
limitation may result in the expiration of net operating loss and credit
carryforwards before utilization.
Management has determined based on the Company's history of prior earnings,
its expectations for the future and the extended period over which the benefits
of certain deferred tax assets will be realized, as well as the limitations on
its ability to utilize certain net operating loss carryforwards, that a
valuation allowance continues to be necessary.
The realization of the Company's deferred tax assets, which relate
primarily to net operating loss carryforwards and temporary differences is
dependent on generating sufficient taxable income in future periods. Although
realization is not assured, management believes it is more likely than not that
the net deferred tax assets will be realized.
F-81
<PAGE> 323
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings (loss) per share (in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
Numerator:
Net income (loss)...................... $(502,958) $ 51,648 $ 22,749
========= ======== ========
Denominator:
Weighted-average shares................ 316,892 211,558 205,300
--------- -------- --------
Denominator for basic earnings (loss)
per share........................... 316,892 211,558 205,300
Common stock equivalents............... -- 20,961 17,416
--------- -------- --------
Denominator for diluted earnings (loss)
per share........................... 316,892 232,519 222,716
========= ======== ========
Basic earnings (loss) per share.......... $ (1.59) $ 0.24 $ 0.11
========= ======== ========
Diluted earnings (loss) per share........ $ (1.59) $ 0.22 $ 0.10
========= ======== ========
</TABLE>
Common stock equivalents included in the denominator for purposes of
computing diluted earnings per share do not include 10,465,067 shares issuable
upon conversion of the 5.25% convertible subordinated notes and 13,010,144
shares issuable upon conversion of the 1.856% convertible subordinated notes, as
their effect would be anti-dilutive for all periods presented (see Note 5). In
1999, common stock equivalents included in the denominator for purposes of
computing diluted earnings per share do not include 39,406,524 potential common
shares, all related to employee stock options, as their effect would be
anti-dilutive.
NOTE 13. SIGNIFICANT DEVELOPMENT AND LICENSE AGREEMENTS
In January 1997 the Company entered into a cross-license and development
arrangement with Sun Microsystems whereby each party granted the other a
royalty-based license to bundle or resell substantially all then-available
products of both companies. Under this arrangement, 5% of each royalty dollar
received by the Company is to be set aside to fund future "best efforts",
non-recurring engineering services to be performed by the Company at the
direction of Sun. Under these NRE projects, the scope of which is mutually
agreed to by both parties, Sun bears the risk of the development effort. In
accordance with SFAS No. 68 the Company has recognized a liability equal to 5%
of each royalty dollar received from Sun under this arrangement. The liability
to Sun as of December 31, 1999 was $1.2 million. As of December 31, 1998 there
was no liability to Sun. The liability to Sun as of December 31, 1997 was $0.2
million.
NOTE 14. SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS No.
131), in fiscal 1998. SFAS No. 131 supersedes Statement of Financial Accounting
Standards No. 14, "Financial Reporting for Segments of a Business Enterprise"
and establishes standards for reporting information about operating segments.
Operating segments are
F-82
<PAGE> 324
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or group, in deciding how to allocate resources and in assessing
performance.
The Company operates in one segment, storage management solutions. The
Company's products and services are sold throughout the world, through direct,
OEM, reseller and distributor channels. The Company's chief operating decision
maker, the chief executive officer, evaluates the performance of the Company
based upon stand-alone revenue of product channels and the geographic regions of
the segment and does not receive discrete financial information about asset
allocation, expense allocation or profitability from the Company's storage
products or services.
Geographic information (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
User license fees(1):
United States........................... $372,485 $121,910 $ 67,888
Europe(2)............................... 94,986 33,172 12,971
Other(3)................................ 30,543 12,621 14,855
-------- -------- --------
Total........................... $498,014 $167,703 $ 95,714
======== ======== ========
Services(1):
United States........................... $ 78,756 $ 34,759 $ 20,463
Europe(2)............................... 15,450 7,869 4,865
Other(3)................................ 3,892 534 83
-------- -------- --------
Total........................... $ 98,098 $ 43,162 $ 25,411
======== ======== ========
Total net revenue............... $596,112 $210,865 $121,125
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------
1999 1998 1997
---------- ------- -------
<S> <C> <C> <C>
Long-lived assets(4):
United States........................... $3,289,545 $25,202 $ 9,412
Europe(2)............................... 11,918 3,644 1,114
Other(3)................................ 2,244 380 67
---------- ------- -------
Total........................... $3,303,707 $29,226 $10,593
========== ======= =======
</TABLE>
- ---------------
(1) License and Service revenues are attributed to geographic regions based on
location of customers.
(2) Europe includes the Middle East and Africa.
(3) Other consists of Canada, Latin America, Japan and the Asia Pacific region.
F-83
<PAGE> 325
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) Long-lived assets include all long-term assets except those specifically
excluded under SFAS No. 131, such as deferred income taxes and financial
instruments. Reconciliation to total assets reported (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------
1999 1998 1997
---------- -------- --------
<S> <C> <C> <C>
Total long-lived assets................. $3,303,707 $ 29,226 $ 10,593
Other assets, including current......... 929,570 319,891 231,287
---------- -------- --------
Total consolidated assets..... $4,233,277 $349,117 $241,880
========== ======== ========
</TABLE>
No customer represented 10% or more of the Company's net revenue in 1999 and
1997. One customer represented approximately 12% or $25.8 million of the
Company's net revenue in 1998.
NOTE 15. RELATED PARTY TRANSACTIONS
The Company paid $0.8 million in 1998 and $6.7 million in 1999 in service
fees related to the acquisition of NSMG to Donaldson, Lufkin & Jenrette (DLJ), a
company affiliated with a director of the Company until February 1999. The
Company had no outstanding receivable or payable balance with DLJ at December
31, 1999.
NOTE 16. SUBSEQUENT EVENTS (UNAUDITED)
During the first quarter of 2000, the Company amended and revised its
existing lease agreement, originally signed in the second quarter of 1999, for
new corporate campus facilities in Mountain View, California. These facilities
will replace certain facilities the Company currently leases in Mountain View.
The new corporate campus facilities will be developed in one phase for a total
of 425,000 square feet and will provide space for sales, marketing,
administration and research and development functions. The lease term for these
facilities is five years beginning in March 2000, with an option to extend the
lease term for two successive periods of one year each. The revised total
approximate minimum lease payments for these facilities for the next five years
will be $0 for 2000, $5.3 million for 2001, $10.6 million for 2002 and $10.3
million for 2003 and 2004. The Company has an option to purchase the property
(land and facilities) for $139.4 million or, at the end of the lease, to arrange
for the sale of the property to a third party with the Company retaining an
obligation to the owner for the difference between the sales price and the
guaranteed residual value up to $123.8 million if the sales price is less than
this amount, subject to certain provisions of the lease. The Company anticipates
occupying the new corporate campus facilities and beginning the lease payments
in the second quarter of 2001. The lease agreement requires the Company to
maintain specified financial covenants such as and earnings before interest,
taxes, depreciation and amortization (EBITDA), debt on EBITDA and quick ratio,
all of which the Company was in compliance with as of December 31, 1999.
During the first quarter of 2000, the Company signed a lease agreement for
its existing facilities in Roseville, Minnesota. The Company will improve and
expand its existing facilities of 62,000 square feet and will develop adjacent
property adding 260,000 square feet to the campus, with the first phase of
142,000 square feet being completed in the second quarter of 2001. The
facilities will provide space for research and development functions. The lease
term for these facilities is five years beginning in March 2000, with an option
to extend the lease
F-84
<PAGE> 326
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
term for two successive periods of one year each. The total approximate minimum
lease payments for these facilities for the next five years will be $0.6 million
in 2000, $1.9 million in 2001 and $2.9 million in 2002, 2003 and 2004. The
Company has an option to purchase the property (land and facilities) for $40
million or, at the end of the lease, to arrange for the sale of the property to
a third party with the Company retaining an obligation to the owner for the
difference between the sales price and the guaranteed residual value up to $34.3
million if the sales price is less than this amount, subject to certain
provisions of the lease. The Company anticipates occupying the new corporate
campus facilities and beginning the lease payments in the second quarter of
2001.
On March 29, 2000, the Company, Seagate Technology, Inc. and an investor
group including Seagate Technology's management group announced a transaction in
which the Company will acquire all of the shares of its common stock held by
Seagate Technology, certain other securities and cash. The Company is not
acquiring Seagate Technology's disc drive business or any other Seagate
Technology operating business.
In the transaction, the Company will issue to the Seagate Technology
stockholders approximately 109.3 million shares of its common stock for
approximately 128 million shares of the Company's common stock held by Seagate
Technology. In addition, the Company will issue shares of its common stock for
certain other securities held by Seagate Technology at the closing date and, at
the Company's election, the Company may also issue shares of its common stock
for up to $750 million in retained cash at the closing date.
The Company will be indemnified for liabilities, including tax liabilities
and other matters that may arise in connection with the transaction. The
transaction is intended to qualify as a tax-free reorganization.
F-85
<PAGE> 327
VERITAS SOFTWARE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
PROVISION
FROM CHARGED TO
BALANCE AT BUSINESSES OPERATING BALANCE AT
BEGINNING OF YEAR ACQUIRED EXPENSES DEDUCTIONS(1) END OF YEAR
----------------- ---------- ---------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year ended December
31, 1999......... $2,572 $1,477 $2,425 $781 $5,693
Year ended December
31, 1998......... $1,597 $ -- $1,032 $ 57 $2,572
Year ended December
31, 1997......... $ 697 $ -- $ 900 $ -- $1,597
</TABLE>
- ---------------
(1) Deductions related to the allowance for doubtful accounts represent amounts
written off against the allowance.
F-86
<PAGE> 328
VERITAS SOFTWARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
2000
-----------
(UNAUDITED)
<S> <C>
Current assets:
Cash and cash equivalents................................. $ 340,469
Short-term investments.................................... 510,981
Accounts receivable, net of allowance for doubtful
accounts of $6,046 at March 31, 2000 and $5,693 at
December 31, 1999...................................... 126,448
Deferred income taxes..................................... 23,803
Other current assets...................................... 18,925
----------
Total current assets.............................. 1,020,626
Long-term investments....................................... 49,004
Property and equipment, net................................. 88,233
Goodwill and other intangibles, net......................... 2,991,076
Other non-current assets.................................... 8,429
----------
Total assets...................................... $4,157,368
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 32,774
Accrued compensation and benefits......................... 41,769
Accrued acquisition and restructuring costs............... 22,089
Other accrued liabilities................................. 35,229
Income taxes payable...................................... 173
Customer advances......................................... 6,521
Deferred revenue.......................................... 124,296
----------
Total current liabilities......................... 262,851
Convertible subordinated notes.............................. 454,557
Deferred income taxes....................................... 144,384
Other non-current liabilities............................... 529
Stockholders' equity:
Common stock.............................................. 4,004,457
Accumulated deficit....................................... (706,757)
Accumulated other comprehensive loss...................... (2,653)
----------
Total stockholders' equity........................ 3,295,047
----------
Total liabilities and stockholders' equity........ $4,157,368
==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-87
<PAGE> 329
VERITAS SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
--------- --------
<S> <C> <C>
Net revenue:
User license fees......................................... $ 204,316 $ 55,786
Services.................................................. 40,324 16,118
--------- --------
Total net revenue................................. 244,640 71,904
Cost of revenue:
User license fees......................................... 11,778 1,955
Services.................................................. 18,299 6,527
Amortization of developed technology...................... 15,395 --
--------- --------
Total cost of revenue............................. 45,472 8,482
--------- --------
Gross profit................................................ 199,168 63,422
Operating expenses:
Selling and marketing..................................... 87,583 26,823
Research and development.................................. 35,113 13,816
General and administrative................................ 14,911 3,289
Amortization of goodwill and other intangibles............ 219,759 --
--------- --------
Total operating expenses.......................... 357,366 43,928
--------- --------
Income (loss) from operations............................... (158,198) 19,494
Interest and other income, net.............................. 11,263 3,031
Interest expense............................................ (7,523) (1,433)
--------- --------
Income (loss) before income taxes........................... (154,458) 21,092
Provision for income taxes.................................. 19,925 7,509
--------- --------
Net income (loss)........................................... $(174,383) $ 13,583
========= ========
Net income (loss) per share -- basic........................ $ (0.44) $ 0.06
========= ========
Net income (loss) per share -- diluted...................... $ (0.44) $ 0.06
========= ========
Number of shares used in computing per share
amounts -- basic.......................................... 394,471 215,199
========= ========
Number of shares used in computing per share
amounts -- diluted........................................ 394,471 239,111
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-88
<PAGE> 330
VERITAS SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(174,383) $ 13,583
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 9,416 2,785
Amortization of goodwill and other intangibles......... 219,759 --
Amortization of developed technology................... 15,395 --
Amortization of original issue discount on convertible
notes................................................ 3,513 --
Deferred income taxes.................................. (13,483) --
Changes in operating assets and liabilities:
Accounts receivable.................................. 5,732 2,487
Other assets......................................... (11,184) (9,071)
Accounts payable..................................... 2,545 (568)
Accrued compensation and benefits.................... 6,209 (3,794)
Accrued acquisition and restructuring costs.......... (2,113) --
Other accrued liabilities............................ (6,565) 292
Income taxes payable................................. (6,631) 3,964
Customer advances and deferred revenue............... 38,630 5,504
--------- --------
Net cash provided by operating activities......... 86,840 15,182
Cash flows from investing activities:
Purchases of investments.................................. (244,356) (83,409)
Investment maturities..................................... 293,544 42,290
Purchases of property and equipment....................... (20,172) (8,635)
--------- --------
Net cash provided by (used in) for investing
activities...................................... 29,016 (49,754)
Cash flows from financing activities:
Proceeds from issuance of common stock.................... 77,512 7,053
--------- --------
Net cash provided by financing activities......... 77,512 7,053
Effect of exchange rate changes............................. (1,143) (243)
--------- --------
Net increase (decrease) in cash and cash equivalents........ 192,225 (27,762)
Cash and cash equivalents at beginning of period............ 148,244 139,086
--------- --------
Cash and cash equivalents at end of period.................. $ 340,469 $111,324
========= ========
Supplemental disclosures:
Cash paid for interest.................................... $ 4,322 $ --
Cash paid for income taxes................................ $ 1,865 $ 3,217
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-89
<PAGE> 331
VERITAS SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, considered necessary for a fair
presentation have been included. The results for the interim periods presented
are not necessarily indicative of the results that may be expected for any
future period. The following information should be read in conjunction with the
consolidated financial statements and notes thereto included in the VERITAS
Software Corporation's Annual Report on Form 10-K for the year ended December
31, 1999.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the condensed consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates.
3. STOCK SPLIT
On January 27, 2000, the Company announced a three-for-two split in the
form of a stock dividend paid on March 3, 2000 to stockholders of record on
February 18, 2000. All share and per share data have been restated to give
retroactive effect to this stock split.
4. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed using the weighted-average
number of common shares outstanding during the period. Diluted net income per
share is computed using the weighted-average number of common shares and
dilutive potential common shares outstanding during the period. However,
dilutive potential common shares outstanding are not included in the denominator
for the three months ended March 31, 2000 as their effect would be
anti-dilutive. Potential common shares consist of employee stock options using
the treasury stock method and common shares issuable upon conversion of the
convertible subordinated notes. The following table sets forth the
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<PAGE> 332
VERITAS SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
computation of basic and diluted net income (loss) per common share (in
thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
--------- --------
<S> <C> <C>
Numerator:
Net income (loss)................................. $(174,383) $ 13,583
========= ========
Denominator:
Denominator for basic net income (loss) per
share -- weighted-average shares outstanding... 394,471 215,199
Common stock equivalents.......................... -- 23,912
--------- --------
Denominator for diluted net income (loss) per
share.......................................... 394,471 239,111
========= ========
Basic net income (loss) per share................... $ (0.44) $ 0.06
========= ========
Diluted net income (loss) per share................. $ (0.44) $ 0.06
========= ========
</TABLE>
Common stock equivalents included in the denominator for purposes of
computing diluted net income (loss) per share do not include 10,465,067 shares
issuable upon conversion of the outstanding 5.25% convertible subordinated notes
and 13,010,144 shares issuable upon conversion of the outstanding 1.856%
convertible subordinated notes, as their effect would be anti-dilutive for all
periods presented. For the three months ended March 31, 2000, common stock
equivalents included in the denominator for purposes of computing diluted net
loss per share do not include 42,635,214 potential common shares, all related to
employee stock options, as their effect would be anti-dilutive.
5. COMPREHENSIVE INCOME (LOSS)
The following are the components of comprehensive income (loss) (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
--------- -------
<S> <C> <C>
Net income (loss)............................ $(174,383) $13,583
Foreign currency translation adjustments..... (1,143) (243)
--------- -------
Comprehensive income (loss).................. $(175,526) $13,340
========= =======
</TABLE>
6. SUMMARY FINANCIAL INFORMATION OF SUBSIDIARY
VERITAS and its wholly-owned subsidiary, VERITAS Operating Corporation, are
co-obligors on VERITAS' 5.25% convertible subordinated notes due 2004 and 1.856%
convertible subordinated notes due 2006. In accordance with Staff Accounting
Bulletin No. 53, Financial Statement Requirements in Filings Involving the
Guarantee of Securities by the Parent, VERITAS provides the following unaudited
summary financial information with respect to VERITAS Operating Corporation. The
following presents the operations of, and the assets held by, the legal entity
VERITAS Operating Corporation and does not necessarily, nor is intended to,
represent the operations of VERITAS Operating
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<PAGE> 333
VERITAS SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Corporation had it continued as a separate entity absent the NSMG acquisition
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- -------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total net revenue............................. $176,802 $71,904
Amortization of goodwill and other
intangibles................................. 12,866 --
Income from operations........................ 36,878 19,494
Net income.................................... 18,062 13,583
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 639,660 $ 530,672
Goodwill and other intangibles.............. 185,416 199,590
Total assets................................ 1,117,095 987,359
Long-term obligations....................... 455,075 451,629
Retained earnings........................... 54,134 36,072
Stockholders' equity........................ 504,077 433,478
</TABLE>
7. SEGMENT INFORMATION
The Company operates in one segment, storage management solutions. The
Company's products and services are sold throughout the world, through direct,
original equipment manufacturer, reseller and distributor channels. The
Company's chief operating decision maker, the chief executive officer, evaluates
the performance of the Company based upon stand-alone software product and
service revenue by product channels and revenues by geographic regions of the
segment and does not receive separate, discrete financial information about
asset allocation, expense allocation or profitability from the Company's storage
products or services.
F-92
<PAGE> 334
VERITAS SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Geographic information (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
-------- -------
<S> <C> <C>
User license fees(1):
United States.............................. $152,801 $43,228
Europe(2).................................. 40,389 8,917
Other(3)................................... 11,126 3,641
-------- -------
Total............................ 204,316 55,786
-------- -------
Services(1):
United States.............................. 32,957 12,578
Europe(2).................................. 6,086 2,679
Other(3)................................... 1,281 861
-------- -------
Total............................ 40,324 16,118
-------- -------
Total net revenue................ $244,640 $71,904
======== =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
Long-lived assets(4):
United States............................. $3,062,393 $3,289,545
Europe(2)................................. 14,399 11,918
Other(3).................................. 2,517 2,244
---------- ----------
Total........................... $3,079,309 $3,303,707
========== ==========
</TABLE>
- ---------------
(1) License and services revenues are attributed to geographic regions based on
location of customers.
(2) Europe includes the Middle East and Africa.
(3) Other includes Canada, Latin America, Japan and the Asia Pacific region.
(4) Long-lived assets include all long-term assets except those specifically
excluded under SFAS No. 131, such as deferred income taxes and long-term
investments. Reconciliation to total assets reported (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
Total long-lived assets................... $3,079,309 $3,303,707
Other assets, including current........... 1,078,059 929,570
---------- ----------
Total consolidated assets....... $4,157,368 $4,233,277
========== ==========
</TABLE>
No customer represented 10% or more of the Company's net revenue for the
three months ended March 31, 2000. One customer accounted for approximately
$8.9 million, or 12%, of the Company's net revenues for the three months
ended March 31, 1999.
F-93
<PAGE> 335
VERITAS SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. COMMITMENTS AND CONTINGENCIES
Facilities lease commitments
During the first quarter of 2000, the Company amended and revised its
existing lease agreement, originally signed in the second quarter of 1999, for
new corporate campus facilities in Mountain View, California. These facilities
will replace certain facilities that the Company currently leases in Mountain
View. The new corporate campus facilities will be developed in one phase for a
total of 425,000 square feet and will provide space for sales, marketing,
administration and research and development functions. The lease term for these
facilities is five years beginning in March 2000, with an option to extend the
lease term for two successive periods of one year each. The revised total
approximate minimum lease payments for these facilities for the next five years
will be $0 for 2000, $5.3 million for 2001, $10.6 million for 2002 and $10.3
million for 2003 and 2004. The Company has an option to purchase the property
(land and facilities) for $139.4 million or, at the end of the lease, to arrange
for the sale of the property to a third party with the Company retaining an
obligation to the owner for the difference between the sales price and the
guaranteed residual value up to $123.8 million if the sales price is less than
this amount, subject to certain provisions of the lease. The Company anticipates
occupying the new corporate campus facilities and beginning the lease payments
in the second quarter of 2001. The lease agreement requires the Company to
maintain specified financial covenants such as earnings before interest, taxes,
depreciation and amortization (EBITDA), debt on EBITDA and quick ratio, all of
which the Company was in compliance with as of March 31, 2000.
During the first quarter of 2000, the Company signed a lease agreement for
its existing facilities in Roseville, Minnesota. The Company will improve and
expand its existing facilities of 62,000 square feet and will develop adjacent
property adding 260,000 square feet to the campus, with the first phase of
142,000 square feet being completed in the second quarter of 2001. The
facilities will provide space for research and development functions. The lease
term for these facilities is five years beginning in March 2000, with an option
to extend the lease term for two successive periods of one year each. The total
approximate minimum lease payments for these facilities for the next five years
will be $0.6 million in 2000, $1.9 million in 2001 and $2.9 million in 2002,
2003 and 2004. The Company has an option to purchase the property (land and
facilities) for $40 million or, at the end of the lease, to arrange for the sale
of the property to a third party with the Company retaining an obligation to the
owner for the difference between the sales price and the guaranteed residual
value up to $34.3 million if the sales price is less than this amount, subject
to certain provisions of the lease. The Company anticipates occupying the new
campus facilities and beginning the lease payments in the second quarter of
2001. The lease agreement requires the Company to maintain specified financial
covenants such as earnings before interest, taxes, depreciation and amortization
(EBITDA), debt on EBITDA and quick ratio, all of which the Company was in
compliance with as of March 31, 2000.
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<PAGE> 336
VERITAS SOFTWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. POTENTIAL ACQUISITION
On March 29, 2000, the Company, Seagate Technology, Inc. and an investor
group including certain members of Seagate Technology's management announced a
transaction in which the Company will acquire all of the shares of its common
stock held by Seagate Technology, certain other securities and cash. The Company
is not acquiring Seagate Technology's disc drive business or any other Seagate
Technology operating business. In the transaction, the Company will issue to the
Seagate Technology stockholders approximately 109.3 million shares of its common
stock to obtain approximately 128.1 million shares of the Company's common stock
held by Seagate Technology. In addition, the Company will issue shares of its
common stock to the Seagate Technology stockholders to obtain certain other
securities held by Seagate Technology at the closing date and, at the Company's
election, the Company may also issue shares of its common stock to the Seagate
Technology stockholders to obtain up to $750 million in retained cash at the
closing date. The Company will be indemnified for liabilities, including tax
liabilities and other matters that may arise in connection with the transaction.
The transaction is intended to qualify as a tax-free reorganization.
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<PAGE> 337
ANNEX A
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
VERITAS SOFTWARE CORPORATION
VICTORY MERGER SUB, INC.
AND
SEAGATE TECHNOLOGY, INC.
DATED AS OF MARCH 29, 2000
<PAGE> 338
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION..................... 1-A
ARTICLE I THE MERGER............................................... 1-A
1.1 The Merger.................................................. 1-A
1.2 Effective Time; Closing..................................... 1-A
1.3 Effect of the Merger........................................ 2-A
1.4 Certificate of Incorporation and Bylaws of Surviving
Corporation................................................. 2-A
1.5 Effect on Capital Stock..................................... 2-A
1.6 Surrender of Certificates................................... 4-A
1.7 No Further Ownership Rights in Seagate Common Stock......... 6-A
1.8 Lost, Stolen or Destroyed Certificates...................... 6-A
1.9 Tax Consequences............................................ 6-A
1.10 Taking of Necessary Action; Further Action.................. 7-A
1.11 Definitions................................................. 7-A
1.12 Dissenting Shares........................................... 10-A
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SEAGATE............... 11-A
2.1 Organization; Good Standing................................. 11-A
2.2 Charter Documents........................................... 11-A
2.3 Capital Structure........................................... 11-A
2.4 Authority................................................... 12-A
2.5 Conflicts................................................... 13-A
2.6 Consents.................................................... 13-A
2.7 SEC Filings; Financial Statements........................... 13-A
2.8 Liabilities................................................. 14-A
2.9 Absence of Material Adverse Effect on Seagate............... 14-A
2.10 Compliance.................................................. 14-A
2.11 Permits..................................................... 15-A
2.12 Litigation.................................................. 15-A
2.13 Brokers' and Finders' Fees.................................. 15-A
2.14 Absence of Liens and Encumbrances........................... 15-A
2.15 Statements; Registration Statement; Proxy
Statement/Prospectus........................................ 15-A
2.16 Board Approval.............................................. 16-A
2.17 State Takeover Statutes..................................... 16-A
2.18 Fairness Opinion............................................ 16-A
2.19 Veritas Common Stock........................................ 16-A
2.20 Intercompany Transactions................................... 16-A
2.21 Taxes....................................................... 16-A
2.22 Code Section 897 Company.................................... 16-A
ARTICLE III REPRESENTATIONS AND WARRANTIES OF VERITAS AND MERGER
SUB............................................................... 17-A
3.1 Organization; Good Standing................................. 17-A
3.2 Charter Documents........................................... 17-A
3.3 Capital Structure........................................... 17-A
3.4 Authority................................................... 17-A
3.5 Conflicts................................................... 18-A
</TABLE>
i
<PAGE> 339
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.6 Consents.................................................... 18-A
3.7 SEC Filings; Veritas Financial Statements................... 18-A
3.8 Absence of Certain Changes or Events........................ 19-A
3.9 Litigation.................................................. 19-A
3.10 Brokers' and Finders' Fees.................................. 19-A
3.11 Statements; Registration Statement; Proxy
Statement/Prospectus........................................ 19-A
3.12 Board Approval.............................................. 20-A
3.13 Fairness Opinion............................................ 20-A
3.14 Merger Sub Operations....................................... 20-A
ARTICLE IV CONDUCT OF BUSINESS AND OTHER TRANSACTIONS.............. 20-A
4.1 Conduct of Business......................................... 20-A
4.2 No Amendment to OD Documents................................ 20-A
4.3 Waivers and Releases........................................ 20-A
ARTICLE V ADDITIONAL AGREEMENTS.................................... 21-A
5.1 Proxy Statement/Prospectus; Registration Statement; Other
Filings..................................................... 21-A
5.2 Stockholder Meetings........................................ 22-A
5.3 Confidentiality............................................. 23-A
5.4 No Solicitation............................................. 23-A
5.5 Public Disclosure........................................... 25-A
5.6 Legal Requirements.......................................... 25-A
5.7 Notification of Certain Matters............................. 25-A
5.8 Commercially Reasonable Efforts and Further Assurances...... 25-A
5.9 Indemnification............................................. 26-A
5.10 Tax-Free Reorganization..................................... 26-A
5.11 Nasdaq Listing.............................................. 27-A
5.12 Seagate Affiliate Agreement................................. 27-A
5.13 Regulatory Filings; Reasonable Efforts...................... 27-A
5.14 Access to Information....................................... 27-A
5.15 TRA Matters................................................. 27-A
ARTICLE VI CONDITIONS TO THE MERGER................................ 29-A
6.1 Conditions to Obligations of Each Party to Effect the
Merger...................................................... 29-A
6.2 Additional Conditions to Obligations of Seagate............. 30-A
6.3 Additional Conditions to the Obligations of Veritas and
Merger Sub.................................................. 30-A
ARTICLE VII TERMINATION, FEES AND EXPENSES; AMENDMENT AND WAIVER...
31-A
7.1 Termination................................................. 31-A
7.2 Notice of Termination; Effect of Termination................ 33-A
7.3 Fees and Expenses........................................... 34-A
7.4 Amendment................................................... 35-A
7.5 Extension; Waiver........................................... 35-A
ARTICLE VIII GENERAL PROVISIONS.................................... 35-A
8.1 Non-Survival of Representations and Warranties.............. 35-A
8.2 Notices..................................................... 35-A
</TABLE>
ii
<PAGE> 340
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
8.3 Certain Interpretations..................................... 37-A
8.4 Counterparts................................................ 37-A
8.5 Entire Agreement............................................ 38-A
8.6 Severability................................................ 38-A
8.7 Other Remedies; Specific Performance........................ 38-A
8.8 Governing Law............................................... 38-A
8.9 Rules of Construction....................................... 38-A
8.10 Assignment.................................................. 38-A
8.11 Waiver of Jury Trial........................................ 38-A
</TABLE>
iii
<PAGE> 341
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this "Agreement") is
made and entered into as of March 29, 2000 among VERITAS Software Corporation, a
Delaware corporation ("Veritas"), Victory Merger Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of Veritas ("Merger Sub"), and Seagate
Technology, Inc., a Delaware corporation ("Seagate").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the General Corporation Law of the State of Delaware ("Delaware
Law"), Veritas and Seagate have agreed to enter into a business combination
transaction pursuant to which Merger Sub will merge with and into Seagate (the
"Merger").
B. The Boards of Directors of Veritas and Merger Sub (i) have determined
that the Merger is fair to, advisable and in the best interests of, Veritas,
Merger Sub and their stockholders, (ii) have approved this Agreement, the Merger
and the other transactions contemplated by this Agreement, and (iii) have
determined to recommend approval of the Merger. In addition, the Board of
Directors of Veritas has determined to recommend approval of, to the extent not
previously authorized, an amendment to Veritas' Certificate of Incorporation to
increase the authorized number of shares of Veritas common stock from
500,000,000 to an additional amount sufficient to permit the issuance of Veritas
Common Stock contemplated hereby (the "Share Increase").
C. The Board of Directors of Seagate (i) has determined that the Merger is
fair to, advisable and in the best interests of, Seagate and its stockholders,
(ii) has approved this Agreement, the Merger and the other transactions
contemplated by this Agreement, and (iii) has determined to recommend the
approval of this Agreement and the Merger by the stockholders of Seagate.
D. Veritas, Merger Sub and Seagate intend, by entering into this Agreement,
to adopt a plan of "reorganization" within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises, and the
covenants, promises and representations set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and accepted, the parties hereto hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2 hereof),
and upon the terms and subject to the conditions of this Agreement and in
accordance with the applicable provisions of Delaware Law, Merger Sub shall be
merged with and into Seagate, the separate corporate existence of Merger Sub
shall cease and Seagate shall continue as the surviving corporation. Seagate as
the surviving corporation after the Merger is hereinafter sometimes referred to
as the "Surviving Corporation."
1.2 Effective Time; Closing. As soon as practicable on or after the
Closing Date (as defined in this Section 1.2), and upon the terms and subject to
the conditions of this Agreement, the parties hereto shall cause the Merger to
be consummated by filing a
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<PAGE> 342
Certificate of Merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware in accordance with the relevant provisions of Delaware
Law (the time of such filing (or such later time as may be agreed upon in
writing by Veritas and Seagate and specified in the Certificate of Merger) being
referred to herein as the "Effective Time"). The closing of the Merger and the
other transactions contemplated hereby (the "Closing") shall take place at the
offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, located
at One Market Plaza, Spear Tower, Suite 1600, San Francisco, California 94105,
at a date and time to be specified by Veritas and Seagate, which shall be no
later than the second (2nd) business day following the satisfaction or, if
permitted pursuant hereto, waiver of the conditions set forth in Article VI
hereof, or at such other location, date and time as Veritas and Seagate shall
mutually agree in writing. The date upon which the Closing actually occurs shall
be referred to herein as the "Closing Date."
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all of the property, rights, privileges, powers and
franchises of Seagate and Merger Sub shall vest in the Surviving Corporation,
and all of the debts, Liabilities and duties of Seagate and Merger Sub shall
become the debts, Liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation and Bylaws of Surviving Corporation.
(a) Certificate of Incorporation. As of the Effective Time, the Certificate
of Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation,
until thereafter amended as provided by Delaware Law and such Certificate of
Incorporation.
(b) Bylaws. As of the Effective Time, the Bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation, until thereafter amended as provided by Delaware Law, the
Certificate of Incorporation of the Surviving Corporation and such Bylaws.
(c) Directors and Officers. As of the Effective Time, Mr. Jay Jones shall
be the sole director of the Surviving Corporation, and the officers of the
Surviving Corporation shall be as designated by Veritas.
1.5 Effect on Capital Stock. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time, by virtue of the Merger and without
any action on the part of Merger Sub, Seagate or the holders of any of the
following securities, the following shall occur:
(a) Conversion of Seagate Common Stock. Except as otherwise provided
in this Agreement, each share of Common Stock, par value $0.01 per share,
of Seagate (the "Seagate Common Stock") outstanding immediately prior to
the Effective Time (other than any shares of Seagate Common Stock to be
canceled pursuant to Section 1.5(b) hereof) shall be canceled and
extinguished and automatically converted (subject to the terms of this
Section 1.5) into the right to receive (i) the Stock Portion (as defined in
Section 1.11 hereof), (ii) the Cash Portion (as defined in Section 1.11
hereof) and (iii) the TRA Right (the Stock Portion, the Cash Portion and a
TRA Right being referred to herein, collectively, as the "Merger
Consideration") upon the surrender of the certificate representing such
share of Seagate Common Stock in the manner set forth in Section 1.6 hereof
(or in the case of a lost,
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<PAGE> 343
stolen or destroyed certificate, upon delivery of an affidavit (and bond,
if required) in the manner set forth in Section 1.8 hereof).
(b) Cancellation of Certain Seagate Common Stock. Unless otherwise
determined by Veritas, each share of Seagate Common Stock (i) held in the
treasury of Seagate, or (ii) owned by Merger Sub, Veritas or any direct or
indirect wholly-owned subsidiary of Seagate or of Veritas, in either case
immediately prior to the Effective Time, shall be canceled and extinguished
without any conversion thereof.
(c) Seagate Stock Options; Seagate Employee Stock Purchase Plan. At
the Effective Time, (i) the vesting restrictions applicable to all options
to purchase Seagate Common Stock ("Seagate Options") outstanding
immediately prior to the Effective Time under all Seagate stock option and
stock purchase plans (collectively, the "Seagate Stock Option Plans"),
excluding the Rolled Options (as defined in Section 1.11 hereof), shall be
accelerated such that no vesting restrictions remain thereon, (ii) each
such Seagate Option (excluding the Rolled Options) shall, for all purposes
of and under this Agreement, be converted into a number of shares of
Seagate Common Stock ("Seagate Option Shares") equal to (x) the aggregate
number of shares of Seagate Common Stock issuable upon the exercise in full
of such Seagate Option, minus (y) the NE Amount in respect of such Seagate
Option, (iii) the Seagate Option Shares so converted shall be considered
outstanding shares of Seagate Common Stock for all purposes of and under
this Agreement, including, without limitation, the right to receive the
Merger Consideration pursuant to the Merger in accordance with Section
1.11(a)(xvii) and Section 1.5(a) hereof, (iv) the Rolled Options shall be
canceled and extinguished without any payment of Merger Consideration or
any other consideration therefor, and (v) in accordance with the terms of
Seagate's 1999 Employee Stock Purchase Plan (the "Seagate ESPP"), all
rights to purchase shares of Seagate Common Stock outstanding under the
Seagate ESPP immediately prior to the Effective Time shall be exercised and
each share of Seagate Common Stock purchased pursuant to such exercise
shall by virtue of the Merger, and without any action on the part of the
holder thereof, be converted into the right to receive the Merger
Consideration payable in respect thereof, without the issuance of
certificates representing issued and outstanding shares of Seagate Common
Stock. The Seagate ESPP shall be terminated immediately following such
exercises.
(d) Required Withholding. Each of the Exchange Agent (as defined in
Section 1.6(a) hereof) and Veritas shall be entitled to deduct and withhold
from the Merger Consideration or any other consideration deliverable or
otherwise payable pursuant to the Merger and this Agreement to any holder
or former holder of Seagate Common Stock or Seagate Option Shares such
amounts as may be required to be deducted or withheld therefrom under the
Code or under any applicable provision of state, local or foreign tax law
or under any other applicable legal requirement. To the extent such amounts
are so deducted or withheld, such amounts shall be treated for all purposes
under this Agreement as having been delivered or otherwise paid to the
person to whom such amounts would otherwise have been delivered or
otherwise paid pursuant to the Merger and this Agreement.
(e) Adjustments to Exchange Ratio. The Merger Consideration shall be
adjusted to reflect appropriately the effect of any stock split, reverse
stock split, stock dividend (including any dividend or distribution of
securities convertible into Veritas Common Stock or Seagate Common Stock),
extraordinary cash dividend, reorganization, recapitalization,
reclassification, combination, consolidation or subdivision,
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<PAGE> 344
exchange of shares or other like change with respect to Veritas Common
Stock or Seagate Common Stock occurring on or after the date hereof and
prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of Veritas Common Stock
shall be issued pursuant to the Merger, but in lieu thereof each holder of
shares of Seagate Common Stock and Seagate Option Shares who would
otherwise be entitled to a fraction of a share of Veritas Common Stock
(after aggregating all fractional shares of Veritas Common Stock to be
received by such holder) pursuant to the Merger shall receive from Veritas
an amount in cash (rounded to the nearest whole cent), without interest,
equal to the product obtained by multiplying (x) such fraction by (y) the
Average Veritas Stock Price (as defined in Section 1.11 hereof).
(g) Capital Stock of Merger Sub. Each share of Common Stock, $0.01 par
value per share, of Merger Sub (the "Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and nonassessable share of Common Stock,
$0.01 par value per share, of the Surviving Corporation. Each certificate
evidencing ownership of shares of Merger Sub Common Stock shall evidence
ownership of such shares of capital stock of the Surviving Corporation.
1.6 Surrender of Certificates.
(a) Exchange Agent. Veritas shall select an institution reasonably
satisfactory to Seagate to act as the exchange agent (the "Exchange Agent") for
the Merger.
(b) Veritas to Provide Merger Consideration. Promptly following the
Effective Time, Veritas shall make available to the Exchange Agent for exchange
in accordance with this Article I, (i) the shares of Veritas Common Stock
issuable pursuant to Section 1.5(a) or Section 1.5(c) hereof in exchange for
outstanding shares of Seagate Common Stock and Seagate Option Shares, (ii) the
cash payable pursuant to Section 1.5(a) hereof in exchange for outstanding
shares of Seagate Common Stock and Seagate Option Shares, (iii) cash in an
amount sufficient to make the cash payments in lieu of fractional shares
pursuant to Section 1.5(f) hereof, and (iv) cash in an amount sufficient to pay
any dividends or distributions to which holders of shares of Seagate Common
Stock and Seagate Option Shares may be entitled pursuant to Section 1.6(e)
hereof. From and after the date that is 6 months after the Effective Date,
Veritas shall have the right to cause the Exchange Agent to transfer to Veritas
all funds deposited by Veritas with the Exchange Agent pursuant to this Section
1.6(b) that have not been distributed pursuant to Section 1.6(d), and all
holders of Seagate Common Stock and Seagate Options entitled to receive the
Merger Consideration shall thereafter become general creditors of Veritas in
respect of the Merger Consideration.
(c) Exchange Procedures for Seagate Common Stock Certificates. Promptly
following the Effective Time, Veritas shall cause the Exchange Agent to mail to
each holder of record (as of the Effective Time) of a certificate or
certificates (the "Certificates") which immediately prior to the Effective Time
represented outstanding shares of Seagate Common Stock and which were converted
into the right to receive shares of Veritas Common Stock and cash pursuant to
Section 1.5(a) hereof, cash in lieu of any fractional shares pursuant to Section
1.5(f) hereof and any dividends or other distributions pursuant to Section
1.6(e) hereof, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent, and which shall be
in
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such form and have such other provisions as Veritas may reasonably specify), and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Veritas Common Stock issuable
and cash payable in respect of such shares of Seagate Common Stock pursuant to
Section 1.5(a) hereof, cash in lieu of any fractional shares payable in respect
of such shares of Seagate Common Stock pursuant to Section 1.5(f) hereof and any
dividends or other distributions payable in respect of such Seagate Common Stock
pursuant to Section 1.6(e) hereof. Upon the surrender and delivery of
Certificates for cancellation to the Exchange Agent (or to such other agent or
agents as may be appointed by Veritas), and such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto, the
holders of such Certificates shall be entitled to receive in exchange therefor
certificates representing the number of whole shares of Veritas Common Stock
issuable and cash payable in respect of such shares of Seagate Common Stock
pursuant to Section 1.5(a) hereof, cash in lieu of fractional shares payable in
respect of such shares of Seagate Common Stock pursuant to Section 1.5(f) hereof
and any dividends or distributions payable in respect of such shares of Seagate
Common Stock pursuant to Section 1.6(e) hereof, and the Certificates so
surrendered shall forthwith be canceled. Until so surrendered, outstanding
Certificates will be deemed from and after the Effective Time, for all corporate
purposes, subject to Section 1.6(e) hereof as to the payment of dividends and
other distributions, to evidence the ownership of a number of full shares of
Veritas Common Stock and the right to receive an amount in cash into which such
shares of Seagate Common Stock shall have been so converted pursuant to Section
1.5(a) hereof, and the right to receive an amount in cash in lieu of the
issuance of any fractional shares payable in respect of such shares of Seagate
Common Stock pursuant to Section 1.5(f) hereof and any dividends or
distributions payable in respect of such shares of Seagate Common Stock pursuant
to Section 1.6(e) hereof.
(d) Exchange Procedures for Seagate Options. Promptly following the
Effective Time, Veritas shall cause the Exchange Agent to mail to each holder
(as of the Effective Time) of a Seagate Option which was converted into the
right to receive the Merger Consideration pursuant to Section 1.5(a) hereof,
cash in lieu of any fractional shares pursuant to Section 1.5(f) hereof and any
dividends or other distributions pursuant to Section 1.6(e) hereof, (i) a letter
of transmittal (which shall be in such form and have such other provisions as
Veritas may reasonably specify), and (ii) instructions for use in receiving the
certificates representing shares of Veritas Common Stock issuable and cash
payable in respect of such Seagate Options pursuant to Section 1.5(a) and
Section 1.5(c), cash in lieu of any fractional shares payable in respect of such
Seagate Options pursuant to Section 1.5(f) hereof and any dividends or other
distributions payable pursuant to Section 1.6(e) hereof. Upon the delivery of
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, to the Exchange Agent (or to such other agent or
agents as may be appointed by Veritas), the holders of Seagate Options shall be
entitled to receive the Merger Consideration payable to them pursuant to Common
Stock issuable and cash issuable in respect of such Seagate Options pursuant to
Section 1.5(a) and Section 1.5(c), cash in lieu of fractional shares payable in
respect of such Seagate Options pursuant to Section 1.5(f) hereof and any
dividends or distributions payable in respect of such Seagate Options pursuant
to Section 1.6(e) hereof.
(e) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the date of this Agreement in respect of
Veritas Common Stock with a record date after the Effective Time shall be paid
to the holders of any unsurrendered Certificates or Seagate Options with respect
to the shares of Veritas
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Common Stock represented thereby until the holders of record of such
Certificates shall surrender such Certificates or the holders of such Seagate
Options shall return a letter of transmittal, duly completed and validly
executed in accordance with the instructions thereto. Subject to applicable law,
following surrender of any such Certificates and return of such letter of
transmittal, the Exchange Agent shall deliver to the record holders of such
Certificates or the holders of such Seagate Options, as the case may be, without
interest, certificates representing whole shares of Veritas Common Stock issued
in exchange therefor, along with payment in lieu of fractional shares payable in
respect of shares of Seagate Common Stock or Seagate Options pursuant to Section
1.5(g) hereof and the amount of any such dividends or other distributions with a
record date after the Effective Time payable in respect of such whole shares of
Veritas Common Stock.
(f) Transfers of Ownership. If certificates for shares of Veritas Common
Stock are to be issued in a name other than that in which the Certificates
surrendered in exchange therefor are registered, it will be a condition of the
issuance thereof that the Certificates so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the persons requesting such
exchange will have paid to Veritas (or any agent designated by it) any transfer
or other taxes required by reason of the issuance of certificates for shares of
Veritas Common Stock in any name other than that of the registered holders of
the Certificates surrendered, or established to the satisfaction of Veritas or
any agent designated by it that such tax has been paid or is not payable.
(g) No Liability. Notwithstanding anything to the contrary in this Section
1.6, neither the Exchange Agent, Veritas, the Surviving Corporation nor any
party hereto shall be liable to a holder of shares of Veritas Common Stock or
Seagate Common Stock for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
1.7 No Further Ownership Rights in Seagate Common Stock. All cash and
shares of Veritas Common Stock issued pursuant to and in accordance with the
terms of this Article I (including any cash paid in respect thereof pursuant to
Section 1.5(f) and Section 1.6(e) hereof) shall be deemed to have been issued in
full satisfaction of all rights pertaining to shares of Seagate Common Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Seagate Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.8 Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, shares of Veritas
Common Stock and cash payable in respect thereof pursuant to Section 1.5(a) or
Section 1.5(b) hereof, cash in lieu of fractional shares, if any, payable in
respect thereof pursuant to Section 1.5(f) hereof and any dividends or
distributions payable in respect thereof pursuant to Section 1.6(e) hereof;
provided, however, that Veritas may, in its discretion and as a condition
precedent to the issuance and payment thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Veritas or the Exchange Agent with respect to the Certificates alleged to have
been so lost, stolen or destroyed.
1.9 Tax Consequences. Veritas and Seagate intend that the Merger shall
constitute a "reorganization" within the meaning of Section 368 of the Code.
Veritas and Seagate
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adopt this Agreement as a "plan of reorganization" within the meaning of
Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax Regulations.
1.10 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes and intent of this Agreement and to vest in the Surviving Corporation
full right, title and possession in and to all of the assets, properties,
rights, privileges, powers and franchises of Seagate and Merger Sub, the
officers and directors of Merger Sub and Seagate shall be authorized to take,
and shall take, all such lawful and necessary action.
1.11 Definitions.
(a) For all purposes of and under this Agreement, the following terms shall
have the following respective meanings:
(i) "Administrators" has the meaning set forth in Section 5.15.
(ii) "Available Amount" means an amount equal to Cash held by Seagate
immediately prior to the Effective Time including net amounts received
under the OD Documents minus the VP Amount.
(iii) "Average Seagate Stock Price" means the average closing price of
a share of Seagate Common Stock, as reported on the NYSE, for the five (5)
consecutive trading days ending two (2) trading days immediately preceding
the Closing Date.
(iv) "Average Veritas Stock Price" means the average closing price of
a share of Veritas Common Stock, as reported on the Nasdaq, for the five
(5) consecutive trading days ending two (2) trading days immediately
preceding the Closing Date, as with respect to the VP Amount, preceding the
date that Veritas makes its election.
(v) "Cash" means cash, cash equivalents and short-term investments
(including all debt securities available for sale) as determined in
accordance with GAAP and consistent with the determination thereof in the
Recent SEC Reports.
(vi) "Cash Portion" means an amount, in cash, equal to the quotient
obtained by dividing (x) the Available Amount by (y) the Outstanding
Shares.
(vii) "Designated Liabilities" mean all Liabilities (including with
respect to Taxes) relating solely to (i) the Designated Assets and (ii) the
transactions pursuant to this Agreement. Without expanding the definition
of Designated Liabilities, Designated Liabilities shall not include
Liabilities relating to the transactions contemplated by the OD Documents
or any Liabilities included in the Adjustment Amount (as defined in the OD
Documents).
(viii) "Governmental Entity" means any court, administrative agency or
commission or other governmental authority or instrumentality.
(ix) "Indemnification Agreement" means the Indemnification Agreement
dated as of even date herewith by and among Veritas, Seagate and Purchaser
and each of its Subsidiaries.
(x) "ISA Amount" means a number of shares of Veritas Common Stock
equal to the quotient obtained by dividing (x) (A) the Stipulated Amount,
divided by (B) the Average Veritas Stock Price, by (y) the Outstanding
Shares.
(xi) "knowledge" means, with respect to either party hereto, the
actual knowledge of the executive officers of such party.
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(xii) "Liability" or "Liabilities" means any and all debts,
liabilities and obligations of any type or nature whatsoever, whether
accrued or fixed, absolute or contingent, matured or unmatured or
determined or determinable, including, without limitation, those arising
under any Law (including, without limitation, any Environmental Law),
Action or Governmental Order and those arising under any contract,
agreement, arrangement, commitment or undertaking.
(xiii) "Lien" means any lien, security interest, adverse claim,
charge, mortgage or other encumbrance.
(xiv) "Material Adverse Effect on Veritas" means any change, event,
violation, inaccuracy, circumstance or effect that is materially adverse to
the business, assets (including intangible assets), capitalization,
financial condition or results of operations of Veritas and its
Subsidiaries, taken as a whole; provided, however, that in no event shall
(i) a decrease in Veritas' stock price or the failure to meet or exceed
Wall Street research analysts' or Veritas' internal earnings or other
estimates or projections in and of itself constitute a "Material Adverse
Effect on Veritas," or (ii) any change, event, violation, inaccuracy,
circumstance or effect that results from (A) the public announcement or
pendency of the transactions contemplated hereby, (B) changes affecting the
software industry generally or the segments thereof in which Veritas
competes, or (C) changes affecting the United States economy generally,
constitute a "Material Adverse Effect on Veritas."
(xv) "Material Adverse Effect on Seagate" means any change, event,
violation, inaccuracy, circumstance or effect that, after giving effect to
the consummation of the transactions contemplated by the OD Documents,
gives rise to, or is reasonably likely to give rise to, any Liability
(absolute, accrued, contingent or otherwise, but excluding the Designated
Liabilities) of Seagate (or Veritas following the Effective Time) for which
Veritas is not entitled to indemnification under the Indemnification
Agreement following the Effective Time.
(xvi) "Nasdaq" means the Nasdaq National Market System of the National
Association of Securities Dealers, Inc.
(xvii) "NE Amount" means an amount equal to the quotient obtained by
dividing (x) (A) the per share exercise price of a Seagate Option,
multiplied by (B) the aggregate number of shares of Seagate Common Stock
issuable upon the exercise in full of such Seagate Option immediately prior
to the Effective Time, by (y) the Average Seagate Stock Price.
(xviii) "NYSE" means the New York Stock Exchange.
(xix) "OD Documents" means the Stock Purchase Agreement of even date
herewith by and among Seagate, Seagate Software and Suez Acquisition
Company (Cayman) Limited.
(xx) "Outstanding Shares" means the aggregate number of shares of
Seagate Common Stock outstanding immediately prior to the Effective Time,
after giving effect to the treatment of Seagate Options under Section
1.5(c) hereof.
(xxi) "Pro Rata Portion" means with respect to each person receiving a
TRA Right, the number of shares of Seagate Common Stock held by such person
immediately prior to the Effective Time, including shares deemed
outstanding by virtue of Section 1.5(c) divided by the Outstanding Shares.
(xxii) "Purchaser" has the meaning provided in the Stock Purchase
Agreement.
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(xxiii) "Rolled Options" means the Seagate Options and Seagate Common
Stock held by the individuals and in the amounts indicated in the Rollover
Commitment Agreements previously delivered to the parties hereto.
(xxiv) "Seagate Restricted Stock" means shares of Seagate Common Stock
subject to a right of repurchase or other restriction.
(xxv) "Seagate Software" means Seagate Software Holdings, Inc.
(xxvi) "Stipulated Amount" means the sum of:
(1) with respect to all shares of SanDisk Corp. ("SanDisk") held by
Seagate immediately prior to the Effective Time (the "SanDisk Shares"),
(A) the product obtained by multiplying (x) the average closing price of
a share of SanDisk common stock, as reported on the Nasdaq, for the five
(5) consecutive trading days ending two (2) trading days immediately
preceding the Closing Date (the "Reference Average"), by (y) 0.8 (the
product of (x) and (y) being the "Value"), minus (B) 0.4 multiplied by
the difference between the Value and Seagate's tax basis in a SanDisk
Share; multiplied by (C) the number of SanDisk Shares;
(2) with respect to all shares of CVC, Inc. ("CVCI") and Gadzoox
Networks Inc. ("Gadzoox") held by Seagate immediately prior to the
Effective Time (respectively, the "CVCI Shares" and the "Gadzoox
Shares"), (A) the product obtained by multiplying (x) the Reference
Average for shares of CVCI or Gadzoox common stock, respectively, by (y)
0.6 (the product of (x) and (y) being the "Value"), minus (B) 0.4
multiplied by the difference between the Value and Seagate's tax basis
in a CVCI or Gadzoox Share, as the case may be, multiplied by (C) the
number of CVCI Shares and Gadzoox Shares, respectively; and
(3) with respect to shares of Dragon Systems, Inc. ("Dragon") held
by Seagate immediately prior to the Effective Time ( including shares
into which such shares may have been converted, the "Dragon Shares"),
(i) if such Dragon Shares are not listed for trading on a national
securities exchange or over-the-counter market, then an amount mutually
agreed upon by the parties hereto at least ten days prior to the Seagate
Stockholders Meeting, (ii) if shares of Dragon are listed for trading on
a national securities exchange or over-the-counter-market, then (A) the
product obtained by multiplying (x) the Reference Average for shares of
Dragon common stock, by (y) 0.6 (the product of (x) and (y) being the
"Value"), minus (B) 0.4 multiplied by the difference between the Value
and Seagate's tax basis in a Dragon Share multiplied by (C) the number
of Dragon Shares (other than those subject to any escrow agreement). If
the parties are unable to agree upon a value under clause (i) above or
the valuation of any escrowed Dragon Shares, then the parties agree to
include the Dragon Shares and such escrowed shares in the TRA Amount as
provided in Section 5.15 hereof.
(xxvii) "Stock Portion" means a number of shares of Veritas Common
Stock equal to the sum of (i) the quotient obtained by dividing (x) (A) the
number of shares of Veritas Common Stock held by Seagate immediately prior
to the Effective Time, multiplied by (B) 0.853743, by (y) the Outstanding
Shares, (ii) the quotient obtained by dividing (x) (A) the VP Amount,
divided by (B) the Average Veritas Stock Price, by (y) the Outstanding
Shares, and (iii) the ISA Amount.
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(xxviii) "Subsidiary" or "Subsidiaries" means any and all
corporations, limited liability companies, general or limited partnerships,
joint ventures, business trusts, associations and other business
enterprises and entities controlled by a person directly or indirectly
through one or more intermediaries.
(xxix) "Tax" or "Taxes" has the meaning provided in the Stock Purchase
Agreement.
(xxx) "TRA Amount" means the amount of cash received with respect to
all refunds or the utilization of credits for Seagate Taxes for or
attributable to taxable years or periods of Seagate ending on or prior to
the Effective Time, or the pre-closing period, in the case of a taxable
period commencing before the Effective Time and ending after the Effective
Time, less any administrative charges of the Administrators.
(xxxi) "TRA Right" means a non-transferable right to receive, when, as
and if received by Veritas or its Affiliates, a stockholder's Pro Rata
Portion of the TRA Amount.
(xxxii) "Veritas Common Stock" means common stock, par value $.001 per
share, of Veritas.
(xxxiii) "VP Amount" means either $0, $500 million or, if Seagate has
received gross proceeds in excess of $200,000,000 with respect to the
securities listed in Part B of Schedule I hereto on or prior to the
election of the VP Amount, $750 million, at the election of Veritas, which
election shall be made no later than the tenth (10th) day prior to the date
of the Seagate Stockholders' Meeting.
1.12 Dissenting Shares. Shares of Seagate Common Stock which have not been
voted in favor of the Merger and with respect to which the holder thereof has
exercised and demanded appraisal rights under Delaware Law ("Dissenting Shares")
shall not be converted into the Merger Consideration pursuant to the Merger, but
shall instead be converted into the right to receive such consideration as may
be determined to be due with respect to such Dissenting Shares pursuant to
Delaware Law. Seagate agrees that, except with the prior written consent of
Veritas, or as required under Delaware Law, it will not voluntarily make any
payment with respect to, or settle or offer to settle, any appraisal demand.
Each holder of Dissenting Shares ("Dissenting Stockholder") who, pursuant to the
provisions of Delaware Law, becomes entitled to payment of the fair value for
shares of Seagate Common Stock shall receive payment therefor from Veritas (but
only after the value therefor shall have been agreed upon or finally determined
pursuant to Delaware Law). If, after the Effective Time, any Dissenting Shares
shall lose their status as Dissenting Shares, Veritas shall issue and deliver,
upon surrender by such stockholder of a certificate or certificates representing
shares of Seagate Common Stock pursuant to Section 1.6 hereof, the Merger
Consideration to which such stockholder would otherwise be entitled under
Section 1.5.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SEAGATE
As of the date hereof and as of the Closing Date, Seagate hereby represents
and warrants to Veritas and Merger Sub, subject to the exceptions and
qualifications specifically set forth or disclosed in writing in the disclosure
letter delivered by Seagate to Veritas, dated as of the date hereof (the
"Seagate Disclosure Schedule"), as follows:
2.1 Organization; Good Standing. Each of Seagate and Seagate Software is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, with the corporate power and authority to own, lease
and operate its assets and property and to carry on its business as presently
being conducted and as proposed to be conducted, and is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified or in good standing would reasonably be
expected to have a Material Adverse Effect on Seagate.
2.2 Charter Documents. Seagate has delivered or made available to Veritas
a true and correct copy of the Certificate of Incorporation and Bylaws of
Seagate and Seagate Software each as amended and in effect as of the date
hereof. Neither Seagate nor Seagate Software is in violation of any of the
provisions of its Certificate of Incorporation or Bylaws, each as amended and in
effect as of the date hereof.
2.3 Capital Structure.
(a)(i) The authorized capital stock of Seagate consists of 600,000,000
shares of Common Stock, par value $0.01 per share, of which there were
226,977,176 shares issued and outstanding as of February 29, 2000, and 1,000,000
shares of Preferred Stock, par value $0.01 per share, of which no shares are
issued or outstanding. All outstanding shares of Seagate Common Stock are duly
authorized and validly issued, fully paid and nonassessable, are not subject to
preemptive rights created by statute, the Certificate of Incorporation or Bylaws
of Seagate or any contract, agreement or other commitment to which Seagate is a
party or by which it is bound and have been offered, issued, sold and delivered
by Seagate in compliance with all registration or qualification required (or
applicable exemptions therefrom) of applicable federal and State securities
laws. As of February 29, 2000, Seagate had reserved an aggregate of 47,709,220
shares of Seagate Common Stock, net of exercises, for issuance to employees,
consultants and non-employee directors pursuant to the Seagate Stock Option
Plans, under which there were (i) outstanding Seagate Options to purchase an
aggregate of 34,415,211 shares of Seagate Common Stock, and (ii) 13,294,009
shares of Seagate Common Stock available for future grant. All shares of Seagate
Common Stock subject to issuance under the Seagate Stock Option Plans, upon
issuance in accordance with the terms and conditions set forth in the
instruments pursuant to which such shares of Seagate Common Stock are issuable,
would be duly authorized and validly issued, fully paid and nonassessable.
(ii) The authorized capital stock of Seagate Software consists of
300,000,000 shares of Common Stock, par value $0.01 per share, and 73,000,000
shares of Preferred Stock, par value $0.01 per share, all of the issued or
outstanding shares of which capital stock are owned by Seagate. All outstanding
shares of Seagate Software Common Stock are duly authorized and validly issued,
fully paid and nonassessable, are not subject to preemptive rights created by
statute, the Certificate of Incorporation or Bylaws of Seagate Software or any
contract, agreement or other commitment to which Seagate Software is a party or
by which it is bound and have been offered, issued, sold and delivered by
Seagate Software in
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compliance with all registration or qualification required (or applicable
exemptions therefrom) of applicable federal and State securities laws.
(b) Except as set forth in Section 2.3(a) hereof, there are no equity
securities, partnership interests or other similar ownership interests of any
class or series of Seagate or Seagate Software, or any securities exchangeable
or convertible into, or exercisable for, any such equity securities, partnership
interests or other similar ownership interests, issued, reserved for issuance or
outstanding. Except as set forth in Section 2.3(a) hereof, there are no options,
warrants, equity securities, partnership interests or other similar ownership
interests, calls, rights (including preemptive rights), commitments or
agreements of any kind or character to which Seagate or Seagate Software is a
party or by which it is bound obligating Seagate or Seagate Software to issue,
deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem
or otherwise acquire, or cause the repurchase, redemption or acquisition, of any
shares of capital stock of Seagate or Seagate Software, or obligating Seagate or
Seagate Software to grant, extend, accelerate the vesting of, or enter into, any
such option, warrant, equity security, partnership interest or other similar
ownership interest, call, right, commitment or agreement. Except as set forth in
Section 2.3(b) of the Seagate Disclosure Schedule, there are no registration
rights and, to the knowledge of Seagate, there are no voting trusts, proxies or
other agreements or understandings, with respect to any capital stock of Seagate
or Seagate Software.
(c) Except for the Designated Assets (as defined in Section 4.1 hereof), as
of the Closing Date, Seagate will not own or hold, directly or indirectly
through one or more subsidiaries, any equity securities, partnership interests
or other similar ownership interests of or in any class or series of any other
corporation, limited liability company, general or limited partnership, joint
venture, business trust, association or other business entity or enterprise, or
any security exchangeable or convertible into, or exercisable for, any such
equity securities, partnership interests or other similar ownership interests.
2.4 Authority. Seagate has all requisite corporate power and authority to
enter into this Agreement and the OD Documents, to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby. The execution and delivery by Seagate of this Agreement and the OD
Documents, the performance by Seagate of its obligations hereunder and
thereunder, and the consummation by Seagate of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary corporate action
on the part of Seagate, subject only to the approval and adoption of the
transaction contemplated by the OD Documents and this Agreement and the Merger
by Seagate's stockholders and the filing and recordation of the Certificate of
Merger in accordance with Delaware Law and the transactions contemplated by the
OD Documents. The affirmative approval of the holders of a majority of the
outstanding shares of the Seagate Common Stock is required for Seagate's
stockholders to approve and adopt this Agreement and the Merger under Delaware
Law and the transactions contemplated by the OD Documents. This Agreement and
the OD Documents been duly executed and delivered by Seagate and, assuming the
due authorization, execution and delivery of this Agreement by Veritas and
Merger Sub and the OD Documents by the other parties thereto, this Agreement and
the OD Documents constitute the valid and binding obligations of Seagate,
enforceable in accordance with their respective terms, subject to (i) the effect
of any applicable laws of general application relating to bankruptcy,
reorganization, insolvency, moratorium or other similar laws affecting
creditors' rights and the relief of debtors generally, and (ii) the effect of
rules of law and general principles of equity, including, without limitation,
rules of law and general principal of equity governing specific performance,
injunctive relief and other
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equitable remedies (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
2.5 Conflicts. The execution and delivery of this Agreement and the OD
Documents by Seagate do not, and the performance by Seagate of its obligations
hereunder and thereunder and the consummation by Seagate of the transactions
contemplated hereby and thereby will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws of Seagate, each as amended and in effect
as of the date hereof, (ii) subject to obtaining the consents, approvals, orders
or authorizations, and making the registrations, declarations or filings, set
forth in Section 2.6 hereof, conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Seagate or by which Seagate or its
assets and properties are bound or affected, or (iii) result in any breach of,
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair Seagate's rights or alter the rights or
obligations of any third party under, or give to any third party any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the assets or properties of Seagate pursuant to,
any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Seagate is
a party or by which Seagate or its assets and properties are bound or affected,
except to the extent such conflict, violation, breach, default, impairment or
other effect would not, in the case of clause (ii) or (iii) of this Section 2.5,
individually or in the aggregate, (a) reasonably be expected to have a Material
Adverse Effect, or (b) reasonably be expected to have a material adverse effect
on, or materially delay, the ability of Veritas or Seagate to consummate the
transactions contemplated hereby or on Seagate's ability to consummate the
transactions contemplated by the OD Documents.
2.6 Consents. Except as set forth in the Seagate Disclosure Statement, no
material consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Seagate in connection with the execution and delivery of this
Agreement or the OD Documents by Seagate, or the performance by Seagate of its
obligations hereunder or thereunder or the consummation by Seagate of the
transactions contemplated hereby or thereby, except for (i) the filing and
effectiveness of the Registration Statement (as defined in Section 5.1 hereof)
with the United States Securities and Exchange Commission (the "SEC") in
accordance with the Securities Act of 1933, as amended (the "Securities Act"),
(ii) the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware, (iii) the filing of the Proxy Statement (as defined in
Section 5.1 hereof) with the SEC in accordance with the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state "blue sky" securities laws and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and the equivalent laws of any foreign country, and (v) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings which, if not obtained or made, would not have a material adverse effect
on the ability of Veritas and Seagate to consummate the Merger and the other
transactions contemplated hereby or by the OD Documents.
2.7 SEC Filings; Financial Statements. Seagate has filed all forms,
reports and documents required to be filed with the SEC since July 3, 1998, and
has made available (through on-line databases) to Veritas such forms, reports
and documents in the form filed with the SEC. All such required forms, reports
and documents (including all exhibits and schedules thereto and all documents
incorporated by reference therein) are referred to herein as the "Seagate SEC
Reports." As of their respective dates, the Seagate SEC
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Reports (i) complied in all material respects with the applicable requirements
of the Securities Act or the Exchange Act, and the rules and regulations of the
SEC promulgated thereunder, and (ii) did not at the time each such Seagate SEC
Report was filed (or if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of the
Subsidiaries of Seagate is required to file any forms, reports or other
documents with the SEC. Except to the extent revised or superseded by a
subsequent filing with the SEC (a copy of which has been made available to
Veritas prior to the date of this Agreement), none of the Seagate SEC Reports
filed by Seagate since July 3, 1999 and prior to the date of this Agreement
(collectively, the "Recent SEC Reports") contains any untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of Seagate included in all Seagate SEC Reports comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of unaudited consolidated
quarterly statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of Seagate
and its consolidated Subsidiaries as of the dates thereof and the consolidated
financial position of Seagate and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited quarterly statements, to
normal year-end audit adjustments). Except as reflected in the most recent
consolidated balance sheet of Seagate included in the Recent SEC Reports most
recently filed by Seagate with the SEC prior to the date hereof (such
consolidated balance sheet being referred to herein as the "Current Seagate
Balance Sheet" and the date thereof being referred to herein as the "Current
Balance Sheet Date"), as of the Current Balance Sheet Date, neither Seagate nor
any of its Subsidiaries had, and since such date neither Seagate nor any of such
Subsidiaries has incurred, any Liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
2.8 Liabilities. Except as identified on the Seagate Disclosure Schedule,
as of the Effective Time, Seagate will not have any material Liabilities or
other obligations of any nature whatsoever (absolute, accrued, contingent or
otherwise) other than (i) Designated Liabilities and (ii) Liabilities for which
Veritas is entitled to indemnification under the Indemnification Agreement.
2.9 Absence of Material Adverse Effect on Seagate. Since the date of the
Current Seagate Balance Sheet, there has not been, occurred or arisen any
Material Adverse Effect on Seagate.
2.10 Compliance. Seagate is not in conflict in any material respect with,
or in material default or violation of, (i) any law, rule, regulation, order,
judgment or decree applicable to Seagate or by which Seagate or its assets and
properties are bound or affected, or (ii) any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Seagate is a party or by which Seagate or its
assets and properties are bound or affected. No investigation or review by any
Governmental Entity is pending or, to the knowledge of Seagate, threatened,
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against Seagate, nor has any Governmental Entity indicated an intention to
conduct the same. There is no material agreement, judgment, injunction, order or
decree binding upon Seagate or any of assets and properties which has had, or
would reasonably be expected to have, the effect of prohibiting or materially
impairing the consummation of the Merger, or the other transactions contemplated
hereby or by the OD Documents.
2.11 Permits. Seagate holds all permits, licenses, variances, exemptions,
orders and approvals from Governmental Entities which are material to the
operation of the business of Seagate, and Seagate is in compliance in all
material respects with the terms of such permits, licenses, variances,
exemptions, orders and approvals.
2.12 Litigation. As of the date of this Agreement, there is no action,
suit, proceeding, claim, arbitration or investigation pending, or as to which
Seagate has received any notice of assertion nor, to the knowledge of Seagate,
is there any threatened action, suit, proceeding, claim, arbitration or
investigation against Seagate, which in any case would reasonably be expected to
have a Material Adverse Effect on Seagate.
2.13 Brokers' and Finders' Fees. Except for fees payable to Morgan Stanley
& Co. Incorporated, Seagate has not incurred, nor will it incur, directly or
indirectly, any liability for any brokerage or finders' fees or agents'
commissions or any similar charges in connection with the Merger or the other
transactions contemplated hereby or by the OD Documents.
2.14 Absence of Liens and Encumbrances. Except as disclosed on Section
2.14 of the Seagate Disclosure Schedule, Seagate and Seagate Software Holdings,
Inc. have good and valid title to all of their assets and properties that will
not be sold or otherwise disposed of pursuant to the OD Documents including,
without limitation, their shares of Veritas, Gadzoox, Dragon, CVCI and SanDisk,
and such assets and properties at the Effective Time will be free and clear of
any liens, encumbrances or financial commitments, except for liens for taxes not
yet due and payable and as otherwise reflected in the Seagate SEC Reports.
2.15 Statements; Registration Statement; Proxy Statement/Prospectus. None
of the information supplied or to be supplied by Seagate for inclusion or
incorporation by reference in (i) the Registration Statement (as defined in
Section 5.1 hereof) will, at the time it is declared or ordered effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, or (ii) the Proxy Statement (as defined in Section 5.1
hereof) will, on the date the Proxy Statement is first mailed to the
stockholders of Seagate, at the time of the Seagate Stockholders' Meeting (as
defined in Section 5.1 hereof), at the time of the Veritas Stockholders' Meeting
and at the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading, or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Seagate Stockholders' Meeting or the Veritas
Stockholders' Meeting which has become false or misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations promulgated thereunder.
Notwithstanding the foregoing or anything to contrary set forth in this
Agreement, Seagate makes no representation or warranty with respect to any
information supplied by Veritas or Merger Sub which is contained in any of the
foregoing documents.
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2.16 Board Approval. The Board of Directors of Seagate has (i) determined
that the Merger and the other transactions contemplated hereby and by the OD
Documents are fair to, advisable and in the best interests of Seagate and its
stockholders, (ii) duly approved the Merger, this Agreement, the OD Documents
and the other transactions contemplated hereby and thereby, and (iii) determined
to recommend that the stockholders of Seagate approve the Merger, this
Agreement, the OD Documents and the other transactions contemplated hereby and
thereby.
2.17 State Takeover Statutes. The Board of Directors of Seagate has
approved the Merger, this Agreement, and the other transactions contemplated
hereby and thereby, and such approval is sufficient to render inapplicable to
the Merger, this Agreement, the OD Documents and the other transactions
contemplated hereby and thereby the provisions of Section 203 of Delaware Law to
the extent, if any, such provisions are applicable to the Merger, this
Agreement, the OD Documents and the other transactions contemplated hereby and
thereby. No other state takeover statute or similar statute or regulation
applies to or purports to apply to the Merger, this Agreement, the OD Documents
or the other transactions contemplated hereby and thereby.
2.18 Fairness Opinion. Seagate has received a written opinion from Morgan
Stanley & Co., Incorporated dated as of the date hereof, to the effect that, as
of the date hereof, the Merger Consideration is fair to the stockholders of
Seagate from a financial point of view and will deliver to Veritas a copy of
such opinion.
2.19 Veritas Common Stock. All of the Veritas Common Stock held directly
or indirectly by Seagate is owned, beneficially and of record, by Seagate
Software, and has been held continuously by Seagate Software since May 28, 1999.
2.20 Intercompany Transactions. At no time has Seagate, Seagate Software
or any member of an affiliated group of corporations as defined in Section 1504
of the Code filing returns on a consolidated basis of which Seagate or Seagate
Software is a member engaged in an intercompany transaction with respect to the
Veritas Common Stock giving rise to an intercompany item or corresponding item
within the meaning of Section 1.1502-13 of the United States Income Tax
Regulations with respect to the Veritas Common Stock, including but not limited
to such items that may be subject to gain recognition upon the application of
Section 1.1502-13(f)(4) of the United States Income Tax Regulations.
2.21 Taxes. Each of Seagate and its Subsidiaries has filed all Tax Returns
required to be filed by any of them and has paid (or Seagate has paid on its
behalf), or has set up an adequate reserve for the payment of, all Taxes
required to be paid in respect of the periods covered by such returns (except
where the failure to pay would not have a Material Adverse Effect on Seagate).
The information contained in such Tax Returns is true, complete and accurate in
all material respects except where the failure to be so would not have a
Material Adverse Effect on Seagate. Neither Seagate nor any subsidiary of
Seagate is delinquent in the payment of any tax, assessment or governmental
charge except where the delinquency would not have a Material Adverse Effect on
Seagate. No deficiencies for any taxes have been proposed, asserted or assessed
against Seagate or any of its subsidiaries that have not been finally settled or
paid in full which would have a Material Adverse Effect on Seagate, and no
requests for waivers of the time to assess any such tax are pending.
2.22 Code Section 897 Company. Seagate is not and has not been during the
period referred to in section 897(c)(1)(A)(ii) a United States real property
holding corporation within the meaning of section 897(c)(2) of the Code.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF VERITAS AND MERGER SUB
As of the date hereof and as of the Closing Date, Veritas and Merger Sub
hereby jointly and severally represent and warrant to Seagate, subject to the
exceptions and qualifications specifically set forth or disclosed in writing in
the disclosure letter delivered by Veritas to Seagate, dated as of the date
hereof (the "Veritas Disclosure Schedule"), as follows:
3.1 Organization; Good Standing. Veritas and each of its material
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the respective jurisdiction of its incorporation,
with the corporate power and authority to own, lease and operate its respective
assets and property and to carry on its respective business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would reasonably be expected to have a Material
Adverse Effect on Veritas.
3.2 Charter Documents. Veritas has delivered or made available to Seagate
a true and correct copy of the Certificate of Incorporation and Bylaws of
Veritas, as amended and in effect as of the date hereof. Neither Veritas nor any
of its material subsidiaries is in violation of any of the provisions of its
Certificate of Incorporation or Bylaws or equivalent organizational documents,
in each case as amended and in effect as of the date hereof.
3.3 Capital Structure. The authorized capital stock of Veritas consists of
500,000,000 shares of Common Stock, par value $0.001 per share, of which there
were 396,532,084 shares issued and outstanding as of March 24, 2000, 10,000,000
shares of Preferred Stock, par value $0.001 per share, of which no shares are
issued or outstanding, and one share of the special voting stock, par value
$0.001 per share. The authorized capital stock of Merger Sub consists of 1,000
shares of common stock, par value $0.01 per share, of which, as of the date
hereof, 100 shares are issued and outstanding. All outstanding shares of Veritas
Common Stock and Merger Sub's capital stock are duly authorized and validly
issued, fully paid and non-assessable, and are not subject to preemptive rights
created by statute, the Certificate of Incorporation or Bylaws of Veritas or any
contract, agreement or other commitment to which Veritas is a party or by which
it is bound. All outstanding shares of capital stock of Merger Sub have been
issued and granted in compliance with all applicable securities and other laws.
3.4 Authority. Each of Veritas and Merger Sub has all requisite corporate
power and authority to enter into this Agreement, to perform its obligations
hereunder, and to consummate the transactions contemplated hereby. The execution
and delivery by Veritas and Merger Sub of this Agreement, the performance by
Veritas and Merger Sub of the transactions contemplated hereby, and the
consummation by Veritas and Merger Sub of the transactions contemplated hereby,
have been duly authorized by all necessary corporate action on the part of
Veritas and Merger Sub, subject only to the approval of the Merger and, to the
extent not previously authorized, the Share Increase by Veritas' stockholders
and the filing of an amendment to the Certificate of Incorporation of Venus with
respect to the Share Increase and the Certificate of Merger in accordance with
Delaware Law. The approval of the holders of a majority of the outstanding
shares of Veritas Common Stock is required to approve the Merger and the Share
Increase. This Agreement has been duly executed and delivered by Veritas and
Merger Sub and, assuming the due authorization, execution and delivery of this
Agreement by Seagate, this Agreement constitutes the valid
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and binding obligations of Veritas and Merger Sub, enforceable in accordance
with their respective terms, subject to (i) the effect of any applicable laws of
general application relating to bankruptcy, reorganization, insolvency,
moratorium or other similar laws affecting creditors' rights and the relief of
debtors generally, and (ii) the effect of rules of law and general principles of
equity, including, without limitation, rules of law and general principal of
equity governing specific performance, injunctive relief and other equitable
remedies (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
3.5 Conflicts. The execution and delivery of this Agreement by Veritas and
Merger Sub do not, and the performance by Veritas and Merger Sub of their
obligations hereunder and the consummation by Veritas and Merger Sub of the
transactions contemplated hereby will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws of Veritas and Merger Sub, (ii) subject
to obtaining the consents, approvals, orders and authorizations, and making the
registrations, recordations and filings, set forth in Section 3.6 hereof,
conflict with or violate any law, rule, regulation, order, judgment or decree
applicable to Veritas and Merger Sub or by which Veritas or Merger Sub or their
assets and properties are bound or affected, or (iii) result in any breach of,
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair Veritas' or Merger Sub's rights or
alter the rights or obligations of any third party under, or give to any third
parties any rights of termination, amendment, acceleration or cancellation of,
or result in the creation of a Lien on any of the assets or properties of
Veritas or Merger Sub pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Veritas or Merger Sub is a party or by which Veritas or
Merger Sub or either of their assets and properties are bound or affected,
except to the extent such conflict, violation, breach, default, impairment or
other effect would not, in the case of clause (ii) or (iii) of this Section 3.5,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Veritas.
3.6 Consents. Except as set forth in the Veritas Disclosure Schedule, no
material consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to Veritas in connection with the execution and delivery of this
Agreement or the performance by Veritas of its obligations hereunder or the
consummation of the transactions contemplated hereby, except for (i) the filing
of a Registration Statement with the SEC in accordance with the Securities Act,
(ii) the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware, (iii) the filing of the Proxy Statement with the SEC in
accordance with the Exchange Act, (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state "blue sky" securities laws and the HSR Act and the
antitrust or competition laws of any foreign country, and (v) such other
consents, authorizations, filings, approvals and registrations which, if not
obtained or made, would not be material to Veritas or Merger Sub or have a
material adverse effect on the ability of Veritas, Merger Sub and Seagate to
consummate the Merger and the other transactions contemplated hereby.
3.7 SEC Filings; Veritas Financial Statements.
(a) Veritas has filed all forms, reports and documents required to be filed
with the SEC since December 31, 1998, and has made a copy of all such forms,
reports and documents available to Seagate. All such forms, reports and
documents (including those that Veritas may file subsequent to the date hereof)
are referred to herein as the "Veritas
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SEC Reports." As of their respective dates, the Veritas SEC Reports (i) were or
will be (as the case may be) prepared in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder, and (ii) did not or will not (as
the case may be) at the time they were filed (or if amended or superseded, then
on the date of filing of such amendment or superseding form, report or document)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Veritas SEC Reports (the "Veritas
Financials"), including any Veritas SEC Reports filed after the date hereof
until the Closing, (i) complied or will comply (as the case may be) as to form
in all material respects with the published rules and regulations of the SEC
with respect thereto, (ii) was prepared or will be prepared (as the case may be)
in accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act), and (iii) fairly presented or will fairly present
(as the case may be) in all material respects the consolidated financial
position of Veritas and its subsidiaries at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not, or are not expected to
be, material in amount. The balance sheet of Veritas as of December 31, 1998
contained in the Veritas SEC Reports is hereinafter referred to as the "Veritas
Balance Sheet."
(c) Veritas has heretofore furnished to Seagate a complete and correct copy
of any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Veritas with the SEC pursuant to
the Securities Act or the Exchange Act.
3.8 Absence of Certain Changes or Events. Since the date of the Veritas
Balance Sheet, there has not been, occurred or arisen any Material Adverse
Effect on Veritas.
3.9 Litigation. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which Veritas or any of its subsidiaries has
received any written notice of assertion nor, to the knowledge of Veritas, is
there any threatened action, suit, proceeding, claim, arbitration or
investigation against Veritas or any of its subsidiaries, which in any case
would reasonably would be expected to have a Material Adverse Effect on Veritas.
3.10 Brokers' and Finders' Fees. Except for fees payable to Credit Suisse
First Boston Corporation, Veritas has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with the Merger or the other
transactions contemplated hereby.
3.11 Statements; Registration Statement; Proxy Statement/Prospectus. None
of the information supplied or to be supplied by Veritas for inclusion or
incorporation by reference in (i) the Registration Statement (as defined in
Section 5.1 hereof) will at the time it becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (ii) the Proxy Statement (as defined in Section 5.1 hereof)
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shall not, on the date the Proxy Statement is first mailed to each of Seagate's
stockholders and Veritas' stockholders, at the times of the Seagate
Stockholder's Meeting (as defined in Section 5.1 hereof) and the Veritas
Stockholders' Meeting and at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Seagate
Stockholders' Meeting or Veritas Stockholders' Meeting which has become false or
misleading. Notwithstanding the foregoing or anything else to the contrary set
forth in this Agreement, Veritas makes no representation or warranty with
respect to any information supplied by Seagate which is contained in any of the
foregoing documents.
3.12 Board Approval. The Board of Directors of Veritas has (i) determined
that the Merger and the other transactions contemplated hereby are advisable and
in the best interests of Veritas and its stockholders, (ii) duly approved the
Merger, this Agreement and the other transactions contemplated hereby, and (iii)
resolved to recommend that the Stockholders of Veritas approve the Share
Increase.
3.13 Fairness Opinion. Veritas has received a written opinion from Credit
Suisse First Boston Corporation, dated as of the date hereof, to the effect
that, as of the date hereof, the Stock Portion to be paid by Veritas is fair to
Veritas from a financial point of view and will deliver to Seagate a copy of
such opinion.
3.14 Merger Sub Operations. Merger Sub was formed solely for the purpose
of engaging in the transactions contemplated hereby and has not (a) engaged in
any business activities, (b) conducted any operations other than in connection
with the transactions contemplated hereby or (c) incurred any Liabilities other
than in connection with the transactions contemplated hereby.
ARTICLE IV
CONDUCT OF BUSINESS AND OTHER TRANSACTIONS
4.1 Conduct of Business. On or before the Effective Time, Seagate and
Seagate Software shall take all actions necessary to transfer all of their
respective assets and Liabilities to one or more of Seagate's Subsidiaries such
that at the Effective Time the only assets and properties owned or held by
Seagate (the "Designated Assets") and the only Liabilities not assumed by such
other Subsidiaries shall be Designated Liabilities; provided, however, that
prior to the Effective Time, Seagate may sell, transfer or otherwise dispose of
any of the Designated Assets set forth on Part B of Schedule I hereto. From and
after the execution and delivery of this Agreement until the earlier of the
Effective Time or the termination of this Agreement, Seagate shall not sell,
transfer or otherwise dispose of any shares of Veritas Common Stock owned by
Seagate as of the date hereof.
4.2 No Amendment to OD Documents. From the date hereof until the earlier
to occur of the Effective Time or the termination of this Agreement pursuant to
and in accordance with Section 7.1 hereof, neither Seagate nor Seagate Software
shall terminate, amend, modify or otherwise supplement or waive any of the terms
and conditions of the OD Documents (or any of them); provided, however, that
notwithstanding the foregoing, Seagate may terminate the OD Documents pursuant
to their respective terms.
4.3 Waivers and Releases. Seagate shall use its best efforts to obtain and
to deliver to Veritas, as soon as practicable after the date hereof and in any
event at least 15 days
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prior to the Effective Time, (i) with respect to each individual who will be a
holder of Rolled Options, a waiver and release of claims in favor of Veritas and
Seagate in form and in substance reasonably satisfactory to Veritas (a "Proper
Waiver"), with respect to the cancellation of Rolled Options held by such
individual described in Section 1.5(c) hereof, and (ii) with respect to each
individual who is a party to any employment, severance or change in control or
similar agreement, or who participates in any plan providing severance or change
in control benefits, a Proper Waiver with respect to any claims which any such
individual may have against Veritas and/or Seagate with respect to any such
agreements or plans.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings.
(a) As promptly as practicable following the execution and delivery of this
Agreement, Seagate and Veritas shall prepare and file with the SEC a document to
be sent to the stockholders of Seagate and Veritas in connection with the
meeting of Seagate's stockholders to consider the approval and adoption of this
Agreement and the Merger (the "Seagate Stockholders' Meeting") and the meeting
of Veritas Stockholders to consider approval of the Merger and the Share
Increase (the "Veritas Stockholders' Meeting") (such proxy statement/prospectus,
as amended or supplemented, being referred to herein as the "Proxy Statement"),
and Veritas shall prepare and file with the SEC a registration statement on Form
S-4 (the "Registration Statement") in which the Proxy Statement will be included
as a prospectus. Each of Seagate and Veritas shall promptly respond to any
comments of the SEC with respect to the Registration Statement or the Proxy
Statement, shall use its respective commercially reasonable efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing and, in the case of Seagate, shall cause the
Proxy Statement to be mailed to the stockholders of Seagate at the earliest
practicable time. As promptly as practicable after the execution and delivery of
this Agreement, Seagate and Veritas shall prepare and file any other filings
required under the Exchange Act, the Securities Act or any other federal,
foreign or state "blue sky" securities laws relating to the Merger and the other
transactions contemplated hereby (collectively, the "Other Filings"). Each of
Seagate and Veritas shall notify the other promptly upon the receipt of any
comments from the SEC or its staff, and of any request by the SEC or its staff
or any other government officials for amendments or supplements to the
Registration Statement, the Proxy Statement or any Other Filing, or for
additional information, and shall supply the other with copies of all
correspondence between such party or any of its agents or representatives, on
the one hand, and the SEC, or its staff or any other government officials, on
the other hand, with respect to the Registration Statement, the Proxy Statement,
or any Other Filing. The Registration Statement, the Proxy Statement and the
Other Filings shall comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Registration Statement, the Proxy Statement or any Other
Filing, Seagate or Veritas, as the case may be, shall promptly inform the other
of such event, and cooperate in filing with the SEC or its staff or any other
government officials, and/or mailing to stockholders of Seagate, such amendment
or supplement.
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(b) Subject to the terms of Section 5.2(c) hereof, the Proxy Statement
shall include the recommendation of the Board of Directors of Seagate in favor
of adoption and approval of this Agreement and the Merger. The Proxy Statement
shall also include the recommendation of the Board of Directors of Veritas in
favor of approval of the Share Increase and the Merger.
5.2 Stockholder Meetings.
(a) Subject to the terms of Section 5.2(c) hereof, promptly after the date
hereof and in consultation with Veritas, Seagate shall take all action necessary
in accordance with Delaware Law and its Certificate of Incorporation and Bylaws
to convene the Seagate Stockholders' Meeting and Veritas shall call the Veritas
Stockholders' Meeting, to be held as promptly as practicable, for the purpose of
voting upon (i) this Agreement, the Merger and the transactions contemplated
under the OD Documents, (ii) the Merger and (iii) if necessary, the Share
Increase, as the case may be. Seagate and Veritas shall use all reasonable
efforts to hold the Veritas Stockholders' Meeting and the Seagate Stockholders'
Meeting on the same day and as soon as practicable after the date on which the
Registration Statement becomes effective. Nothing herein shall prevent Seagate
or Veritas from adjourning or postponing the Seagate Stockholders' Meeting or
the Veritas Stockholders' Meeting, as the case may be, to the extent necessary
to ensure that any necessary supplement or amendment to the Proxy Statement is
provided to the stockholders of Veritas and Seagate in advance of a vote
relevant to the Merger and this Agreement. Subject to the terms of Section
5.2(c) hereof, Seagate and Veritas shall each use its commercially reasonable
efforts to solicit proxies from its stockholders in favor of the adoption and
approval of the items in clauses (i) and (ii) of the preceding sentence, as
relevant, and shall take all other action necessary or advisable to secure the
vote or consent of its stockholders required by the rules of the National
Association of Securities Dealers, Inc., Delaware Law, The New York Stock
Exchange, Inc. and all other applicable legal requirements to obtain such
approval.
(b) Subject to the terms of Section 5.2(c) hereof: (i) the Board of
Directors of Seagate shall recommend that Seagate's stockholders vote in favor
of and adopt and approve this Agreement and the Merger and the transactions
contemplated under the OD Documents at the Seagate Stockholders' Meeting; (ii)
the Proxy Statement shall include a statement to the effect that the Board of
Directors of Seagate has recommended that Seagate's stockholders vote in favor
of and adopt and approve this Agreement and the Merger and the transactions
contemplated under the OD Documents at the Seagate Stockholders' Meeting, (iii)
neither the Board of Directors of Seagate nor any committee thereof shall
withdraw, amend or modify, or propose or resolve to withdraw, amend or modify in
a manner adverse to Veritas, the recommendation of the Board of Directors of
Seagate that the stockholders of Seagate vote in favor of and adopt and approve
this Agreement and the Merger, and, unless this Agreement shall have been
terminated, Seagate shall cause Seagate Software to vote the shares of Veritas
Common Stock it holds in favor of the Share Increase and the Merger.
(c) Notwithstanding the foregoing or anything to the contrary set forth in
this Agreement, nothing in this Agreement shall prevent the Board of Directors
of Seagate from withdrawing, amending or modifying its recommendation in favor
of this Agreement and the Merger (i) Seagate receives a Seagate Superior Offer
(as defined below) and such Seagate Superior Offer is not withdrawn, (ii)
neither Seagate nor any of its agents or representatives has violated any of the
restrictions set forth in Section 5.4(a) hereof, and (iii) the Board of
Directors of Seagate concludes in good faith, after consultation with its
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outside counsel, that, in light of such Seagate Superior Offer, the withholding,
withdrawal, amendment or modification of such recommendation is necessary in
order for the Board of Directors of Seagate to comply with its fiduciary
obligations to the stockholders of Seagate under applicable law. For all
purposes of and under this Agreement, the term "Seagate Superior Offer" shall
mean a bona fide written offer made by a third party to consummate any of the
following transactions: (a) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Seagate, pursuant to which the stockholders of Seagate immediately preceding the
consummation of such transaction would hold less than fifty percent (50%) of the
equity interest in the surviving or resulting entity of such transaction (or the
ultimate parent entity thereof); (b) a sale or other disposition by Seagate of
assets and properties (excluding inventory and used equipment sold in the
ordinary course of business) representing more than fifty percent (50%) of
Seagate's assets immediately prior to such sale or other disposition, or (c) the
acquisition by any person or group (including by way of a tender offer or an
exchange offer or issuance by Seagate), directly or indirectly, of beneficial
ownership or a right to acquire beneficial ownership of shares representing more
than fifty percent (50%) of the voting power of the then outstanding shares of
capital stock of the Seagate, in each case on terms that the Board of Directors
of Seagate determines, in its reasonable judgment, after consultation with its
financial advisor, to be more favorable to the stockholders of Seagate, from a
financial point of view, than the terms of this Agreement and the Merger;
provided, however, that any such offer shall not be deemed to be a "Seagate
Superior Offer" if any financing required to consummate the transaction
contemplated by such offer is not committed and is not likely in the judgment of
the Board of Directors of Seagate to be obtained by such third party on a timely
basis. Notwithstanding the foregoing or anything to the contrary set forth in
this Agreement, nothing in this Agreement shall prevent the Board of Directors
of Seagate from withdrawing, amending or modifying its recommendation in favor
of the transactions contemplated by the OD Documents, or terminating the OD
Documents in accordance with their terms.
5.3 Confidentiality. Veritas and Seagate acknowledge that they have
previously entered into a Confidentiality Agreement (the "Confidentiality
Agreement"), which shall continue in full force and effect in accordance with
its terms.
5.4 No Solicitation.
(a) From the execution and delivery of this Agreement and until the earlier
to occur of the Effective Time and termination of this Agreement pursuant to
Section 7.1 hereof, Seagate and its Subsidiaries shall not, and they shall cause
their respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by any of them not
to, directly or indirectly (i) solicit, initiate, encourage or induce the
making, submission or announcement of any Seagate Acquisition Proposal (as
defined in Section 5.4(b) hereof), (ii) participate in any discussions or
negotiations regarding, or furnish to any person any information with respect
to, or take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to, any Seagate
Acquisition Proposal, (iii) engage in discussions with any person with respect
to any Seagate Acquisition Proposal, (iv) subject to the terms of Section 5.2(c)
hereof, approve, endorse or recommend any Seagate Acquisition Proposal, or (v)
enter into any letter of intent or similar document or any contract, agreement
or commitment contemplating or otherwise relating to any Seagate Acquisition
Transaction (as defined in Section 5.4(b) hereof); provided, however, that until
the date on which this Agreement is approved by the requisite vote of the
stockholders of Seagate, the terms of this Section 5.4(a) shall not prohibit
Seagate from
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furnishing information regarding Seagate and its Subsidiaries to, entering into
a confidentiality or non-disclosure agreement with, or entering into discussions
with, any person or group in response to a Seagate Superior Offer submitted by
such person or group (and not withdrawn) if (a) neither Seagate nor any agents
or representative of Seagate and its Subsidiaries shall have violated any of the
restrictions set forth in this Section 5.4(a), (b) the Board of Directors of
Seagate concludes in good faith, after consultation with its outside legal
counsel, that such action is necessary in order for the Board of Directors of
Seagate to comply with its fiduciary obligations to the stockholders of Seagate
under applicable Law, (c) Seagate receives from such person or group an executed
confidentiality or non-disclosure agreement containing customary limitations on
the use and disclosure of all non-public written and oral information furnished
to such person or group by or on behalf of Seagate and containing terms no less
favorable to the disclosing party than the terms of the Confidentiality
Agreement (including with respect to any standstill arrangements, unless the
standstill arrangements in the Confidentiality Agreement are waived and (d)
prior to furnishing any such non-public information to such person or group, or
entering into negotiations or discussions, Seller notifies Purchaser promptly of
such inquiries, proposals or offers received by, any such information requested
from, or any such discussions or negotiations sought to be initiated or
continued with, any of its representatives indicating, in connection with such
notice, the name of the person and the terms and conditions of any inquiries,
proposals or offers, and furnishes such non-public information to Veritas to the
extent such information has not been previously furnished to Veritas. Seagate
and its subsidiaries shall immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Seagate Acquisition Proposal.
(b) For all purposes of and under this Agreement, the term "Seagate
Acquisition Proposal" shall mean any offer or proposal (other than an offer or
proposal by Veritas) relating to any Seagate Acquisition Transaction. For all
purposes of and under this Agreement, "Seagate Acquisition Transaction" shall
mean any transaction or series of related transactions, other than the
transactions contemplated by this Agreement or the OD Documents, involving: (i)
any acquisition or purchase from Seagate by any person or "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder) of more than fifteen percent (15%) in interest of the
total outstanding voting securities of Seagate, or any tender offer or exchange
offer that if consummated would result in any person or "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder) beneficially owning more than fifteen percent (15%) of
the total outstanding voting securities of Seagate, or any merger,
consolidation, business combination or similar transaction involving Seagate
pursuant to which the stockholders of Seagate immediately preceding such
transaction would hold less than fifteen percent (15%) of the equity interests
in the surviving or resulting entity of such transaction; (ii) any sale, lease
(other than in the ordinary course of business), exchange, transfer, license
(other than in the ordinary course of business), acquisition or disposition of
more than fifteen percent (15%) of the assets and properties of Seagate; or (iv)
any liquidation or dissolution of Seagate, excluding, in all cases any
disposition of the assets covered by the OD Documents.
(c) In addition to the restrictions and obligations of Seagate set forth in
Section 5.4(a) hereof, Seagate as promptly as practicable, and in any event
within twenty-four (24) hours, shall advise Veritas orally and in writing of any
request received by Seagate for non-public information which Seagate reasonably
believes could lead to a Seagate Acquisition Proposal or of any Seagate
Acquisition Proposal, the material terms
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and conditions of such request or Seagate Acquisition Proposal, and the identity
of the person or group making any such request or Seagate Acquisition Proposal.
Seagate shall keep Veritas informed in all material respects of the status and
details (including material amendments or proposed amendments) of any such
request or Seagate Acquisition Proposal.
5.5 Public Disclosure. Veritas and Seagate shall consult with each other
and agree before issuing any press release or otherwise making any public
statement with respect to the Merger, this Agreement, or a Seagate Acquisition
Proposal and shall not issue any such press release or make any such public
statement prior to such agreement, except as may be required by law or any
listing agreement with a national securities exchange or the Nasdaq, in which
case reasonable efforts to consult with the other party hereto shall be made
prior to such release or public statement; provided, however, that no such
consultation or agreement shall be required if, prior to the date of such
release or public statement, Seagate shall have withheld, withdrawn, amended or
modified its recommendation in favor of this Agreement and the Merger or the OD
Documents and the transactions contemplated thereunder.
5.6 Legal Requirements. Each of Veritas, Merger Sub and Seagate shall take
all reasonable actions necessary or desirable to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the Merger and the other transactions contemplated hereby (including, without
limitation, furnishing all information required in connection with approvals of,
or filings with, any Governmental Entity, and prompt resolution of any
litigation prompted hereby), and shall promptly cooperate with, and furnish
information to, the other party hereto to the extent necessary in connection
with any such requirements imposed upon either of them or their respective
subsidiaries in connection with the consummation of the Merger and the other
transactions contemplated hereby. Veritas shall use its commercially reasonable
efforts to take such steps as may be necessary to comply with the securities and
state "blue sky" securities laws of all jurisdictions which are applicable to
the issuance of Veritas Common Stock pursuant to the Merger in accordance with
this Agreement. Seagate shall use its commercially reasonable efforts to assist
Veritas as may be necessary to comply with the securities and state "blue sky"
securities laws of all jurisdictions which are applicable in connection with the
issuance of Veritas Common Stock pursuant to the Merger in accordance with this
Agreement.
5.7 Notification of Certain Matters. Veritas shall give prompt notice to
Seagate, and Seagate shall give prompt notice to Veritas, of the occurrence, or
failure to occur, of any event, which occurrence or failure to occur would be
reasonably likely to cause (i) any representation or warranty contained in this
Agreement to be untrue or inaccurate at the Effective Time, such that the
conditions set forth in Section 6.2(a) or Section 6.3(a) hereof, as the case may
be, would not be satisfied or fulfilled as a result thereof, or (ii) any
material failure of Veritas, Merger Sub or Seagate, as the case may be, or of
any officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement. Notwithstanding the foregoing, the delivery of any notice
pursuant to this Section 5.7 shall not limit or otherwise affect the rights and
remedies available hereunder to the party receiving such notice.
5.8 Commercially Reasonable Efforts and Further Assurances. Subject to the
respective rights and obligations of Veritas and Seagate under this Agreement,
each of Veritas and Seagate shall use its respective commercially reasonable
efforts to effectuate
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the Merger and the other transactions contemplated hereby, and to fulfill and
cause to be fulfilled the conditions to the Closing under this Agreement. Each
of Veritas and Seagate, at the reasonable request of the other party hereto,
shall execute and deliver such other instruments, and do and perform such other
acts and things, as may be necessary or desirable for effecting completely the
consummation of the Merger and the other transactions contemplated hereby.
5.9 Indemnification.
(a) From and after the Effective Time, the Surviving Corporation shall
fulfill and honor in all respects the obligations of Seagate pursuant to any
indemnification agreements between Seagate and any of its directors and officers
existing prior to the date hereof to the extent the obligations thereunder
relate to the approval and adoption of the Merger. The Certificate of
Incorporation and Bylaws of the Surviving Corporation shall contain the
provisions with respect to indemnification, exculpation, expense advancement and
elimination of liability for monetary damages relating to the approval and
adoption of the Merger at least as favorable as is set forth in the Certificate
of Incorporation and Bylaws of Seagate, which provisions shall not be amended,
repealed or otherwise modified for a period of six (6) years from the Effective
Time in any manner that would adversely affect the rights thereunder of
individuals who, at the Effective Time, were directors, officers, employees or
agents of Seagate, unless such modification is required by law.
(b) For a period of six (6) years after the Effective Time, Veritas shall
use its commercially reasonable efforts to maintain in effect, if available,
directors' and officers' liability insurance (or purchase tail coverage)
covering those persons who are currently covered by Seagate's directors' and
officers' liability insurance policy on terms comparable to those applicable to
the then current directors and officers of Veritas.
(c) In the event that the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers a material amount of its assets and properties to any
person in a single transaction or a series of related transactions, then, and in
each such case, the Surviving Corporation shall either guaranty the
indemnification obligations of the Surviving Corporation under this Section
5.10, or shall make, or cause to be made, proper provision so that the
successors and assigns of the Surviving Corporation assume the indemnification
obligations of the Surviving Corporation under this Section 5.11 for the benefit
of the parties entitled to the benefits of this Section 5.10 (the "Indemnified
Parties"). The terms and provisions of this Section 5.10 are (a) intended to be
for the benefit of, and shall be enforceable by, each of the Indemnified
Parties, and (b) in addition to, and not in substitution for, any other rights
to indemnification or contribution that any of the Indemnified Parties may have
by contract or otherwise.
(d) This Section 5.9 shall survive any termination of this Agreement and
the consummation of the Merger at the Effective Time, and shall be binding on
all successors and assigns of the Surviving Corporation.
5.10 Tax-Free Reorganization. Neither Seagate nor Veritas shall, nor shall
either permit any of its Subsidiaries to take or cause to be taken any action
that would disqualify the Merger as a "reorganization" within the meaning of
Section 368(a) of the Code; provided, however, that neither party shall have any
liability under this Section 5.10 as a result of any action contemplated
hereunder or by the OD Documents.
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5.11 Nasdaq Listing. Veritas shall authorize for listing on the Nasdaq the
shares of Veritas Common Stock issuable pursuant to the Merger in accordance
with this Agreement, upon official notice of issuance.
5.12 Seagate Affiliate Agreement. Prior to the Seagate Stockholders
Meeting, Seagate shall provide Veritas a complete and accurate list of those
persons who may be deemed to be, in Seagate's reasonable judgment, affiliates of
Seagate within the meaning of Rule 145 promulgated under the Securities Act (a
"Seagate Affiliate"). Seagate shall provide Veritas with such information and
documents as Veritas reasonably requests for purposes of reviewing and verifying
the foregoing list. Seagate shall deliver or cause to be delivered to Veritas as
promptly as practicable on or following the date hereof, but in no event later
than the date the Proxy Statement is filed with the SEC, from each Seagate
Affiliate an executed Affiliate Agreement, in customary form and substance
reasonably satisfactory to Veritas (the "Seagate Affiliate Agreement"), each of
which will be effective as of the Effective Time. Veritas shall be entitled to
place appropriate legends on the certificates evidencing any Veritas Common
Stock to be received by a Seagate Affiliate pursuant to the Merger in accordance
with this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for the Veritas Common Stock.
5.13 Regulatory Filings; Reasonable Efforts. As soon as practicable
following the execution and delivery of this Agreement, Seagate and Veritas each
shall file with the United States Federal Trade Commission (the "FTC") and the
Antitrust Division of the United States Department of Justice ("DOJ") a
Notification and Report Form relating to the Merger and the other transactions
contemplated hereby as required by the HSR Act, as well as any comparable
pre-merger notification forms required by the merger notification or control
laws and regulations of any applicable jurisdiction, as agreed to by Seagate and
Veritas. Seagate and Veritas each shall promptly (i) supply the other with any
information which may be required in order to effectuate the foregoing filings,
and (ii) supply any additional information which reasonably may be required by
the FTC, the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate.
5.14 Access to Information. From the date hereof until the Effective Date,
Seagate will, and will cause each of its subsidiaries to (i) allow Veritas and
its officers, employees, counsel, accountants, actuaries, consultants and other
authorized representatives ("Representatives") to have full access to the books,
records, contracts, properties, facilities, accountants, actuaries, consultants,
advisors, management and personnel of Seagate and its subsidiaries at all
reasonable times, (ii) furnish promptly to Veritas and its Representatives all
information and documents concerning Seagate and its subsidiaries as Veritas or
its Representatives may reasonably request and (iii) cause the respective
officers, employees and Representatives of Seagate and its subsidiaries to
cooperate in good faith with Veritas and its Representatives in connection with
all such access.
5.15 TRA Matters.
(a) Form. The TRA Rights shall be evidenced by a non-transferable document
in form and substance reasonably satisfactory to Veritas and Seagate, and shall
contain legends to the effect that they are non-negotiable instruments as well
as such other legends as may be required by law. The TRA Rights shall have an
expiration date of March 31, 2003, after which time they shall expire without
further act. After the expiration date of the TRA Rights, any TRA Amounts
received by Veritas and its Affiliates shall be the property of Veritas without
any obligation whatsoever to account therefor to former holders of the TRA
Rights.
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(b) Administration generally. On or prior to the Effective Time, Seagate
shall designate one or more designees (the "Administrators") who shall be
responsible for overseeing collection of the TRA Amounts and coordinating
activities with representatives of Veritas and Purchaser with respect to Seagate
Taxes. Veritas and Seagate will, prior to the Effective Time, cooperate in good
faith with respect to establishing procedures and structures designed to
maximize the aggregate value of the TRA Amount and minimize the amount of
administrative costs. This may include the establishment of segregated accounts,
pass-through trusts or similar devices (collectively, a "Collection Account") to
receive periodic payments of TRA Amounts. The Administrators shall be entitled
to charge the Collection Account a fee of 1% for all amounts deposited therein
and distributed to holders of the TRA Rights.
(c) Collection Amount. Following the Effective Time, Veritas shall forward
to the Collection Account (and notify the Administrators of) any such refunds or
credits after receipt or realization thereof by Veritas.
(d) Payments. Any payments from Veritas required to be paid shall be made
within 10 business days of the receipt of any refund or realization of credit as
the case may be. Any such payments not made within such time period, shall be
subject to an interest charge of 8% per annum.
(e) Investments/Distributions. Amounts deposited in the Collection Account
shall be invested in short-term money markets instruments, and shall be
distributed to holders of TRA Rights on each calendar quarterly end commencing
September 30, 2000.
(f) Conduct of Audits and Other Procedural Matters. The Administrators
shall have the right to initiate any claim for refund, credit or amended return
that would give rise to a TRA Amount, and to control any audit, examination or
contest with respect thereto, except if such audit, examination or contest may
give rise to an indemnification obligation by Purchaser under the
Indemnification Agreement, in which case the provisions of Section 6(d)(i) of
the Indemnification Agreement shall control. Venus shall promptly forward to the
Administrators all written notifications and other written communications,
including if available the original envelope showing any postmark, from any
taxing authority received by Venus or its affiliates relating to the TRA Amount.
(g) Assistance and Cooperation. After the Effective Time, Veritas shall
(and shall cause their respective Affiliates to):
(i) Assist the Administrators in calculating the potential amount of
the TRA Amount and included any Tax Returns prepaid by Veritas claims for
refunds or credits designed to maximize the TRA Amount;
(ii) Cooperate fully in preparing for any audits of, or disputes with
taxing authorities regarding the TRA Amount;
(iii) Make available to the other and to any taxing authority as
reasonably requested all information, records, and documents relating to
Taxes of Veritas, Seagate or any of their respective subsidiaries;
(iv) Provide timely notice to the other in writing of any pending or
threatened Tax audits or assessments relating to refunds or credits
included or potentially includable by individuals in the TRA Amount; and
(v) Furnish the other with copies of all correspondence received from
any taxing authority in connection with any Tax audit which may affect
refunds or credits included or potentially includable in the TRA Amount.
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(h) Exculpation. In performing any duties under this Agreement, the
Administrator shall not be liable to any party for damages, losses, or expenses,
except for negligence or willful misconduct on the part of the Administrator.
The Administrator shall not incur any such liability for (A) any act or failure
to act made or omitted in good faith, or (B) any action taken or omitted in
reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that the Administrator shall in good faith
believe to be genuine, nor will the Administrator be liable or responsible for
forgeries, fraud, impersonations, or determining the scope of any representative
authority. In addition, the Administrator may consult with legal counsel in
connection with performing the Administrator's duties under this Agreement and
shall be fully protected in any act taken, suffered, or permitted by him/her in
good faith in accordance with the advice of counsel. The Administrator is not
responsible for determining and verifying the authority of any person acting or
purporting to act on behalf of any party to this Agreement.
(i) Dragon Shares. Any Dragon Shares escrowed at the Effective Time or with
respect to which the parties did not mutually agree to a value, shall be added
to the TRA Amount, mutatis mutandis.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger and
the other transactions contemplated hereby shall be subject to the satisfaction
or fulfillment, at or prior to the Effective Time, of the following conditions:
(a) Stockholder Approvals. This Agreement shall have been approved and
adopted, and the Merger shall have been duly approved, by the requisite
vote under applicable law by the stockholders of Seagate. The Share
Increase and the Merger shall have been approved by the requisite vote of
the Veritas stockholders.
(b) Registration Statement Effective; Proxy Statement. The SEC shall
have declared the Registration Statement effective. No stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose, and no
similar proceeding in respect of the Proxy Statement, shall have been
initiated or threatened in writing by the SEC.
(c) No Order; HSR Act. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of
making the Merger illegal or otherwise prohibiting consummation of the
Merger. All requirements, if any, under the HSR Act or equivalent foreign
statute, rule, regulation or order relating to the transactions
contemplated hereby shall have expired or terminated early.
(d) Tax Opinions. Veritas and Seagate shall each have received
substantially identical written opinions from their respective counsels,
Willkie Farr & Gallagher and Wilson Sonsini Goodrich & Rosati, Professional
Corporation, in form and substance reasonably satisfactory to them, to the
effect that the Merger should constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and such opinions shall not have
been withdrawn. The parties to this Agreement agree to make reasonable
representations as requested by such counsel for the purpose of rendering
such opinions.
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(e) Closing of OD Documents. The closing of the transactions
contemplated by the OD Documents shall have occurred without waiver of
Section 9.2(a) and (b) or 9.3(a) and (b) of the OD Documents, and pursuant
thereto, Seagate and Star Software shall not have (i) any assets or
properties other than the Designated Assets, or (ii) any Liabilities (other
than the Designated Liabilities) or other obligations (absolute, accrued
contemplated or otherwise) for which Veritas is not entitled to
indemnification under the Indemnification Agreement, and Seagate and
Purchaser shall have provided Veritas with certificates by their respective
Chief Financial Officers to the foregoing effect.
6.2 Additional Conditions to Obligations of Seagate. The obligation of
Seagate to consummate and effect the Merger and the other transactions
contemplated hereby shall be subject to the satisfaction or fulfillment, at or
prior to the Effective Time, of the following conditions, any of which may be
waived, in writing, exclusively by Seagate:
(a) Representations and Warranties. The representations and warranties
of Veritas and Merger Sub contained in this Agreement shall have been true
and correct in all material respects as of the date hereof, except where
the failure to be so true and correct would not, in the aggregate,
reasonably be expected to have a Material Adverse Effect on Veritas. In
addition, the representations and warranties of Veritas contained in this
Agreement shall be true and correct in all material respects on and as of
the Effective Time (except for changes contemplated by this Agreement and
except for those representations and warranties which address matters only
as of a particular date, which shall have been true and correct only as of
such particular date), with the same force and effect as if made on and as
of the Effective Time, except in such cases where the failure to be so true
and correct would not, in the aggregate, reasonably be expected to have a
Material Adverse Effect on Veritas. Seagate shall have received a
certificate with respect to the foregoing signed on behalf of Veritas by
the Chief Executive Officer and the Chief Financial Officer of Veritas.
(b) Agreements and Covenants. Veritas and Merger Sub shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
on or prior to the Effective Time, and Seagate shall have received a
certificate to such effect signed on behalf of Veritas by the Chief
Executive Officer and the Chief Financial Officer of Veritas.
6.3 Additional Conditions to the Obligations of Veritas and Merger
Sub. The obligations of Veritas and Merger Sub to consummate and effect the
Merger shall be subject to the satisfaction or fulfillment, at or prior to the
Effective Time, of the following conditions, any of which may be waived, in
writing, exclusively by Veritas:
(a) Representations and Warranties. The representations and warranties
of Seagate contained in this Agreement shall have been true and correct in
all material respects as of the date hereof, except where the failure to be
so true and correct would not, in the aggregate, reasonably be expected to
have a Material Adverse Effect on Seagate. In addition, the representations
and warranties of Seagate contained in this Agreement shall be true and
correct in all material respects on and as of the Effective Time (except
for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a
particular date, which shall have been true and correct as of such
particular date), with the same force and effect as if made on and as of
the Effective Time, except in such cases where the failure to be so true
and correct would not, in the aggregate, reasonably be expected to have a
Material Adverse Effect on Seagate. Veritas shall
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have received a certificate with respect to the foregoing signed on behalf
of Seagate by the President and the Chief Financial Officer of Seagate. The
representations and warranties in Section 2.3(b) hereof shall be true and
correct in all material respects.
(b) Agreements and Covenants. Seagate shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the
Effective Time, and the Veritas shall have received a certificate to such
effect signed on behalf of Seagate by the President and the Chief Financial
Officer of Seagate.
(c) Indemnification Agreement Representations and Warranties. Each of
the representations and warranties of the parties (other than Veritas) in
the Indemnification Agreement (i) to the extent qualified by materiality
shall be true and correct, and (ii) to the extent not qualified by
materiality, shall be true and correct in all material respects, in each of
cases (i) and (ii), on the date of this Agreement and as of the Closing
Date, as if made at and as of such time (except to the extent expressly
made as of an earlier date, in which case as of such date), except as
otherwise contemplated by this Agreement. The Indemnification Agreement
shall be in full force and effect, and each Subsidiary of Purchaser shall
have executed and delivered a joinder agreement in accordance with the
terms of the Indemnification Agreement.
(d) Financing. The Financing (as defined in the OD Documents) shall
have closed on the terms and conditions specified in the Commitment Letters
(as defined in the OD Documents) and no material change in the terms of
such Financing shall have occurred which, in Veritas' reasonable judgment,
would materially and adversely impact Purchaser's ability to timely satisfy
its obligations under the Indemnification Agreement.
ARTICLE VII
TERMINATION, FEES AND EXPENSES; AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of this Agreement and the
Merger by the stockholders of Seagate:
(a) by mutual written consent, duly authorized by the Boards of
Directors of Veritas and Seagate;
(b) by either Seagate or Veritas, if the Merger shall not have been
consummated by December 31, 2000; provided, however, that the right to
terminate this Agreement pursuant to this Section 7.1(b) shall not be
available to any party hereto whose failure to fulfill any obligation under
this Agreement (including, without limitation, such party's obligation
under Section 5.4 hereof) has been a principal cause of, or resulted in,
the failure of the Merger to be consummated on or before such date
(c) by either Seagate or Veritas, if a Governmental Entity shall have
issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree or ruling is final and
nonappealable;
(d) by either Seagate or Veritas, if (i) the requisite approval of the
stockholders of Seagate under applicable law to approve this Agreement and
the Merger shall not have been obtained by reason of the failure to obtain
the requisite vote upon a vote
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taken at a meeting of the stockholders of Seagate duly convened therefor or
at any adjournment or postponement thereof; and (ii) the required approval
by the stockholders of Veritas of the Share Increase (if not previously
approved) and the Merger shall not have been obtained by reason of the
failure to obtain the required vote at a meeting of Veritas stockholders
duly convened therefor or at any adjournment thereto; provided, however,
that a party's right to terminate this Agreement pursuant to this Section
7.1(d) shall not be available to Seagate if the failure to obtain the
foregoing approval of the stockholders of that party shall have been caused
by that party's action or failure to act in a manner which constitutes a
material breach of this Agreement;
(e) by Seagate, upon a breach by Veritas of any representation,
warranty, covenant or agreement of Veritas in this Agreement, or if any
representation or warranty of Veritas shall have become untrue, in either
case such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
hereof would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue; provided,
however, that if such inaccuracy in Veritas' representations and
warranties, or breach by Veritas, is curable, then Seagate may not
terminate this Agreement pursuant to this Section 7.1(e) for thirty-five
(35) calendar days after delivery of written notice to Veritas of such
breach, provided that Veritas continues to exercise commercially reasonable
efforts to cure such breach (it being understood that Seagate may not
terminate this Agreement pursuant to this Section 7.1(e) if such breach by
Veritas is cured during such thirty-five (35)-day period);
(f) by Veritas, upon a breach by Seagate of any representation,
warranty, covenant or agreement of Seagate contained in this Agreement, or
if any representation or warranty of Seagate shall have become untrue, in
either case such that the conditions set forth in Section 6.3(a) or Section
6.3(b) hereof would not be satisfied as of the time of such breach or as of
the time such representation or warranty shall have become untrue,
provided, however, that if such inaccuracy in Seagate's representations and
warranties, or breach by Seagate, is curable then Veritas may not terminate
this Agreement pursuant to this Section 7.1(f) for thirty-five (35)
calendar days after delivery of written notice to Seagate of such breach,
provided that Seagate continues to exercise commercially reasonable efforts
to cure such breach (it being understood that Veritas may not terminate
this Agreement pursuant to this Section 7.1(f) if such breach by Seagate is
cured during such thirty-five (35)-day period);
(g) by Seagate, if (i) prior to the receipt of the requisite approval
of the stockholders of Seagate to this Agreement and the Merger, Seagate
receives a Seagate Superior Offer and the Board of Directors of Seagate
concludes in good faith, after consultation with its outside counsel, that
in light of such Seagate Superior Offer, the termination of this Agreement
in order to accept such Seagate Superior Offer is necessary in order for
the Board of Directors of Seagate to comply with its fiduciary obligations
to the stockholders of Seller under applicable law, and Seagate enters into
an agreement contemplating, or consummates, a Seagate Acquisition
Transaction, and (ii) Seagate has complied with all of its obligations
under Section 5.4 hereof, and (iii) prior to the termination of this
Agreement pursuant to this Section 7.1(g), pays Veritas the Seagate
Termination Fee pursuant to Section 7.3(b)(ii) hereof; provided, that such
termination may take place only after two (2) business days following
Veritas' receipt of written notice advising Veritas that the Board of
Directors of Seagate has received a Seller Superior Offer specifying the
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material terms and conditions of such Seagate Superior Offer (and including
a copy thereof with all accompanying documentation, if in writing),
identifying the person making such Seagate Superior Offer and stating that
it intends to make the determination set forth in clause (i) of this
Section 7.1(g). After providing such notice, Seagate shall provide an
opportunity to Veritas to make such adjustments in the terms and conditions
of this Agreement as would enable Seagate to proceed with its
recommendation to its stockholders without making the determination set
forth in clause (i) of this Section 7.1(g); provided, further, however,
that any such adjustment shall be at the discretion of Veritas at the time;
or
(h) by Veritas, if a Veritas Triggering Event shall have occurred. For
all purposes of and under this Agreement, a "Veritas Triggering Event"
shall be deemed to have occurred if: (i) the Board of Directors of Seagate
(or any committee thereof) shall for any reason have withdrawn or shall
have amended or modified in a manner adverse to Veritas its recommendation
in favor of the adoption and approval of this Agreement or the Merger; (ii)
Seagate shall have failed to include in the Proxy Statement the
recommendation of the Board of Directors of Seagate in favor of the
adoption and approval of this Agreement and the Merger or shall have taken
any action or made any statement inconsistent with such recommendation; or
(iii) a tender or exchange offer relating to securities of Seagate shall
have been commenced by a person unaffiliated with Veritas, and Seagate
shall not have sent to its securityholders pursuant to Rule 14e-2
promulgated under the Securities Act, within ten (10) business days after
such tender or exchange offer is first published sent or given, a statement
disclosing that Seagate recommends rejection of such tender or exchange
offer; or
(i) by Seagate, if: (i) the Board of Directors of Veritas (or any
committee thereof) shall for any reason have withdrawn or shall have
amended or modified in a manner adverse to Seagate its recommendation in
favor of the Share Increase (if not previously approved) and the Merger; or
(ii) Veritas shall have failed to include in the Proxy Statement the
recommendation of the Board of Directors of Veritas in favor of the Share
Increase (if not previously approved) and the Merger.
7.2 Notice of Termination; Effect of Termination. Except as set forth in
Section 7.3(b), any termination of this Agreement pursuant to Section 7.1 hereof
shall be effective immediately upon the delivery of written notice of the
terminating party to the other party hereto. In the event of the termination of
this Agreement pursuant to Section 7.1 hereof, this Agreement shall be of no
further force or effect, except (i) as set forth in this Section 7.2, Section
7.3 hereof and Article VIII hereof, each of which shall survive the termination
of this Agreement without limitation, and (ii) that nothing herein shall relieve
any party from liability for any intentional breach of this Agreement. A change
by the Veritas board of directors of its recommendation of approval of the
Merger and/or the Share Increase shall be an intentional breach by Veritas of
the terms hereof unless Veritas, at the time of such change, had the right to
terminate this Agreement. In the event of the termination of this Agreement
under circumstances whereby the Seagate Termination Fee shall be payable, either
immediately or based upon the occurrence of a subsequent event, the provisions
of any standstill or similar agreement that would prevent an acquisition by
Veritas or any of its affiliates of capital stock or assets of Seagate or any
affiliate of Seagate (such provisions being "standstill provisions") shall
terminate without any further action on the Part of Veritas or Seagate,
providing that (i) only such standstill provisions of any such agreement shall
terminate and the remaining provisions thereof shall remain in full force and
effect in accordance with their terms and (ii) no severability
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provisions of any such agreement shall be interpreted to require the replacement
of such standstill provisions with any other provision.
7.3 Fees and Expenses.
(a) General. Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, whether or not the
Merger is consummated.
(b) Seagate Payments.
(i) Seagate shall pay to Veritas in immediately available funds,
within one (1) business day after such notice of termination is delivered,
an amount equal to $440,000,000 (the "Seagate Termination Fee") if this
Agreement is terminated by Veritas pursuant to Section 7.1(h) hereof.
(ii) Seagate shall pay Veritas in immediately available funds, prior
to the termination of this Agreement, an amount equal to the Seagate
Termination Fee if this Agreement is terminated by Seagate pursuant to
Section 7.1(g) hereof.
(iii) Seagate shall pay to Veritas in immediately available funds,
within one (1) business day after the date Seagate directly or indirectly
enters into an agreement with any third party with respect to a Seagate
Acquisition Transaction or a Seagate Acquisition Transaction is
consummated, an amount equal to the Seagate Termination Fee if (A) this
Agreement is terminated by Veritas pursuant to Section 7.1(d)(i) hereof and
at such time was not terminable by Seagate pursuant to Section 7.1(d)(ii),
(B) at any time after the date of this Agreement and at or before the
Seagate Stockholder Meeting a Seagate Acquisition Proposal shall have been
publicly announced or otherwise communicated to the Seagate, and (C) within
twelve (12) months of the termination of this Agreement, Seagate directly
or indirectly enters into an agreement with any third party with respect to
a Seagate Acquisition Transaction or a Seagate Acquisition Transaction is
consummated.
(iv) Seagate shall pay to Veritas in immediately available funds,
within one (1) business day after the first to occur of the events set
forth in clause (d) below, an amount equal to the Seagate Termination Fee
if (A) this Agreement is terminated by either party pursuant to Section
7.1(b) hereof and at such time was not terminable by Seagate pursuant to
Section 7.1(d)(ii), (B) at any time after the date of this Agreement and at
or before the Termination Date a Seagate Acquisition Proposal shall have
been publicly announced or otherwise communicated to the Seagate, (C)
following the public announcement or communication of such Seagate
Acquisition Proposal and prior to any such terminations, Seagate shall have
intentionally breached (and not cured after notice thereof) any of its
covenants or agreements set forth in this Agreement in any material
respect, which breach shall have contributed to the failure of the Closing
to occur on or before the Termination Date, and (D) within twelve (12)
months of the termination of this Agreement, Seagate directly or indirectly
enters into an agreement with any third party with respect to a Seagate
Acquisition Transaction or a Seagate Acquisition Transaction is
consummated.
(v) For all purposes of and under this Section 7.3, the term "Seagate
Acquisition Proposal" shall mean any offer or proposal (other than an offer
or proposal by Veritas relating to any Seagate Acquisition Transaction. For
all purposes of and under this Section 7.3, "Seagate Acquisition
Transaction" shall mean any transaction or series of
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related transactions involving: (i) any acquisition or purchase from
Seagate by any person or "group" (as defined under Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder) of more
than fifty percent (50%) in interest of the total outstanding voting
securities of Seagate, or any tender offer or exchange offer that if
consummated would result in any person or "group" (as defined under Section
13(d) of the Exchange Act and the rules and regulations promulgated
thereunder) beneficially owning more than fifty percent (50%) of the total
outstanding voting securities of Seagate, or any merger, consolidation,
business combination or similar transaction involving Seagate pursuant to
which the stockholders of Seagate immediately preceding such transaction
would hold less than fifty percent (50%) of the equity interests in the
surviving or resulting entity of such transaction (or the ultimate parent
entity thereof); (ii) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course
of business), acquisition or disposition of more than fifty percent (50%)
of the assets and properties of Seagate; or (iii) any liquidation or
dissolution of Seagate, excluding in all cases any disposition of the
assets covered by the OD Documents.
(vi) Seagate acknowledges that the agreements contained in this
Section 7.3(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Veritas would not enter
into this Agreement.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of the parties hereto.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations
and warranties of Seagate and Veritas contained in this Agreement shall
terminate at the Effective Time, and only the covenants and agreements that by
their terms survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via facsimile (receipt confirmed) to the parties at
the following addresses or facsimile numbers
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(or at such other address or facsimile numbers for a party as shall be specified
by like notice):
(a) if to Seagate, to:
Seagate Technology, Inc.
920 Disc Drive
Scotts Valley, California 95066
Attention: General Counsel
Facsimile No.: 831-438-6675
Telephone No.: 831-438-6550
with copies to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry W. Sonsini, Esq.
Facsimile No.: 650-493-6811
Telephone No.: 650-493-9300
and to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
One Market Plaza
Spear Tower
San Francisco, California 94105
Attention: Michael J. Kennedy, Esq.
Facsimile No.: 415-947-2099
Telephone No.: 415-947-2000
and to:
Suez Acquisition Company (Cayman) Limited
c/o Silver Lake Partners, L.P.
2725 Sand Hill Road
Building C, Suite 950
Menlo Park, California 94025
Attention: Dave Roux
Facsimile: 650-233-8125
Telephone: 650-233-8121
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
Attention: William E. Curbow, Esq.
Facsimile: 212-455-2502
Telephone: 212-455-2000
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and to:
TPG Partners, III, L.P.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
Attention: Richard A. Ekleberry, Esq.
Facsimile: 817-871-4010
Telephone: 817-871-4000
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Paul J. Shim, Esq.
Facsimile: 212-225-3999
Telephone: 212-225-2000
(b) if to Veritas, Merger Sub or the Surviving Corporation, to:
VERITAS Software Corporation
1600 Plymouth Street
Mountain View, California 94043
Attention: General Counsel
Facsimile: 650-526-2581
Telephone: 650-335-8000
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: Michael A. Schwartz
Facsimile: 212-728-8111
Telephone: 212-728-8000
8.3 Certain Interpretations.
(a) When a reference is made in this Agreement to a Section or an Exhibit,
such reference shall be to a Section or an Exhibit to this Agreement unless
otherwise indicated.
(b) The words "include," "includes" and "including" when used herein shall
be deemed in each case to be followed by the words "without limitation."
(c) The table of contents and headings contained in this Agreement are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement, or any term or provision hereof.
(d) Reference to the subsidiaries of an entity shall be deemed to include
all direct and indirect subsidiaries of such entity.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to the other party hereto, it being understood
that each party hereto need not sign the same counterpart.
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8.5 Entire Agreement. This Agreement and the documents and instruments and
other agreements among the parties hereto as contemplated by or referred to
herein, including the Seagate Disclosure Schedule and the Veritas Disclosure
Schedule (i) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, it being understood that the Confidentiality Agreement shall continue in
full force and effect until the Closing and shall survive any termination of
this Agreement, and (ii) except as is provided in Section 5.9 hereof, are not
intended to confer upon any other person any rights or remedies hereunder.
8.6 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the of the parties. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
8.11 Waiver of Jury Trial. EACH OF VERITAS AND SEAGATE HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF VERITAS AND SEAGATE IN THE NEGOTIATION,
ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their duly authorized respective officers, as of the date first
above written.
VERITAS SOFTWARE CORPORATION
By:
Name:
Title:
VICTORY MERGER SUB, INC.
By:
Name:
Title:
SEAGATE TECHNOLOGY, INC.
By:
Name:
Title:
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ANNEX B
EXECUTION COPY
STOCK PURCHASE AGREEMENT
BY AND AMONG
SUEZ ACQUISITION COMPANY (CAYMAN) LIMITED,
SEAGATE TECHNOLOGY, INC.,
AND
SEAGATE SOFTWARE HOLDINGS, INC.
DATED AS OF MARCH 29, 2000
<PAGE> 381
TABLE OF CONTENTS
<TABLE>
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<S> <C> <C>
STOCK PURCHASE AGREEMENT............................................. 1-B
ARTICLE I DEFINITIONS............................................... 1-B
1.1 Certain Defined Terms....................................... 1-B
ARTICLE II PURCHASE AND SALE........................................ 5-B
2.1 Purchase and Sale of the Shares............................. 5-B
2.2 Purchase Price; Allocation of Purchase Price................ 5-B
2.3 Closing..................................................... 5-B
2.4 Closing Deliveries by Seller and SSHI....................... 6-B
2.5 Closing Deliveries by Purchaser............................. 6-B
2.6 Adjustment of Required Cash................................. 6-B
2.7 Transaction Structure....................................... 7-B
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER................ 8-B
3.1 Organization; Good Standing................................. 8-B
3.2 Charter Documents........................................... 8-B
3.3 Subsidiaries................................................ 8-B
3.4 Capital Structure........................................... 8-B
3.5 Authority................................................... 9-B
3.6 Conflicts................................................... 9-B
3.7 Consents.................................................... 10-B
3.8 SEC Filings; Seller Financial Statements.................... 10-B
3.9 [Reserved].................................................. 11-B
3.10 Absence of Certain Changes or Events........................ 11-B
3.11 Tax Matters................................................. 11-B
3.12 Compliance.................................................. 13-B
3.13 Permits..................................................... 13-B
3.14 Litigation.................................................. 13-B
3.15 Brokers' and Finders' Fees.................................. 13-B
3.16 Employee Benefit Plans...................................... 13-B
3.17 Absence of Liens............................................ 15-B
3.18 Environmental Matters....................................... 15-B
3.19 Labor Matters............................................... 17-B
3.20 Agreements, Contracts and Commitments....................... 17-B
Statements; Registration Statement; Proxy
3.21 Statement/Prospectus........................................ 17-B
3.22 Board Approval.............................................. 18-B
3.23 State Takeover Statutes..................................... 18-B
3.24 Fairness Opinion............................................ 18-B
3.25 Intellectual Property....................................... 18-B
3.26 Assets...................................................... 19-B
3.27 Insurance................................................... 19-B
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASER..............
19-B
4.1 Organization; Good Standing................................. 19-B
4.2 Charter Documents........................................... 20-B
4.3 Authority................................................... 20-B
4.4 Conflicts................................................... 20-B
4.5 Consents.................................................... 20-B
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
4.6 Litigation.................................................. 21-B
4.7 Statements; Registration Statement; Proxy Statement......... 21-B
4.8 Financing................................................... 21-B
4.9 Delaware Law................................................ 21-B
4.10 Newly Organized............................................. 21-B
4.11 Related Agreements.......................................... 21-B
4.12 Solvency.................................................... 21-B
4.13 No Amendment to VERITAS Merger Agreement.................... 22-B
ARTICLE V CONDUCT PRIOR TO CLOSING.................................. 22-B
5.1 Conduct of Business......................................... 22-B
5.2 Restrictions on Conduct of Business......................... 22-B
ARTICLE VI ADDITIONAL AGREEMENTS.................................... 25-B
6.1 Registration Statement; Proxy Statement; Other Filings...... 25-B
6.2 Meeting of Seller Stockholders.............................. 26-B
6.3 Access to Information....................................... 27-B
6.4 Confidentiality............................................. 27-B
6.5 No Solicitation............................................. 28-B
6.6 Public Disclosure........................................... 29-B
6.7 Legal Requirements.......................................... 29-B
6.8 Notification of Certain Matters............................. 29-B
6.9 Commercially Reasonable Efforts and Further Assurances...... 29-B
6.10 Indemnification............................................. 30-B
6.11 Regulatory Filings; Reasonable Efforts...................... 30-B
6.12 Use of Names................................................ 31-B
6.13 Debt Offer.................................................. 31-B
6.14 Commitment Letters; Rolled Options.......................... 31-B
6.15 Transaction Expenses........................................ 31-B
6.16 Non-Assignable Assets....................................... 32-B
ARTICLE VII EMPLOYEE MATTERS........................................ 32-B
7.1 Employee Liabilities........................................ 32-B
7.2 Employee Benefit Plans...................................... 32-B
7.3 WARN Act.................................................... 33-B
ARTICLE VIII TAX MATTERS............................................ 33-B
8.1 Conveyance Taxes............................................ 33-B
8.2 Section 338(h)(10) Election................................. 33-B
8.3 Tax Matters Schedule........................................ 34-B
ARTICLE IX CONDITIONS TO CLOSING.................................... 34-B
Conditions to Obligations of Each Party to Effect the
9.1 Closing..................................................... 34-B
9.2 Additional Conditions to Obligations of Seller.............. 35-B
9.3 Additional Conditions to the Obligations of Purchaser....... 35-B
ARTICLE X TERMINATION, AMENDMENT AND WAIVER......................... 36-B
10.1 Termination................................................. 36-B
10.2 Notice of Termination; Effect of Termination................ 38-B
10.3 Fees and Expenses........................................... 38-B
10.4 Amendment................................................... 39-B
10.5 Extension; Waiver........................................... 39-B
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE XI INDEMNIFICATION.......................................... 40-B
11.1 Survival.................................................... 40-B
11.2 Indemnification............................................. 40-B
ARTICLE XII GENERAL PROVISIONS...................................... 40-B
12.1 Notices..................................................... 40-B
12.2 Interpretation.............................................. 42-B
12.3 Counterparts................................................ 42-B
12.4 Entire Agreement............................................ 42-B
12.5 Severability................................................ 42-B
12.6 Other Remedies; Specific Performance........................ 42-B
12.7 Governing Law............................................... 43-B
12.8 Rules of Construction....................................... 43-B
12.9 Assignment.................................................. 43-B
12.10 WAIVER OF JURY TRIAL........................................ 43-B
12.11 No Third Party Rights....................................... 43-B
12.12 Attorneys' Fees............................................. 43-B
</TABLE>
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of March 29, 2000 by and among Suez Acquisition Company (Cayman) Limited, a
limited company organized under the laws of the Cayman Islands ("Purchaser"),
Seagate Technology, Inc., a Delaware corporation ("Seller"), and Seagate
Software Holdings, Inc., a Delaware corporation ("SSHI").
RECITALS:
A. Seller owns beneficially all of the issued and outstanding shares
(collectively, the "Shares") of capital stock of each Sold Subsidiary (as
defined herein).
B. Seller and SSHI wish to sell to Purchaser, and Purchaser wishes to
purchase from Seller and SSHI, the Shares, upon the terms and subject to the
conditions set forth herein.
C. Seller and Purchaser desire to make certain representations and
warranties, and mutual covenants and agreements in connection with the
transactions contemplated hereby.
D. Simultaneously and in connection with entering into this Agreement,
Seller is entering into the VERITAS Merger Agreement (as defined below) with
VERITAS (as defined below).
NOW, THEREFORE, in consideration of the foregoing premises, and the
covenants, promises and representations set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged and accepted, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. For all purposes of and under this Agreement,
the following terms shall have the following respective meanings:
(a) "Action" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
(b) "Adjustment Amount" means, to the extent not paid or discharged on
or prior to the Closing Date, the sum of (i) accrued and unpaid Taxes of
Seller and its Subsidiaries (including the Sold Subsidiaries) determined in
accordance with the principles arrived at in determining the February 28,
2000 balance sheet of Seller (i.e., $278,000,000 minus Taxes reflected in
such amount to the extent paid or settled since such date, plus additions
to such amount in respect of items identified or arising since such date,
plus an amount equal to 40% of the aggregate income of Seller and its
Subsidiaries since such date) excluding Taxes caused by or relating to the
Split and including, without limitation, any Taxes payable by virtue of the
transactions contemplated hereby and any U.S. alternative minimum tax for
which Seller or any of its Subsidiaries may be liable arising out of or
attributable to the 1999 reorganization of Seagate Software Information
Management Group (Canada), Inc. (the "Canadian Reorganization"), (ii)
Indebtedness of Seller and its Subsidiaries (including any interest thereon
and any premium payable in connection with the retirement thereof), (iii)
the Overage Amount, if any, (iv) the Bonus Amount, and (v) any Transaction
Expenses.
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(c) "Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person.
(d) "Bonus Amount" means the aggregate amount of year-end bonuses and
profit sharing payments required to be paid by Seller and its Subsidiaries
in July of 2000.
(e) "Cash" means cash, cash equivalents and short-term investments
(including all securities available for sale) as determined in accordance
with GAAP and consistent with the determination thereof in the Recent SEC
Reports (as defined in Section 3.8(a) hereof).
(f) "Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
(g) "Commitment Letters" means the debt commitment letter attached as
Schedule I hereto.
(h) "control" (including the correlative terms "controlled by" and
"under common control with"), with respect to the relationship between or
among two or more persons, means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction of
the affairs or management of a person, whether through the ownership of
voting securities, as trustee or executor, by contract or otherwise,
including, without limitation, the ownership, directly or indirectly, of
securities having the power to elect a majority of the board of directors
or similar body governing the affairs of such person.
(i) "Delaware Law" means the General Corporation Law of the State of
Delaware, as amended, or any successor statute thereto.
(j) "Designated Assets" means the securities set forth on Schedule II
hereto.
(k) "Designated Liabilities" means all Liabilities (including with
respect to Taxes) of Seller and its Subsidiaries relating to (i) the
Designated Assets, (ii) transactions pursuant to the OD Documents, (iii)
obligations to VERITAS (indemnification or otherwise) in respect of the
software business sold to VERITAS in exchange for shares of VERITAS common
stock, (iv) any Non-Assumed Plan (as defined in Section 7.1 hereof), and
(v) Seller's stock purchase plan. Without expanding the definition of
Designated Liabilities, Designated Liabilities shall not include
Liabilities relating to the transactions contemplated by this Agreement or
any Liabilities included in the Adjustment Amount.
(l) "DOJ" means the United States Department of Justice, or any
successor agency thereto.
(m) "Equity Commitments" means the equity commitment letters attached
as Schedule III hereto.
(n) "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, or any successor statute thereto.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute thereto.
(p) "FTC" means the United States Federal Trade Commission, or any
successor agency thereto.
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(q) "GAAP" means United States generally accepted accounting
principles.
(r) "Governmental Authority" or "Governmental Authorities" means any
United States federal, state or local or any foreign government,
governmental, regulatory or administrative authority, agency or commission
or any court, tribunal, or judicial or arbitral body.
(s) "Governmental Order" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any
Governmental Authority.
(t) "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and any successor statute thereto.
(u) "Indebtedness" means, with respect to any person, (i) all
indebtedness of such person, whether or not contingent, for borrowed money,
(ii) all obligations of such person evidenced by notes, bonds, debentures
or other similar instruments, (iii) all obligations, contingent or
otherwise, of such person under acceptance, letter of credit or similar
facilities, and (iv) all Indebtedness of others referred to in clauses (i)
through (iii) above, inclusive, guaranteed directly or indirectly in any
manner by such person (excluding guarantees of collection), or in effect
guaranteed directly or indirectly by such person, including by way of an
agreement (A) to pay or purchase such Indebtedness or to advance or supply
funds for the payment or purchase of such Indebtedness, (B) to purchase,
sell or lease (as lessee or lessor) property, or to purchase or sell
services, primarily for the purpose of enabling the debtor to make payment
of such Indebtedness or to assure the holder of such Indebtedness against
loss, (C) to supply funds to or in any other manner invest in the debtor
(including any agreement to pay for property or services irrespective of
whether such property is received or such services are rendered), or (D)
otherwise to assure a creditor against loss.
(v) "Indenture" means the Indenture dated as of March 1, 1997 between
Seller and First Trust of California, National Association, pursuant to
which the Debentures (as defined in Section 3.4(b) hereof) have been
issued.
(w) "IRS" means the United States Internal Revenue Service, or any
successor agency thereto.
(x) "knowledge" (or any word or phrase of similar import) means, with
respect to any matter in question, the knowledge of the executive officers
or directors of the person in question and its Subsidiaries.
(y) "Law" or "Laws" means any federal, state, local or foreign
statute, law, ordinance, regulation, rule, code, order, judgment, decree or
other requirement or rule of law.
(z) "Liability" or "Liabilities" means any and all debts, liabilities
and obligations of any type or nature whatsoever, whether accrued or fixed,
absolute or contingent, matured or unmatured or determined or determinable,
including, without limitation, those arising under any Law (including,
without limitation, any Environmental Law), Action or Governmental Order
and those arising under any contract, agreement, arrangement, commitment or
undertaking.
(aa) "Lien" means any lien, security interest, adverse claim, charge,
mortgage or other encumbrance.
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(bb) "Material Adverse Effect" means any change in, or effect on
Seller or any of its Subsidiaries that, individually or in the aggregate
with any other circumstances, changes in, or effects on, Seller or any of
its Subsidiaries is materially adverse to the operations or Liabilities,
financial condition or results of operations of the Sold Subsidiaries and
their respective Subsidiaries, taken as a whole (after giving effect to the
Split), excluding (i) any change in or effect on Seller or any of its
Subsidiaries that is related to compliance by Seller or its Subsidiaries
with the terms of this Agreement, and (ii) any Liability which results in
an increase in the Required Cash pursuant to Section 2.6 hereof or which is
a Designated Liability.
(cc) "OD Documents" means the Agreement and Plan of Merger and
Reorganization, dated as of March 29, 2000, by and among Seller and VERITAS
Software Corporation, a Delaware corporation ("VERITAS"), as the same may
be amended, supplemented and modified from time to time in accordance with
its terms (the "VERITAS Merger Agreement").
(dd) "Overage Amount" means any "excess parachute payments" within the
meaning of Section 280G of the Code payable as a result of the acceleration
of Star Options (as defined in the VERITAS Merger Agreement) pursuant to
the OD Documents in excess of $100,000,000.
(ee) "Required Cash" means $800,000,000, as adjusted pursuant to
Section 2.6 hereof.
(ff) "Roll Agreement" means the Rollover Commitment Agreements
previously delivered to the parties hereto.
(gg) "Rolled Option Value" means the aggregate Rollover Value (as
defined in the Roll Agreement).
(hh) "SEC" means the United States Securities and Exchange Commission,
or any successor agency thereto.
(ii) "Securities Act" means the Securities Act of 1933, as amended, or
any successor statute thereto.
(jj) "Split" means the transfer to the Sold Subsidiaries, prior to the
Closing Date, of all assets (including, without limitation, the securities
of iCompression, TurboLinux and MetaByte currently held by Seller (the
"Private Securities") or the Cash or other proceeds realized by Seller from
the sale, disposition or transfer of such Private Securities) (and such
Cash or other proceeds shall be in addition to any Required Cash) and
Liabilities of Seller and Seagate Software Holdings, Inc., other than the
Designated Assets and the Designated Liabilities, to be transferred
pursuant to an agreement in a form consistent with the terms hereof to be
agreed upon by Seller and Purchaser prior to Closing and reasonably
satisfactory to VERITAS.
(kk) "Subsidiary" or "Subsidiaries" means any and all corporations,
limited liability companies, general or limited partnerships, joint
ventures, business trusts, associations and other business enterprises and
entities controlled by a person directly or indirectly through one or more
intermediaries.
(ll) "TA Statement" means an estimate of the Adjustment Amount by the
Chief Financial Officer of Seller to be prepared in collaboration with
Purchaser based on Seller's month-end immediately preceding delivery of
such estimate together with a certificate of the Chief Financial Officer of
Seller specifying (i) that the TA Statement fairly presents his or her good
faith best effort estimate of the Adjustment
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Amount as at the then scheduled Closing Date and (ii) the assumed VERITAS
Price utilized therein for the purposes of calculating any Overage Amount.
(mm) "Tax" or "Taxes" shall mean any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties,
impositions and Liabilities relating to taxes, including, without
limitation, taxes based upon or measured by gross receipts, income,
profits, sales, use and occupation, and value added, ad valorem, transfer,
franchise, withholding, payroll, recapture, employment, excise and property
taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or
arrangements with any other person with respect to such amounts, and any
Liability for taxes of a predecessor entity (if any).
(nn) "Transaction Expenses" means the fees and expenses of Seller's or
its Subsidiaries' investment bankers, attorneys, consultants, accountants
and advisors incurred in connection with this Agreement, the OD Documents
and the transactions contemplated hereby and thereby.
(oo) "VERITAS Price" means the closing price for a share of VERITAS
Common Stock, as reported on the Nasdaq National Market.
ARTICLE II
PURCHASE AND SALE
2.1 Purchase and Sale of the Shares. Upon the terms and subject to the
conditions of this Agreement, at the Closing (as defined in Section 2.3 hereof),
(i) Seagate Technology, Inc. shall sell to Purchaser or one of its Designees (as
defined in Section 12.10 hereof), and Purchaser shall, or shall cause one of its
Designees to, purchase from Seller, all of the outstanding capital stock of each
of the Subsidiaries of Seller listed on Schedule IV hereto, and (ii) SSHI shall
sell to Purchaser or one of its Designees, and Purchaser shall, or shall cause
one of its Designees to, purchase from SSHI, all of the outstanding capital
stock of Seagate Software Information Management Group, Inc., a Delaware
corporation ("SSIMG") (such Subsidiaries set forth on Schedule IV and SSIMG
being referred to herein, collectively, as the "Sold Subsidiaries"), in exchange
for payment of the "Purchase Price" set forth in Section 2.2 hereof.
2.2 Purchase Price; Allocation of Purchase Price. The aggregate purchase
price for the Shares shall be $2,000,000,000 in cash, minus the Rolled Option
Value (the "Purchase Price"), plus the assumption of all Liabilities (other than
the Designated Liabilities) of Seller and SSHI.
2.3 Closing. Upon the terms and subject to the conditions of this
Agreement, the sale and purchase of the Shares contemplated by this Agreement
shall take place at a closing (the "Closing") to be held at the offices of
Wilson Sonsini Goodrich & Rosati, Professional Corporation, located at One
Market Street, Spear Tower, Suite 1600, San Francisco, California 94105, at a
time and date to be specified by the parties hereto, which shall be no later
than second (2nd) business day following the satisfaction or, if permitted
pursuant hereto, waiver of the conditions set forth in Article IX hereof, or at
such other location, date and time as Purchaser and Seller shall mutually agree.
The date upon which the Closing actually occurs shall be referred to herein as
the "Closing Date."
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2.4 Closing Deliveries by Seller and SSHI. At the Closing, Seller or SSHI
(as applicable) shall deliver, or cause to be delivered, to Purchaser and/or its
Designees, as appropriate, the following:
(a) stock certificates evidencing the Shares, duly endorsed in blank
or accompanied by stock powers duly executed in blank, and with all
required stock transfer tax stamps affixed thereto, representing all of the
issued and outstanding shares of capital stock of each of the Sold
Subsidiaries, free and clear of all Liens;
(b) a receipt for the Purchase Price; and
(c) the certificates and other documents required to be delivered as a
condition to the Closing pursuant to Section 9.3 hereof.
2.5 Closing Deliveries by Purchaser. At the Closing, Purchaser shall
deliver, or cause to be delivered, to Seller the following:
(a) cash in an amount equal to the Purchase Price, by wire transfer in
immediately available funds to an account designated in writing by Seller
at least two (2) business days prior to the Closing;
(b) an assumption of the Seagate Software Information Management
Group, Inc. Stock Option Plan; and
(c) the certificates and other documents required to be delivered as a
condition to the Closing pursuant to Section 9.2 hereof.
2.6 Adjustment of Required Cash. The amount of Required Cash shall be
subject to adjustment prior to Closing in the manner set forth below:
(a) TA Statement. No later than fifteen (15) calendar days prior to
the date of Seller Stockholder Meeting, Seller shall deliver to Purchaser
the TA Statement. If the Closing does not occur within twenty (20) calendar
days of delivery of the TA Statement, a revised TA Statement shall be
delivered to Purchaser, and such revised TA Statement shall constitute the
TA Statement for all purposes hereof and shall be subject to Sections
2.6(b) and 2.6(c) below.
(b) TA Statement Disputes.
(i) Subject to the terms of Section 2.6(b)(ii) hereof, the TA
Statement shall be deemed to be and shall be final, binding and
conclusive on Seller and Purchaser.
(ii) Purchaser shall be entitled to dispute any amounts reflected
on the TA Statement, but only on the basis that the amounts reflected on
the TA Statement contain errors or are based on erroneous assumptions or
were not arrived at in accordance with Seller's accounting practices and
policies applied on a basis consistent with Seller's past accounting
practices and policies; provided, however, that Purchaser shall have
notified Seller in writing of each disputed item, specifying the amount
thereof in dispute and setting forth, in reasonable detail, the basis
for such dispute, within seven (7) calendar days of Seller's delivery of
the TA Statement to Purchaser. In the event of such a dispute, Seller
and Purchaser shall attempt to reconcile their disputed amounts, and any
resolution by them as to any disputed amounts shall be final, binding
and conclusive on Seller and Purchaser. In the event that Seller and
Purchaser are unable to reach a resolution of any disputed amounts
within five (5) calendar days after receipt by Seller of Purchaser's
written notice of dispute delivered in accordance with the
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foregoing, Seller and Purchaser shall submit the items remaining in
dispute for resolution to Arthur Andersen LLP (or, if such firm shall
decline to act or is not, at the time of such submission, independent of
Seller and Purchaser, to another independent accounting firm of
international reputation mutually acceptable to Seller and Purchaser)
(either Arthur Andersen LLP or such other accounting firm being referred
to herein as the "Independent Accounting Firm"), which shall, on an
expedited basis, within five (5) calendar days after such submission,
determine and report to Seller and Purchaser upon such remaining
disputed items, and such report shall be final, binding and conclusive
on Seller and Purchaser. The fees and disbursements of the Independent
Accounting Firm shall be allocated between Seller and Purchaser in the
same proportion that the aggregate amount of such remaining disputed
items so submitted to the Independent Accounting Firm that is
unsuccessfully disputed by each such party (as finally determined by the
Independent Accounting Firm) bears to the total amount of such remaining
disputed items so submitted.
(iii) In acting under this Agreement, the Independent Accounting
Firm shall be entitled to the privileges and immunities of an
arbitrator.
(iv) The TA Statement shall be deemed final for the purposes of and
under this Section 2.6 upon the earlier to occur of (i) the failure of
Purchaser to notify Seller of a dispute within seven (7) calendar days
of Seller's delivery of the TA Statement to Purchaser pursuant to
Section 2.6(b)(ii) hereof, (ii) the resolution of all disputes, pursuant
to Section 2.6(b)(ii) hereof, by Seller and Purchaser, and (iii) the
resolution of all disputes, pursuant to Section 2.6(b)(ii) hereof, by
the Independent Accounting Firm. At the Closing, (i) the Adjustment
Amount set forth in the final TA Statement shall be recalculated by
using the VERITAS Price on the trading day immediately preceding the
Effective Time under the VERITAS Merger Agreement in substitution for
that utilized in the estimated TA Statement, as may be adjusted by the
Independent Accounting Firm and (ii) the amount of Required Cash shall
be increased upward on a dollar for dollar basis, in an amount equal to
the Adjustment Amount (as recalculated pursuant to the foregoing clause
of this Section 2.6(b)(iv)).
2.7 Transaction Structure. The parties agree to cooperate and take all
requisite actions prior to the Closing Date to merge, form, consolidate or alter
the tax status of any of the Sold Subsidiaries or any Subsidiaries of the Sold
Subsidiaries to the extent desirable in the Purchaser's judgment for commercial,
regulatory, tax or other reasons, and further agree that the Purchaser may at
any time change the structure of the transactions contemplated by this
Agreement, including without limitation, by determining the order in which the
Sold Subsidiaries (and any assets of the Sold Subsidiaries) are transferred, and
the Seller shall cooperate in such efforts, including by entering into
appropriate amendments to this Agreement, provided, however, that such actions
shall not decrease the amount or change the kind of the consideration paid to
Seller pursuant to this Agreement, increase Designated Liabilities or add
transaction costs to those costs arising out of the transactions contemplated by
this Agreement (unless Purchaser agrees to pay such additional costs). On or
prior to the Closing Date, Seller shall effectuate the Split.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Purchaser, subject to the
exceptions and qualifications specifically set forth or disclosed in writing in
the disclosure letter delivered by Seller to Purchaser, dated as of the date
hereof (the "Seller Disclosure Schedule"), and after giving effect to the OD
Documents, the Split and the transactions contemplated thereby, if relevant for
the purposes of determining compliance herewith as follows:
3.1 Organization; Good Standing. Seller and each of its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation or organization, with the corporate or
other power and authority to own, lease and operate its assets and properties
and to carry on its business as now being conducted, and is duly qualified to do
business and in good standing in each jurisdiction in which the failure to be so
qualified would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect.
3.2 Charter Documents. Seller has delivered or made available to Purchaser
a true and correct copy of the Certificate of Incorporation and Bylaws of Seller
and SSHI and the organizational documents of each of the Sold Subsidiaries, each
as amended to date and in effect as of the date hereof, and each such instrument
is in full force and effect. Seller and SSHI are not in violation of any of the
provisions of their Certificate of Incorporation or Bylaws.
3.3 Subsidiaries. Section 3.3 of the Seller Disclosure Schedule contains a
complete and accurate list of each Subsidiary of Seller, indicating the
jurisdiction of incorporation of each such Subsidiary and Seller's proportionate
equity interest therein. Each Subsidiary of Seller that is not a Sold Subsidiary
(other than SSHI) is owned, directly or indirectly, by a Sold Subsidiary.
3.4 Capital Structure.
(a) The authorized capital stock of each Sold Subsidiary is as set forth in
Section 3.4(a) of the Seller Disclosure Schedule. All of the Shares are owned
beneficially and of record by Seller or one of its Subsidiaries, except for
director's qualifying shares and similar statutory de minimis holdings. All of
the Shares are duly authorized and validly issued, fully paid and nonassessable,
and are not subject to any preemptive rights created by statute, the
organizational documents of Seller or any of its Subsidiaries, or any agreement
or document to which Seller or any of its Subsidiaries is a party or by which of
Seller or any of its Subsidiaries is bound and, when transferred to Purchaser
will be free and clear of all Liens. Except as set forth in Section 3.4(a) of
the Seller Disclosure Schedule, there are no equity securities, partnership
interests or other similar ownership interests of any class or series of any
Sold Subsidiary, or any securities convertible into, or exercisable or
exchangeable for, such equity securities, partnership interests or similar
ownership interests of any Sold Subsidiary, which are issued, reserved for
issuance or outstanding. Except as set forth in Section 3.4(a) of the Seller
Disclosure Schedule, there are no options, warrants, equity securities,
partnership interests or other similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any kind or
character to which Seller or any of its Subsidiaries is a party or by which
Seller or any of its Subsidiaries is bound obligating Seller or any of its
Subsidiaries to issue, deliver or sell (or cause to be issued, delivered or
sold), or repurchase, redeem or otherwise acquire (or cause the repurchase,
redemption or acquisition of), any shares of capital stock of any Sold
Subsidiary or any Subsidiaries thereof, or obligating Seller or any of its
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Subsidiaries to grant, extend, accelerate the vesting of or enter into any such
option, warrant, equity security, partnership interest or similar ownership
interest, call, right, commitment or agreement. There are no registration
rights, proxies or other agreements or understandings with respect to any equity
security, partnership interest or other similar ownership interest of any class
or series of any capital stock of any Sold Subsidiary or any Subsidiaries
thereof.
(b) The only outstanding Indebtedness of Seller and its Subsidiaries is (i)
$200 million in principal amount of 7.125% Senior Notes Due March 1, 2004 (the
"2004 Senior Notes") issued pursuant to the Indenture, dated as of March 1, 1997
(the "Indenture"), (ii) $200 million in aggregate principal amount of 7.37%
Senior Notes Due March 1, 2007 (the "2007 Senior Notes") issued pursuant to the
Indenture, (iii) $100 million in principal amount of 7.875% Senior Debentures
due March 1, 2017 (the "2017 Senior Debentures") issued pursuant to the
Indenture, (iv) $200 million in principal amount of 7.45% Senior Debentures due
March 1, 2037 (the "2037 Senior Debentures") and, together with the 2004 Notes,
the 2007 Notes and the 2017 Senior Debentures, the "Debentures") issued pursuant
to the Indenture. Other than the Debentures, which are redeemable in full in
accordance with their respective terms, there is no Indebtedness of Seller or
its Subsidiaries.
3.5 Authority. Each of Seller and SSHI has all necessary corporate power
and authority to enter into this Agreement and the OD Documents, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the OD Documents by Seller and SSHI, and the performance by Seller and SSHI
of its obligations hereunder and thereunder and the consummation by Seller and
SSHI of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action on the part of Seller and SSHI,
subject only to the approval and adoption of this Agreement and the OD Documents
by the stockholders of Seller in accordance with Delaware Law. The affirmative
vote of the holders of at least a majority of the outstanding shares of Seller
Common Stock is the only vote required for the stockholders of Seller to approve
this Agreement, the OD Documents and the transactions contemplated hereby and
thereby under the applicable rules of The New York Stock Exchange, Inc. (the
"NYSE"), Delaware Law and all other legal and regulatory requirements applicable
thereto (the "Required Stockholder Approval"). This Agreement and the OD
Documents have been duly executed and delivered by Seller and SSHI and, assuming
the due authorization, execution and delivery of this Agreement by Purchaser and
the OD Documents by the other party or parties thereto, constitute the valid and
binding obligations of Seller and SSHI, enforceable in accordance with their
respective terms, subject to (i) the effect of any applicable laws of general
application relating to bankruptcy, reorganization, insolvency, moratorium or
other similar laws affecting creditors' rights and the relief of debtors
generally, and (ii) the effect of rules of law and general principles of equity,
including, without limitation, rules of law and general principles of equity
governing specific performance, injunctive relief and other equitable remedies
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
3.6 Conflicts. The execution and delivery of this Agreement by Seller and
SSHI does not, and the performance by Seller and SSHI of its obligations
hereunder and the consummation by Seller and SSHI of the transactions
contemplated hereby will not, (i) conflict with or violate the Certificate of
Incorporation or Bylaws of Seller and SSHI or the organizational documents of
any of its Subsidiaries, (ii) subject to compliance with the requirements set
forth in Section 3.7 hereof, conflict with or violate any Law, rule,
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regulation, order, judgment or decree applicable to Seller or any of its
Subsidiaries, or by which Seller, any of its Subsidiaries or any of their
respective assets and properties are bound or affected, or (iii) result in any
breach of, or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or impair the rights of Seller or
any of its Subsidiaries under, or alter the obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien on any of the assets or
properties of Seller or any of its Subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Seller or any of its Subsidiaries is a
party or by which Seller, any of its Subsidiaries or any of their respective
assets and properties are bound or affected, except to the extent such conflict,
violation, breach, default, impairment or other effect could not, in the case of
clause (ii) or (iii) of this Section 3.6, individually or in the aggregate, (a)
reasonably be expected to have a Material Adverse Effect, or (b) reasonably be
expected to have a material adverse effect on, or materially delay, the ability
of Purchaser, Seller or SSHI to consummate the transactions contemplated hereby.
3.7 Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is required
by or with respect to Seller or any of its Subsidiaries in connection with the
execution and delivery of this Agreement and the OD Documents by Seller, or the
performance by Seller of its obligations hereunder and thereunder or the
consummation by Seller of the transactions contemplated hereby and thereby,
except for (i) the filing of the Proxy Statement (as defined in Section 6.1(a)
hereof) with the SEC in accordance with the Exchange Act, (ii) consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under the HSR Act or any applicable state antitrust Laws, (iii)
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under the Laws of any foreign country, and (iv) such
other consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect or have a
material adverse effect on, or materially delay, the ability of Seller or
Purchaser to consummate the transactions contemplated hereby.
3.8 SEC Filings; Seller Financial Statements.
(a) Seller has filed all forms, reports and documents required to be filed
with the SEC since July 3, 1998, and has made available (through on-line
databases) to Purchaser such forms, reports and documents in the form filed with
the SEC. All such required forms, reports and documents (including all exhibits
and schedules thereto and all documents incorporated by reference therein) are
referred to herein as the "Seller SEC Reports." As of their respective dates,
the Seller SEC Reports (i) complied in all material respects with the applicable
requirements of the Securities Act or the Exchange Act, and the rules and
regulations of the SEC promulgated thereunder, and (ii) did not at the time each
such Seller SEC Report was filed (or if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. None of
the Subsidiaries of Seller is required to file any forms, reports or other
documents with the SEC. Except to the extent revised or superseded by a
subsequent filing with the SEC, none of the Seller SEC Reports filed by Seller
since July 3, 1999 and prior to the date of this Agreement (collectively, the
"Recent SEC Reports") contains any untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary in order
to make the statements
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therein, in the light of the circumstances under which they were made, not
misleading. The consolidated financial statements of Seller included in all
Seller SEC Reports comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP (except, in the case
of unaudited consolidated quarterly statements, as permitted by Form 10-Q of the
SEC) applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated financial
position of Seller and its consolidated Subsidiaries as of the dates thereof and
the consolidated financial position of Seller and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
quarterly statements, to normal year-end audit adjustments). Except as reflected
in the most recent consolidated balance sheet of Seller included in the Recent
SEC Reports most recently filed by Seller with the SEC prior to the date hereof
(such consolidated balance sheet being referred to herein as the "Current Seller
Balance Sheet" and the date thereof being referred to herein as the "Current
Balance Sheet Date"), as of the Current Balance Sheet Date, neither Seller nor
any of its Subsidiaries had, and since such date neither Seller nor any of such
Subsidiaries has incurred, any Liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect.
3.9 [Reserved]
3.10 Absence of Certain Changes or Events. Except as reflected in the
Recent SEC Reports or Section 3.10 of the Seller Disclosure Schedule, since the
date of the last audited financial statements of Seller included in the Recent
SEC Reports, Seller has conducted its business only in the ordinary course
consistent with past practice, and there is not and has not been (i) any
condition, event or occurrence which, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect, or (ii) any condition,
event or occurrence which could reasonably be expected to prevent, hinder or
materially delay the ability of Seller to consummate the transactions
contemplated by this Agreement or the VERITAS Merger Agreement. Except as set
forth in Section 3.10 of the Seller Disclosure Schedule, since the date of
Seller's most recent periodic report on Form 10-Q included in the Recent SEC
Reports, there is not and has not been any event or action described in Section
5.2 hereof.
3.11 Tax Matters.
(a) Seller and each of its Subsidiaries have timely filed all federal,
state, local and foreign returns, estimates, information statements and reports
("Returns") relating to Taxes required to be filed by Seller and each of its
Subsidiaries with any Tax authority, except such Returns which are not material
to Seller or any such Subsidiaries, and all such Returns are true, correct and
complete in all material respects. Seller and each of its Subsidiaries have paid
all Taxes due and payable on such Returns.
(b) As of the Closing Date, Seller and each of its Subsidiaries will have
withheld with respect to its employees all federal and state income Taxes, Taxes
payable pursuant to the Federal Insurance Contribution Act, Taxes payable
pursuant to the Federal Unemployment Tax Act and other Taxes required to be
withheld, except such Taxes which are not material to Seller or any such
Subsidiaries.
(c) Neither Seller nor any of its Subsidiaries has been delinquent in the
payment of any material Tax. Section 3.11(c) of the Seller Disclosure Schedule
contains a complete
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and accurate list of all material Tax deficiencies outstanding, proposed or
assessed against Seller or any of its Subsidiaries, and a complete and accurate
list of all Seller's or any of its Subsidiaries' executed and unexpired waiver
of any statute of limitations on or extending the period for the assessment or
collection of any Liabilities for any Tax.
(d) Section 3.11(d) of the Seller Disclosure Schedule contains a complete
and accurate list of all audits or other examinations of any Return of Seller or
any of its Subsidiaries by any Tax authority is presently in progress, and a
complete and accurate list of all Seller's or any of its Subsidiaries'
notifications of any request for such an audit or other examination.
(e) Section 3.11(e) of the Seller Disclosure Schedule contains a complete
and accurate list of all adjustments relating to any Returns filed by Seller or
any of its Subsidiaries that have been proposed in writing formally or
informally by any Tax authority to Seller or any of its Subsidiaries or any
representative thereof.
(f) Neither Seller nor any of its Subsidiaries has any Liability for any
material unpaid Taxes which has not been accrued for or reserved on the Current
Seller Balance Sheet in accordance with GAAP, contingent or otherwise, which is
material to Seller or any of its Subsidiaries, other than any Liability for
unpaid Taxes that may have accrued in connection with the operation of the
business of Seller and its Subsidiaries in the ordinary course.
(g) Section 3.11(g) of the Seller Disclosure Schedule contains a complete
and accurate list of all contracts, agreements, plans or arrangements to which
Seller or any of its Subsidiaries is a party as of the date of this Agreement
(including, without limitation, the provisions of this Agreement), covering any
employee or former employee of Seller or any of its Subsidiaries that,
individually or collectively, would reasonably be expected to give rise to the
payment of any amount that would not be deductible pursuant to Sections 280G,
404 or 162(m) of the Code. The Seller Disclosure Schedule contains a complete
and accurate list of contracts, agreements, plans or arrangements to which
Seller is a party or by which it is bound to compensate any individual for
excise taxes paid pursuant to Section 4999 of the Code. Except as set forth in
Section 3.11(g) of the Seller Disclosure Schedule, no Seller Plan (as defined in
Section 3.16(a) hereof) exists that could result in the payment to any present
or former employee of Seller or any of its Subsidiaries of any money or other
property, or accelerate or provide any other rights or benefits to any present
or former employee of Seller or any of its Subsidiaries as a result of the
transaction contemplated by this Agreement or the OD Documents.
(h) There are no Liens with respect to Taxes upon the assets of Seller or
any of its Subsidiaries, other than with respect to Taxes not yet due and
payable or which are being contested in good faith.
(i) Neither Seller nor any of its Subsidiaries has filed any consent
agreement under Section 341(f) of the Code, or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by Seller or any of its Subsidiaries.
(j) Section 3.11(j) of the Seller Disclosure Schedule contains a complete
and accurate list of all Seller's and any of its Subsidiaries' Tax-sharing, Tax
indemnity or Tax allocation agreements or arrangements.
(k) None of the assets or properties of Seller or any of its Subsidiaries
are Tax exempt use property within the meaning of Section 168(h) of the Code.
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(l) Seller has no excess loss accounts with respect to the stock of any of
its Subsidiaries. The transactions contemplated by this Agreement will not
result in the recognition of a material amount of deferred intercompany gain
under the deferred intercompany transaction rules of the Code.
3.12 Compliance. Neither Seller nor any of its Subsidiaries is, in any
material respect, in conflict with, or in default or violation of (i) any Law
(including the Foreign Corrupt Practices Act of 1977), rule, regulation, order,
judgment or decree applicable to Seller or any of its Subsidiaries or by which
Seller or any of its Subsidiaries or any of their respective assets and
properties are bound or affected, or (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Seller or any of its Subsidiaries is a party or by which
Seller or any of its Subsidiaries or its or any of their respective assets and
properties are bound or affected. No investigation or review by any Governmental
Authority is pending or, to the knowledge of Seller, threatened, against Seller
or any of its Subsidiaries, nor has any Governmental Authority indicated an
intention to conduct the same, other than routine investigations in the ordinary
course of Seller's business. There is no agreement, judgment, injunction, order
or decree binding upon Seller or any of its Subsidiaries which has, or could
reasonably be expected to have, the effect of prohibiting or materially
impairing any business practice of Seller or any of its Subsidiaries, any
acquisition of material property by Seller or any of its Subsidiaries or the
conduct of business by Seller or any of its Subsidiaries as currently conducted.
3.13 Permits. Seller and its Subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from Governmental Authorities which
are material to the operation of the business of Seller and its Subsidiaries,
and Seller and its Subsidiaries are in compliance in all material respects with
the terms of such permits, licenses, variances, exemptions, order and approvals.
3.14 Litigation. There is no Action, suit, proceeding, claim, arbitration
or investigation pending against Seller or any of its Subsidiaries or as to
which Seller or any of its Subsidiaries has received any notice of assertion,
nor to the knowledge of Seller, is there any threatened Action, suit,
proceeding, claim, arbitration or investigation pending against Seller or any of
its Subsidiaries, in either case which individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
3.15 Brokers' and Finders' Fees. Except for fees payable to Morgan Stanley
& Co. Incorporated, neither Seller nor any of its Subsidiaries has incurred, nor
will Seller or any of its Subsidiaries incur, directly or indirectly, any
Liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
3.16 Employee Benefit Plans.
(a) Section 3.16(a) of the Seller Disclosure Schedule contains a complete
and accurate list of all employee compensation, incentive, fringe or benefit
plans, programs, policies, commitments, agreements (including, without
limitation, all employment, severance, change of control or similar agreements)
or other arrangements (whether or not set forth in a written document and
including, without limitation, all "employee benefit plans" within the meaning
of Section 3(3) of ERISA) maintained or contributed to by Seller or a Seller
affiliate covering any active or former employee, director or consultant of
Seller (each, a "Seller Employee" and, collectively, the "Seller Employees"
which shall, for all purposes of and under this Section 3.16, mean an employee
of Seller or a Seller Affiliate
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(as defined below)), any Subsidiary of Seller or any trade or business (whether
or not incorporated) which is a member of a controlled group or which is under
common control with Seller within the meaning of Section 414(b), (c) or (m) of
the Code (each, a "Seller Affiliate" and, collectively, the "Seller Affiliates")
(each, a "Seller Plan" and, collectively, the "Seller Plans"). Seller has
provided or made available to Purchaser: (i) correct and complete copies of all
documents embodying each Seller Plan, including, without limitation, all
amendments thereto, all trust documents related thereto, and all material
written agreements and contracts related thereto; (ii) the most recent annual
reports (Form Series 5500 and all schedules and financial statements attached
thereto), if any, required under ERISA or the Code in connection with each
Seller Plan; (iii) the most recent summary plan description together with the
summary(ies) of material modifications thereto, if any, required under ERISA
with respect to each Seller Plan; (iv) all IRS determination, opinion,
notification and advisory letters with respect to each Seller Plan; (v) all
material correspondence to or from any Governmental Authority relating to any
Seller Plan; (vi) all forms and related notices required under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, with respect to each
Seller Plan; (vii) the most recent discrimination tests for each Seller Plan
required to perform such tests; (viii) the most recent actuarial valuations, if
any, prepared for each Seller Plan; (ix) if the Seller Plan is funded, the most
recent annual and periodic accounting of the assets of each Seller Plan; and (x)
all communication to Seller Employees relating to any Seller Plan and any
proposed Seller Plan, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules, or other events which would result in any material Liability
to Seller or any Seller Affiliate in respect of any Seller Plan.
(b) Each Seller Plan has been maintained and administered in all material
respects in compliance with its terms and with the requirements prescribed by
any and all Laws applicable thereto (including, without limitation, ERISA and
the Code). No Action, suit or other litigation (excluding claims for benefits
incurred in the ordinary course of Seller Plan activities) has been brought, or
to the knowledge of Seller, is threatened, against or with respect to any such
Seller Plan. There are no audits, inquiries or proceedings pending or, to the
knowledge of Seller, threatened by the IRS or the United States Department of
Labor with respect to any Seller Plans. All contributions, reserves or premium
payments required to be made or accrued as of the date hereof to the Seller
Plans have been timely made or accrued. Any Seller Plan intended to be qualified
under Section 401(a) of the Code, and each trust intended to qualify under
Section 501(a) of the Code (i) has either obtained from the IRS a favorable
determination, notification, advisory and/or opinion letter, as applicable, as
to its qualified status under the Code, or still has a remaining period of time
under applicable treasury regulations or IRS pronouncements in which to apply
for such letter and to make any amendments necessary to obtain a favorable
determination as to its qualified status under the Code, and (ii) except with
respect to amendments for which the Internal Revenue Service has allowed until
December 31, 2000, incorporates or has been amended to incorporate all
provisions required to comply with the Tax Reform Act of 1986 and subsequent
legislation. To the knowledge of Seller, no condition or circumstance exists
giving rise to a material likelihood that any such Seller Plan would not be
treated by the IRS as qualified under the Code, except as set forth in Section
3.16(b) of the Seller Disclosure Schedule. Seller does not have any plan or
commitment to establish any new Seller Plan, to modify any existing Seller Plan
(except to the extent required by Law or to conform any such Seller Plan to the
requirements of any applicable Law, in each case as previously disclosed to
Purchaser in writing, or as required by the terms of any Seller Plan or this
Agreement), or to enter into any new
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Seller Plan. Each Seller Plan can be amended, terminated or otherwise
discontinued after the Closing Date in accordance with its terms, without
Liability to Purchaser, Seller or any of the Seller Affiliates (other than
ordinary administration expenses).
(c) Neither Seller, any of its Subsidiaries, nor any of the Seller
Affiliates has at any time ever maintained, established, sponsored, participated
in, or contributed to any plan subject to Title IV of ERISA or Section 412 of
the Code, and at no time has Seller contributed to or been requested to
contribute to any "multiemployer plan," as such term is defined in ERISA. To
Seller's knowledge, there are no circumstances which could reasonably be
expected to subject Seller, any of its Subsidiaries, or any officer or director
of Seller or any of its Subsidiaries, to any material Liability or penalty under
Section 4975 through 4980B of the Code or Title I of ERISA. No "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 4975 of the Code and
Section 408 of ERISA, has occurred with respect to any Seller Plan which could
reasonably be expected to subject Seller or any Seller Affiliates to material
Liability.
(d) Except as set forth in Section 3.16(d) of the Seller Disclosure
Schedule, none of the Seller Plans promises or provides retiree medical or other
retiree welfare benefits to any person except as required by applicable Law, and
neither Seller nor any of its Subsidiaries has represented, promised or
contracted (whether in oral or written form) to provide such retiree benefits to
any Seller Employee, former employee, director, consultant or other person,
except to the extent required by applicable Law.
(e) Each Seller International Employee Plan (as defined below) has been
established, maintained and administered in compliance in all material respects
with its terms and conditions and with the requirements prescribed by any and
all applicable Laws. No Seller International Employee Plan has unfunded
Liabilities that, as of the Closing, will not be offset by insurance or fully
accrued. Except as required by applicable Law, no condition exists that would
prevent Seller or Purchaser from terminating or amending any Seller
International Employee Plan at any time for any reason. For all purposes of and
under this Agreement, the term "Seller International Employee Plan" shall mean
each Seller Plan that has been adopted or maintained by Seller or any of its
Subsidiaries, whether informally or formally, for the benefit of current or
former employees of Seller or any of its Subsidiaries who are not United States
citizens and who are employed outside the United States.
3.17 Absence of Liens. Seller and each of its Subsidiaries has good and
valid title to, or in the case of leased assets and properties valid leasehold
interests in, all of its material tangible assets and properties, real, personal
and mixed, used in their respective businesses, free and clear of any Liens,
except (i) as reflected in the consolidated balance sheet of Seller included in
the Recent SEC Reports, (ii) for Liens for Taxes not yet due and payable, and
(iii) for such imperfections of title and encumbrances, if any, which would not
be material to Seller or any of its Subsidiaries.
3.18 Environmental Matters.
(a) For all purposes of and under this Agreement, the following terms shall
have the following respective meanings:
(i) "Environmental Claim" or "Environmental Claims" means any and all
administrative, regulatory or judicial actions, suits, causes of action,
demands, demand letters, claims, Liens, notices of non-compliance,
potential liability or violation, investigations, proceedings, consent
orders or consent or settlement agreements
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relating in any way to any Environmental Laws or any Environmental Permits,
including, without limitation, (A) any and all claims or directions by
Governmental Authorities for enforcement, investigation, cleanup, removal,
response, remedial or other actions or damages pursuant to any applicable
Environmental Law, and (B) any and all Claims by any Person seeking damages
(including with respect to natural resource damages, property damage,
diminution in value and personal injury) contribution, indemnification,
cost recovery, compensation or injunctive relief resulting from Hazardous
Materials or arising from alleged injury or threat of injury to health,
safety or the environment.
(ii) "Environmental Law" or "Environmental Laws" means any Law, now or
hereafter in effect and as amended, and any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent decree or judgment, relating to the environment, natural resources,
health, safety or Hazardous Materials, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, 42
U.S.C. sec.sec. 9601 et seq.; the Resource Conservation and Recovery Act,
42 U.S.C. sec.sec. 6901 et seq.; the Hazardous Materials Transportation
Act, 49 U.S.C. sec.sec. 5101 et seq.; the Clean Water Act, 33 U.S.C.
sec.sec. 1251 et seq.; the Toxic Substances Control Act, 15 U.S.C.
sec.sec. 2601 et seq.; the Clean Air Act, 42 U.S.C. sec.sec. 7401 et seq.;
the Safe Drinking Water Act, 42 U.S.C. sec.sec. 300f et seq.; the
Occupational Safety and Health Act, 29 U.S.C. sec.sec. 1651 et seq., the
Atomic Energy Act, 42 U.S.C. sec.sec. 2014 et seq.; the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. sec.sec. 136 et seq.
and the Federal Food, Drug and Cosmetic Act, 21 U.S.C. sec.sec. 301 et seq.
and analogous state, provincial and foreign laws.
(iii) "Environmental Permit" or "Environmental Permits" means all
permits, approvals, registrations, identification numbers, licenses and
other authorizations required under any applicable Environmental Laws.
(iv) "Hazardous Material" or "Hazardous Materials" means (A) petroleum
and petroleum products, radioactive materials, asbestos in any form that is
or could become friable, urea formaldehyde foam insulation, transformers or
other equipment that contain polychlorinated biphenyls, and radon gas, (B)
any other chemicals, materials or substances defined as or included in the
definition of "hazardous substances", "hazardous wastes", "hazardous
materials", "extremely hazardous wastes", "restricted hazardous wastes",
"toxic substances", "toxic pollutants", "contaminants" or "pollutants", or
words of similar import, under any applicable Environmental Law, and (C)
any other chemical, material or substance the use, handling, generation,
treatment, storing, release or exposure to which is regulated by any
Governmental Authority.
(b) Except as would not reasonably be expected to result in a Material
Adverse Effect, (i) neither Seller nor any of its Subsidiaries has transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to any Hazardous Materials in violation of any Law, and (ii) neither
Seller nor any of its Subsidiaries has disposed of, transported, sold, used,
released, exposed its employees or others to or manufactured any product
containing a Hazardous Material (collectively, "Hazardous Materials Activities")
in violation of any Environmental Law.
(c) Except as set forth in Section 3.18(c) of the Seller Disclosure
Schedule, (i) no material Action, proceeding, revocation proceeding, amendment
procedure, writ, injunction or claim is pending, or to the knowledge of Seller,
threatened, concerning any Environmental Permit, Hazardous Material or any
Hazardous Materials Activities of Seller
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or any of its Subsidiaries; and (ii) Seller is not aware of any fact or
circumstance which could involve Seller or any of its Subsidiaries in any
material Environmental Claim or impose upon Seller or any of its Subsidiaries
any material Liabilities under any Environmental Law.
(d) Except as would not reasonably be expected to result in a Material
Adverse Effect, (i) each of Seller and its Subsidiaries are consistently and
reliably in compliance in all respects with all applicable Environmental Laws;
and (ii) Seller has obtained and is, as presently operating, consistently and
reliably in compliance with the conditions of all Environmental Permits
necessary under any Environmental Law for the continued conduct of the business
and operations of Seller in the manner now conducted.
(e) No investigation or review with respect to such matters is pending or
threatened, nor has any Governmental Authority or other person indicated an
intention to conduct the same, other than routine investigations and reviews
taken in the ordinary course of business.
3.19 Labor Matters. (i) There are no controversies pending or, to the
knowledge of Seller, threatened, between Seller or any of its Subsidiaries and
any of their respective employees; (ii) as of the date hereof, neither Seller
nor any of its Subsidiaries is a party to any collective bargaining agreement or
other labor union contract applicable to persons employed by Seller or any of
its Subsidiaries, nor does Seller know of any activities or proceedings of any
labor union to organize any such employees; and (iii) as of the date hereof,
Seller has no any knowledge of any strikes, slowdowns, work stoppages or
lockouts, or threats thereof, by or with respect to any employees of Seller or
any of its Subsidiaries.
3.20 Agreements, Contracts and Commitments. Except as set forth in Section
3.20 of the Seller Disclosure Schedule, neither Seller nor any of its
Subsidiaries is a party to or is bound by any of the following to the extent
currently in force:
(a) any employment or consulting agreement, contract or commitment
with any officer or director of Seller, other than those that are
terminable on no more than thirty (30) days' notice;
(b) any agreement, contract or commitment relating to the disposition
or acquisition by Seller or any of its Subsidiaries, after the date hereof,
of a material amount of assets or properties other than in the ordinary
course of business;
(c) any agreement, contract or commitment to license any third party
to manufacture or reproduce any Seller product, service or technology, or
any agreement, contract or commitment to sell or distribute any Seller
products, service or technology, except in each case for agreements entered
into in the ordinary course of business; or
(d) any mortgages, indentures, guarantees, loans or credit agreements,
security agreements or other agreements, contracts or commitments relating
to the borrowing of money or extension of credit.
3.21 Statements; Registration Statement; Proxy Statement/Prospectus. None
of the information supplied or to be supplied by Seller for inclusion or
incorporation by reference in (i) the Registration Statement (as defined in
Section 6.1(a) hereof) will, at the time it is declared or ordered effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, or (ii) the Proxy Statement (as defined in
Section 6.1(a) hereof) will, on the date it is first mailed to the stockholders
of Seller, at the time of the Seller
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Stockholders' Meeting (as defined in Section 6.1(a) hereof) and at the Closing
Date, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
false or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Seller Stockholders' Meeting which has become false or
misleading. The Proxy Statement will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
promulgated thereunder. Notwithstanding the foregoing, Seller makes no
representation or warranty with respect to any information supplied by Purchaser
which is contained in the Proxy Statement.
3.22 Board Approval. The Board of Directors of Seller has (i) determined
that this Agreement and the transactions contemplated hereby are fair to,
advisable and in the best interests of Seller and its stockholders, (ii) duly
approved this Agreement and the transactions contemplated hereby, and (iii)
resolved to recommend that the stockholders of Seller approve this Agreement and
the transactions contemplated hereby.
3.23 State Takeover Statutes. The Board of Directors of Seller has
approved this Agreement and the transactions contemplated hereby, and such
approval is sufficient to render inapplicable to this Agreement and the
transactions contemplated hereby the provisions of Section 203 of Delaware Law
to the extent, if any, such provisions are applicable to this Agreement and the
transactions contemplated hereby. No other state takeover statute or similar
statute or regulation applies to or purports to apply to this Agreement or the
transactions contemplated hereby.
3.24 Fairness Opinion. Seller has received a written opinion from Morgan
Stanley & Co. Incorporated, dated as of the date hereof, to the effect that, as
of the date hereof, the Merger Consideration (as defined in the VERITAS Merger
Agreement) payable pursuant to the VERITAS Merger Agreement is fair to the
stockholders of Seller from a financial point of view.
3.25 Intellectual Property.
(a) Seller or its Subsidiaries own, or possess licenses or other valid
rights to use, and immediately prior to Closing the Sold Subsidiaries or one or
more of their Subsidiaries will own, or possess licenses or other valid rights
to use, all Intellectual Property (as defined in Section 3.25(d) hereof)
necessary for the conduct of the business of Seller and its Subsidiaries as
currently conducted. Except as set forth in Section 3.25(a) of the Seller
Disclosure Schedule, (i) the conduct of the business of Seller and its
Subsidiaries as currently conducted does not infringe or otherwise violate any
Intellectual Property of any third party except where such infringement would
not reasonably be expected to have a Material Adverse Effect, and (ii) no person
is infringing or otherwise violating any Intellectual Property of Seller or its
Subsidiaries, except where such infringement would not reasonably be expected to
have a Material Adverse Effect. Except as set forth in Section 3.25(a) of the
Seller Disclosure Schedule, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and thereby will not result
in the loss of, or any encumbrance on, the rights of Seller or any of its
Subsidiaries with respect to the Intellectual Property owned or used by them and
no claims, order, actions or proceedings are pending or, to the knowledge of
Seller, threatened, that seek to question the ownership or scope, cancel or
limit the scope or validity of the Intellectual Property owned or used by Seller
or any of its Subsidiaries or the rights of Seller or any of its Subsidiaries
therein, except in each case for such claims,
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orders, actions, proceedings, losses, encumbrances or rights as would not have a
Material Adverse Effect.
(b) Seller and each of its Subsidiaries has implemented policies and
consistently followed practices regarding the preservation of its Proprietary
Information (as defined in Section 3.25(d) hereof) from unauthorized disclosure
to third parties and regarding the use and disclosure of its Proprietary
Information by its employees and contractors.
(c) Section 3.25(c) of the Seller Disclosure Schedule contains a complete
and accurate list of all material Intellectual Property held or owned by Seller
and its Subsidiaries that has been issued or registered by, or filed with, any
Governmental Authority and all material Intellectual Property licenses to which
Seller or any of its Subsidiaries is a party.
(d) For all purposes of and under this Agreement, (i) "Intellectual
Property" shall mean intellectual or property of a similar nature including
without limitation all United States and foreign patents and patent
applications, United States and foreign trademark registrations or any analogous
rights and applications therefor, United States and foreign copyright
registrations and applications therefor, Proprietary Information and all other
intellectual property rights, including, without limitation, inventions,
processes, formulae, technology, know-how, techniques or other data and
information, confidential and proprietary trade secrets, computer software,
technical manuals and documentation used in connection with any of the
foregoing, and licenses and rights with respect to the foregoing or property of
like nature, and (ii) "Proprietary Information" shall mean the trade secrets,
proprietary technology, know-how and other confidential information relation to
the business of Seller and its subsidiaries as currently conducted.
3.26 Assets. The assets held directly or indirectly by the Sold
Subsidiaries (after giving effect to the Split), constitute all of the assets of
Seller and its Subsidiaries other than the Designated Assets.
3.27 Insurance. Seller and each of its Subsidiaries maintain, and all
times during the prior three years have maintained, fire and casualty, general
liability, business interruption, product liability, and sprinkler and water
damage insurance which it believes to be reasonably prudent for similarly sized
and similarly situated businesses. All premiums due and payable under all such
policies and bonds have been paid, Seller and each of its Subsidiaries is
otherwise in material compliance with the terms of such policies and bonds and,
to the knowledge of Seller, there is no threatened termination of, or material
premium increase with respect to, any of such policies.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller, subject to the
exceptions and qualifications set forth or disclosed in the disclosure letter
delivered by Purchaser to Seller, dated as of the date hereof (the "Purchaser
Disclosure Schedule"), as follows:
4.1 Organization; Good Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the corporate power and authority to
own, lease and operate its assets and property and to carry on its business as
now being conducted and as proposed to be conducted, and is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would not reasonably be expected to have a
material
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adverse effect on, or materially delay, the ability of Purchaser or Seller to
consummate the transactions contemplated by this Agreement.
4.2 Charter Documents. Purchaser has delivered to Seller a true and
correct copy of the organizational documents of Purchaser, each as amended to
date and in effect as of the date hereof, and each such instrument is in full
force and effect. Purchaser is not in violation of any of the provisions of its
organizational documents.
4.3 Authority. Purchaser has all requisite corporate power and authority
to enter into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Purchaser, and the performance by Purchaser of its obligations
hereunder and the consummation by Purchaser of the transactions contemplated
hereby, have been duly authorized by all necessary corporate action on the part
of Purchaser. No vote of the holders of the outstanding shares of capital stock
of Purchaser is required to approve this Agreement or the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Purchaser and, assuming the due authorization, execution and delivery by Seller,
constitutes the valid and binding obligations of Purchaser, enforceable in
accordance with their respective terms, subject to (i) the effect of any
applicable laws of general application relating to bankruptcy, reorganization,
insolvency, moratorium or other similar laws affecting creditors' rights and the
relief of debtors generally, and (ii) the effect of rules of law and general
principles of equity, including, without limitation, rules of law and general
principles of equity governing specific performance, injunctive relief and other
equitable remedies (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
4.4 Conflicts. The execution and delivery of this Agreement by Purchaser
does not, and the performance by Purchaser of its obligations hereunder the
consummation by Purchaser of the transactions contemplated hereby will not, (i)
conflict with or violate the organizational documents of Purchaser, (ii) subject
compliance with the requirements set forth in Section 4.5 hereof, conflict with
or violate any Law, rule, regulation, order, judgment or decree applicable to
Purchaser or by which Purchaser or its assets and properties are bound or
affected, or (iii) result in any breach of, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
impair the rights of Purchaser under, or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien on any of
the assets or properties of Purchaser pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Purchaser is a party or by which Purchaser or
its assets and properties are bound or affected, except to the extent such
conflict, violation, breach, default, impairment or other effect could not, in
the case of clause (ii) or (iii) of this Section 4.4, individually or in the
aggregate, reasonably be expected to have a material adverse effect on, or
materially delay, the ability of Purchaser or Seller to consummate the
transactions contemplated by this Agreement.
4.5 Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is required
by or with respect to Purchaser in connection with the execution and delivery of
this Agreement by Purchaser, or the performance by Seller of its obligations
hereunder or the consummation by Seller of the transactions contemplated hereby,
except for (i) consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under the HSR Act or any applicable
state antitrust Laws, (ii) consents, approvals, orders, authorizations,
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registrations, declarations and filings as may be required under the Laws of any
foreign country, and (iii) such other consents, authorizations, filings,
approvals and registrations which, if not obtained or made, would not reasonably
be expected to have a material adverse effect on, or materially delay, the
ability of Purchaser or Seller to consummate the transactions contemplated
hereby.
4.6 Litigation. There is no Action, suit, proceeding, claim, arbitration
or investigation pending against Purchaser or as to which Purchaser has received
any notice of assertion, nor to the knowledge of Purchaser, is there any
threatened Action, suit, proceeding, claim, arbitration or investigation pending
against Purchaser, which could reasonably be expected to have a material adverse
effect on Purchaser.
4.7 Statements; Registration Statement; Proxy Statement. None of the
information supplied or to be supplied by Purchaser or its Affiliates for
inclusion or incorporation by reference in (i) the Registration Statement will,
at the time it is declared or ordered effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, or (ii) the Proxy Statement will, on the date the Proxy Statement is
first mailed to the stockholders of Seller, at the time of the Seller
Stockholders' Meeting and at the Closing Date, will contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Seller
Stockholders' Meeting which has become false or misleading. Notwithstanding the
foregoing, Purchaser makes no representation or warranty with respect to any
information supplied by Seller which is contained in the Proxy Statement.
4.8 Financing. For all purposes of and under this Agreement, the
Commitment Letters and the Equity Commitments shall be referred to together as
the "Financing Agreements" and the financing to be provided thereunder shall be
referred to as the "Financing." The aggregate proceeds of Financing are in an
amount sufficient to consummate the transactions contemplated hereby in
accordance with the terms hereof. None of the Commitment Letters or the Equity
Commitments has been withdrawn and Purchaser does not know of any facts or
circumstances that may reasonably be expected to result in any of the conditions
set forth in the Commitment Letters or the Equity Commitments not being
satisfied.
4.9 Delaware Law. Purchaser was not immediately, prior to the execution
and delivery of this Agreement, an "interested stockholder" of Seller within the
meaning of Section 203 of Delaware Law, and neither Purchaser nor any of its
Affiliates beneficially owns any shares of Common Stock of Seller on the date
hereof.
4.10 Newly Organized. Purchaser was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement and has engaged in
no other business activities.
4.11 Related Agreements. Purchaser has delivered to Seller true and
correct copies of any and all contracts and agreements between VERITAS and
Purchaser and their respective Affiliates.
4.12 Solvency. Immediately after giving effect to the transactions
contemplated by this Agreement and the closing of the Financing in order to
effect the transactions
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contemplated by this Agreement, the Sold Subsidiaries and their respective
Subsidiaries shall be able to pay their debts as they become due in the ordinary
course of business and shall own assets having a present fair saleable value
greater than the combined stated liabilities and identified contingent
liabilities of such entities. Immediately after giving effect to the
transactions contemplated by this Agreement and the closing of the Financing to
be obtained in order to effect the transactions contemplated by this Agreement,
the Sold Subsidiaries and their respective Subsidiaries shall have adequate
capital to carry on their businesses. No transfer of property is being made and
no obligation is being incurred in connection with the transactions contemplated
by this Agreement and the closing of any Financing to be obtained in order to
effect the transactions contemplated by this Agreement with the intent to
hinder, delay or defraud either present or future creditors of Purchaser,
Seller, the Sold Subsidiaries or any of their respective Subsidiaries.
4.13 No Amendment to VERITAS Merger Agreement. Seller shall not, without
the prior written consent of Purchaser, amend, modify, supplement, mutually
terminate or waive any term or condition set forth in the OD Documents, as in
effect as of the date hereof.
ARTICLE V
CONDUCT PRIOR TO CLOSING
5.1 Conduct of Business. Except (i) as set forth in Section 5.1 of the
Seller Disclosure Schedule, (ii) to the extent that Purchaser shall otherwise
consent in writing, and (iii) to the extent contemplated by the OD Documents as
in effect on the date hereof, or for the sale of all or a portion of the
Designated Assets, at all times during the period commencing with the execution
and delivery hereof and continuing until the earlier of the termination of this
Agreement pursuant to the terms hereof or the Closing, Seller shall, and shall
cause each of its Subsidiaries to, (a) carry on its business diligently and in
the usual, regular and ordinary course, in substantially the same manner as
heretofore conducted and in compliance with all applicable Laws, (b) pay or
perform its material obligations when due, and (c) use its commercially
reasonable efforts, consistent with past practices and policies, to preserve
intact its present business organization, keep available the services of its
present officers and employees and preserve its relationships with customers,
suppliers, distributors, licensors, licensees and others with which it has
business dealings. In furtherance of the foregoing and subject to applicable
Law, Seller shall confer with Purchaser, as promptly as practicable, prior to
taking any material actions or making any material management decisions with
respect to the conduct of its business and the business of its Subsidiaries.
5.2 Restrictions on Conduct of Business. Without limiting the generality
of the terms of Section 5.1 hereof, except (i) as set forth in Section 5.2 of
the Seller Disclosure Schedule or as required by the terms hereof, or (ii) to
the extent that Purchaser shall otherwise consent in writing (which, in the case
of Section 5.2(q) hereof, shall not be unreasonably withheld), or (iii) to the
extent contemplated by the OD Documents as in effect on the date hereof, or for
the sale of all or a portion of the Designated Assets, at all times during the
period commencing with the execution and delivery hereof and continuing until
the earlier of the termination of this Agreement pursuant to the terms hereof or
the
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Closing, Seller shall not do any of the following, or permit its Subsidiaries to
do any of the following:
(a) except as required by applicable Law, waive any stock repurchase
rights, accelerate, amend or change the period of exercisability of options
or restricted stock, or reprice options granted under any employee,
consultant or director stock plans or authorize cash payments in exchange
for any options granted under any of such plans;
(b) enter into any material partnership arrangements, joint
development agreements or strategic alliances, other than in the ordinary
course of business consistent with past practice;
(c) (i) increase the compensation or fringe benefits of any present or
former director, officer or employee of Seller or its Subsidiaries (except
for increases in salary or wages in the ordinary course of business
consistent with past practice), (ii) grant any severance or termination pay
to any present or former director, officer or employee of Seller or its
Subsidiaries (except for the payment of severance or termination pay in the
ordinary course of business consistent with past practice), or (iii)
establish, adopt, enter into, amend or terminate any Seller Plan or any
plan, agreement, program, policy, trust, fund or other arrangement that
would be a Seller Plan if it were in existence as of the date of this
Agreement, except as required by applicable Law;
(d) issue, deliver, sell, authorize, pledge or otherwise encumber, or
propose any of the foregoing with respect to, any shares of capital stock
or any securities convertible into, or exercisable or exchangeable for,
shares of capital stock of any of its Subsidiaries, or subscriptions,
rights, warrants or options to acquire any shares of capital stock or any
securities convertible into, or exercisable or exchangeable for, shares of
capital stock of any of its Subsidiaries, or enter into other agreements or
commitments of any character obligating it to issue any such shares of
capital stock of any of its Subsidiaries, or securities convertible into,
or exercisable or exchangeable for, shares of capital stock of any of its
Subsidiaries;
(e) cause, permit or propose any amendments to any charter document or
bylaws (or similar governing instruments) of Seller or any of its
Subsidiaries;
(f) acquire or agree to acquire by merging or consolidating with, or
by purchasing any equity interest in or a material portion of the assets
of, or by any other manner, any business or any corporation, limited
liability company, general or limited partnership, joint venture,
association, business trust or other business enterprise or entity, or
otherwise acquire or agree to acquire any assets having a value exceeding
$5,000,000 in the aggregate or which are otherwise material, individually
or in the aggregate, to the business of Seller and its Subsidiaries to be
included in the Sold Subsidiaries;
(g) adopt a plan of merger, complete or partial liquidation,
dissolution, consolidation, restructuring, recapitalization or other
reorganization;
(h) except as required by applicable Law, adopt or amend any employee
benefit plan or employee stock purchase or employee stock option plan, or
enter into any employment contract or collective bargaining agreement
(other than offer letters and letter agreements entered into in the
ordinary course of business consistent with past practice with employees
who are terminable "at will"), pay any special bonus or special
remuneration to any director or employee other than in the ordinary course
of
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business consistent with past practice, or increase the salaries or wage
rates or fringe benefits (including rights to severance or indemnification)
of its officers;
(i) except in the ordinary course of business consistent with past
practice, modify, amend or terminate any material contract or agreement to
which Seller or any of its Subsidiaries is a party, or waive, delay the
exercise of, release or assign any material rights or claims thereunder;
(j) sell, lease, license, mortgage or otherwise encumber or subject to
any Lien or otherwise dispose of any of its properties or assets, other
than (i) the sale or transfer of any Designated Assets (but not including
shares of VERITAS capital stock), or (ii) any such properties or assets the
value of which do not exceed $5,000,000 individually and $10,000,000 in the
aggregate, except sales of inventory in the ordinary course of business
consistent with past practice; provided, that Seller may divest any of the
Private Securities without the consent of Purchaser if required to do so on
an involuntary basis pursuant to any merger, securities purchase or other
similar type of agreement;
(k) (i) incur any Indebtedness or guarantee any such Indebtedness of
another person, issue or sell any debt securities or warrants or other
rights to acquire any debt securities of Seller or any of its Subsidiaries,
guarantee any debt securities of another person, enter into any "keep well"
or other agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any of
the foregoing, except for endorsements and guarantees for collection,
short-term borrowings and lease obligations, in each case incurred in the
ordinary course of business consistent with past practice, or (ii) make any
loans, advances or capital contributions to, or investment in, any other
person, other than to Seller or any direct or indirect wholly-owed
Subsidiary of Seller;
(l) fail in any material respect to make any capital expenditures in
the amounts budgeted and at the times contemplated therefor in Seller's
annual capital expenditures budget for fiscal year 2000 previously provided
to Purchaser, or expend funds for unbudgeted capital expenditures in an
amount greater than $5,000,000;
(m) pay, discharge or satisfy any claims (including claims of
stockholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction of liabilities or obligations in the ordinary course of
business consistent with past practices or in accordance with their terms
as in effect on the date hereof, or waive, release, grant, or transfer any
rights of material value or modify or change in any material respect any
existing license, lease, contract or other document, other than in the
ordinary course of business consistent with past practice;
(n) change any financial reporting or material accounting principle
used by it unless otherwise required by applicable Law or GAAP;
(o) settle or compromise any litigation (whether or not commenced
prior to the date of this Agreement) other than settlements or compromises
of litigation where the amount paid (after giving effect to insurance
proceeds actually received) in settlement or compromise does not exceed
$1,000,000, provided that the aggregate amount paid in connection with the
settlement or compromise of all such litigation shall not exceed
$10,000,000;
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(p) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends
and distributions by a direct or indirect wholly owned subsidiary of Seller
to its parent (i) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or (ii)
purchase, redeem or otherwise acquire any shares of capital stock of Seller
or any of its subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities; or
(q) make, or permit to be made, without the prior written consent of
Purchaser any material Tax election which would affect the Sold
Subsidiaries or any of their respective Subsidiaries.
(r) agree in writing or otherwise to take any of the actions described
in Section 5.2(a) through Section 5.2(q) hereof, inclusive.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Registration Statement; Proxy Statement; Other Filings.
(a) As promptly as practicable after the execution and delivery of this
Agreement, (i) Seller (in cooperation with Purchaser and the other party or
parties to the OD Documents) shall prepare and file with the SEC a proxy
statement/prospectus to be sent to the stockholders of Seller in connection with
the meeting of the stockholders of Seller to consider the approval of this
Agreement, the OD Documents and the transactions contemplated hereby and thereby
(such proxy statement/prospectus being referred to herein as the "Proxy
Statement" and such meeting of the stockholders of Seller being referred to
herein as the "Seller Stockholders' Meeting"), and (ii) Seller shall cooperate
with Purchaser and the other party or parties to the OD Documents in the
preparation and filing a registration statement on Form S-4 (the "Registration
Statement") to be filed with the SEC in connection with the transactions
contemplated by the OD Documents. Seller shall respond to any comments of the
SEC with respect to the Registration Statement or the Proxy Statement, shall use
its commercially reasonable efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such filing
and shall cause the Proxy Statement to be mailed to its stockholders at the
earliest practicable time. As promptly as practicable after the execution and
delivery of this Agreement, Seller shall prepare and file any other filings
required under the Exchange Act, the Securities Act or any other federal,
foreign or state "blue sky" securities Laws relating to the transactions
contemplated hereby (collectively, the "Other Filings"). Seller shall promptly
notify Purchaser upon the receipt of any comments from the SEC or its staff, and
of any request by the SEC or its staff or any other government officials for
amendments or supplements to the Registration Statement, the Proxy Statement or
any Other Filing, or for additional information, and shall supply the other with
copies of all correspondence between such party or any of its representatives,
on the one hand, and the SEC, or its staff or any other government officials, on
the other hand, with respect to the Registration Statement, the Proxy Statement
or any Other Filing. The Proxy Statement, the Registration Statement and the
Other Filings shall comply in all material respects with all requirements of
applicable Law and the rules and regulations promulgated thereunder. Whenever
any event occurs which is required to be set forth in an amendment or supplement
to the Proxy Statement, the Registration Statement or any Other Filing, Seller
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or Purchaser, as the case may be, shall promptly inform the other party of such
occurrence and cooperate in filing with the SEC or its staff or any other
government officials, and/or mailing to stockholders of Seller, such amendment
or supplement.
(b) Subject to Section 6.2(c) hereof, the Proxy Statement shall also
include the recommendation of the Board of Directors of Seller in favor of the
approval of this Agreement, the OD Documents and the transactions contemplated
hereby and thereby.
6.2 Meeting of Seller Stockholders.
(a) Subject to the terms of Section 6.2(c) hereof, promptly after the date
hereof and in consultation with Purchaser, Seller shall take all action
necessary in accordance with Delaware Law and its Certificate of Incorporation
and Bylaws to convene the Seller Stockholders' Meeting, to be held as promptly
as practicable, for the purpose of voting upon this Agreement, the OD Documents
and the transactions contemplated hereby and thereby. Subject to the terms of
Section 6.2(c) hereof, Seller shall solicit proxies from its stockholders in
favor of the approval of this Agreement, the OD Documents and the transactions
contemplated hereby and thereby, and shall take all other action necessary or
advisable to secure the Required Stockholder Approval.
(b) Subject to the terms of Section 6.2(c) hereof, (i) the Board of
Directors of Seller shall recommend that Seller's stockholders vote in favor of
and approve this Agreement, the OD Documents and the transactions contemplated
hereby and thereby at the Seller Stockholders' Meeting, (ii) the Proxy Statement
shall include a statement to the effect that the Board of Directors of Seller
has recommended that Seller's stockholders vote in favor of and approve this
Agreement, the OD Documents and the transactions contemplated hereby and
thereby, and (iii) neither the Board of Directors of Seller nor any committee
thereof shall withdraw, amend or modify, or propose or resolve to withdraw,
amend or modify in a manner adverse to Purchaser, the recommendation of the
Board of Directors of Seller that Seller's stockholders vote in favor of and
approve this Agreement, the OD Documents and the transactions contemplated
hereby and thereby.
(c) Notwithstanding the foregoing or anything to the contrary set forth in
this Agreement, nothing in this Agreement shall prevent the Board of Directors
of Seller from withdrawing, amending or modifying its recommendation in favor of
this Agreement and the transactions contemplated hereby if (i) Seller receives a
Seller Superior Offer (as defined below) and such Seller Superior Offer is not
withdrawn, (ii) neither Seller nor any of its agents or representatives shall
have violated any of the restrictions set forth in Section 6.5(a) hereof, and
(iii) the Board of Directors of Seller concludes in good faith, after
consultation with its outside counsel, that, in light of such Seller Superior
Offer, the withdrawal, amendment or modification of such recommendation is
necessary in order for the Board of Directors of Seller to comply with its
fiduciary obligations to the stockholders of Seller under applicable Law. For
all purposes of and under this Agreement, the term "Seller Superior Offer" shall
mean a bona fide written offer made by a third party to consummate any of the
following transactions: (a) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Seller, pursuant to which the stockholders of Seller immediately preceding such
transaction would hold less than fifty percent (50%) of the equity interest in
the surviving or resulting entity of such transaction (or the ultimate parent
entity thereof); (b) a sale or other disposition by Seller of assets (excluding
inventory and used equipment sold in the ordinary course of business)
representing all or substantially all of Seller's consolidated assets
immediately prior to such sale, (c) a sale or other disposition by Seller of all
or more than ninety-five percent (95%) of the assets to be held (directly or
indirectly) by the Sold Subsidiaries
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after giving effect to the Split, or (d) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or issuance by Seller),
directly or indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing in excess of fifty percent (50%) of the voting
power of the then outstanding shares of capital stock of Seller, in each case on
terms that the Board of Directors of Seller determines, in its reasonable
judgment (after consultation with its financial advisor and after taking into
account all aspects of the proposal and the person making the proposal and any
proposed changes to this Agreement that may be proposed by Purchaser in response
to such Seller Superior Offer) to be more favorable to the stockholders of
Seller, from a financial point of view, than, (i) in the case of a Seller
Superior Offer of the type referred to in clauses (a), (b) or (d), this
Agreement and the OD Documents and the transactions contemplated hereby and
thereby and (ii) in the case of a Seller Superior Offer of the type referred to
in clause (c), this Agreement and the transactions contemplated hereby;
provided, however, that any such offer shall not be deemed to be a "Seller
Superior Offer" if any financing required to consummate the transaction
contemplated by such offer is not committed and is not likely in the judgment of
Seller's Board of Directors to be obtained by such third party on a timely
basis. Notwithstanding the foregoing or anything to the contrary set forth in
this Agreement, except for a mutual termination as provided for in Section 4.13
hereof, nothing in this Agreement shall prevent the Board of Directors of Seller
from withdrawing, amending or modifying its recommendation in favor of the OD
Documents, or terminating the OD Documents in accordance with its terms.
6.3 Access to Information.
(a) Seller shall afford Purchaser and its accountants, counsel and other
representatives (including potential financing sources), reasonable access,
during normal business hours, to the properties, books, records and personnel of
Seller and its Subsidiaries at any time prior to the Closing in order to enable
Purchaser obtain all information concerning the business, assets and properties,
results of operations and personnel of Seller and its Subsidiaries as Purchaser
may reasonably request. No information or knowledge obtained in the foregoing
investigation by Purchaser pursuant to this Section 6.3 shall affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of Seller and Purchaser to consummate the
transactions contemplated hereby.
(b) Seller shall provide, and shall cause its Subsidiaries and its and
their respective officers and employees to provide, all necessary cooperation in
connection with the arrangement of the Financing and related matters, including,
without limitation, the execution and delivery of any commitment letters,
underwriting or placement agreements, pledge and security documents, other
definitive financing documents, or other requested certificates or documents,
including a certificate of the chief financial officer of Seller with respect to
solvency matters, as may be requested by Purchaser, provided, however, that such
letters, agreements or documents expressly provide that, from and after
consummation of the transactions contemplated by this Agreement, Seller shall
have no Liability thereunder and the other parties thereto shall look solely to
Purchaser in respect of any obligations of Seller thereunder.
6.4 Confidentiality. Seller and Purchaser acknowledge that they have
previously entered into a Confidentiality Agreement (the "Confidentiality
Agreement"), which shall continue in full force and effect in accordance with
its terms.
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6.5 No Solicitation.
(a) From and after the date of this Agreement until the earlier to occur of
the Closing and termination of this Agreement pursuant to Section 10.1 hereof,
Seller and its Subsidiaries shall not, and shall cause their respective
officers, directors, affiliates or employees or any investment banker, attorney
or other advisor or representative retained by any of them not to, directly or
indirectly (i) solicit, initiate, encourage or induce the making, submission or
announcement of any Seller Acquisition Proposal (as defined in Section 6.5(b)
hereof), (ii) participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other action
to facilitate any inquiries or the making of any proposal that constitutes or
may reasonably be expected to lead to, any Seller Acquisition Proposal, (iii)
engage in discussions with any person with respect to any Seller Acquisition
Proposal, except as to the existence of the terms of this Section 6.5, (iv)
subject to the terms of Section 6.2(c) hereof, approve, endorse or recommend any
Seller Acquisition Proposal, or (v) enter into any letter of intent or similar
document or any contract, agreement or commitment contemplating or otherwise
relating to any Seller Acquisition Transaction (as defined in Section 6.5(b)
hereof); provided, however, that until the date on which this Agreement is
approved by the requisite vote of the stockholders of Seller, the terms of this
Section 6.5(a) shall not prohibit Seller from furnishing information regarding
Seller and its Subsidiaries to, entering into a confidentiality or
non-disclosure agreement with, or entering into discussions with, any person or
group in response to a Seller Superior Offer submitted by such person or group
(and not withdrawn) if (a) Seller has not violated any of the restrictions set
forth in this Section 6.5(a), (b) the Board of Directors of Seller concludes in
good faith, after consultation with its outside legal counsel, that such action
is reasonably necessary in order for the Board of Directors of Seller to comply
with its fiduciary obligations to the stockholders of Seller under applicable
Law, (c) Seller receives from such person or group an executed confidentiality
or non-disclosure agreement containing customary limitations on the use and
disclosure of all non-public written and oral information furnished to such
person or group by or on behalf of Seller and containing terms no less favorable
to the disclosing party than the terms of the Confidentiality Agreement
(including with respect to any standstill arrangements, which may not be waived
by Seller unless the standstill arrangements in the Confidentiality Agreement
are waived), and (d) prior to furnishing any such non-public information to such
person or group or entering into negotiations or discussions, Seller notifies
Purchaser promptly of such inquiries, proposals or offers received by, any such
information requested from, or any such discussions or negotiations sought to be
initiated or continued with, any of its representatives indicating, in
connection with such notice, the name of the person and the terms and conditions
of any inquiries, proposals or offers, and furnishes such non-public information
to Purchaser to the extent such information has not been previously furnished to
Purchaser. Seller and its Subsidiaries shall (and shall cause their respective
officers, directors, affiliates, employees, investment bankers, attorneys and
representatives to) immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any Seller Acquisition Proposal.
(b) For all purposes of and under this Agreement, the term "Seller
Acquisition Proposal" shall mean any offer or proposal relating to any Seller
Acquisition Transaction. For all purposes of and under this Agreement, "Seller
Acquisition Transaction" shall mean any transaction or series of related
transactions, other than the transactions permitted to be effected under Section
5.2 hereof involving: (i) any acquisition or purchase from Seller by any person
or "group" (as defined under Section 13(d) of the Exchange Act and the rules
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and regulations promulgated thereunder) of more than fifteen percent (15%) in
interest of the total outstanding voting securities of Seller, or any tender
offer or exchange offer that if consummated would result in any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder) beneficially owning more than fifteen
percent (15%) of the total outstanding voting securities of Seller, or any
merger, consolidation, business combination or similar transaction involving
Seller pursuant to which the stockholders of Seller immediately preceding such
transaction would hold less than eighty-five percent (85%) of the equity
interests in the surviving or resulting entity of such transaction (or the
ultimate parent entity thereof); (ii) any sale, lease (other than in the
ordinary course of business), exchange, transfer, license (other than in the
ordinary course of business), acquisition or disposition of more than fifteen
percent (15%) of the fair market value of the consolidated assets and properties
of Seller; (iii) a sale or other disposition by Seller of all or more than
fifteen percent (15%) of the assets to be held by the Sold Subsidiaries after
giving effect to the Split; and (iv) the acquisition by any person or group
(including by way of a tender offer or exchange offer or issuance by Seller),
directly or indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing in excess of fifteen percent (15%) of the
voting power of the then outstanding shares of capital stock of Seller.
6.6 Public Disclosure. Purchaser and Seller shall consult with each other
and agree before issuing any press release or otherwise making any public
statement with respect to this Agreement, and shall not issue any such press
release or make any such public statement prior to such agreement, except as may
be required by applicable Law or Seller's listing agreement with The New York
Stock Exchange, Inc., in which case reasonable efforts to consult with the other
party shall be made prior to such release or public statement.
6.7 Legal Requirements. Purchaser and Seller shall take all reasonable
actions necessary or desirable to comply promptly with all legal requirements
which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement (including, without limitation,
furnishing all information required in connection with approvals of or filings
with any Governmental Authority, and prompt resolution of any litigation
prompted hereby), and shall promptly cooperate with, and furnish information to,
the other party hereto to the extent necessary in connection with any such
requirements imposed upon any of them or their respective Subsidiaries in
connection with the consummation of the transactions contemplated by this
Agreement.
6.8 Notification of Certain Matters. Purchaser shall give prompt notice to
Seller, and Seller shall give prompt notice to Purchaser, of the occurrence, or
failure to occur, of any event, which occurrence or failure to occur would be
reasonably likely to cause (i) any representation or warranty contained in this
Agreement to be untrue or inaccurate at the Closing, such that the conditions
set forth in Section 9.2(a) or Section 9.3(a) hereof, as the case may be, would
not be satisfied or fulfilled as a result thereof, or (ii) any material failure
of Purchaser or Seller, as the case may be, or of any officer, director,
employee or agent thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement.
Notwithstanding the foregoing, the delivery of any notice pursuant to this
Section 6.8 shall not limit or otherwise affect the rights and remedies
available hereunder to the party receiving such notice.
6.9 Commercially Reasonable Efforts and Further Assurances. Subject to the
respective rights and obligations of Purchaser and Seller under this Agreement,
each of Purchaser and Seller shall use its respective commercially reasonable
efforts to effectuate
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the transactions contemplated hereby, and to fulfill and cause to be fulfilled
the conditions to Closing under this Agreement. Each of Purchaser and Seller, at
the reasonable request of the other party hereto, shall execute and deliver such
other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of the
transactions contemplated hereby.
6.10 Indemnification.
(a) From and after the Closing, Purchaser and the Sold Subsidiaries shall
fulfill and honor in all respects the obligations of Seller pursuant to any
indemnification agreements (substantially in the form delivered to Purchaser
prior to the date hereof) between Seller, the Sold Subsidiaries and their
respective directors and officers in effect immediately prior to the Closing and
the Split (the "Indemnified Parties") and any indemnification provisions under
Seller's charter documents as in effect on the date hereof. The organizational
documents of Purchaser shall contain provisions with respect to exculpation and
indemnification that are at least as favorable to the Indemnified Parties as
those contained in Seller's organizational documents as in effect on the date
hereof, which provisions shall not be amended, repealed or otherwise modified
for a period of six (6) years from the Closing Date in any manner that would
adversely affect the rights thereunder of individuals who, immediately prior to
the Closing, were directors, officers, employees or agents of Seller or the Sold
Subsidiaries, unless such modification is required by applicable Law.
(b) In the event that Purchaser or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers all or substantially all of its properties and assets to any
person in a single transaction or a series of transactions, then, and in each
such case, Purchaser shall make or cause to be made proper provision so that the
successors and assigns of Purchaser assume the indemnification obligations of
Purchaser and the Sold Subsidiaries under this Section 6.10 for the benefit of
the Indemnified Parties.
(c) The provisions of this Section 6.10 are (i) intended to be for the
benefit of, and will be enforceable by, each of the Indemnified Parties, and
(ii) in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such person may have by contract or
otherwise.
(d) For a period of six (6) years following the Closing Date, Purchaser
shall use its best efforts to maintain in effect the directors' and officers'
liability insurance policies maintained by Seller; provided, however, that in no
event shall Purchaser be required to expend in any one year in excess of one
hundred and fifty percent (150%) of the annual premium currently paid by Seller
for such coverage.
6.11 Regulatory Filings; Reasonable Efforts. As soon as may be reasonably
practicable following the execution and delivery of this Agreement, Seller and
Purchaser each shall file with the FTC and DOJ Notification and Report Forms
relating to the transactions contemplated hereby as required by the HSR Act, as
well as comparable pre-merger notification forms required by the merger
notification or control laws and regulations of any applicable jurisdiction, as
agreed to by Seller and Purchaser. Seller and Purchaser each shall promptly (i)
supply the other with any information which may be required in order to
effectuate such filings, and (ii) supply any additional information which
reasonably may be required by the FTC, the DOJ or the competition or merger
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control authorities of any other jurisdiction and which Seller and Purchaser may
reasonably deem appropriate.
6.12 Use of Names. Seller acknowledges that from and after the Closing,
the name "Seagate" and all similar or related names, marks and logos (all of
such names, marks and logos being referred to herein as the "Seller Names")
shall be owned by the Sold Subsidiaries, that neither Seller nor any of its
Affiliates shall have any rights in the Seller Names, and that neither Seller
nor any of its Affiliates will be entitled to contest the ownership or validity
or any rights of Purchaser, the Sold Subsidiaries or any of their respective
Subsidiaries in or to the Seller Names.
6.13 Debt Offer. Subject to the terms and conditions of this Agreement,
Seller shall commence an irrevocable tender offer (the "Debt Offer") to purchase
all of the principal amount of the Debentures. The obligations of Seller (i) to
commence the Debt Offer and (ii) to accept for payment, and pay for, any
securities tendered pursuant to the Debt Offer, shall be subject to customary
conditions and be conditioned upon closing of the transactions contemplated
hereby and the OD Documents (any of which may be waived by Seller in its sole
discretion). If fewer than one hundred percent (100%) of the Debentures are
purchased pursuant to the Debt Offer, then at the Closing Purchaser shall (i) in
accordance with the terms and provisions of Section 8.01 and Section 9.01 of the
Indenture, assume the Debentures and enter into a Supplemental Indenture in
accordance with such Section 8.01 and Section 9.01, (ii) give an irrevocable
notice of redemption pursuant to Section 11.01 of the Indenture to the Trustee
thereunder and each holder of a Debenture thereunder, specifying a "Redemption
Date" thirty one (31) days after the Closing and other matters specified in
Section 11.08 of the Indenture, and (iii) deposit the principal amount of the
"Redemption Price" with the Trustee under the Indenture.
6.14 Commitment Letters; Rolled Options. Purchaser shall promptly forward
Seller's counsel a copy of all credit documentation prepared pursuant to the
Commitment Letters. In the event that one or more of the lenders under the
Commitment Letters withdraws its Commitment Letter (or commitment thereunder) or
invokes a condition that would prevent the Closing from occurring, Purchaser
shall promptly notify Seller thereof. In the event that Purchaser invokes the
condition set forth in Section 9.3(c) hereof, or one or more lenders withdraws
its commitment, Purchaser shall use all commercially reasonable efforts to enter
into contracts with one or more substitute lenders designated by Purchaser and
reasonably acceptable to Seller ("Substitute Lenders"), provided, however, that
Purchaser shall be required to enter into such contracts with one or more
Substitute Lenders only if the economic terms and other conditions offered by
such Substitute Lenders are no less favorable than those set forth in the
Commitment Letters. From and after the date hereof until the Closing, Purchaser
shall not amend, modify or supplement, or permit the amendment, modification or
supplementation of, the Roll Agreement without Seller's prior written consent.
6.15 Transaction Expenses. No later than fifteen (15) calendar days prior
to the Closing Seller shall deliver to Purchaser final invoices from Seller's
investment bankers (including their counsel, if any), attorneys, accountants and
other advisors with respect to the transactions contemplated hereby, together
with a statement from each such person to the effect that (i) the amounts shown
due and owing therein constitute a "final" bill, and (ii) after payment in full
of the amounts indicated therein, each such person will not look to Purchaser,
Seller or any of their Affiliates or any party to the OD Documents for the
payment of further amounts with respect to the transactions contemplated hereby
or the OD Documents.
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6.16 Non-Assignable Assets. Nothing in this Agreement shall be construed
as an attempt or agreement to assign any asset, contract, lease, permit, license
or other right which would otherwise be included in the assets transferred
pursuant to the Split, but which is by its terms non-assignable without the
consent of the other party or parties thereto, unless such consent shall have
been given (the "Non-Assignable Assets"). Seller agrees to use commercially
reasonably efforts before the Closing to obtain such consent or consents.
Following the Closing and until such time as the Non-Assignable Assets may be
properly assigned to Purchaser, such Non-Assignable Assets shall be held in
trust for the benefit of Purchaser, the covenants and obligations thereunder
shall be performed by Purchaser, and all benefits and obligations existing
thereunder shall be for the account of Purchaser. Following the Closing, Seller
authorizes Purchaser, to the extent permitted by applicable Law and the terms of
the Non-Assignable Assets, to perform all of the obligations and receive all of
the benefits under the Non-Assignable Assets, and appoints Purchaser as its
attorney-in-fact to act in its name and on its behalf (and on behalf of its
Affiliates) with respect thereto.
ARTICLE VII
EMPLOYEE MATTERS
7.1 Employee Liabilities. Seller and its Subsidiaries shall take all
corporate actions necessary to provide for the transfer of all assets relating
to the Assumed Plans (as defined below) to the Purchaser as of, or as soon as
practicable following, the Closing. From and after the date of the transfer of
such assets, Purchaser shall assume sole sponsorship of all Seller Plans (other
than any stock incentive plan, including, without limitation, the 1983 Incentive
Stock Option Plan, the Employee Stock Purchase Plan, the Executive Stock Plan,
the Conner Peripherals, Inc. 1986 Incentive Stock Plan, the 1991 Incentive Stock
Option Plan, the Amended and Restated Directors' Option Plan, the Amended and
Restated Archive Corporation Stock Option and Restricted Stock Purchase
Plan -- 1981, the Amended and Restated Archive Corporation Incentive Stock
Option Plan -- 1981, the Conner Peripherals, Inc. -- Arcada Holdings, Inc. Stock
Option Plan, 1998 Non-Statutory Stock Option Plan, 1999 Stock Option Plan,
Arcada Holdings Inc. 1994 Stock Option Plan, Xiotech Corporation Amended and
Restated 1996 Stock Option Plan) (such assumed Seller Plans, the "Assumed
Plans") (provided, however, that the Assumed Plans shall include the [Suez]
Software Information Management Group, Inc. 1999 Stock Option Plan and any
outstanding options to acquire Seller Common Stock which are converted into
options to acquire Purchaser shares pursuant to the Roll Agreement), and shall
assume and be responsible for all Liabilities whatsoever to Seller Employees,
including, without limitation, claims incurred under any Assumed Plan
(including, without limitation, any statutory worker's compensation claims),
other than Liabilities under any Seller Plan which is not an Assumed Plan (each,
a "Non-Assumed Plan").
7.2 Employee Benefit Plans.
(a) From and after the Closing, (i) Purchaser shall offer all Seller
Employees employment with a Sold Subsidiary following the Closing ("Transferred
Employees"), initially on the same terms and conditions of employment that such
Transferred Employee had immediately prior to the Closing (including salary,
title and location), and all Transferred Employees shall be entitled to, service
credit under all employee benefit plans of Purchaser, the Sold Subsidiaries or
any of their respective Subsidiaries equal to credited service time for Seller
Employees under all Assumed Plans prior to the Closing, (ii) any service of a
Transferred Employee prior to the Closing Date which was recognized under
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any medical plan of Seller for purposes of medical or dental coverage shall be
recognized by the corresponding employee benefit plans of Purchaser, the Sold
Subsidiaries and their respective Subsidiaries, and (iii) any service of a
Transferred Employee prior to the Closing Date which was recognized under
Seller's vacation policy shall be recognized under the vacation policy of
Purchaser, the Sold Subsidiaries and their respective Subsidiaries.
(b) Purchaser agrees that all Transferred Employees who continue employment
with Purchaser or any affiliate of Purchaser after the Closing ("Continuing
Employees") shall be eligible to continue to participate in all Assumed Plans,
provided that (i) nothing in this Section 7.2 shall limit the right of Purchaser
to amend or terminate any such Assumed Plan, and (ii) if Purchaser terminates
any such Assumed Plan, then the Continuing Employees shall immediately be
eligible to participate in the corresponding Purchaser employee benefit plan or
arrangement on substantially the same terms and conditions as similarly situated
employees of Purchaser and its affiliates. If a Continuing Employee ceases to be
covered by an Assumed Plan providing health or welfare benefits prior to the end
of the plan year, and subsequently becomes covered by any Purchaser employee
health or welfare benefit plan or arrangement, then (A) the Continuing Employee
shall be given full credit under Purchaser's plan or arrangement for any
co-pays, deductibles and out-of-pocket maximums incurred by him or her for such
plan year, and (B) Purchaser's plan or arrangement shall waive any preexisting
condition limitation or restriction otherwise applicable to the Continuing
Employee.
7.3 WARN Act. Purchaser shall assume and be responsible for any
Liabilities arising under the Worker Adjustment and Retraining Notification Act
in connection with the termination of any Seller Employee on or after the
Closing Date.
ARTICLE VIII
TAX MATTERS
8.1 Conveyance Taxes. Purchaser shall pay all real property transfer or
gains, sales, use, transfer, value added, stock transfer, and stamp taxes, any
transfer, recording, registration, and other fees, and any similar Taxes which
become payable in connection with the transactions contemplated by this
Agreement, and shall file such applications and documents as shall permit any
such Tax to be assessed and paid on or prior to the Closing Date in accordance
with any available pre-sale filing procedure. Purchaser shall execute and
deliver all instruments and certificates necessary to enable Seller to comply
with this Section 8.1.
8.2 Section 338(h)(10) Election.
(a) At the request of Purchaser, Seller will join with Purchaser in making
an election under Section 338(h)(10) of the Code and Treasury Regulation Section
1.338(h)(10)-1(d) (and, if permissible, any corresponding elections under any
applicable state and local income tax laws) (collectively, the "Section
338(h)(10) Elections") with respect to the purchase and sale of Shares of any of
the Sold Subsidiaries which is a United States person within the meaning of
Section 7701(a)(30) of the Code (collectively, the "U.S. Sold Subsidiaries")
hereunder.
(b) To the extent possible, Purchaser, Seller and the U.S. Sold
Subsidiaries shall execute on or prior to the Closing any and all forms
necessary to effectuate the Section 338(h)(10) Elections (including, without
limitation, Internal Revenue Service Form 8023 and any similar forms under the
applicable state and local income tax laws
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(the "Section 338 Forms")). In the event, however, any Section 338 Forms are not
executed at the Closing, Purchaser and Seller shall prepare and complete each
such Section 338 Form no later than 15 days prior to the date such Section 338
Form is required to be filed. Purchaser and Seller shall each cause the Section
338 Forms to be duly executed by an authorized person for Purchaser and Seller
in each case, and shall duly and timely file the Section 338 Forms in accordance
with applicable tax Laws and the terms of this Agreement.
(c) As soon as practicable after the Closing Date, Purchaser shall (i)
allocate the Purchase Price among the Sold Subsidiaries (the "Stock
Allocation"), and (ii) determine the allocation of that portion of the Stock
Allocation attributable to any of the U.S. Sold Subsidiaries resulting from the
Section 338(h)(10) Elections (as required pursuant to Section 338(h)(10) of the
Code and the regulations promulgated thereunder) among the assets of such U.S.
Sold Subsidiaries (the "Section 338 Allocation") after considering in good faith
Seller's comments thereto. Purchaser, Seller and the U.S. Sold Subsidiaries
shall be bound by and shall file all Tax Returns (including amended Tax Returns
and amended Section 338 Forms, as necessary) consistently with the Section 338
Allocation.
8.3 Tax Matters Schedule. Prior to the Closing Date, Seller shall promptly
take all actions set forth in Schedule V hereto with respect to the transactions
described herein.
ARTICLE IX
CONDITIONS TO CLOSING
9.1 Conditions to Obligations of Each Party to Effect the Closing. The
respective obligations of each party to this Agreement to effect the Closing
shall be subject to the satisfaction or fulfillment, at or prior to the Closing
Date, of each of the following conditions:
(a) Stockholder Approval. The Required Stockholder Approval shall have
been obtained.
(b) Registration Statement Effective; Proxy Statement. The SEC shall
have declared the Registration Statement effective. No stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose, and no
similar proceeding in respect of the Proxy Statement, shall have been
initiated or threatened in writing by the SEC.
(c) No Order; HSR Act. No Governmental Authority shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of
making the transactions contemplated hereby illegal or otherwise
prohibiting consummation of the transactions contemplated hereby. All
requirements, if any, under the HSR Act or equivalent foreign statute,
rule, regulation or order relating to the transactions contemplated hereby
shall have been satisfied.
(d) Other Transaction. All of the conditions set forth in Article VI
of the VERITAS Merger Agreement (other than Section 6.1(f) thereof and the
filing of the Merger Certificate thereunder) shall have been satisfied or
waived. Purchaser shall have received a certificate with respect to the
foregoing, signed on behalf of Seller by the President and the Chief
Financial Officer of Seller.
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9.2 Additional Conditions to Obligations of Seller. The obligation of
Seller to consummate and effect the transactions contemplated by this Agreement
shall be subject to the satisfaction or fulfillment, at or prior to the Closing
Date, of each of the following conditions, any of which may be waived, in
writing, exclusively by Seller:
(a) Representations and Warranties. The representations and warranties
of Purchaser contained in this Agreement shall have been true and correct
in all material respects as of the date of this Agreement, except where the
failure to be so true and correct would not, in the aggregate, reasonably
be expected to have a material adverse effect on Purchaser. In addition,
the representations and warranties of Purchaser contained in this Agreement
shall be true and correct in all material respects on and as of the Closing
Date (except for changes contemplated by this Agreement and except for
those representations and warranties which address matters only as of a
particular date, which shall have been true and correct only as of such
particular date), with the same force and effect as if made on and as of
the Closing Date, except in such cases where the failure to be so true and
correct would not, in the aggregate, reasonably be expected to have a
material adverse effect on Purchaser. Seller shall have received a
certificate with respect to the foregoing, signed on behalf of Purchaser by
the Chief Executive Officer and the Chief Financial Officer of Purchaser.
(b) Agreements and Covenants. Purchaser shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Closing Date, and Seller shall have received a certificate to
such effect, signed on behalf of Purchaser by the Chief Executive Officer
or the Chief Financial Officer of Purchaser.
(c) OD Documents. The OD Documents shall be in full force and effect,
enforceable in accordance with their terms, and Seller shall not have
received any notice from the other party or parties to such OD Documents of
its or their intention to terminate the OD Documents.
9.3 Additional Conditions to the Obligations of Purchaser. The obligations
of Purchaser to consummate and effect the transactions contemplated hereby shall
be subject to the satisfaction or fulfillment, at or prior to the Closing Date,
of each of the following conditions, any of which may be waived, in writing,
exclusively by Purchaser:
(a) Representations and Warranties. The representations and warranties
of Seller contained in this Agreement shall have been true and correct in
all material respects as of the date of this Agreement, except, in the case
of all such representations and warranties other than those set forth in
Sections 3.3, 3.4, 3.15, 3.22, 3.23, 3.24 and 3.26 hereof, where the
failure to be so true and correct would not, in the aggregate, reasonably
be expected to have a Material Adverse Effect. In addition, the
representations and warranties of Seller contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date
(except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a
particular date, which shall remain true and correct as of such particular
date), with the same force and effect as if made on and as of the Closing
Date, except, in the case of all such representations and warranties other
than those set forth in Sections 3.3, 3.4, 3.15, 3.22, 3.23, 3.24 and 3.26
hereof, where the failure to be so true and correct would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.
Purchaser
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shall have received a certificate with respect to the foregoing, signed on
behalf of Seller by the President or the Chief Financial Officer of Seller.
(b) Agreements and Covenants. Seller shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date, and Purchaser shall have received a certificate to such effect,
signed on behalf of Seller by the President and the Chief Financial Officer
of Seller.
(c) Financing. Purchaser shall have received the proceeds of the
Financing contemplated by the Commitment Letters.
(d) Sold Subsidiaries Cash Amount. The Sold Subsidiaries shall have
available, free and clear of any and all Liens, an amount of Cash at least
equal to the Required Cash.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date, whether before or after approval of the transactions
contemplated hereby by the stockholders of Seller:
(a) by mutual written consent, duly authorized by the Boards of
Directors of Purchaser and Seller;
(b) by either Seller or Purchaser, if the transactions contemplated
hereby shall not have been consummated by December 31, 2000; provided,
however, that the right to terminate this Agreement pursuant to this
Section 10.1(b) shall not be available to any party hereto whose failure to
fulfill any obligation under this Agreement (including, without limitation,
such party's obligations under in Section 6.5 hereof) has been a principal
cause of, or resulted in, the failure of the transactions contemplated
hereby to occur on or before such date;
(c) by either Seller or Purchaser, if a Governmental Authority shall
have issued an order, decree or ruling or taken any other action, in any
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated hereby or by the OD Documents,
which order, decree or ruling is final and nonappealable;
(d) by either Seller or Purchaser, if the Required Stockholder
Approval shall not have been obtained by reason of the failure to obtain
the Required Stockholder Approval upon a vote taken at a meeting of
stockholders duly convened therefor or at any adjournment or postponement
thereof; provided, however, that the right to terminate this Agreement
pursuant to this Section 10.1(d) shall not be available to Seller where the
failure to obtain the Required Stockholder Approval shall have been caused
by the action or failure to act in a manner which constitutes a material
breach of this Agreement;
(e) by Seller, upon a breach of any representation, warranty, covenant
or agreement on the part of Purchaser contained in this Agreement, or if
any representation or warranty of Purchaser shall have become untrue, in
either case such that the conditions set forth in Section 9.2(a) or Section
9.2(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall
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have become untrue, provided, however, that if such inaccuracy in
Purchaser's representations and warranties or breach by Purchaser is
curable, then Seller may not terminate this Agreement pursuant to this
Section 10.1(e) for thirty-five (35) calendar days after delivery of
written notice from Seller to Purchaser of such breach, provided that
Purchaser continues to exercise commercially reasonable efforts to cure
such breach (it being understood that Seller may not terminate this
Agreement pursuant to this Section 10.1(e) if such breach by Purchaser is
cured during such thirty-five (35)-day period);
(f) by Purchaser, upon a breach of any representation, warranty,
covenant or agreement on the part of Seller set forth in this Agreement, or
if any representation or warranty of Seller shall have become untrue, in
either case such that the conditions set forth in Section 9.3(a) or Section
9.3(b) would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided,
however, that if such inaccuracy in Seller's representations and warranties
or breach by Seller is curable, then Purchaser may not terminate this
Agreement pursuant to this Section 10.1(f) for thirty-five (35) calendar
days after delivery of written notice from Purchaser to Seller of such
breach, provided that Seller continues to exercise commercially reasonable
efforts to cure such breach (it being understood that Purchaser may not
terminate this Agreement pursuant to this Section 10.1(f) if such breach by
Seller is cured during such thirty-five (35)-day period);
(g) by Seller, if (i) prior to obtaining the Required Stockholder
Approval, Seller receives a Seller Superior Offer, the Board of Directors
of Seller concludes in good faith, after consultation with its outside
counsel, that in light of such Seller Superior Offer, the termination of
this Agreement in order to accept such Seller Superior Offer is necessary
in order for the Board of Directors of Seller to comply with its fiduciary
obligations to the stockholders of Seller under applicable Law, and (ii)
Seller has complied with all of its obligations under Section 6.5 hereof,
and (iii) prior to the termination of this Agreement pursuant to this
Section 10.1(g), Seller pays Purchaser the Seller Termination Fee pursuant
to Section 10.3(b)(ii) hereof; provided, however, that such termination may
take place only after two (2) business days following Purchaser's receipt
of written notice advising Purchaser that the Board of Directors of the
Seller has received a Seller Superior Offer specifying the material terms
and conditions of such Seller Superior Offer (and including a copy thereof
with all accompanying documentation, if in writing), identifying the person
making such Seller Superior Offer and stating that it intends to make the
determination set forth in clause (i) of this Section 10.1(g). After
providing such notice, Seller shall provide an opportunity to Purchaser to
make such adjustments in the terms and conditions of this Agreement as
would enable Seller to proceed with its recommendation to its stockholders
without making the determination set forth in clause (i) of this Section
10.1(g); provided, further, however, that any such adjustment shall be at
the discretion of Purchaser at the time; or
(h) by Purchaser, if a Seller Triggering Event (as defined below)
shall have occurred. For the purposes of this Agreement, a "Seller
Triggering Event" shall be deemed to have occurred if (i) the Board of
Directors of Seller or any committee thereof shall for any reason have
withdrawn or shall have amended or modified in a manner adverse to
Purchaser its recommendation in favor of the approval of this Agreement or
the OD Documents and the transactions contemplated hereby or thereby, (ii)
Purchaser shall have failed to include in the Proxy Statement the
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recommendation of the Board of Directors of Seller in favor of the approval
of this Agreement or the OD Documents and the transactions contemplated
hereby or thereby, or shall have taken any action or made any statement
inconsistent with such recommendation, or (iii) a tender or exchange offer
for in excess of the fifteen percent (15%) of the equity securities of
Seller shall have been commenced by a person unaffiliated with Purchaser,
and Seller shall not have sent to its securityholders pursuant to Rule
14e-2 promulgated under the Securities Act, within ten (10) business days
after such tender or exchange offer is first published sent or given, a
statement disclosing that Seller recommends rejection of such tender or
exchange offer.
10.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement pursuant to Section 10.1 hereof shall be effective immediately upon
the delivery of written notice of the terminating party to the other party
hereto. In the event of the termination of this Agreement pursuant to Section
10.1 hereof, this Agreement shall be of no further force or effect, except (i)
as set forth in this Section 10.2, Section 10.3 hereof and Article XII hereof,
each of which shall survive the termination of this Agreement without
limitation, and (ii) nothing herein shall relieve any party from Liability for
any breach of this Agreement.
10.3 Fees and Expenses.
(a) General. Except as set forth in this Section 10.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, whether
or not the transactions contemplated by this Agreement are consummated.
(b) Seller Payments.
(i) Seller shall pay to Purchaser or its Designees in immediately
available funds, within one (1) business day after demand by Purchaser, an
amount equal to $80,000,000 (the "Seller Termination Fee") if this
Agreement is terminated by Purchaser pursuant to Section 10.1(h) hereof.
(ii) Seller shall pay to Purchaser or its Designees in immediately
available funds, prior to the termination of this Agreement, an amount
equal to the Seller Termination Fee if this Agreement is terminated by
Seller pursuant to Section 10.1(g) hereof.
(iii) Seller shall pay to Purchaser or its Designees in immediately
available funds, within one (1) business day after the date Seller directly
or indirectly enters into an agreement with any third party with respect to
a Seller Acquisition Transaction or a Seller Acquisition Transaction is
consummated, an amount equal to the Seller Termination Fee if (A) this
Agreement is terminated by either party pursuant to Section 10.1(d) hereof,
(B) at any time after the date of this Agreement and at or before the
Seller Stockholders' Meeting a Seller Acquisition Proposal shall have been
publicly announced or otherwise communicated to Seller and not withdrawn,
and (C) within twelve (12) months of the termination of this Agreement,
Seller directly or indirectly enters into an agreement with any third party
with respect to a Business Combination Transaction (as defined in Section
10.3(b)(vi) hereof) or a Business Combination Transaction is consummated.
(iv) Seller shall pay to Purchaser or its Designees in immediately
available funds, within one (1) business day after the first to occur of
the events set forth in clause (D) below, an amount equal to the Seller
Termination Fee if (A) this
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Agreement is terminated by either party pursuant to Section 10.1(b) hereof,
(B) at any time after the date of this Agreement and at or before the
Termination Date a Seller Acquisition Proposal shall have been publicly
announced or otherwise communicated to Seller and not publicly withdrawn,
(C) following the public announcement or communication of such Seller
Acquisition Proposal and prior to any such termination, Seller shall have
intentionally breached (and not cured after notice thereof) any of its
covenants or agreements set forth in this Agreement in any material
respect, which breach shall have contributed to the failure of the Closing
to occur on or before the Termination Date, and (D) within twelve (12)
months of the termination of this Agreement, Seller directly or indirectly
enters into an agreement with any third party with respect to a Business
Combination Transaction or a Business Combination Transaction is
consummated.
(v) Seller acknowledges that the agreements contained in this Section
10.3(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Purchaser would not enter
into this Agreement.
(vi) "Business Combination Transaction" shall mean any transaction or
series of related transactions involving: (i) any acquisition or purchase
from Seller by any person or "group" (as defined under Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder) of more
than fifty percent (50%) in interest of the total outstanding voting
securities of Seller, or any tender offer or exchange offer that if
consummated would result in any person or "group" (as defined under Section
13(d) of the Exchange Act and the rules and regulations promulgated
thereunder) beneficially owning more than fifty percent (50%) of the total
outstanding voting securities of Seller, or any merger, consolidation,
business combination or similar transaction involving Seller pursuant to
which the stockholders of Seller immediately preceding such transaction
would hold less than fifty percent (50%) of the equity interests in the
surviving or resulting entity of such transaction (or the ultimate parent
entity thereof); (ii) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course
of business), acquisition or disposition of more than fifty percent (50%)
of the fair market value of the consolidated assets and properties of
Seller; (iii) a sale or other disposition by Seller of all or more than
fifty percent (50%) of the assets that would have been held by the Sold
Subsidiaries if the Split had taken place; and (iv) the acquisition by any
person or group (including by way of a tender offer or an exchange offer or
issuance by Seller), directly or indirectly, of beneficial ownership or a
right to acquire beneficial ownership of shares representing in excess of
fifty percent (50%) of the voting power of the then outstanding shares of
capital stock of Seller.
10.4 Amendment. Subject to applicable Law, this Agreement may be amended
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of the parties hereto.
10.5 Extension; Waiver. At any time prior to the Closing Date any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto, and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an
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instrument in writing signed on behalf of such party. Delay in exercising any
right under this Agreement shall not constitute a waiver of such right.
ARTICLE XI
INDEMNIFICATION
11.1 Survival. The representations and warranties of Seller contained in
this Agreement, and any representation or warranty, statement or other
information contained in any Exhibit to this Agreement, the Seller Disclosure
Schedule, the TA Statement and any certificate, instrument or other report or
document delivered by Seller pursuant to this Agreement or in connection with
the transactions contemplated hereby (collectively, the "Acquisition
Documents"), shall not survive the Closing. Neither the period of non-survival
nor the Liability of Seller with respect to Seller's representations or
warranties, statements or other information contained in any of the Acquisition
Documents shall be increased by any investigation made at any time by or on
behalf of Purchaser, either before or after the Closing.
11.2 Indemnification. Purchaser shall indemnify and hold harmless Seller
and each other party to the Indemnification Agreement against all losses and
claims to the extent provided in the Indemnification Agreement.
ARTICLE XII
GENERAL PROVISIONS
12.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via facsimile (receipt confirmed) to the parties at
the following addresses or facsimile numbers (or at such other address or
facsimile numbers for a party as shall be specified by like notice):
(a) if to Purchaser (or the Sold Subsidiaries following the Closing),
to:
Suez Acquisition Company (Cayman) Limited
c/o Silver Lake Partners, L.P.
2725 Sand Hill Road
Building C, Suite 950
Menlo Park, California 94025
Attention: Dave Roux
Facsimile: 650-233-8125
Telephone: 650-233-8121
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
Attention: William E. Curbow, Esq.
Facsimile: 212-455-2502
Telephone: 212-455-2000
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and to:
TPG Partners III, L.P.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
Attention: Richard A. Ekleberry, Esq.
Facsimile: 817-871-4010
Telephone: 817-871-4000
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Paul J. Shim, Esq.
Facsimile: 212-225-3999
Telephone: 212-225-2000
and to:
VERITAS Software Corporation
1600 Plymouth Street
Mountain View, California 94043
Attention: General Counsel
Facsimile: 650-526-2581
Telephone: 650-335-8000
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
Attention: Michael A. Schwartz
Facsimile: 212-728-8111
Telephone: 212-728-8000
(b) if to Seller, SSHI (or the Sold Subsidiaries prior to the Closing),
to:
Seagate Technology, Inc.
920 Disc Drive
P.O. Box 66360
Scotts Valley, California 95067
Attention: General Counsel
Facsimile: 831-438-6675
Telephone: 831-439-5370
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry W. Sonsini, Esq.
Facsimile: 650-493-6811
Telephone: 650-493-9300
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and to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
One Market Street
Spear Tower, Suite 3300
San Francisco, California 94105
Attention: Michael J. Kennedy, Esq.
Facsimile: 415-947-2099
Telephone: 415-947-2000
12.2 Interpretation. When a reference is made in this Agreement to
Schedules or Exhibits, such reference shall be to a Schedule or Exhibit to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The table of contents and headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement or any term or provision hereof.
When reference is made herein to "the business of" an entity, such reference
shall be deemed to include the business of all direct and indirect Subsidiaries
of such entity.
12.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when each counterpart has been signed by each of the
parties and delivered to the other party, it being understood that all parties
need not sign the same counterpart.
12.4 Entire Agreement. This Agreement and the documents and instruments
and other agreements among the parties hereto as contemplated by or referred to
herein, including, without limitation, the Seller Disclosure Schedule and the
Purchaser Disclosure Schedule, (i) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, it being understood that the
Confidentiality Agreement shall continue in full force and effect until the
Closing and shall survive any termination of this Agreement; and (ii) are not
intended to confer upon any other person any rights or remedies hereunder,
except as set forth herein.
12.5 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
12.6 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and
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to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
12.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to conflicts
of law principles.
12.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any Law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
12.9 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder, in whole or in part, by operation
of law or otherwise, without the prior written approval of the other party
hereto; provided, however, that Purchaser shall have the right to assign any or
all of its rights to acquire the Shares is one or more designee (each, a
"Designee"); and provided, further, however, that no such assignment shall
release Purchaser from any of its Liabilities or obligations under this
Agreement. Subject to the preceding sentence, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
12.10 WAIVER OF JURY TRIAL. EACH OF SELLER AND PURCHASER HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF SELLER OR PURCHASER IN THE
NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
12.11 No Third Party Rights. Except as expressly set forth herein and as
provided in Section 6.10 hereof, this Agreement does not create any rights,
claims or benefits incurring to any person that is not a party hereto nor create
or establish any third party claim.
12.12 Attorneys' Fees. Should suit be brought to enforce or interpret any
party of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit and not as damages, reasonably attorneys' fees to
be fixed by the court, including, without limitation, costs, expenses and fees
on any appeal. The prevailing party will be entitled to recover its costs of
suit, regardless of whether such suit proceeds to final judgment.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their duly authorized respective officers, as of the date first
above written.
SUEZ ACQUISITION COMPANY
(CAYMAN) LIMITED
By:
--------------------------------------
Name:
Title:
SEAGATE TECHNOLOGY, INC.
By:
--------------------------------------
Name:
Title:
SEAGATE SOFTWARE HOLDINGS, INC.
By:
--------------------------------------
Name:
Title:
SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT
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ANNEX C
INDEMNIFICATION AGREEMENT
Indemnification Agreement, dated as of March 29, 2000, by and among VERITAS
Software Corporation, a Delaware corporation ("Veritas"), Seagate Technology,
Inc., a Delaware corporation ("Seagate"), Suez Acquisition Company (Cayman)
Limited, a limited company organized under the laws of the Cayman Islands
("SAC"), and each Person who executes a Joinder Agreement (as defined below)
pursuant to Section 4(f) hereof.
WHEREAS, Seagate has determined to sell to SAC (the "Stock Purchase") all
of the outstanding shares of capital stock of the Sold Subsidiaries (as defined
below) pursuant to a Stock Purchase Agreement (the "Stock Purchase Agreement")
between Seagate and SAC, dated as of the date hereof;
WHEREAS, Seagate, Veritas and Victory Merger Sub, Inc., a Delaware
corporation and a wholly owned subsidiary of Veritas ("Victory Sub"), have
previously entered into an Agreement and Plan of Merger and Reorganization (the
"Merger Agreement") dated as of the date hereof, providing for the merger of
Victory Sub with and into Seagate (the "Merger");
WHEREAS, consummation of the Stock Purchase is a condition precedent to the
consummation of the Merger;
WHEREAS, it is a condition precedent to the consummation of the Stock
Purchase and the Merger that this Indemnification Agreement shall be in full
force and effect; and
WHEREAS, the parties to this Agreement have determined that it is necessary
and desirable to set forth certain agreements that will govern various tax
matters, indemnity matters and other matters that may arise in connection with
the Stock Purchase and the Merger.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants contained in this Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
SECTION 1. Definitions. Capitalized terms used but not defined herein shall
have the meanings ascribed thereto in the Stock Purchase Agreement. The
following terms shall have the following definitions:
"Financing Agreements" means the documents, instruments and agreements
evidencing the Financing as the same may be amended, refinanced, replaced,
modified or supplemented from time to time.
"Loss" or "Losses" means any losses, claims, damages, deficiencies,
liabilities, costs obligations, fines, penalties and expenses of any nature
whatsoever (including reasonable expenses of investigation and reasonable
attorney's fees and disbursements).
"Material Adverse Effect" means a material adverse change in or effect
with respect to the business, results of operations, properties, financial
condition or prospects of SAC and its Subsidiaries, taken as a whole.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association or other business entity.
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"Pre-Purchase Tax Period" means any Tax Period ending on or before the
end of the date of the Stock Purchase.
"Pre-Purchase Taxes" shall mean (i) all liability for Taxes of Seagate
and the Retained Subsidiaries for Pre-Purchase Tax Periods and (ii) all
liability of Seagate and the Retained Subsidiaries for the Pre-Purchase
portion of Taxes of such companies attributable to any Straddle Period as
determined in accordance with Section 6(b) hereof, provided, however, that
Taxes in respect of any transactions as of the date hereof undertaken at
the written direction of Veritas shall be excluded.
"Retained Subsidiary" means any Subsidiary of Seagate that is not a
Sold Subsidiary.
"SAC Indemnitor" means SAC and each Person who executes a Joinder
Agreement pursuant to Section 4(f) hereof.
"Stock Purchase Date" shall mean the date of the Stock Purchase.
"Straddle Period" shall mean a taxable period of Seagate or a Retained
Subsidiary that begins before the Stock Purchase Date and ends after the
Stock Purchase Date.
"Tax" or "Taxes" means (i) any tax, governmental fee or other like
assessment or charge of any kind whatsoever (including, without limitation,
withholding on amounts paid to or by any Person), together with any
interest, penalty, addition to tax or additional amount imposed by any
governmental authority (a "Taxing Authority") responsible for the
imposition of any such tax (domestic or foreign), (ii) liability for the
payment of any amounts of the type described in clause (i) above as a
result of Seagate or any of its Subsidiaries, including the Sold
Subsidiaries, being a member prior to the Stock Purchase Date of an
affiliated, consolidated, combined or unitary group, or being a party to
any agreement or arrangement entered into prior to the Stock Purchase Date
as a result of which liability of Seagate or any of its Subsidiaries,
including the Sold Subsidiaries, to a Taxing Authority is determined or
taken into account with reference to the liability of any other person,
(iii) liability of Seagate or any of its Subsidiaries, including the Sold
Subsidiaries, for the payment of any amount as a result of being party to
any tax sharing agreement or arrangement entered into prior to the Stock
Purchase Date, or with respect to the payment of any amount of the type
described in clause (i) or (ii) above as a result of any express or implied
obligation arising prior to the Stock Purchase Date to indemnify any other
Person and (iv) liability of Seagate or any of its Subsidiaries, including
the Sold Subsidiaries, as a result of any express or implied obligation
arising prior to the Stock Purchase Date to pay any Taxes of any Person or
to "gross up" any Person for income received or deemed received as a result
of any other Person paying Tax Liabilities of such Person.
SECTION 2. Representations and Warranties of the SAC Indemnitors. The SAC
Indemnitors jointly and severally represent and warrant to Veritas as of the
date hereof, as of the Closing Date and as of the date of each Joinder Agreement
as follows, each of which such representations and warranties shall survive the
Closing Date:
(a) Organization and Authority of the SAC Indemnitors. Each of the SAC
Indemnitors is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
necessary corporate power and authority to enter into this Agreement, the
Stock Purchase Agreement and
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each Joinder Agreement to which it is a party, to carry out its obligations
hereunder and thereunder and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and the
Stock Purchase Agreement by SAC and each Joinder Agreement by each Person
who executes such Agreement, the performance by the SAC Indemnitors of
their respective obligations hereunder and thereunder and the consummation
by the SAC Indemnitors of the transactions contemplated hereby and thereby
have been duly authorized by all requisite corporate action on the part of
the SAC Indemnitors. This Agreement and the Stock Purchase Agreement have
been, and each Joinder Agreement will be, duly executed and delivered by
the SAC Indemnitor party thereto, and (assuming due authorization,
execution and delivery by each of the other respective parties thereto)
each of this Agreement, the Stock Purchase Agreement and each Joinder
Agreement constitutes or, when executed and delivered in accordance with
the terms hereof, will constitute a legal, valid and binding obligation of
the SAC Indemnitor Party thereto enforceable against the SAC Indemnitor
party thereto in accordance with its terms.
(b) No Conflict. The execution, delivery and performance of this
Agreement and the Stock Purchase Agreement by SAC and each Joinder
Agreement by each Person who executes such Agreement does not and will not
after giving effect to the transactions contemplated by the Stock Purchase
Agreement and the Financing (i) violate, conflict with or result in the
breach of any provision of the charter or by-laws (or similar
organizational documents) of any SAC Indemnitor, (ii) violate or conflict
with any provision of law, or any order, judgment or decree of any court or
other governmental or other regulatory authority applicable to any SAC
Indemnitor or (iii) violate, conflict with, result in any breach of,
constitute a default (or event which with the giving of notice or lapse of
time, or both, would constitute a default) under any material contract,
lease, loan agreement, mortgage, security agreement, trust indenture or
other agreement or instrument to which any SAC Indemnitor is a party or by
which any SAC Indemnitor is bound or to which any SAC Indemnitor's
properties or assets is subject or (iv) result in the creation of any lien,
charge or encumbrance of any kind whatsoever on any of the properties or
assets of any SAC Indemnitor.
(c) Consents and Approvals. The execution, delivery and performance of
this Agreement and the Stock Purchase Agreement by SAC and each Joinder
Agreement by each Person who executes such Agreement does not and will not
require any material consent, approval, authorization, waiver or other
order of, action by, filing with or notification to any governmental or
regulatory authority, domestic or foreign, except as will be made or
obtained prior to Closing by the SAC Indemnitor party thereto and remains
in full force and effect.
SECTION 3. Representations and Warranties of Veritas. Veritas represents
and warrants to SAC as of the date hereof and as of the Closing Date as follows,
each of which such representations and warranties shall survive the Closing
Date:
(a) Organization and Authority of Veritas. Veritas is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all necessary corporate power and
authority to enter into this Agreement and the Merger Agreement, to carry
out its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Merger Agreement by Veritas, the performance by
Veritas of its obligations hereunder and thereunder and the
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consummation by Veritas of the transactions contemplated hereby and thereby
have been duly authorized by all requisite corporate action on the part of
Veritas. This Agreement and the Merger Agreement have been duly executed
and delivered by Veritas, and (assuming due authorization, execution and
delivery by each of the other respective parties hereto and thereto) this
Agreement and the Merger Agreement constitute legal, valid and binding
obligations of Veritas enforceable against Veritas in accordance with their
terms.
(b) No Conflict. The execution, delivery and performance of this
Agreement and the Merger Agreement by Veritas does not and will not (i)
violate, conflict with or result in the breach of any provision of the
charter or by-laws of Veritas, (ii) violate or conflict with any provision
of law, or any order, judgment or decree of any court or other governmental
or other regulatory authority applicable to Veritas or (iii) violate,
conflict with, result in any breach of, constitute a default (or event
which with the giving of notice or lapse of time, or both, would constitute
a default) under any material contract, lease, loan agreement, mortgage,
security agreement, trust indenture or other agreement or instrument to
which Veritas is a party or by which Veritas is bound or to which any of
Veritas properties or assets is subject or (iv) result in the creation of
any lien, charge or encumbrance of any kind whatsoever on any of the
properties or assets of Veritas.
(c) Consents and Approvals. The execution, delivery and performance of
this Agreement and the Merger Agreement by Veritas does not and will not
require any material consent, approval, authorization, waiver or other
order of, action by, filing with or notification to any governmental or
regulatory authority, domestic or foreign, except as has been made or
obtained prior to Closing by Veritas and remains in full force and effect.
SECTION 4. Certain Covenants.
(a) Access to Books and Records of SAC; Financial Statements and
Reports. Upon the request of Veritas, SAC shall provide to representatives of
Veritas and its Affiliates reasonable access to its books and records and shall
cause its auditors to provide to the auditors of Veritas and its Affiliates
reasonable access to SAC's auditors' work papers. For as long as SAC is required
to do so, SAC shall provide Veritas with copies of any annual or quarterly
financial statements and reports that it is required to deliver to the lenders
providing senior financing in the Financing, and any requests for waivers of any
term or provisions in the Financing Documents, in each case, at the same times
provided for in the Financing Agreements. The provisions contained in this
Section 4(a) shall terminate and be of no further effect from and after the
fifth anniversary of the Stock Purchase Date.
(b) Retention of Documents. Subject to Section 6(f) hereof, each of the SAC
Indemnitors agrees that it will preserve all documentation relating to the
transactions contemplated by the Stock Purchase Agreement or this Agreement and
each of Veritas and Seagate agrees that it will preserve all documentation
relating to (i) Seagate, the Sold Subsidiaries, and the Retained Subsidiaries
for any Pre-Purchase Tax Period and any Straddle Period, and (ii) the Merger
Agreement, Designated Assets and Designated Liabilities (other than
documentation transferred to SAC pursuant to the terms of the Stock Purchase
Agreement), in each case to the extent required by applicable law or by such
party's document retention policies, whichever is longer, as in effect from time
to time. The provisions contained in this Section 4(b) shall terminate and be of
no further effect from and after the eighth anniversary of the Stock Purchase
Date.
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(c) Notice of Certain Events. SAC shall promptly, but in no event more than
five business days after receiving notification or obtaining knowledge thereof,
provide written notice to Veritas of any event which would have a Material
Adverse Effect or materially impair the ability of any SAC Indemnitor to perform
fully its obligations hereunder.
(d) Conduct of Business. Upon and after the Closing Date, SAC will
preserve, renew and keep in full force and effect its corporate existence and
take all reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business.
(e) Financing Agreements. Prior to the Closing, SAC shall furnish to
Veritas true and complete copies of the Financing Agreements and, promptly
following any amendments thereto, true and complete copies of such amendments.
The provisions contained in this Section 4(e) shall terminate and be of no
further effect from and after the fifth anniversary of the Stock Purchase Date.
(f) Joinder Agreements. On the Closing Date, SAC shall cause each of the
Sold Subsidiaries to execute and deliver to Veritas a Joinder Agreement in the
form of Annex I hereto (a "Joinder Agreement"). Thereafter, SAC shall cause any
Person that becomes a Subsidiary of SAC to, on the date such Person becomes a
Subsidiary of SAC, execute and deliver to Veritas a Joinder Agreement. Any
Person executing a Joinder Agreement shall, upon executing the same, deliver to
Veritas a certified copy of the charter and by-laws, or similar organizational
documents, of such Person together with resolutions of the Board of Directors
(or comparable governing body) of such Person approving the execution and
delivery of the Joinder Agreement.
SECTION 5. Indemnification. In addition to the obligations of the parties
contained in Section 6 hereof, from and after the Closing Date:
(a) Each of the SAC Indemnitors jointly and severally agrees to
indemnify, defend and hold harmless Veritas and Seagate and their
respective Affiliates including the Retained Subsidiaries (the "Veritas
Indemnitees") from and against any and all Losses as they are incurred or
suffered by any Veritas Indemnitee arising out of or in connection with or
related to (but only to the extent arising out of or in connection with or
related to):
(i) all Liabilities (other than Designated Liabilities and other
than in respect of Taxes, which are the subject of Section 6 hereof)
arising out of or related to (A) the ownership, operations or conduct by
Seagate and its predecessors or Affiliates (other than Veritas and its
Subsidiaries) of their respective businesses, properties, assets or
liabilities on or prior to the Closing Date, or (B) the ownership,
operations or conduct by SAC or any of its Subsidiaries of their
respective businesses, properties, assets or liabilities from and after
the Closing Date;
(ii) the enforcement by the Veritas Indemnitees of their respective
rights under this Agreement;
(iii) any breach by SAC of any agreement, obligation, covenant,
representation or warranty contained in this Agreement, the Stock
Purchase Agreement or any agreement or document entered into in
connection therewith or delivered pursuant thereto to which SAC is a
party.
(b) Veritas and Seagate agree to indemnify, defend and hold harmless
SAC and each of its Subsidiaries from and against any and all Losses, as
they are incurred or
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suffered by SAC or its Subsidiaries, arising out of or in connection with
or related to (but only to the extent arising out of or in connection with
or related to):
(i) all Designated Liabilities;
(ii) all Liabilities of or related to the ownership, operations or
conduct by Seagate or the Retained Subsidiaries of their respective
businesses, properties, assets or liabilities subsequent to the Closing
Date;
(iii) the enforcement by SAC and its Subsidiaries of their
respective rights under this Agreement; and
(iv) any breach by Veritas of any agreement, obligation, covenant,
representation or warranty contained in this Agreement, the Merger
Agreement or any agreement or document entered into in connection
therewith or delivered pursuant thereto to which Veritas is a party.
SECTION 6. Taxes.
From and after the Closing Date:
(a) Each of the SAC Indemnitors jointly and severally agrees to
indemnify and hold the Veritas Indemnitees harmless from all Losses (other
than Designated Liabilities) attributable to (i) Pre-Purchase Taxes of
Seagate and the Retained Subsidiaries, and (ii) Taxes, whenever arising, of
the Sold Subsidiaries or attributable to assets transferred to the Sold
Subsidiaries in connection with the Stock Purchase and the Merger;
provided, however, that the SAC Indemnitors shall not be obligated to
indemnify the Veritas Indemnitees for any Taxes attributable to, or arising
from, the transactions contemplated by the OD Documents (as defined in the
Stock Purchase Agreement), other than the Split and the sale of shares of
the capital stock of the Sold Subsidiaries (including any gain from any
Section 338(h)(10) election made with respect to such sale).
(b) For purposes of determining whether Taxes are Pre-Purchase Taxes
described in clause 6(a)(i) above, in the case of a Straddle Period of
Seagate or a Retained Subsidiary, the SAC Indemnitors shall be solely
responsible for all Taxes attributable to the portion of the period ending
on, and which includes, the Stock Purchase Date, and Veritas shall be
solely responsible for all Taxes attributable to the portion of the period
which begins after the Stock Purchase Date. For purposes hereof, the
portion of any Tax that is attributable to the portion of a Straddle Period
up to and including the Stock Purchase Date shall be (i) in the case of a
Tax that is not based on net income, gross income, sales or gross receipts
(including real property taxes), the total amount of such Tax for the
period in question multiplied by a fraction, the numerator of which is the
number of days in the Straddle Period up to and including the Stock
Purchase Date, and the denominator of which is the total number of days in
such Straddle Period, and (ii) in the case of a Tax that is based on any of
net income, gross income, sales or gross receipts, the Tax that would be
due with respect to the portion of the Straddle Period through and
including the Stock Purchase Date, if such portion of the Straddle Period
were a separate taxable period, except that exemptions, allowances,
deductions or credits that are calculated on an annual basis (such as the
deduction for depreciation or capital allowances) shall be apportioned on a
per diem basis.
The Veritas Indemnitees shall indemnify and hold harmless the SAC
Indemnitors from and against (i) any Taxes of Seagate for which the SAC
Indemnitors are
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not obligated to indemnify the Veritas Indemnitees under Section 6(a), and
(ii) any Taxes arising out of or attributable to the breach of any
representation or covenant contained in this Indemnification Agreement by
the Veritas Indemnitees.
With regard to any Loss for which indemnification is payable
hereunder, such payment shall be treated for federal, state, local and
foreign tax purposes as an adjustment to the Purchase Price in the Stock
Purchase Agreement, unless otherwise required under applicable law. The
amount of any such payment shall be net of any Tax on the Indemnified Party
arising from such payment and shall be adjusted to take into account any
net Tax benefit or net Tax detriment realized by the Indemnified Party that
arises from the occurrence of the Loss for which such payment was made;
provided that no payment shall be made by the SAC Indemnitors in respect of
any Taxes payable by any Veritas Indemnitee in respect of an
indemnification payment hereunder (the "Gross-Up Amount") except if and to
the extent that the aggregate cumulative taxable income of the Veritas
Indemnitees that would otherwise give rise to Gross-Up Amounts exceeds the
Available Loss Amount (as reduced from time to time to the extent used to
reduce Pre-Purchase Taxes). The "Available Loss Amount" shall mean an
amount determined by the Closing Date or as soon as practicable thereafter
by a Big Five accounting firm mutually selected by SAC and Veritas as being
equal to the best available estimate as of the date of determination of the
excess of (x) the aggregate losses of Seagate and its consolidated group
arising on or before the Stock Purchase Date or arising from the
transactions contemplated by the Stock Purchase Agreement or Merger
Agreement (but not taking into account any gain or income recognized in
respect of the Designated Assets in Parts A, B and C of Schedule II of the
Merger Agreement), including the exercise of options in connection with the
Merger or the Stock Purchase Agreement, over (y) the amount of such losses
as are estimated will be taken into account in determining the TRA Amount.
(c)(i) A draft of all Tax Returns relating to Seagate and the Retained
Subsidiaries which are to be filed after the Stock Purchase Date, but which
relate to a Pre-Purchase Tax Period or Straddle Period, including the
federal consolidated income Tax Return of the affiliated group of which
Seagate is the common parent for the period ending with the Merger, shall
be prepared by Ernst & Young or any other Big Five accounting firm (the
"Tax Return Preparer") chosen by SAC. Any such Tax Return shall be prepared
in a manner consistent with past practice and without a change of any
election or any accounting method. A copy of such draft shall be furnished
to Veritas at least 30 days prior to the due date for each such Tax Return
for review and comment. Veritas shall be entitled to suggest such revisions
to each such Tax Return as it, in its good faith belief, considers
appropriate to minimize the risk of an audit adjustment to such Tax Return,
which suggestions shall be considered in good faith by SAC. If Veritas
reasonably objects to any position taken in such draft Tax Return, Seagate
shall amend such draft Tax Return to reflect an alternative position
suggested by Veritas, unless Seagate provides Veritas with an opinion from
the Tax Return Preparer that there is substantial authority (within the
meaning of Section 6662 of the Code and applicable Treasury regulations) to
support the initial position. All other decisions regarding Tax Returns
shall be made by SAC. Veritas shall execute and file such Tax Returns as so
revised on a timely basis and shall pay the Taxes shown due on such Tax
Return. SAC will pay over to Veritas the amount of Taxes shown due at least
five days prior to the date such Tax Return is to be filed. SAC agrees that
it shall be responsible for the preparation and filing of all Tax Returns
of the Sold Subsidiaries and pay the Tax shown due thereon.
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(ii) The parties shall cooperate with each other in the preparation of
any Tax Return and the conduct of any audit or other proceeding, judicial
or administrative (collectively, a "Tax Proceeding"), involving Taxes of
Seagate, the Sold Subsidiaries and the Retained Subsidiaries. Veritas and
SAC, without charge, shall provide the requesting party with such
assistance and documents as may be reasonably requested by such party in
connection with the preparation of any return or the conduct of any audit
or other Tax Proceeding. Veritas and SAC agree to keep each other fully
informed of all matters relating to any Tax Return, or Tax Proceeding,
including without limitation any settlement negotiations in the event that
such Tax Proceeding may involve Taxes for which an indemnity obligation may
arise under this Section 6.
Notwithstanding anything else to the contrary in this Section 6, the
obligations of the SAC Indemnitors pursuant to this Section 6 shall be
calculated by assuming no election has been made pursuant to Section
172(b)(3) of the Code, Treasury Regulation section 1.1502-21(b)(3), or any
similar or successor provision, to waive the carryback of losses arising
from the exercise of options in connection to the Merger or the Stock
Purchase or any losses arising on or before the Stock Purchase Date and by
assuming that all losses, credits and other tax attributes are used in the
order provided under the applicable provisions of the Code and Treasury
Regulations.
(d)(i) If a claim in respect of Taxes (a "Tax Claim") is made or
threatened by any Taxing Authority that, if successful, could result in an
indemnity obligation under Section 6, Veritas shall promptly notify SAC,
stating the nature and basis of such claim and the amount thereof, to the
extent known. Failure to give such notice shall not relieve the SAC
Indemnitors from any liability that they may have on account of this
indemnification or otherwise, except to the extent that the SAC Indemnitors
are materially prejudiced in the defense of such claim thereby. SAC will
have the right, at its option, upon timely notice to Veritas, to assume at
its own expense control of any audit or other defense of such Tax Claim
with its own counsel, and by assuming such control will be deemed to have
acknowledged its indemnification liability for such claim. SAC's right to
control such a Tax Claim will be limited to issues in respect of which
amounts in dispute would be paid by the SAC Indemnitors or for which the
SAC Indemnitors would be liable pursuant to Section 6. Costs of such Tax
Claims are to be borne by the SAC Indemnitors unless the Tax Claim relates
to a Straddle Period.
(ii) In the case of any Tax Proceeding involving liability for Tax of
Seagate, a Retained Subsidiary or any Sold Subsidiary for which Seagate or
a Retained Subsidiary could be liable if such Tax were unpaid (without
regard to any indemnity obligation of SAC), (A) Veritas at its expense and
through counsel of its choosing, shall have the right to observe all
hearings, trials and other proceedings, attend all settlement and other
conferences and receive copies of all material briefs and submissions and
(B) notwithstanding the control rights granted to SAC in clause (i) above,
Veritas shall have the right to control the Tax Proceeding and make all
decisions in respect thereof in the case of any Tax proceeding involving
the liability for Tax of Seagate or the Retained Subsidiaries if Veritas
waives its right to obtain indemnity under this Section 6.
(e) If the parties disagree as to the amount of any payment to be made
under or on any other matter arising under this Section 6, the parties
shall attempt in good faith to resolve such dispute, and any agreed-upon
amount shall be paid to the appropriate party. If such dispute is not
resolved within 15 days following written
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notice from any party hereto to an other party hereto that a dispute
subject to this subsection (f) exists, then the parties shall jointly
retain an independent accounting firm to resolve the dispute. If and to the
extent that a dispute presents legal issues, the independent accounting
firm shall have authority to consult an independent law firm. The fees of
the independent accounting firm and the independent law firm shall be borne
by the party that does not substantially prevail in the dispute; the
independent accounting firm shall make a determination regarding liability
for expenses. The decision of such independent accounting firm and/or the
independent law firm shall be rendered within ten (10) days following final
submissions by the parties to such firm and shall be final and binding on
all parties; provided, however, that if there is a subsequent adjudication
or other determination of a fact or matter assumed, but not decided in the
decision of such accounting firm or law firm, the decision of such
accounting firm or law firm shall be appropriately adjusted and the parties
shall adjust the payments made accordingly. Following the decision of the
independent accounting firm and/or the independent law firm, the parties
shall each take or cause to be taken any action that is necessary or
appropriate to implement such decision of the independent accounting firm
and/or the independent law firm.
(f) Notwithstanding any other provision of this Agreement, Veritas, on
the one hand, and SAC, on the other hand, shall retain all Tax Returns,
schedules and workpapers, and all material records or other documents
relating thereto, until the later of (i) sixty (60) days following the
expiration of the statute of limitations (including extensions, waivers and
mitigations thereof) of the taxable years to which such Tax Returns and
other documents relate or (ii) one hundred twenty (120) days after the
delivery of notice to the other party to the effect that it shall dispose
of such Tax Returns or other documents, unless it is requested by such
party within one hundred twenty (120) days of delivery of such notice (with
which request it shall comply within thirty (30) days of receipt) that it
transfer such Tax Returns or other documents to such other party. Any
information obtained under this Section 6 shall be kept confidential,
except as may be otherwise necessary in connection with the filing of Tax
Returns or claims for refund or in conducting any audit or other
proceeding.
SECTION 7. Termination of Tax Sharing Agreement. All tax sharing or similar
agreements (if any) between Seagate and its Affiliates, on the one hand, and the
Sold Subsidiaries, on the other, are terminated as of the Closing Date without
any further liability to any party thereto and shall be of no further force and
effect. All claims for indemnification for Taxes between the parties shall be
made and resolved in accordance with the terms of this Agreement.
SECTION 8. [Reserved]
SECTION 9. Indemnification Procedure.
(a) Except as may be otherwise provided pursuant to Section 6 hereof, any
party entitled to indemnification hereunder (each, an "Indemnified Party")
shall, with respect to claims asserted against any such Indemnified Party by any
third party (a "Third-Party Claim"), give written notice to the party against
whom indemnification is sought (the "Indemnifying Party") of any liability which
might give rise to a claim for indemnity hereunder within thirty (30) days of
the receipt of any written claim or notice from any such third party, but no
later than twenty (20) days prior to the date any answer, responsive pleading or
other response may be due with respect thereto, and with respect to any other
matter for which any Indemnified Party may seek indemnification hereunder, the
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Indemnified Party shall give prompt written notice to the Indemnifying Party of
any liability which might give rise to a claim for indemnity; provided, however
that any failure to give such notice will not release the Indemnifying Party
from its obligations hereunder except to the extent that the rights of the
Indemnifying Party are materially prejudiced thereby.
(b) Except with respect to claims governed by Section 6 hereof which shall
be governed by the provisions thereof, the Indemnifying Party, upon receipt of
such notice, shall be entitled to participate in or, at the Indemnifying Party's
option, assume at its own expense the defense, appeal or settlement of such
Third-Party Claim with respect to which such indemnity has been invoked with
counsel of its own choosing (who shall be reasonably satisfactory to the
Indemnified Party); provided, however, that if the Indemnifying Party assumes
the defense, appeal or settlement of such Third-Party Claim, (i) the Indemnified
Party shall be entitled to employ one counsel to represent itself if an actual
conflict of interest exists in the opinion of counsel to the Indemnified Party
between the Indemnifying Party and the Indemnified Party in respect of such
Third-Party Claim and in that event and only in that event the reasonable fees
and expenses of such counsel shall be paid by the Indemnifying Party (it being
understood that all Indemnified Parties may employ not more than one counsel to
represent them at the expense of the Indemnifying Party) and (ii) the
Indemnified Party shall nevertheless be entitled to participate in (but not
direct) the defense thereof with counsel of its own choice and, subject to
clause (i) above, at its own expense. Any Indemnified Party is hereby authorized
prior to the date on which it receives written notice from the Indemnifying
Party that it intends to assume the defense, appeal or settlement of such
Third-Party Claim, to file any motion, answer or other pleading and take such
other action which it shall reasonably deem necessary to protect its interest or
that of the Indemnifying Party until the date on which the Indemnified Party
receives such notice from the Indemnifying Party.
(c) No claim or demand may be settled by the Indemnified Party without the
consent of the Indemnifying Party, which consent shall not be unreasonably
delayed or withheld. Unless the claim or demand seeks only dollar damages (all
of which are to be paid by the Indemnifying Party), no such claim or demand may
be settled by the Indemnifying Party without the consent of the Indemnified
Party, which consent shall not be unreasonably delayed or withheld.
(d) The parties agree to cooperate in defending such Third-Party Claims and
the Indemnified Party shall provide such cooperation and such access to its
books, records and properties as the Indemnifying Party may reasonably request
with respect to any matter for which indemnification is sought hereunder, and
the parties hereto agree to cooperate with each other in order to insure the
proper and adequate defense thereof.
(e) With regard to Third-Party Claims for which indemnification is payable
hereunder, indemnification shall be paid by the Indemnifying Party within five
(5) business days following the earlier to occur of:
(i) entry of a final non-appealable judgment by a court of competent
jurisdiction or arbitration panel against an Indemnified Party which has
not been stayed pending appeal; or
(ii) a settlement of the claim, in accordance with the terms of such
settlement.
With regard to any claim for Taxes subject to Section 6 hereof,
indemnification shall be paid by the SAC Indemnitees within five (5) business
days following receipt by SAC
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of written notice from Veritas stating that any amount subject to
indemnification under such Section 6 has been paid by Veritas and the amount
thereof and the indemnity payment requested.
With regard to any other claim for which indemnification is payable
hereunder, indemnification shall be paid promptly by the Indemnifying Party upon
demand by the Indemnified Party but in any event within thirty (30) business
days following any such demand, provided that any such demand shall include a
reasonably detailed description of the claims giving rise to such demand.
(f) The Indemnifying Parties agree to reimburse the Indemnified Parties for
any indemnifiable Losses under the provisions of this Agreement as such Losses
are incurred, provided, however, that if it is finally determined that any
Indemnified Party was not entitled to any amount paid as indemnity with respect
to such Losses, such Indemnified Party shall promptly refund all amounts to
which such Indemnified Party was not entitled to the Indemnifying Parties that
paid such amounts.
SECTION 10. No Contribution. The Indemnifying Parties shall not be entitled
to seek or obtain any contribution, reimbursement or other participation, direct
or indirect, from any Indemnified Party in respect of any payment made or to be
made by any Indemnifying Party hereunder or arising out of this Agreement,
notwithstanding the fact that the Loss for which any Indemnifying Party is
liable results from or is contributed to by any breach by any Indemnified Party
or any misrepresentation by any Indemnified Party contained in the Merger
Agreement, the Stock Purchase Agreement, this Agreement or any agreement,
document, instrument or schedule referred to herein or therein or contemplated
hereby or thereby.
SECTION 11. Validity. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect;
provided, however that if any mutual covenant contained herein is declared
invalid or unenforceable with respect to Veritas and its Affiliates (including
Seagate and any Retained Subsidiary following the Closing), on the one hand, or
SAC and its Affiliates, on the other hand, by any court of competent
jurisdiction or governmental authority, such mutual covenant shall become
invalid or unenforceable with respect to the opposite group to such covenant and
provided further, that this Section 11 shall not be construed to affect any
other rights of any party hereto under applicable principles of contract law,
including without limitation the principles of failure of consideration and
mutual dependency.
SECTION 12. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by verified telecopy, by expedited delivery
service (such as Federal Express) or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties as follows:
(i) if to Veritas (and, after Closing, Seagate), to:
VERITAS Software Corporation
1600 Plymouth Street
Mountain View, California 94043
Attention: General Counsel
Facsimile: 650-526-2581
Telephone: 650-335-8000
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with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019
Attention: Michael A. Schwartz, Esq.
Facsimile: 212-728-8111
Telephone: 212-728-8000
(ii) if to Seagate (prior to Closing), to:
Seagate Technology, Inc.
920 Disc Drive
P.O. Box 66360
Scotts Valley, California 95067
Attention: General Counsel
Facsimile: 831-438-6675
Telephone: 831-439-5370
with a copy to:
Wilson Sonsini Goodrich & Rosatti
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry W. Sonsini, Esq.
and to:
Wilson Sonsini Goodrich & Rosatti
Professional Corporation
One Market Street
Spear Tower, Suite 3300
San Francisco, California 94105
Attention: Michael J. Kennedy, Esq.
Facsimile: 415-947-2099
Telephone: 415-947-2000
(iii) if to SAC, to:
Suez Acquisition Company (Cayman) Limited
c/o Silver Lake Partners, L.P.
2725 Sand Hill Road
Building C, Suite 950
Attention: Dave Roux
Facsimile: 650-2338125
Telephone: 650-233-8121
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
Attention: William Curbow, Esq.
Facsimile: 212-455-2502
Telephone: 212-455-2000
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and to:
TPG Partners III, L.P.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
Attention: Richard A. Ekleberry, Esq.
Facsimile: 817-871-4010
Telephone: 817-871-4000
with a copy to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Paul J. Shim, Esq.
Facsimile: 212-225-3999
Telephone: 212-225-2000
Such notice shall be effective on the day following receipt of delivery in
person, by verified telecopy or by expedited delivery service and shall be
effective four days after mailing in accordance with the foregoing. The person
to whom notice is to be given, and any address, may be changed from time to time
in the manner set forth above (provided that any such change shall be effective
only upon receipt thereof).
SECTION 13. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof. Venue for any legal action under this Agreement shall be in the
federal or state courts located in the State and County of New York, All parties
hereunder hereto hereby submit themselves to the jurisdiction of such courts for
the purpose of this Agreement and hereby waive trial by jury in any action,
counterclaim or proceeding of any kind arising under or out of or in connection
with this Agreement, the negotiations leading thereto, the inducements to the
parties to enter into this Agreement and to the transactions it contemplates.
SECTION 14. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 15. Parties-in-Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights,
benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 16. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original, but both of which
shall constitute one and the same agreement, provided that at least one
counterpart is executed by each party herein named.
SECTION 17. Successors. All agreements of the parties in this Agreement
shall bind their respective successors, provided that upon written request by
SAC following the sale of any of its Subsidiaries to an unaffiliated third
party, Veritas shall execute and deliver a release of such Subsidiary of its
obligations hereunder.
SECTION 18. Assignment. This Agreement is not assignable by either party
hereto without the prior written consent of the other party hereto.
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
day and year first above mentioned.
VERITAS SOFTWARE CORPORATION
By:
Its:
SEAGATE TECHNOLOGY, INC.
By:
Its:
SUEZ ACQUISITION COMPANY (CAYMAN)
LIMITED
By:
Its:
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ANNEX D
EXCLUSIVITY AGREEMENT
SUEZ ACQUISITION COMPANY (CAYMAN) LIMITED
C/O SILVER LAKE PARTNERS, L.P.
March 29, 2000
VERITAS Software Corporation
1600 Plymouth Street
Mountain View, California 94043
Ladies and Gentlemen:
This letter sets forth our agreement with respect to certain matters
related to (i) the Stock Purchase Agreement between Suez Acquisition Company
(Cayman) Limited ("SAC") and Seagate Technology, Inc. (the "Company") dated as
of the date hereof (the "Stock Purchase Agreement") and (ii) the Agreement and
Plan of Merger among VERITAS Software Corporation ("VERITAS"), Victory
Acquisition Sub, Inc. and the Company dated as of the date hereof (the "Merger
Agreement").
1. No-Shop. Prior to termination of the Stock Purchase Agreement in
accordance with its terms, VERITAS shall not (directly or indirectly
through subsidiaries or otherwise), and shall direct its officers,
directors, affiliates or employees or any investment banker, attorney or
other advisor or representative retained by any of them not to, directly or
indirectly, (i) solicit, initiate, encourage or induce the making,
submission or announcement of any Seller Acquisition Proposal (as defined
in the Stock Purchase Agreement), (ii) participate in any discussions,
negotiations or other communications with any person regarding, or furnish
to any person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes or
may reasonably be expected to lead to, any Seller Acquisition Proposal,
(iii) approve, endorse or recommend any Seller Acquisition Proposal, or
(iv) enter into any letter of intent, contract, agreement, understanding or
commitment contemplating or otherwise relating to any Seller Acquisition
Transaction. VERITAS shall notify SAC promptly after receiving any inquiry
or other communication regarding any Seller Acquisition Proposal.
2. Alternative Transaction Fee. In the event that: (i) the Stock
Purchase Agreement is terminated pursuant to Sections 10.1(g) or (h), (ii)
in the case of a termination by SAC of the Stock Purchase Agreement, SAC
shall not be in breach of any of its representations and warranties,
covenants or agreements under the Stock Purchase Agreement such that the
Company would not then be required to consummate the transactions
contemplated by the Stock Purchase Agreement and (iii) within 90 days of
the date of such termination, VERITAS enters into any agreement or
agreements with respect to a Seller Acquisition Transaction, VERITAS shall,
prior to entering into any such agreement or agreements, pay to SAC (or its
designees), $50 million in immediately available funds.
3. Governing Law. This letter agreement will be governed by and
construed and interpreted in accordance with the laws of the State of New
York.
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4. Counterparts. This letter agreement may be executed in separate
counterparts, each of which shall constitute an original and all of which,
taken together, shall constitute one and the same instrument.
5. Assignment. The rights and obligations of each party hereto may not
be assigned to any other party (by operation of law or otherwise) without
the written consent of the other party hereto.
6. Specific Performance. In view of the uniqueness of the agreements
contained in this letter agreement and the transactions contemplated hereby
and the fact that the parties hereto would not have an adequate remedy at
law for money damages in the event that any obligation under this letter
agreement is not performed in accordance with its terms, each of the
parties hereto therefore agrees that each party hereto shall be entitled to
specific enforcement of the terms of this letter agreement in addition to
any other remedy to which such party may be entitled, at law or in equity.
Very truly yours,
SUEZ ACQUISITION COMPANY (CAYMAN)
LIMITED
By:
-----------------------------------
Name:
Title:
Accepted and Agreed as of
the date first written above:
VERITAS SOFTWARE CORPORATION
By:
----------------------------------
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ANNEX E
OPINION OF MORGAN STANLEY & CO. INCORPORATED
(FINANCIAL ADVISOR TO SEAGATE)
March 29, 2000
Board of Directors
Seagate Technology, Inc.
920 Disc Drive
Scotts Valley, CA 95066
Members of the Board:
We understand that Seagate Technology, Inc. ("Seagate" or the "Company"),
VERITAS Software Corporation ("VERITAS") and a wholly-owned subsidiary of
VERITAS have entered into an Agreement and Plan of Merger and Reorganization,
dated as of March 29, 2000 (the "Merger Agreement"), which provides, among other
things, for the merger (the "Merger") of a wholly owned subsidiary of VERITAS
with and into Seagate. We also understand that Seagate, Seagate Software
Holdings, Inc. and Suez Acquisition Company (Cayman) Limited (the "Buyer"), in
connection with the signing of the Merger Agreement and concurrently therewith,
have entered into a Stock Purchase Agreement, dated as of March 29, 2000 (the
"Stock Purchase Agreement"), which provides, among other things, for the
purchase and assumption by the Buyer of all the assets and liabilities of
Seagate other than certain assets and liabilities designated therein (the "Stock
Purchase Transactions"). The closing of the Merger is expressly conditioned
upon, and will occur immediately following, the closing of the Stock Purchase
Transactions. Pursuant to the Merger, each outstanding share of common stock,
par value $0.01 per share, of Seagate (the "Seagate Common Stock"), other than
shares held in treasury or held by VERITAS or any direct or indirect
wholly-owned subsidiary of VERITAS or Seagate or as to which appraisal rights
have been perfected, will be converted into the right to receive (i) that number
of shares of VERITAS common stock, par value $0.001 per share (the "VERITAS
Common Stock"), as set forth in the Merger Agreement (the "Stock Portion"), (ii)
an amount in cash based upon, among other things, the amount of cash held by
Seagate immediately prior to the effective time of the Merger (taking into
account the net amounts received in connection with the Stock Purchase
Transactions), subject to adjustment, as set forth in the Merger Agreement (the
"Cash Portion"), and (iii) an additional amount in cash based upon certain tax
refunds or credits attributable to Seagate for any taxable periods prior to the
effective time of the Merger, if any, received by VERITAS following the closing
of the Merger, as set forth in the Merger Agreement (the "TRA Amount"). The
Stock Portion, the Cash Portion and the TRA Amount are referred to herein,
collectively, as the "Merger Consideration". The terms and conditions of the
Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Merger Consideration to be
received by the holders of the Seagate Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information concerning Seagate;
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(ii) reviewed certain publicly available financial statements and
other information concerning VERITAS;
(iii) reviewed certain internal financial statements and other
financial and operating data concerning Seagate prepared by the management
of Seagate;
(iv) reviewed certain financial projections prepared by the management
of Seagate;
(v) discussed with senior executives of Seagate the past and current
operations and financial condition and the prospects of Seagate;
(vi) discussed with senior executives of VERITAS the past and current
operations and financial condition and the prospects of VERITAS, including
a review of publicly available projections of certain equity research
analyst estimates;
(vii) reviewed the reported prices and trading activity for the
Seagate Common Stock, for the VERITAS Common Stock and those for publicly
traded securities of certain other companies whose shares are owned by
Seagate, including SanDisk Corp., CVC, Inc. and Gadzoox Networks, Inc.;
(viii) reviewed the pro forma impact of the Merger on the earnings per
share of VERITAS;
(ix) analyzed alternative transaction structures involving some or all
of the assets of Seagate;
(x) participated in certain discussions and negotiations among
representatives of Seagate, VERITAS and the Buyer;
(xi) reviewed the Merger Agreement, and certain related documents,
including the Stock Purchase Agreement; and
(xii) performed such other analyses and considered such other factors
as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion, including the information prepared by the management of Seagate as
to the computation and timing of the TRA Amount and other tax related items.
Other than as set forth in clause (vi) above, in connection with the preparation
of this opinion, we were not provided access to any non-public information
prepared by or relating to VERITAS, and have instead relied on the publicly
available projections of certain equity research analyst estimates reporting on
VERITAS. With respect to the financial projections, we have assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the future financial performance of Seagate. We have
not made and have not assumed responsibility for making any independent
valuation or appraisal of the assets or liabilities of Seagate or VERITAS, nor
have we been furnished with any such appraisals.
We have assumed with your consent that the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement and will be treated
as a tax-free reorganization pursuant to the Internal Revenue Code of 1986, as
amended. We have also assumed that the Stock Purchase Transactions will be
consummated in accordance with the terms set forth in the Stock Purchase
Agreement. Our opinion is necessarily based on financial, economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
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We have acted as financial advisor to the Board of Directors of Seagate in
connection with the Merger and will receive a fee for our services, a
significant portion of which is contingent on the consummation of the Merger. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Seagate and financing services for
VERITAS and have received fees for the rendering of these services. In the
ordinary course of business, Morgan Stanley may from time to time trade in the
securities or indebtedness of Seagate and VERITAS for its own account, the
accounts of investment funds and other clients under the management of Morgan
Stanley and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities or indebtedness.
It is understood that this letter is for the information of the Board of
Directors of Seagate and may not be used for any purpose without our prior
written consent, except that this opinion may be included in its entirety in any
filing made by Seagate with the Securities and Exchange Commission in respect of
the Merger. This opinion does not in any manner address the prices at which the
Seagate Common Stock or the VERITAS Common Stock will trade at any time, and we
express no opinion or recommendation as to how holders of Seagate Common Stock
should vote at the meeting of Seagate stockholders to be held in connection with
the Merger.
Based on and subject to the foregoing, we are of the opinion that, on the
date hereof, the Merger Consideration to be received by the holders of the
Seagate Common Stock pursuant to the Merger Agreement is fair from a financial
point of view to such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ CHARLES R. CORY
-----------------------------------
Charles R. Cory
Managing Director
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ANNEX F
OPINION OF CREDIT SUISSE FIRST BOSTON CORPORATION
(FINANCIAL ADVISOR TO VERITAS)
March 29, 2000
Board of Directors
VERITAS Software Corporation
1600 Plymouth Street
Mountain View, California 94043
Ladies and Gentlemen:
You have asked us to advise you with respect to the fairness to VERITAS
Software Corporation, a Delaware corporation (the "Acquiror"), from a financial
point of view of consideration to be paid by the Acquiror pursuant to the terms
of the Agreement and Plan of Merger and Reorganization, dated as of March 29,
2000 (the "Merger Agreement"), by and among Seagate Technology, Inc., a Delaware
corporation (the "Company"), the Acquiror and Victory Merger Sub, Inc., a
Delaware corporation and wholly owned subsidiary of the Acquiror (the "Sub").
The Merger Agreement provides for the merger (the "Merger") of the Sub with and
into the Company, pursuant to which each outstanding share of common stock, par
value $0.01 per share, of the Company ("Company Common Stock") will be converted
into the right to receive (i) the number of shares of common stock, par value
$0.001 per share ("Acquiror Common Stock"), of the Acquiror determined in
accordance with the Merger Agreement (the "Stock Portion Exchange Ratio") and
(ii) the amount of cash determined in accordance with the Merger Agreement. As
set forth more specifically in the Merger Agreement, the Stock Portion Exchange
Ratio will be calculated by dividing the aggregate number of shares of Acquiror
Common Stock to be issued in the Merger (as determined in accordance with the
Merger Agreement) by the aggregate number of shares of Company Common Stock
outstanding at the effective time of the Merger (after giving effect to the
treatment of options to purchase Company Common Stock set forth in the Merger
Agreement).
In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to the Company and the Acquiror, as
well as the Merger Agreement and the Stock Purchase Agreement, dated as of March
29, 2000 (the "Stock Purchase Agreement"), by and among Suez Acquisition Company
(Cayman) Limited, a limited company organized under the laws of the Cayman
Islands ("SAC"), the Company and Seagate Software Holdings, Inc., a Delaware
corporation. We have also reviewed certain other information provided to us or
discussed with us by the Acquiror and have met with the management of the
Acquiror and SAC and advisors to the Acquiror and SAC to discuss the business
and prospects of the Acquiror and the Company. We have also considered certain
financial and stock market data of the Company and the Acquiror, and we have
considered the pro forma effect of the Merger on the Acquiror. We also
considered such other information, financial studies, analyses and
investigations and financial, economic and market criteria which we deemed
relevant.
In connection with our review, we have not assumed any responsibility for
independent verification of any of the foregoing information and have relied on
its being complete and accurate in all material respects. With respect to
financial forecasts for the Company and the Acquiror, we have reviewed and
discussed with the management of the Acquiror publicly available financial
forecasts relating to the Company and the Acquiror
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and have assumed that such forecasts represent reasonable estimates and
judgments as to the future financial performance of the Company and the
Acquiror, respectively. You also have informed us, and we have assumed, that the
Merger will be treated as a tax-free reorganization for federal income tax
purposes. In addition, we have not been requested to make, and have not made, an
independent evaluation or appraisal of the assets or liabilities (absolute,
accrued, contingent or otherwise) of the Company, nor have we been furnished
with any such evaluations or appraisals. Our opinion is necessarily based upon
financial, economic, market and other conditions as they exist and can be
evaluated on the date hereof. We are not expressing any opinion as to the actual
value of the shares of Acquiror Common Stock when issued to the Company's
stockholders pursuant to the Merger or the prices at which shares of Acquiror
Common Stock will trade subsequent to Merger.
We have acted as financial advisor to the Acquiror in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger. We will also receive a fee
for rendering this opinion.
In the past, we have performed certain investment banking services for the
Acquiror and have received customary fees for such services.
In the ordinary course of our business, we and our affiliates may actively
trade the debt and equity securities of both the Company and the Acquiror for
our and such affiliates' own accounts and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Board of
Directors of the Acquiror in connection with its consideration of the Merger and
is not to be quoted or referred to, in whole or in part, in any registration
statement, prospectus or proxy statement, or in any other document used in
connection with the offering or sale of securities, nor shall this letter be
used for any other purposes, without our prior written consent.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Stock Portion Exchange Ratio is fair to the Acquiror from a
financial point of view.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
By: /s/ GEORGE F. BOUTROS
-----------------------------------
George F. Boutros
Managing Director
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ANNEX G
DELAWARE GENERAL CORPORATION LAW SECTION 262
(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 sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's 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 sec. 251 (other than a merger effected pursuant to
sec. 251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec. 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 stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 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
sec.sec. 251, 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 in
respect thereof) 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;
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c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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 sec. 253 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 subsection (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 such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's 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 such stockholder's
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 sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within 10 days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of
the merger or
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consolidation, shall, also notify such stockholders of the effective date
of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice, demand
in writing from the surviving or resulting corporation the appraisal of
such holder's 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 such holder's
shares. If such notice did not notify stockholders of the effective date of
the merger or consolidation, either (i) each such constituent corporation
shall send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of
the effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders
on or within 10 days after such effective date; provided, however, that if
such second notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such
holder's shares in accordance with this subsection. An affidavit of the
secretary or assistant secretary or of the transfer agent of the
corporation that is required to give either notice that such notice has
been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled
to receive either notice, each constituent corporation may fix, in advance,
a record date that shall be not more than 10 days prior to the date the
notice is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(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 such stockholder's 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 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 such stockholder's 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
3-G
<PAGE> 452
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
least 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. In determining the fair rate
of interest, the Court may consider 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
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder 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 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 appraisal rights as provided in subsection (d) of
this section shall be
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<PAGE> 453
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 such stockholder's 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.
(8 Del. C. 1953, sec. 262; 56 Del. Laws, c. 50; 56 Del. Laws, c. 186, sec. 24;
57 Del. Laws, c. 148, sec.sec. 27-29; 59 Del. Laws, c. 106, sec. 12; 60 Del.
Laws, c. 371, sec.sec. 3-12; 63 Del. Laws, c. 25, sec. 14; 63 Del. Laws, c. 152,
sec.sec. 1, 2; 64 Del. Laws, c. 112, sec.sec. 46-54; 66 Del. Laws, c. 136,
sec.sec. 30-32; 66 Del. Laws, c. 352, sec. 9; 67 Del. Laws, c. 376, sec.sec. 19,
20; 68 Del. Laws, c. 337, sec.sec. 3, 4; 69 Del. Laws, c. 61, sec. 10; 69 Del.
Laws, c. 262, sec.sec. 1-9; 70 Del. Laws, c. 79, sec. 16; 70 Del. Laws, c. 186,
sec. 1; 70 Del. Laws, c. 299, sec.sec. 2, 3; 70 Del. Laws, c. 349, sec. 22; 71
Del. Laws, c. 120, sec. 15; 71 Del. Laws, c. 339, sec.sec. 49-52.)
5-G
<PAGE> 1
PROJECT SPACE
================================================================================
BOARD DISCUSSION MATERIALS
MARCH 22, 2000
- --------------------------------------------------------------------------------
<PAGE> 2
================================================================================
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SECTION 1 Executive Summary
SECTION 2 Valuation Analysis
SECTION 3 Alternative Transaction Structures
SECTION 4 Operating Business Valuation
SECTION 5 Venus Overview
SECTION 6 Appendix
<PAGE> 3
================================================================================
SECTION 1
================================================================================
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
<PAGE> 4
================================================================================
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
o STAR'S BOARD IS REVIEWING AN INTEGRATED MERGER PROPOSAL FROM VENUS AND A
FINANCIAL BUYER GROUP
o UNDER THIS PROPOSAL, STAR WOULD MERGE INTO VENUS, WITH THE CONDITION THAT
STAR'S OPERATING BUSINESSES ARE SOLD TO THE FINANCIAL BUYER GROUP PRIOR TO
CLOSING OF THE MERGER
- Star shareholders would receive Venus shares, and the cash received from
the Financial Buyer Group would be passed through as merger
consideration
- Indicated value of approximately $76.07 per share (0.468 shares of Venus
and $6.52 of cash), based on current prices
- Prior to the closing of the merger, the Financial Buyer Group would
acquire operating assets (with $800 million of working capital cash) for
$2.0 billion and to assume golden parachute liabilities up to $100
million
- Venus would receive Star's 128.1 million Venus shares for 109.3 million
Venus shares plus Venus would issue additional Venus shares for certain
Star investments, valued at their after tax value and specified
liquidity discounts for a total number of shares of approx. 112.5
million; Venus may also elect to deliver an additional $500 million of
stock in exchange for additional cash being retained for Venus's benefit
o PROPOSED STRUCTURE APPEARS ATTRACTIVE RELATIVE TO ALTERNATIVE TRANSACTION
STRUCTURES
- Significant premium versus most status quo outcomes
- Venus shares received directly by Star shareholders in a tax-efficient
manner
- No uncertainty regarding future trading valuation of drives business
- Eliminates uncertainty related to trading value of "HoldCo" structure
- Can be executed relatively near-term
2
<PAGE> 5
================================================================================
EXECUTIVE SUMMARY
================================================================================
TRANSACTION SUMMARY
- --------------------------------------------------------------------------------
MAJOR TRANSACTION TERMS
- --------------------------------------------------------------------------------
VENUS MERGER:
o At closing of the merger with Venus, Star will hold securities and cash:
- all Venus shares currently held by Star (128.1 million shares post
split)
- other investments (SanDisk, Gadzoox, CVC, Dragon)
- $500 million cash, at Venus' option (decided at closing)
o Venus will issue shares to Star Shareholders (the "Stock Consideration"):
- 109.3 million Venus shares (14.6257% nominal discount to underlying
shares; 10.3044% effective discount)
- Additional Venus shares for securities, valued at after-tax values at
specified liquidity discounts(1) (approx. 3.2 million shares based on
current prices)
- Additional shares for $500 million of cash (approx. 3.4 million shares
based on current prices)
- Actual shares for investments/cash to be determined at closing
- --------------------------------------------------------------------------------
FINANCIAL BUYER ACQUISITION:
o Prior to closing of the merger, the Financial Buyer Group will purchase
Star's operating businesses:
- Operating Assets: Disc Drives, Software, Tape, XIOtech
- $800 million cash, working capital (assumed at [] million)
o Consideration Paid:
- $2.0 billion
- assumption of excess parachute payment liability up to $100 million
- working capital adjustment to reflect excess/deficit of working capital
at closing
- --------------------------------------------------------------------------------
OTHER CASH:
o Venus will distribute net excess cash to Star shareholders in the merger
(the "Cash Consideration") (approx. $1.6 billion, or $6.52 per share)
- excess cash
- tax liability / refund
- debt
- options adjustments
- --------------------------------------------------------------------------------
INDICATED VALUE TO BE RECEIVED BY STAR SHAREHOLDERS:
o Per share: $76.07 (as of 3/21/00)
- 0.468 Venus shares
- $6.52 cash
- --------------------------------------------------------------------------------
Note:
1. Discount is 20% for SanDisk and 40% for other investments.
3
<PAGE> 6
================================================================================
EXECUTIVE SUMMARY
================================================================================
OTHER TRANSACTION TERMS
- --------------------------------------------------------------------------------
ADDITIONAL TRANSACTION TERMS
ACCOUNTING TREATMENT:
Purchase Accounting for both transactions
TAX TREATMENT:
- - Stock portion of merger consideration tax-free to Star shareholders; cash
portion taxable
- - Sale of operating business: taxable transaction to Star
RESTRICTED STOCK:
vesting TBD
OPTIONS TREATMENT:
[$200 million] of in-the-money amount to be rolled into new operating company;
remainder to be accelerated
TREATMENT OF DEBT:
Debt to be defeased or retired prior to Closing
FINANCING COMMITMENT:
Signed commitment letters submitted by Financial Buyer Group
INDEMNIFICATION:
Financial Buyer Group to indemnify Venus against all tax and other liabilities
not relating to the Venus shares
REPRESENTATIONS AND WARRANTIES:
Customary public company representations and warranties
CLOSING CONDITIONS:
Star shareholder vote; regulatory approval; cross-conditioned
4
<PAGE> 7
- - THREE STEP TRANSACTION:
- OPERATING BUSINESS IS SOLD TO FINANCIAL BUYER GROUP
- DEBT IS RETIRED AND OPTIONS ARE EXERCISED
- VENUS MERGES WITH REMAINING STAR FOR STOCK AND CASH
- - VENUS MAY ALSO ELECT TO ISSUE ADDITIONAL STOCK FOR $500 MILLION OF CASH
================================================================================
EXECUTIVE SUMMARY
================================================================================
ANALYSIS OF ASSETS ACQUIRED
- --------------------------------------------------------------------------------
[FLOW CHART]
Notes:
1. Assumes Venus elects to issue shares for $500 million of cash.
2. Includes XIOtech and telecoms business.
5
<PAGE> 8
- - THE INDICATED VALUE OF THE PROPOSAL IS APPROXIMATELY $76 / SHARE, BASED ON
CURRENT PRICES
================================================================================
EXECUTIVE SUMMARY
================================================================================
SUMMARY OF MERGER CONSIDERATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VENUS ISSUES SHARES FOR $500MM OF CASH VENUS ISSUES NO SHARES FOR CASH
-------------------------------------------- -------------------------------------------
VENUS VALUE VENUS VALUE
SHARES TOTAL PER STAR SHARES TOTAL PER STAR
ISSUED VALUE(1) SHARE(2) ISSUED VALUE(1) SHARE(2)
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Buyer Purchase Price $ 2,000.0 $ 2,000.0
Less: Cash Retained by Venus ($ 500.0) $ 0.0
Plus: Net Excess Cash $ 113.4 $ 113.4
--------- --------- --------- ---------
Cash Consideration $ 1,613.4 $ 6.52 $ 2,113.4 $ 8.54
Venus Shares 109.33 $16,242.4 109.33 $16,242.4
Investments 3.16 $ 469.6 3.16 $ 469.6
Retained Venus Cash 3.37 $ 500.0 0.00 $ 0.0
--------- --------- --------- --------- --------- ---------
Stock Consideration 115.86 $17,212.0 $ 69.55 112.49 $16,712.0 $ 67.53
- -----------------------------------------------------------------------------------------------------------------------------------
Total $18,825.4 $ 76.07 $18,825.4 $ 76.07
===================================================================================================================================
</TABLE>
Notes:
(1) Reflects Venus closing price of $148.56 as of 3/21/00.
(2) Reflects total net shares in merger of 247.5MM.
6
<PAGE> 9
================================================================================
EXECUTIVE SUMMARY
================================================================================
REALIZED VALUE FOR STAR SHAREHOLDERS
($MM, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Premium to Star(5)
VALUE PER STAR SHARE -----------------------------------
PREMIUM / ---------------------------------- 3/8/2000 10-DAY AVG 30-DAY AVG
PRO FORMA (DISCOUNT) VENUS -------- ---------- ----------
VENUS PRICE VENUS PRICE TO CURRENT STOCK(1)(2) CASH(3) TOTAL(4) $54.50 $51.27 $46.53
- ------------- ----------- ---------- ----------- ------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$100.00 (33%) $ 49.19 $ 5.45 $ 54.64 0% 7% 17%
60 Day Avg. $104.57 (30%) $ 51.10 $ 5.55 $ 56.65 4% 10% 22%
$110.00 (26%) $ 53.38 $ 5.66 $ 59.05 8% 15% 27%
30 Day Avg. $119.70 (19%) $ 57.45 $ 5.88 $ 63.33 16% 24% 36%
$120.00 (19%) $ 57.58 $ 5.88 $ 63.46 16% 24% 36%
$130.00 (12%) $ 61.77 $ 6.10 $ 67.87 25% 32% 46%
$140.00 (6%) $ 65.96 $ 6.33 $ 72.29 33% 41% 55%
10 Day Avg. $140.50 (5%) $ 66.17 $ 6.34 $ 72.51 33% 41% 56%
------- ------- ------- ------- ------- ------- ------- -------
Current $148.56 0% $ 69.55 $ 6.52 $ 76.07 40% 48% 63%
======= ======= ======= ======= ======= ======= ======= =======
$150.00 1% $ 70.15 $ 6.55 $ 76.70 41% 50% 65%
5 Day Avg. $153.25 3% $ 71.51 $ 6.62 $ 78.13 43% 52% 68%
3/8/2000 $158.81 7% $ 73.84 $ 6.75 $ 80.59 48% 57% 73%
$160.00 8% $ 74.34 $ 6.78 $ 81.11 49% 58% 74%
All-Time High $168.69 14% $ 77.98 $ 6.97 $ 84.95 56% 66% 83%
$170.00 14% $ 78.52 $ 7.00 $ 85.53 57% 67% 84%
$180.00 21% $ 82.71 $ 7.23 $ 89.94 65% 75% 93%
$190.00 28% $ 86.90 $ 7.46 $ 94.35 73% 84% 103%
$200.00 35% $ 91.08 $ 7.68 $ 98.77 81% 93% 112%
$210.00 41% $ 95.27 $ 7.81 $103.08 89% 101% 122%
$220.00 48% $ 99.47 $ 7.80 $107.26 97% 109% 131%
</TABLE>
Notes:
(1) Based on exchange discount of 14.6257% post Venus shares post-liquidity,
post-tax investments and $500MM of cash.
(2) Based on Star's ownership of 128.1MM Venus shares and Venus closing price of
$148.56 as of 3/21/00.
(3) Assumes Venus elects to retain $500.0MM of cash; Star operating businesses
tax basis of $1,270.3MM, corporate tax rate of 40.0% and transaction costs
of $150.0MM.
(4) Based on Star pro forma shares of 247.5MM, including common shares of
227.1MM and net exercised options of 30.5MM.
(5) Analysis based on trading days; averages are for unaffected trading period
ending 3/8/00.
7
<PAGE> 10
================================================================================
EXECUTIVE SUMMARY
================================================================================
TRANSACTION CONSIDERATIONS
- --------------------------------------------------------------------------------
Benefits:
+ Significant premium to historical share price
+ Delivers Venus shares to Star shareholders in tax-efficient manner
+ Fixed cash amount received for drives and other operating businesses (no
exposure to public market valuation)
+ No execution risk on drives business post-closing, including industry
conditions, market conditions, and management retention
ISSUES:
- - Significant exposure to Venus stock valuation
- - Lose potential upside on other businesses (software, telecom, SAN)
- - Sector valuations at cyclical low points
8
<PAGE> 11
================================================================================
SECTION 2
================================================================================
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
<PAGE> 12
================================================================================
VALUATION ANALYSIS
================================================================================
DISC DRIVE BUSINESS IMPLIED VALUATION
- --------------------------------------------------------------------------------
EQUITY VALUE
($ MILLION)
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
POST-TAX VALUE OF OTHER IMPLIED VALUE OF
DATE STAR HOLDINGS AND CASH (1) DRIVE BUSINESS
- --------- --------- ----------------------- ----------------
<S> <C> <C> <C>
19-Mar-99 $ 7,141.7 $ 2,554.5 $ 4,587.2
20-Mar-99 7,141.7 2,554.5 4,587.2
21-Mar-99 7,141.7 2,554.5 4,587.2
22-Mar-99 6,684.0 2,498.7 4,185.3
23-Mar-99 6,487.9 2,344.0 4,143.9
24-Mar-99 5,932.2 2,393.5 3,538.7
25-Mar-99 6,193.7 2,418.8 3,774.8
26-Mar-99 6,324.4 2,377.7 3,946.7
27-Mar-99 6,324.4 2,377.7 3,946.7
28-Mar-99 6,324.4 2,377.7 3,946.7
29-Mar-99 6,536.9 2,537.6 3,999.3
30-Mar-99 6,569.6 2,508.8 4,060.8
31-Mar-99 6,863.8 2,434.5 4,429.3
1-Apr-99 7,010.9 2,460.0 4,550.9
2-Apr-99 7,010.9 2,460.0 4,550.9
3-Apr-99 7,010.9 2,460.0 4,550.9
4-Apr-99 7,010.9 2,460.0 4,550.9
5-Apr-99 7,288.8 2,553.0 4,735.8
6-Apr-99 7,174.4 2,570.2 4,604.2
7-Apr-99 7,060.0 2,458.3 4,601.7
8-Apr-99 7,223.4 2,392.1 4,831.3
9-Apr-99 6,569.6 2,405.2 4,164.4
10-Apr-99 6,569.6 2,405.2 4,164.4
11-Apr-99 6,569.6 2,405.2 4,164.4
12-Apr-99 5,997.5 2,392.6 3,605.0
13-Apr-99 6,095.6 2,458.7 3,636.9
14-Apr-99 6,504.2 2,526.4 3,977.8
15-Apr-99 6,635.0 2,472.9 4,162.1
16-Apr-99 6,357.1 2,429.8 3,927.4
17-Apr-99 6,357.1 2,429.8 3,927.4
18-Apr-99 6,357.1 2,429.8 3,927.4
19-Apr-99 6,144.6 2,142.8 4,001.8
20-Apr-99 6,340.8 2,228.8 4,112.0
21-Apr-99 6,536.9 2,249.0 4,288.0
22-Apr-99 6,716.7 2,291.2 4,425.5
23-Apr-99 6,586.0 2,350.3 4,235.6
24-Apr-99 6,586.0 2,350.3 4,235.6
25-Apr-99 6,586.0 2,350.3 4,235.6
26-Apr-99 6,667.7 2,337.3 4,330.4
27-Apr-99 7,550.3 2,254.6 5,295.7
28-Apr-99 6,700.4 2,207.3 4,493.1
29-Apr-99 6,291.7 2,145.9 4,145.9
30-Apr-99 6,422.5 2,260.4 4,162.1
</TABLE>
10
<PAGE> 13
<TABLE>
<S> <C> <C> <C>
1-May-99 6,422.5 2,260.4 4,162.1
2-May-99 6,422.5 2,260.4 4,162.1
3-May-99 6,782.1 2,278.4 4,503.7
4-May-99 7,207.1 2,301.6 4,905.5
5-May-99 6,978.2 2,302.5 4,675.7
6-May-99 6,667.7 2,296.3 4,371.4
7-May-99 7,076.3 2,271.4 4,804.9
8-May-99 7,076.3 2,271.4 4,804.9
9-May-99 7,076.3 2,271.4 4,804.9
10-May-99 7,583.0 2,247.3 5,335.7
11-May-99 7,746.4 2,290.8 5,455.7
12-May-99 7,828.2 2,338.0 5,490.2
13-May-99 7,370.5 2,391.1 4,979.4
14-May-99 7,321.5 2,408.0 4,913.5
15-May-99 7,321.5 2,408.0 4,913.5
16-May-99 7,321.5 2,408.0 4,913.5
17-May-99 7,043.6 2,404.8 4,638.8
18-May-99 7,337.8 2,450.5 4,887.3
19-May-99 7,484.9 2,459.2 5,025.8
20-May-99 7,435.9 2,439.8 4,996.1
21-May-99 7,174.4 2,439.1 4,735.3
22-May-99 7,174.4 2,439.1 4,735.3
23-May-99 7,174.4 2,439.1 4,735.3
24-May-99 6,978.2 2,414.9 4,563.4
25-May-99 6,961.9 2,406.9 4,555.0
26-May-99 7,043.6 2,462.3 4,581.3
27-May-99 7,010.9 2,570.4 4,440.6
28-May-99 7,027.3 2,568.1 4,459.2
29-May-99 7,027.3 2,568.1 4,459.2
30-May-99 7,027.3 2,568.1 4,459.2
31-May-99 7,027.3 2,568.1 4,459.2
1-Jun-99 7,043.6 2,577.9 4,465.8
2-Jun-99 7,354.2 2,599.1 4,755.0
3-Jun-99 7,632.0 2,585.9 5,046.1
4-Jun-99 7,354.2 2,659.3 4,694.9
5-Jun-99 7,354.2 2,659.3 4,694.9
6-Jun-99 7,354.2 2,659.3 4,694.9
7-Jun-99 7,762.8 2,723.1 5,039.7
8-Jun-99 7,305.1 2,680.9 4,624.2
9-Jun-99 7,174.4 2,660.6 4,513.7
10-Jun-99 7,158.0 2,598.9 4,559.1
11-Jun-99 7,190.7 2,598.5 4,592.2
12-Jun-99 7,190.7 2,598.5 4,592.2
13-Jun-99 7,190.7 2,598.5 4,592.2
14-Jun-99 7,207.1 2,570.7 4,636.4
15-Jun-99 6,733.1 2,589.8 4,143.2
16-Jun-99 6,716.7 2,603.2 4,113.5
17-Jun-99 6,553.3 2,587.1 3,966.2
18-Jun-99 6,635.0 2,590.4 4,044.6
</TABLE>
<PAGE> 14
<TABLE>
<S> <C> <C> <C>
19-Jun-99 6,635.0 2,590.4 4,044.6
20-Jun-99 6,635.0 2,590.4 4,044.6
21-Jun-99 6,961.9 2,663.9 4,298.0
22-Jun-99 6,880.2 2,691.3 4,188.8
23-Jun-99 6,945.5 2,697.9 4,247.7
24-Jun-99 6,847.5 2,670.4 4,177.0
25-Jun-99 6,847.5 2,642.9 4,204.6
26-Jun-99 6,847.5 2,642.9 4,204.6
27-Jun-99 6,847.5 2,642.9 4,204.6
28-Jun-99 6,880.2 2,674.7 4,205.5
29-Jun-99 6,259.1 2,669.4 3,589.7
30-Jun-99 5,834.1 2,699.4 3,134.7
1-Jul-99 6,112.0 2,910.3 3,201.6
2-Jul-99 6,144.6 2,953.6 3,191.1
3-Jul-99 6,144.6 2,953.6 3,191.1
4-Jul-99 6,144.6 2,953.6 3,191.1
5-Jul-99 6,144.6 2,953.6 3,191.1
6-Jul-99 6,046.6 3,120.7 2,925.8
7-Jul-99 6,291.7 3,078.3 3,213.5
8-Jul-99 6,275.4 3,091.1 3,184.3
9-Jul-99 6,536.9 3,089.4 3,447.5
10-Jul-99 6,536.9 3,089.4 3,447.5
11-Jul-99 6,536.9 3,089.4 3,447.5
12-Jul-99 6,602.3 3,016.1 3,586.2
13-Jul-99 6,471.5 3,056.5 3,415.1
14-Jul-99 7,043.6 3,138.8 3,904.8
15-Jul-99 6,978.2 3,158.9 3,819.4
16-Jul-99 6,079.3 3,423.9 2,655.3
17-Jul-99 6,079.3 3,423.9 2,655.3
18-Jul-99 6,079.3 3,423.9 2,655.3
19-Jul-99 6,046.6 3,473.5 2,573.1
20-Jul-99 5,817.7 3,295.3 2,522.4
21-Jul-99 5,899.5 3,364.0 2,535.5
22-Jul-99 5,703.3 3,395.4 2,308.0
23-Jul-99 5,817.7 3,416.5 2,401.2
24-Jul-99 5,817.7 3,416.5 2,401.2
25-Jul-99 5,817.7 3,416.5 2,401.2
26-Jul-99 5,866.8 3,283.4 2,583.4
27-Jul-99 5,948.5 3,172.8 2,775.7
28-Jul-99 6,291.7 3,230.2 3,061.5
29-Jul-99 6,193.7 3,131.5 3,062.2
30-Jul-99 6,161.0 3,264.4 2,896.6
31-Jul-99 6,161.0 3,264.4 2,896.6
1-Aug-99 6,161.0 3,264.4 2,896.6
2-Aug-99 6,373.5 3,213.2 3,160.2
3-Aug-99 6,242.7 3,171.0 3,071.7
4-Aug-99 6,144.6 3,098.3 3,046.4
5-Aug-99 6,128.3 3,235.5 2,892.8
6-Aug-99 6,455.2 3,131.8 3,323.4
</TABLE>
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
7-Aug-99 6,455.2 3,131.8 3,323.4
8-Aug-99 6,455.2 3,131.8 3,323.4
9-Aug-99 6,455.2 2,995.9 3,459.3
10-Aug-99 6,471.5 2,977.1 3,494.5
11-Aug-99 6,618.6 3,153.4 3,465.2
12-Aug-99 6,520.6 3,096.5 3,424.1
13-Aug-99 6,782.1 3,177.3 3,604.8
14-Aug-99 6,782.1 3,177.3 3,604.8
15-Aug-99 6,782.1 3,177.3 3,604.8
16-Aug-99 7,158.0 3,255.6 3,902.5
17-Aug-99 7,239.8 3,258.6 3,981.1
18-Aug-99 7,452.2 3,232.8 4,219.5
19-Aug-99 7,632.0 3,152.5 4,479.5
20-Aug-99 7,615.7 3,368.8 4,246.9
21-Aug-99 7,615.7 3,368.8 4,246.9
22-Aug-99 7,615.7 3,368.8 4,246.9
23-Aug-99 7,795.5 3,464.2 4,331.3
24-Aug-99 7,828.2 3,488.8 4,339.4
25-Aug-99 7,713.8 3,549.1 4,164.7
26-Aug-99 7,713.8 3,516.0 4,197.8
27-Aug-99 7,730.1 3,432.4 4,297.7
28-Aug-99 7,730.1 3,432.4 4,297.7
29-Aug-99 7,730.1 3,432.4 4,297.7
30-Aug-99 7,860.9 3,376.4 4,484.5
31-Aug-99 7,811.8 3,426.8 4,385.0
1-Sep-99 7,991.6 3,496.8 4,494.8
2-Sep-99 8,024.3 3,541.5 4,482.8
3-Sep-99 8,482.0 3,654.3 4,827.6
4-Sep-99 8,482.0 3,654.3 4,827.6
5-Sep-99 8,482.0 3,654.3 4,827.6
6-Sep-99 8,482.0 3,654.3 4,827.6
7-Sep-99 8,285.8 3,653.9 4,632.0
8-Sep-99 7,795.5 3,723.9 4,071.6
9-Sep-99 7,713.8 3,834.3 3,879.5
10-Sep-99 7,926.2 3,823.7 4,102.6
11-Sep-99 7,926.2 3,823.7 4,102.6
12-Sep-99 7,926.2 3,823.7 4,102.6
13-Sep-99 7,762.8 3,641.4 4,121.4
14-Sep-99 7,484.9 3,698.9 3,786.0
15-Sep-99 7,550.3 3,726.3 3,824.0
16-Sep-99 7,484.9 3,771.0 3,713.9
17-Sep-99 7,632.0 3,994.6 3,637.5
18-Sep-99 7,632.0 3,994.6 3,637.5
19-Sep-99 7,632.0 3,994.6 3,637.5
20-Sep-99 7,762.8 4,008.7 3,754.1
21-Sep-99 7,566.6 3,908.2 3,658.5
22-Sep-99 7,484.9 4,052.2 3,432.8
23-Sep-99 6,978.2 3,916.9 3,061.4
24-Sep-99 6,831.1 3,933.5 2,897.6
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C> <C>
25-Sep-99 6,831.1 3,933.5 2,897.6
26-Sep-99 6,831.1 3,933.5 2,897.6
27-Sep-99 6,945.5 3,923.6 3,022.0
28-Sep-99 6,912.9 4,032.0 2,880.9
29-Sep-99 7,043.6 3,900.3 3,143.3
30-Sep-99 7,141.7 3,861.4 3,280.3
1-Oct-99 7,158.0 3,790.4 3,367.7
2-Oct-99 7,158.0 3,790.4 3,367.7
3-Oct-99 7,158.0 3,790.4 3,367.7
4-Oct-99 7,272.4 3,944.3 3,328.2
5-Oct-99 7,337.8 4,188.2 3,149.6
6-Oct-99 7,435.9 4,217.8 3,218.1
7-Oct-99 7,092.6 4,142.5 2,950.1
8-Oct-99 6,961.9 4,090.6 2,871.3
9-Oct-99 6,961.9 4,090.6 2,871.3
10-Oct-99 6,961.9 4,090.6 2,871.3
11-Oct-99 7,435.9 4,230.9 3,205.0
12-Oct-99 7,337.8 4,156.8 3,181.0
13-Oct-99 6,847.5 4,096.2 2,751.2
14-Oct-99 6,814.8 4,043.2 2,771.5
15-Oct-99 6,618.6 4,352.7 2,266.0
16-Oct-99 6,618.6 4,352.7 2,266.0
17-Oct-99 6,618.6 4,352.7 2,266.0
18-Oct-99 6,340.8 4,119.6 2,221.2
19-Oct-99 6,487.9 4,123.9 2,363.9
20-Oct-99 6,716.7 4,350.8 2,366.0
21-Oct-99 6,275.4 4,437.5 1,837.9
22-Oct-99 6,324.4 4,478.7 1,845.7
23-Oct-99 6,324.4 4,478.7 1,845.7
24-Oct-99 6,324.4 4,478.7 1,845.7
25-Oct-99 6,210.0 4,480.1 1,729.9
26-Oct-99 6,144.6 4,311.8 1,832.9
27-Oct-99 6,193.7 4,430.2 1,763.5
28-Oct-99 6,536.9 4,688.1 1,848.8
29-Oct-99 6,831.1 4,927.3 1,903.9
30-Oct-99 6,831.1 4,927.3 1,903.9
31-Oct-99 6,831.1 4,927.3 1,903.9
1-Nov-99 6,782.1 4,899.1 1,883.0
2-Nov-99 6,912.9 4,843.2 2,069.7
3-Nov-99 7,092.6 4,954.0 2,138.6
4-Nov-99 7,403.2 5,040.0 2,363.2
5-Nov-99 7,517.6 5,035.2 2,482.4
6-Nov-99 7,517.6 5,035.2 2,482.4
7-Nov-99 7,517.6 5,035.2 2,482.4
8-Nov-99 7,893.5 5,157.9 2,735.7
9-Nov-99 8,106.0 5,293.4 2,812.7
10-Nov-99 8,416.6 5,352.0 3,064.6
11-Nov-99 8,269.5 5,261.2 3,008.3
12-Nov-99 8,808.9 5,337.1 3,471.7
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
13-Nov-99 8,808.9 5,337.1 3,471.7
14-Nov-99 8,808.9 5,337.1 3,471.7
15-Nov-99 9,005.0 5,484.6 3,520.4
16-Nov-99 8,939.6 5,854.7 3,084.9
17-Nov-99 8,531.0 5,789.1 2,741.9
18-Nov-99 8,890.6 6,083.2 2,807.4
19-Nov-99 9,266.5 6,323.1 2,943.4
20-Nov-99 9,266.5 6,323.1 2,943.4
21-Nov-99 9,266.5 6,323.1 2,943.4
22-Nov-99 9,642.5 6,623.4 3,019.1
23-Nov-99 9,495.3 6,481.1 3,014.2
24-Nov-99 9,315.6 6,548.4 2,767.2
25-Nov-99 9,315.6 6,548.4 2,767.2
26-Nov-99 9,135.8 6,703.3 2,432.4
27-Nov-99 9,135.8 6,703.3 2,432.4
28-Nov-99 9,135.8 6,703.3 2,432.4
29-Nov-99 9,201.1 6,513.2 2,687.9
30-Nov-99 8,808.9 6,054.2 2,754.6
1-Dec-99 9,005.0 6,180.1 2,824.9
2-Dec-99 9,168.5 6,457.4 2,711.0
3-Dec-99 9,528.0 6,802.6 2,725.4
4-Dec-99 9,528.0 6,802.6 2,725.4
5-Dec-99 9,528.0 6,802.6 2,725.4
6-Dec-99 9,593.4 6,690.3 2,903.1
7-Dec-99 9,364.6 6,663.3 2,701.3
8-Dec-99 9,462.7 6,734.1 2,728.6
9-Dec-99 9,397.3 6,899.8 2,497.4
10-Dec-99 9,282.9 6,961.5 2,321.3
11-Dec-99 9,282.9 6,961.5 2,321.3
12-Dec-99 9,282.9 6,961.5 2,321.3
13-Dec-99 9,871.3 6,887.4 2,983.9
14-Dec-99 9,577.1 6,603.1 2,973.9
15-Dec-99 9,805.9 6,891.6 2,914.3
16-Dec-99 10,835.6 7,136.7 3,698.9
17-Dec-99 10,721.2 7,351.6 3,369.6
18-Dec-99 10,721.2 7,351.6 3,369.6
19-Dec-99 10,721.2 7,351.6 3,369.6
20-Dec-99 10,574.1 7,749.7 2,824.4
21-Dec-99 10,373.9 7,636.5 2,737.4
22-Dec-99 10,737.6 8,168.1 2,569.5
23-Dec-99 11,326.0 8,628.6 2,697.4
24-Dec-99 11,326.0 8,628.6 2,697.4
25-Dec-99 11,326.0 8,628.6 2,697.4
26-Dec-99 11,326.0 8,628.6 2,697.4
27-Dec-99 11,800.0 8,143.8 3,656.2
28-Dec-99 11,407.7 8,229.9 3,177.8
29-Dec-99 11,538.5 8,474.7 3,063.7
30-Dec-99 11,375.0 8,304.8 3,070.3
31-Dec-99 11,309.6 8,620.1 2,689.6
</TABLE>
<PAGE> 18
<TABLE>
<S> <C> <C> <C>
1-Jan-00 11,309.6 8,620.1 2,689.6
2-Jan-00 11,309.6 8,620.1 2,689.6
3-Jan-00 11,162.5 8,561.0 2,601.5
4-Jan-00 10,083.8 7,959.6 2,124.2
5-Jan-00 10,018.4 7,797.4 2,221.0
6-Jan-00 9,511.7 7,113.0 2,398.7
7-Jan-00 9,773.2 7,644.0 2,129.2
8-Jan-00 9,773.2 7,644.0 2,129.2
9-Jan-00 9,773.2 7,644.0 2,129.2
10-Jan-00 10,181.8 8,643.3 1,538.6
11-Jan-00 10,639.5 8,037.6 2,601.9
12-Jan-00 9,854.9 7,733.8 2,121.1
13-Jan-00 9,985.7 8,442.0 1,543.7
14-Jan-00 10,427.0 8,786.4 1,640.6
15-Jan-00 10,427.0 8,786.4 1,640.6
16-Jan-00 10,427.0 8,786.4 1,640.6
17-Jan-00 10,427.0 8,786.4 1,640.6
18-Jan-00 10,230.9 8,845.2 1,385.7
19-Jan-00 9,904.0 8,855.5 1,048.4
20-Jan-00 10,198.2 9,284.7 913.5
21-Jan-00 10,214.5 10,097.7 116.8
22-Jan-00 10,214.5 10,097.7 116.8
23-Jan-00 10,214.5 10,097.7 116.8
24-Jan-00 9,756.9 9,054.0 702.8
25-Jan-00 10,002.0 9,494.4 507.7
26-Jan-00 9,953.0 9,348.4 604.6
27-Jan-00 9,724.2 9,435.4 288.8
28-Jan-00 9,658.8 9,205.6 453.2
29-Jan-00 9,658.8 9,205.6 453.2
30-Jan-00 9,658.8 9,205.6 453.2
31-Jan-00 9,528.0 8,798.7 729.3
1-Feb-00 9,854.9 9,252.1 602.8
2-Feb-00 10,034.7 9,207.6 827.1
3-Feb-00 10,165.5 9,312.0 853.5
4-Feb-00 10,508.7 9,389.5 1,119.3
5-Feb-00 10,508.7 9,389.5 1,119.3
6-Feb-00 10,508.7 9,389.5 1,119.3
7-Feb-00 10,884.7 9,347.0 1,537.6
8-Feb-00 11,129.8 10,053.7 1,076.1
9-Feb-00 11,031.8 9,803.5 1,228.3
10-Feb-00 11,571.2 10,512.7 1,058.5
11-Feb-00 11,276.9 10,206.9 1,070.0
12-Feb-00 11,276.9 10,206.9 1,070.0
13-Feb-00 11,276.9 10,206.9 1,070.0
14-Feb-00 11,195.2 10,019.3 1,175.9
15-Feb-00 11,293.3 9,884.3 1,409.0
16-Feb-00 11,554.8 9,901.4 1,653.4
17-Feb-00 11,342.3 10,305.1 1,037.2
18-Feb-00 10,901.0 10,266.9 634.1
</TABLE>
<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C>
19-Feb-00 10,901.0 10,266.9 634.1
20-Feb-00 10,901.0 10,266.9 634.1
21-Feb-00 10,901.0 10,266.9 634.1
22-Feb-00 10,721.2 10,201.6 519.6
23-Feb-00 11,309.6 10,781.6 528.0
24-Feb-00 11,718.3 11,143.8 574.5
25-Feb-00 11,326.0 10,738.4 587.5
26-Feb-00 11,326.0 10,738.4 587.5
27-Feb-00 11,326.0 10,738.4 587.5
28-Feb-00 11,603.8 11,107.8 496.0
29-Feb-00 11,636.5 11,629.3 7.2
1-Mar-00 12,453.8 11,853.7 600.1
2-Mar-00 12,600.9 12,032.2 568.7
3-Mar-00 13,483.5 12,950.7 532.8
4-Mar-00 13,483.5 12,950.7 532.8
5-Mar-00 13,483.5 12,950.7 532.8
6-Mar-00 13,663.3 13,795.6 -132.3
7-Mar-00 13,532.5 14,180.2 -647.7
8-Mar-00 13,385.4 13,857.1 -471.6 <-- 3/8/00 - Rumors
9-Mar-00 14,545.9 14,157.5 388.4
10-Mar-00 16,000.6 14,529.0 1,471.6
11-Mar-00 16,000.6 14,529.0 1,471.6
12-Mar-00 16,000.6 14,529.0 1,471.6
13-Mar-00 17,308.2 14,288.5 3,019.8
14-Mar-00 16,147.7 13,466.1 2,681.7
15-Mar-00 14,533.7 11,754.5 2,779.1
16-Mar-00 16,491.0 13,156.7 3,334.3
17-Mar-00 17,112.1 14,124.1 2,987.9
18-Mar-00 17,112.1 14,124.1 2,987.9
19-Mar-00 17,112.1 14,124.1 2,987.9
20-Mar-00 16,392.9 12,434.4 3,958.5
21-Mar-00 16,180.4 12,938.0 3,242.4
</TABLE>
================================================================================
Note:
1. Post-Tax value of other securities and net cash based on holdings of 128.1MM
shares of Venus, 4.1MM shares of SanDisk, 5.1MM shares of Gadzoox Networks,
2.4MM shares of CVC, $199.1MM holding in Dragon Systems, and $523MM in net
cash after repatriation. Assumes tax rate of 40%.
<PAGE> 20
- - THE MERGER CONSIDERATION WOULD HAVE REFLECTED A 14% - 44% PREMIUM TO STAR'S
STOCK PRICE OVER RECENT TRADING PERIODS
================================================================================
VALUATION ANALYSIS
================================================================================
IMPLIED HISTORICAL TRANSACTION PREMIUM ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IMPLIED VALUE
OF MERGER
PERIOD(1) VENUS PRICE CONSIDERATION STAR PRICE IMPLIED PREMIUM
- --------------- ----------- ------------- ---------- ---------------
<S> <C> <C> <C> <C>
3/21/2000 $149 $ 76 $ 65 17%
3/8/2000 $159 $ 81 $ 55 48%
5-Day Average $153 $ 78 $ 54 44%
10-Day Average $140 $ 73 $ 51 41%
30-Day Average $120 $ 63 $ 47 36%
60-Day Average $105 $ 57 $ 45 26%
120-Day Average $ 76 $ 44 $ 39 14%
</TABLE>
Note:
(1) Analysis based on trading days; averages are for trading period ending
3/8/00.
11
<PAGE> 21
- - THE MERGER CONSIDERATION FROM VENUS REFLECTS A 47% PREMIUM TO THE UNDERLYING
AFTER-TAX VALUE OF STAR'S INVESTMENTS
================================================================================
VALUATION ANALYSIS
================================================================================
ANALYSIS OF VENUS VALUE REALIZATION
($MM)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VENUS WITH OTHER
SHARES ONLY SECURITIES(1)
----------- -------------
<S> <C> <C>
Underlying Shares 128.1 128.1
Shares Received 109.3 112.5
"Nominal Discount"(1) 14.6257% 12.1575%
Value of Venus Shares Received by Star Shareholders $16,242 $16,712
------- -------
"Nominal" Premium to After-Tax Value 41% 40%
======= =======
Value Lost by Star vs. Pre-Tax Venus Value $ 2,923 $ 2,923
Portion of discount "recovered" by Star shareholders(2) $ 822 $ 822
Total Value to Star $17,065 $17,534
"Effective Discount"(2) 10.3044% 7.8362%
------- -------
"Effective" Premium to After-Tax Value 49% 47%
======= =======
</TABLE>
Notes:
(1) Reflects discount to underlying shares held by Star.
(2) Reflects benefit accruing to Star shareholders through their pro forma 30%
interest in Venus, based on financial accretion to Venus.
- --------------------------------------------------------------------------------
TAXABLE SALE VS. VENUS MERGER
$BN
- --------------------------------------------------------------------------------
[BAR GRAPH]
- --------------------------------------------------------------------------------
Current after-tax value of Venus stake and Other Investments (1): $11.9Bn
Value of Venus stake and investments realized: $17.5Bn
================================================================================
Note:
1. Other investments valued at stipulated liquidity discounts.
12
<PAGE> 22
================================================================================
VALUATION ANALYSIS
================================================================================
OPERATING COMPANY VALUATION MATRIX
($MM, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGREGATE EQUITY
VALUE / VALUE / EQUITY VALUE / CASH NET INCOME(1)
EQUITY AGGREGATE CY2000E CY2000E ---------------------------------------
VALUE VALUE(1) REVENUE REVENUE CY2000E CY2001E CY2002E
------ --------- --------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Statistic: 00 00 $7,018 $7,018 $ 146 $ 217 $ 318
==========================================================================================================================
$1,700 $ 950 0.14x 0.24x 11.6x 7.8x 5.3x
$1,800 $1,050 0.15x 0.26x 12.3x 8.3x 5.7x
$1,900 $1,150 0.16x 0.27x 13.0x 8.7x 6.0x
------------------------------------------------------------------------------------------------------
$2,000 $1,250 0.18x 0.28x 13.7x 9.2x 6.3x
------------------------------------------------------------------------------------------------------
$2,100 $1,350 0.19x 0.30x 14.4x 9.7x 6.6x
$2,200 $1,450 0.21x 0.31x 15.0x 10.1x 6.9x
$2,300 $1,550 0.22x 0.33x 15.7x 10.6x 7.2x
$2,400 $1,650 0.24x 0.34x 16.4x 11.1x 7.5x
</TABLE>
Note:
(1) Cash net income based on management projections. Equity value assumes no
debt and total cash of $800.0MM and $50.0MM in golden parachute liabilities.
13
<PAGE> 23
- - THE PROPOSED TRANSACTION REFLECTS A 13% - 38% PREMIUM TO A HYPOTHETICAL
AFTER-TAX SUM-OF-THE-PARTS ANALYSIS
- - THESE VALUES WOULD NOT BE REALIZABLE TODAY GIVEN LIQUIDITY AND OTHER
CONSTRAINTS
================================================================================
VALUATION ANALYSIS
================================================================================
HYPOTHETICAL SUM-OF-THE-PARTS VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Low High
-------- --------
<S> <C> <C>
Operating Businesses(1) $ 1,000 - $ 4,000
Venus(2) $ 11,479 - $ 11,479
Other Investments(3) $ 654 - $ 654
Cash (after-tax)(4) $ 1,236 - $ 1,236
Debt ($ 705)- ($ 705)
-------- --------
TOTAL $ 13,663 - $ 16,663
Per Share $ 55.21 - $ 67.33
- ------------------------------------------------------------
INDICATED TRANSACTION VALUE(5) $ 18,825 - $ 18,825
Per Share $ 76.07 - $ 76.07
% Premium to Sum-of-the-Parts 38%- 13%
============================================================
</TABLE>
Notes:
(1) Includes Drives, Tape, Software and XIOtech.
(2) Post-tax value.
(3) Post-tax value of SanDisk, CVC, Gadzoox and Dragon Systems.
(4) Includes SanDisk proceeds.
(5) Based on prices as of 3/21/00.
14
<PAGE> 24
================================================================================
SECTION 3
================================================================================
ALTERNATIVE TRANSACTION STRUCTURES
- --------------------------------------------------------------------------------
<PAGE> 25
================================================================================
ALTERNATIVE TRANSACTION STRUCTURES
================================================================================
OVERVIEW OF STRUCTURES
- --------------------------------------------------------------------------------
o Each structure must be evaluated on a number of dimensions
- Value
- Timing
- Management Impact
- Risk / uncertainty
o The proposed structure (Venus Merger / Sale of Businesses) has many benefits
versus other structures
- Most certainty of value
- Achievable near-term
- Management support
- "Permanent" resolution of embedded Venus investments
16
<PAGE> 26
- - THE CURRENT PROPOSAL OFFERS THE MOST CERTAINTY TO STAR SHAREHOLDERS IN TERMS
OF VALUE AND COMPLETION RISK
================================================================================
ALTERNATIVE TRANSACTION STRUCTURES
================================================================================
SUMMARY VALUATION
- --------------------------------------------------------------------------------
[BAR GRAPH]
<TABLE>
<CAPTION>
VALUE PER STAR SHARE
------------------------
LOW HIGH
------ ------
<S> <C> <C>
Current Proposal (1) $76.07 $79.58
Status Quo 32.70 91.28
Tax-Free Spin-off 72.52 91.01
HoldCo / Spin 67.25 85.81
Merger / Spin 72.96 80.60
</TABLE>
================================================================================
Note:
1. Low end excludes pick-up related to Venus EPS accretion.
17
<PAGE> 27
================================================================================
ALTERNATIVE TRANSACTION STRUCTURES
================================================================================
OVERVIEW OF POTENTIAL STRUCTURES
- --------------------------------------------------------------------------------
1. CURRENT PROPOSAL (VENUS MERGER / SALE)
- Sale of Operating Business to Financial Buyer
- Merge remaining Star (holding Venus shares and investments) with Venus
- Star shareholders to receive Venus shares and cash
- --------------------------------------------------------------------------------
2. STATUS QUO
- Continue current business model
- Manage Operating Businesses under scrutiny of public markets
- Sell Venus shares (taxable transaction)
- Buy-back Star stock
- --------------------------------------------------------------------------------
3. TAX-FREE SPIN OF DRIVES BUSINESS
- Spin-off Drives in tax-free transaction
- "Old Star" would hold Venus shares, software and tape
- Continue to manage under scrutiny of public markets
- --------------------------------------------------------------------------------
4. HOLDCO / SPIN
- Spin-off all operating businesses, investments and excess net cash
- Remaining shell would hold only Venus shares
- --------------------------------------------------------------------------------
5. VENUS MERGER / SPIN
- Spin-off Operating Businesses to shareholders (tax-free to shareholders,
taxable to Star)
- Merge remaining Star (holding Venus shares and investments) with Venus
- Star shareholders to receive Venus shares and shares in Operating
Company
- --------------------------------------------------------------------------------
18
<PAGE> 28
================================================================================
SECTION 4
================================================================================
OPERATING BUSINESS VALUATION
- --------------------------------------------------------------------------------
<PAGE> 29
================================================================================
OPERATING BUSINESS VALUATION
================================================================================
SUMMARY VALUATION
-------------------------------
($MM, EXCEPT PER SHARE AMOUNTS)
[BAR GRAPH]
<TABLE>
<CAPTION>
OPERATING BUSINESSES EQUITY VALUE(1)
------------------------------------
PROPOSAL LOW HIGH
---------- ------ ------
<S> <C> <C> <C>
TRADING VALUATION
Comparable Companies
.20x - .45x CY2000E Revenue $2,000 $2,200 $4,000
Discounted Equity Value
8x - 16x CY2001E Net Income
Upside 2,000 2,900 6,000
Base 2,000 1,500 3,100
Sensitivity 2,000 1,200 2,400
8x - 16x CY2002E Net Income
Upside 2,000 3,400 7,300
Base 2,000 1,800 4,000
Sensitivity 2,000 1,200 2,700
PRIVATE MARKET VALUATION
DCF Analysis - Upside Case 2,000 5,400 6,900
DCF Analysis - Base Case 2,000 3,500 4,400
DCF Analysis - Sensitivity Case 2,000 2,400 2,900
Hypothetical Sum-of-the-Parts Analysis 2,000 2,600 4,700
</TABLE>
================================================================================
Note:
1. Reflects all operating businesses with a balance sheet of $800MM of cash and
$50 million of non-operating liabilities.
20
<PAGE> 30
================================================================================
OPERATING BUSINESS VALUATION
================================================================================
SUMMARY VALUATION
-------------------------------
($MM, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGREGATE
MULTIPLE RANGE VALUE(1) EQUITY VALUE(1)
FINANCIAL ---------------- ---------------- ---------------
VALUATION METHODOLOGY STATISTIC LOW HIGH LOW HIGH LOW HIGH
- ----------------------------------------------------------- --------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
TRADING VALUATION
Value Based on Comparable Companies
CY2000E Revenue(2) $7,135 0.20x - 0.45x $1,425 - $3,200 $2,175 - $3,950
Value Based on Discounted Equity Value Analysis CY2001E(3)
15.0% - 20.0% Discount Rate - Upside Case $ 419 8.0x - 16.0x $2,056 - $5,158 $2,906 - $6,008
15.0% - 20.0% Discount Rate - Base Case $ 217 8.0x - 16.0x $ 657 - $2,267 $1,507 - $3,117
15.0% - 20.0% Discount Rate - Sensitivity Case $ 166 8.0x - 16.0x $ 300 - $1,528 $1,150 - $2,378
Value Based on Discounted Equity Value Analysis CY2002E(3)
15.0% - 20.0% Discount Rate - Upside Case $ 584 8.0x - 16.0x $2,526 - $6,433 $3,376 - $7,283
15.0% - 20.0% Discount Rate - Base Case $ 318 8.0x - 16.0x $ 991 - $3,121 $1,841 - $3,971
15.0% - 20.0% Discount Rate - Sensitivity Case $ 213 8.0x - 16.0x $ 379 - $1,802 $1,229 - $2,652
PRIVATE MARKET VALUATION
Value Based on Discounted Cash Flow Analysis - Upside Case
6.0x - 9.0x EBITA exit multiple, 15.0% Discount Rate $4,665 - $6,122 $5,415 - $6,872
Value Based on Discounted Cash Flow Analysis - Base Case
6.0x - 9.0x EBITA exit multiple, 15.0% Discount Rate $2,768 - $3,672 $3,518 - $4,422
Value Based on Discounted Cash Flow Analysis - Sensitivity Case
6.0x - 9.0x EBITA exit multiple, 15.0% Discount Rate $1,608 - $2,153 $2,358 - $2,903
Value Based on Hypothetical Sum-of-the-Parts Valuation $1,880 - $3,960 $2,630 - $4,710
</TABLE>
Notes:
(1) Based on $800.0MM of cash and no debt and assumed $50.0MM in golden
parachute liabilities.
(2) Based on MSDW research.
(3) Discounted to 3/21/00.
21
<PAGE> 31
================================================================================
OPERATING BUSINESS VALUATION
================================================================================
HISTORICAL AGGREGATE VALUE / REVENUE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGGREGATE VALUE / REVENUE
(X)
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
REVENUE MULTIPLE
------------------------------------------------------
DATE MXTR WDC HDD CURRENT PROPOSAL
- -------- ---- ----- ----- ----------------
<S> <C> <C> <C> <C>
3/21/00 0.51 x 0.41 x 0.17 x 0.18 x
3/20/00 0.47 0.40 0.18 0.18
3/17/00 0.51 0.42 0.17 0.18
3/16/00 0.51 0.43 0.16 0.18
3/15/00 0.47 0.37 0.13 0.18
3/14/00 0.47 0.39 0.13 0.18
3/13/00 0.50 0.39 0.15 0.18
3/10/00 0.46 0.30 0.12 0.18
3/9/00 0.47 0.32 0.14 0.18
3/8/00 0.40 0.27 0.12 0.18
3/7/00 0.37 0.27 0.11 0.18
3/6/00 0.33 0.28 0.11 0.18
3/3/00 0.31 0.27 0.10 0.18
3/2/00 0.31 0.28 0.11 0.18
3/1/00 0.33 0.28 0.12 0.18
2/29/00 0.30 0.27 0.09 0.18
2/28/00 0.26 0.24 0.08 0.18
2/25/00 0.23 0.24 0.07 0.18
2/24/00 0.24 0.25 0.08 0.18
2/23/00 0.25 0.26 0.09 0.18
2/22/00 0.22 0.25 0.09 0.18
2/18/00 0.23 0.26 0.08 0.18
2/17/00 0.24 0.27 0.08 0.18
2/16/00 0.24 0.27 0.09 0.18
2/15/00 0.24 0.27 0.09 0.18
2/14/00 0.22 0.28 0.09 0.18
2/11/00 0.23 0.29 0.09 0.18
2/10/00 0.24 0.28 0.09 0.18
2/9/00 0.25 0.29 0.09 0.18
2/8/00 0.25 0.30 0.09 0.18
2/7/00 0.26 0.31 0.09 0.18
2/4/00 0.27 0.30 0.10 0.18
2/3/00 0.27 0.30 0.10 0.18
2/2/00 0.27 0.28 0.10 0.18
2/1/00 0.27 0.28 0.10 0.18
1/31/00 0.24 0.28 0.08 0.18
1/28/00 0.27 0.28 0.08 0.18
1/27/00 0.28 0.27 0.09 0.18
1/26/00 0.30 0.30 0.09 0.18
1/25/00 0.29 0.31 0.09 0.18
1/24/00 0.28 0.28 0.10 0.18
1/21/00 0.30 0.30 0.12 0.18
1/20/00 0.31 0.32 0.16 0.18
1/19/00 0.31 0.34 0.14 0.18
1/18/00 0.31 0.30 0.13 0.18
1/14/00 0.30 0.27 0.12 0.18
</TABLE>
22
<PAGE> 32
<TABLE>
<S> <C> <C> <C> <C>
1/13/00 0.30 0.26 0.12 0.18
1/12/00 0.29 0.27 0.12 0.18
1/11/00 0.29 0.31 0.10 0.18
1/10/00 0.31 0.29 0.11 0.18
1/7/00 0.28 0.33 0.11 0.18
1/6/00 0.26 0.27 0.10 0.18
1/5/00 0.25 0.26 0.09 0.18
1/4/00 0.24 0.27 0.10 0.18
1/3/00 0.26 0.24 0.09 0.18
12/31/99 0.26 0.25 0.07 0.18
12/30/99 0.25 0.23 0.06 0.18
12/29/99 0.23 0.23 0.05 0.18
12/28/99 0.22 0.22 0.06 0.18
12/27/99 0.22 0.23 0.07 0.18
12/23/99 0.23 0.23 0.06 0.18
12/22/99 0.22 0.23 0.07 0.18
12/21/99 0.21 0.23 0.07 0.18
12/20/99 0.22 0.24 0.07 0.18
12/17/99 0.23 0.25 0.07 0.18
12/16/99 0.18 0.24 0.06 0.18
12/15/99 0.18 0.22 0.04 0.18
12/14/99 0.18 0.22 0.05 0.18
12/13/99 0.18 0.22 0.05 0.18
12/10/99 0.18 0.22 0.05 0.18
12/9/99 0.19 0.22 0.06 0.18
12/8/99 0.21 0.22 0.06 0.18
12/7/99 0.21 0.23 0.06 0.18
12/6/99 0.21 0.23 0.06 0.18
12/3/99 0.20 0.23 0.07 0.18
12/2/99 0.20 0.23 0.06 0.18
12/1/99 0.20 0.23 0.06 0.18
11/30/99 0.21 0.23 0.07 0.18
11/29/99 0.22 0.25 0.06 0.18
11/26/99 0.23 0.23 0.06 0.18
11/24/99 0.23 0.23 0.06 0.18
11/23/99 0.23 0.23 0.06 0.18
11/22/99 0.24 0.23 0.08 0.18
11/19/99 0.24 0.23 0.08 0.18
11/18/99 0.26 0.24 0.08 0.18
11/17/99 0.26 0.24 0.08 0.18
11/16/99 0.25 0.23 0.07 0.18
11/15/99 0.25 0.23 0.07 0.18
11/12/99 0.25 0.23 0.07 0.18
11/11/99 0.23 0.23 0.07 0.18
11/10/99 0.26 0.25 0.08 0.18
11/9/99 0.20 0.20 0.06 0.18
11/8/99 0.20 0.19 0.05 0.18
11/5/99 0.19 0.18 0.04 0.18
11/4/99 0.17 0.18 0.04 0.18
11/3/99 0.17 0.20 0.04 0.18
11/2/99 0.17 0.20 0.04 0.18
11/1/99 0.18 0.20 0.05 0.18
</TABLE>
<PAGE> 33
<TABLE>
<S> <C> <C> <C> <C>
10/29/99 0.18 0.20 0.05 0.18
10/28/99 0.17 0.20 0.05 0.18
10/27/99 0.16 0.20 0.04 0.18
10/26/99 0.16 0.19 0.05 0.18
10/25/99 0.17 0.19 0.06 0.18
10/22/99 0.18 0.21 0.04 0.18
10/21/99 0.18 0.21 0.04 0.18
10/20/99 0.19 0.21 0.04 0.18
10/19/99 0.18 0.21 0.04 0.18
10/18/99 0.19 0.21 0.04 0.18
10/15/99 0.19 0.22 0.04 0.18
10/14/99 0.20 0.22 0.05 0.18
10/13/99 0.19 0.22 0.05 0.18
10/12/99 0.21 0.22 0.06 0.18
10/11/99 0.21 0.23 0.06 0.18
10/8/99 0.22 0.22 0.04 0.18
10/7/99 0.22 0.23 0.05 0.18
10/6/99 0.22 0.24 0.06 0.18
10/5/99 0.22 0.23 0.06 0.18
10/4/99 0.23 0.24 0.07 0.18
10/1/99 0.23 0.25 0.07 0.18
9/30/99 0.23 0.23 0.08 0.18
9/29/99 0.22 0.23 0.07 0.18
9/28/99 0.21 0.24 0.06 0.18
9/27/99 0.21 0.25 0.08 0.18
9/24/99 0.19 0.26 0.08 0.18
9/23/99 0.20 0.27 0.07 0.18
9/22/99 0.21 0.26 0.08 0.18
9/21/99 0.21 0.25 0.09 0.18
9/20/99 0.20 0.27 0.09 0.18
9/17/99 0.21 0.28 0.10 0.18
9/16/99 0.21 0.27 0.09 0.18
9/15/99 0.23 0.29 0.11 0.18
9/14/99 0.24 0.30 0.10 0.18
9/13/99 0.24 0.31 0.12 0.18
9/10/99 0.25 0.31 0.12 0.18
9/9/99 0.25 0.32 0.12 0.18
9/8/99 0.24 0.33 0.11 0.18
9/7/99 0.26 0.34 0.11 0.18
9/3/99 0.26 0.35 0.10 0.18
9/2/99 0.25 0.35 0.10 0.18
9/1/99 0.23 0.37 0.09 0.18
8/31/99 0.22 0.35 0.07 0.18
8/30/99 0.22 0.33 0.07 0.18
8/27/99 0.21 0.32 0.08 0.18
8/26/99 0.22 0.33 0.09 0.18
8/25/99 0.22 0.34 0.10 0.18
8/24/99 0.23 0.34 0.09 0.18
8/23/99 0.22 0.33 0.09 0.18
8/20/99 0.22 0.34 0.10 0.18
8/19/99 0.24 0.39 0.12 0.18
8/18/99 0.22 0.33 0.10 0.18
</TABLE>
<PAGE> 34
<TABLE>
<S> <C> <C> <C> <C>
8/17/99 0.20 0.28 0.07 0.18
8/16/99 0.18 0.26 0.08 0.18
8/13/99 0.16 0.23 0.07 0.18
8/12/99 0.16 0.22 0.06 0.18
8/11/99 0.16 0.23 0.07 0.18
8/10/99 0.16 0.23 0.05 0.18
8/9/99 0.16 0.23 0.05 0.18
8/6/99 0.16 0.24 0.05 0.18
8/5/99 0.16 0.25 0.05 0.18
8/4/99 0.16 0.24 0.06 0.18
8/3/99 0.17 0.25 0.08 0.18
8/2/99 0.18 0.27 0.08 0.18
7/30/99 0.18 0.29 0.07 0.18
7/29/99 0.17 0.29 0.08 0.18
7/28/99 0.17 0.29 0.08 0.18
7/27/99 0.16 0.29 0.06 0.18
7/26/99 0.15 0.29 0.06 0.18
7/23/99 0.16 0.30 N/A 0.18
7/22/99 0.16 0.33 N/A 0.18
7/21/99 0.16 0.35 N/A 0.18
7/20/99 0.16 0.34 N/A 0.18
7/19/99 0.16 0.35 N/A 0.18
7/16/99 0.17 0.36 N/A 0.18
7/15/99 0.21 0.39 N/A 0.18
7/14/99 0.22 0.40 N/A 0.18
7/13/99 0.18 0.34 N/A 0.18
7/12/99 0.18 0.35 N/A 0.18
7/9/99 0.18 0.36 N/A 0.18
7/8/99 0.17 0.36 N/A 0.18
7/7/99 0.18 0.37 N/A 0.18
7/6/99 0.18 0.37 N/A 0.18
7/2/99 0.17 0.37 N/A 0.18
7/1/99 0.17 0.37 N/A 0.18
6/30/99 0.16 0.37 N/A 0.18
6/29/99 0.14 0.36 N/A 0.18
6/28/99 0.14 0.37 N/A 0.18
6/25/99 0.14 0.36 N/A 0.18
6/24/99 0.14 0.37 N/A 0.18
6/23/99 0.15 0.38 N/A 0.18
6/22/99 0.15 0.38 N/A 0.18
6/21/99 0.15 0.38 N/A 0.18
6/18/99 0.15 0.38 N/A 0.18
6/17/99 0.15 0.37 N/A 0.18
6/16/99 0.15 0.39 N/A 0.18
6/15/99 0.14 0.39 N/A 0.18
6/14/99 0.17 0.41 N/A 0.18
6/11/99 0.18 0.42 N/A 0.18
6/10/99 0.18 0.43 N/A 0.18
6/9/99 0.17 0.44 N/A 0.18
6/8/99 0.17 0.42 N/A 0.18
6/7/99 0.19 0.44 N/A 0.18
6/4/99 0.18 0.43 N/A 0.18
</TABLE>
<PAGE> 35
<TABLE>
<S> <C> <C> <C> <C>
6/3/99 0.19 0.44 N/A 0.18
6/2/99 0.20 0.44 N/A 0.18
6/1/99 0.20 0.45 N/A 0.18
5/28/99 0.20 0.45 N/A 0.18
5/27/99 0.20 0.44 N/A 0.18
5/26/99 0.20 0.44 N/A 0.18
5/25/99 0.21 0.47 N/A 0.18
5/24/99 0.21 0.49 N/A 0.18
5/21/99 0.23 0.50 N/A 0.18
5/20/99 0.23 0.52 N/A 0.18
5/19/99 0.24 0.50 N/A 0.18
5/18/99 0.25 0.50 N/A 0.18
5/17/99 0.27 0.50 N/A 0.18
5/14/99 0.26 0.51 N/A 0.18
5/13/99 0.25 0.51 N/A 0.18
5/12/99 0.27 0.49 N/A 0.18
5/11/99 0.26 0.47 N/A 0.18
5/10/99 0.24 0.47 N/A 0.18
5/7/99 0.22 0.43 N/A 0.18
5/6/99 0.22 0.43 N/A 0.18
5/5/99 0.23 0.44 N/A 0.18
5/4/99 0.22 0.43 N/A 0.18
5/3/99 0.22 0.45 N/A 0.18
4/30/99 0.19 0.46 N/A 0.18
4/29/99 0.17 0.47 N/A 0.18
4/28/99 0.19 0.46 N/A 0.18
4/27/99 0.19 0.50 N/A 0.18
4/26/99 0.18 0.42 N/A 0.18
4/23/99 0.19 0.43 N/A 0.18
4/22/99 0.28 0.42 N/A 0.18
4/21/99 0.25 0.38 N/A 0.18
4/20/99 0.24 0.40 N/A 0.18
4/19/99 0.25 0.40 N/A 0.18
4/16/99 0.28 0.40 N/A 0.18
4/15/99 0.27 0.41 N/A 0.18
4/14/99 0.31 0.40 N/A 0.18
4/13/99 0.30 0.40 N/A 0.18
4/12/99 0.28 0.42 N/A 0.18
4/9/99 0.29 0.41 N/A 0.18
4/8/99 0.29 0.42 N/A 0.18
4/7/99 0.27 0.42 N/A 0.18
4/6/99 0.26 0.43 N/A 0.18
4/5/99 0.27 0.44 N/A 0.18
4/1/99 0.27 0.45 N/A 0.18
3/31/99 0.25 0.45 N/A 0.18
3/30/99 0.25 0.45 N/A 0.18
3/29/99 0.26 0.47 N/A 0.18
3/26/99 0.26 0.48 N/A 0.18
3/25/99 0.28 0.48 N/A 0.18
3/24/99 0.25 0.48 N/A 0.18
3/23/99 0.28 0.49 N/A 0.18
3/22/99 0.29 0.49 N/A 0.18
</TABLE>
<PAGE> 36
<TABLE>
<S> <C> <C> <C> <C>
3/19/99 0.31 0.52 N/A 0.18
</TABLE>
================================================================================
<PAGE> 37
================================================================================
OPERATING BUSINESS VALUATION
================================================================================
HISTORICAL FINANCIAL PERFORMANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL(1) ESTIMATED PROJECTED - BASE CASE
----------------------------------------------- --------- --------- ----------------------------------
1995A 1996A 1997A 1998A 1999A 2000E 2001E 2002E 2003E
-------- -------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total Revenue $7,256.2 $8,588.4 $8,507.4 $6,522.2 $6,539.2 $6,619.0 $7,417.1 $8,563.8 $9,503.5
% Growth 18.4% N.M. (23.3%) 0.3% 1.2% 12.1% 15.5% 11.0%
Gross Profit 1,373.4 1,581.0 1,846.8 820.1 1,357.1 1,261.3 1,405.8 1,692.1 2,042.1
% of Sales 18.9% 18.4% 21.7% 12.6% 20.8% 19.1% 19.0% 19.8% 21.5%
EBITA 495.2 575.6 1,021.2 (144.3) 360.5 141.3 188.8 316.1 448.9
% of Sales 6.8% 6.7% 12.0% (2.2%) 5.5% 2.1% 2.5% 3.7% 4.7%
</TABLE>
Note:
(1) Data from 1997 onwards excludes NSMG contribution.
23
<PAGE> 38
================================================================================
OPERATING BUSINESS VALUATION
================================================================================
COMPARISON OF PROJECTIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPARISON OF PROJECTIONS
--------------------------------------------------------------------------------------------------------
REVENUES ($MM) GROSS MARGIN (%)
------------------------------------------------- ----------------------------------------------------
Sensitivity Sensitivity
Year Base Case Upside Case SLP Case Case Base Case Upside Case SLP Case Case
- ----- --------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997A $ 8,507.4 21.7%
1998A 6,522.2 12.6
1999A 6,539.2 20.8
2000E 6,619.0 $ 6,619.0 $ 6,619.0 $ 6,619.0 19.1 19.1% 19.1% 19.1%
2001E 7,417.1 8,185.1 7,393.2 7,417.1 19.0 19.5 18.9 18.1
2002E 8,563.8 10,145.9 7,797.4 8,563.8 19.8 22.4 19.4 18.9
2003E 9,503.5 11,283.1 8,309.7 9,503.5 21.5 23.0 19.4 19.3
2004E 10,416.3 12,626.1 8,801.2 10,416.3 22.2 23.7 19.3 20.1
2005E 11,359.0 13,960.5 9,269.1 11,359.0 23.1 24.5 19.4 21.1
2006E 12,349.7 15,404.2 9,759.1 12,349.7 24.5 25.4 19.6 22.1
2007E 13,582.6 17,131.5 10,355.1 13,582.6 26.0 26.8 20.3 23.8
2008E 15,132.2 19,298.7 11,087.7 15,132.2 27.8 28.2 21.2 25.7
</TABLE>
================================================================================
24
<PAGE> 39
================================================================================
OPERATING BUSINESS VALUATION
================================================================================
COMPARISON OF PROJECTIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPARISON OF PROJECTIONS
- -----------------------------------------------------------------------------------------------------------------
EBITA ($MM) EBITA MARGIN (%)
------------------------------------------------- ----------------------------------------------------
Sensitivity Sensitivity
Year Base Case Upside Case SLP Case Case Base Case Upside Case SLP Case Case
- ----- --------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997A $ 1,021.2 12.0%
1998A -144.3 -2.2
1999A 360.5 5.5
2000E 141.3 $ 141.3 $ 141.3 $ 141.3 2.1 2.1% 2.1% 2.1%
2001E 188.8 364.5 188.8 124.7 2.5 4.5 2.6 1.7
2002E 316.1 689.0 322.1 242.3 3.7 6.8 4.1 2.8
2003E 448.9 782.6 363.2 242.1 4.7 6.9 4.4 2.5
2004E 498.6 866.8 377.9 281.5 4.8 6.9 4.3 2.7
2005E 613.9 999.8 403.4 385.9 5.4 7.2 4.4 3.4
2006E 724.2 1167.0 406.5 436.4 5.9 7.6 4.2 3.5
2007E 842.1 1348.9 443.2 539.8 6.2 7.9 4.3 4.0
2008E 988.2 1563.3 492.8 670.8 6.5 8.1 4.4 4.4
</TABLE>
================================================================================
25
<PAGE> 40
- - ALL OF THE PROJECTIONS REFLECT FINANCIAL IMPROVEMENT VERSUS 2000E RESULTS
- - GIVEN THE CYCLICALITY OF THE DRIVES BUSINESS, FUTURE EARNINGS ARE DIFFICULT
TO PREDICT
================================================================================
OPERATING BUSINESS VALUATION
================================================================================
FUTURE PROFITABILITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROJECTED FUTURE PROFITABILITY
- ----------------------------------------------------------------------------------------
EBITA ($MM)
----------------------------------------------------------------
DRIVES SOFTWARE TAPES SAN / NAS CONSUMER
------ -------- ------- --------- --------
<S> <C> <C> <C> <C> <C>
2000 $117.0 ($28.0) $ 23.0 $ 1.3 ($16.0)
2003-Sensitivity 144.8 41.3 39.1 12.0 5.0
2003-Buyer 298.4 22.8 36.0 6.0 0.0
2003-Base 351.6 41.3 39.1 12.0 5.0
2003-Upside 635.5 41.3 39.1 25.5 41.3
</TABLE>
================================================================================
26
<PAGE> 41
================================================================================
SECTION 5
================================================================================
VENUS OVERVIEW
- --------------------------------------------------------------------------------
<PAGE> 42
================================================================================
VENUS OVERVIEW
================================================================================
VENUS STOCK PRICE PERFORMANCE
LAST TWELVE MONTHS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DATE VOLUME (000'S) PRICE
- -------- -------------- --------
<S> <C> <C> <C>
3/19/99 2,588.4 $ 19.40
3/22/99 2,323.4 18.72
3/23/99 4,455.5 16.76
3/24/99 4,374.9 17.42
3/25/99 4,068.0 17.69
3/26/99 2,339.1 17.17
3/29/99 3,135.6 19.25
3/30/99 2,318.0 18.90
3/31/99 2,689.2 17.94
4/1/99 1,107.9 18.28
4/5/99 2,669.0 19.50
4/6/99 2,207.7 19.72
4/7/99 6,528.2 18.28
4/8/99 6,229.4 17.44
4/9/99 3,214.8 17.67
4/12/99 2,558.7 17.51
4/13/99 2,951.6 18.36
4/14/99 5,129.6 19.19
4/15/99 4,016.7 18.53 < April 15, 1999 - Announces 1Q99 revenues of
4/16/99 6,046.7 17.94 $71.9MM, up 84% Y/Y, and EPS of $0.06, up 45% Y/Y
4/19/99 10,915.2 14.25
4/20/99 7,219.8 15.36
4/21/99 3,730.5 15.61
4/22/99 4,271.0 16.14
4/23/99 3,118.1 16.92
4/26/99 3,351.6 16.75
4/27/99 2,849.4 15.68
4/28/99 8,463.2 15.08
4/29/99 4,913.1 14.29
4/30/99 3,765.6 15.78
5/3/99 2,471.4 16.00
5/4/99 4,438.8 16.21
5/5/99 6,324.3 16.22
5/6/99 2,763.0 16.11
5/7/99 3,077.6 15.75
5/10/99 3,123.0 15.44
5/11/99 2,332.4 16.03
5/12/99 4,878.5 16.63
5/13/99 7,093.4 17.32
5/14/99 6,663.6 17.56
5/17/99 2,088.5 17.51
5/18/99 4,417.7 18.11
5/19/99 3,461.0 18.19
5/20/99 5,087.7 17.92
5/21/99 1,494.0 17.92
5/24/99 3,691.8 17.64
5/25/99 3,231.0 17.56
</TABLE>
28
<PAGE> 43
<TABLE>
<S> <C> <C> <C>
5/26/99 7,851.2 18.24
5/27/99 15,427.4 19.65
5/28/99 8,571.6 19.61
6/1/99 11,040.8 19.69
6/2/99 6,521.0 19.99
6/3/99 4,578.3 19.82
6/4/99 5,519.7 20.78
6/7/99 8,307.9 21.58 < June 7, 1999 - Announces 2-for-1 stock split
6/8/99 5,582.7 21.03
6/9/99 3,935.7 20.75
6/10/99 3,483.9 19.96
6/11/99 2,894.0 19.99
6/14/99 5,490.0 19.61
6/15/99 2,339.6 19.85
6/16/99 6,268.5 20.00
6/17/99 2,599.7 19.79
6/18/99 3,864.2 19.78 < June 18, 1999 - Adopts shareholder rights plan
6/21/99 5,574.2 20.67
6/22/99 6,844.5 21.00
6/23/99 2,653.2 21.14
6/24/99 2,914.2 20.78
6/25/99 2,231.6 20.44
6/28/99 2,158.2 20.83
6/29/99 3,461.4 20.69
6/30/99 4,742.6 21.10
7/1/99 3,456.5 20.86
7/2/99 2,541.2 21.39
7/6/99 7,449.3 23.53
7/7/99 4,715.6 22.99
7/8/99 3,398.4 23.17
7/9/99 1,627.7 23.11
7/12/99 3,938.4 22.14
7/13/99 2,138.4 22.67
7/14/99 2,948.4 23.67
7/15/99 2,989.1 23.69 < July 15, 1999 - Announces 2Q99 revenues of
7/16/99 10,101.6 27.19 $155.7MM, up 70% Y/Y, and EPS of $0.97, up 51%
7/19/99 4,661.6 27.89 < July 19, 1999 - Terry Cunningham resigns as
7/20/99 7,461.9 25.56 President and Chief Operating Officer
7/21/99 6,146.6 26.22
7/22/99 3,936.8 26.58
7/23/99 2,558.3 27.11
7/26/99 3,112.2 25.44
7/27/99 7,606.1 24.28
7/28/99 3,552.8 24.46
7/29/99 3,183.8 23.42
7/30/99 2,375.3 24.94
8/2/99 2,183.2 24.56
8/3/99 2,813.2 24.28
8/4/99 2,110.1 23.72
8/5/99 5,115.8 24.86
8/6/99 2,431.6 23.72
8/9/99 4,244.4 22.14 < August 8, 1999 - Acquires assets of Noview for
undisclosed terms
</TABLE>
<PAGE> 44
<TABLE>
<S> <C> <C> <C>
8/10/99 18,937.1 21.81
8/11/99 8,119.1 23.75
8/12/99 5,185.6 22.86
8/13/99 4,044.4 23.33
8/16/99 5,060.9 24.14
8/17/99 3,904.7 24.44
8/18/99 2,178.7 24.31
8/19/99 2,180.5 23.39
8/20/99 5,815.8 26.14
8/23/99 7,795.6 27.25
8/24/99 4,291.2 27.11
8/25/99 2,353.1 27.50
8/26/99 1,738.6 27.25
8/27/99 2,578.1 26.28
8/30/99 1,567.1 25.74
8/31/99 2,098.6 26.33
9/1/99 2,652.1 27.44
9/2/99 3,730.1 27.97
9/3/99 4,974.8 29.17
9/7/99 2,600.1 29.28
9/8/99 3,169.6 30.03
9/9/99 3,258.2 31.49
9/10/99 4,839.1 31.54
9/13/99 4,855.3 29.61
9/14/99 3,970.4 30.50
9/15/99 4,519.4 31.19
9/16/99 3,336.3 31.83
9/17/99 5,405.0 34.69
9/20/99 3,927.6 34.47
9/21/99 3,431.3 33.47
9/22/99 2,967.3 35.33
9/23/99 2,537.8 34.17
9/24/99 4,168.6 34.33
9/27/99 3,140.3 34.14
9/28/99 4,052.7 35.67
9/29/99 3,808.1 34.04
9/30/99 6,537.6 33.75
10/1/99 4,090.5 32.94
10/4/99 3,339.5 34.71
10/5/99 8,388.7 37.78 < October 5, 1999 - Announces agreement with
10/6/99 4,331.7 38.03 Microsoft to provide data-protection software to
10/7/99 3,647.9 36.92 Microsoft
10/8/99 3,010.1 36.47
10/11/99 2,786.0 38.47
10/12/99 3,123.2 37.56
10/13/99 2,460.4 36.94
10/14/99 3,924.0 36.21 < October 14, 1999 - Announces 3Q99 revenues of
10/15/99 12,585.4 40.49 $183.4MM, up 75% Y/Y, and EPS of $0.09, up 76%
10/18/99 12,255.8 37.67 Y/Y; also announces 3-for-2 stock split
10/19/99 5,020.4 37.44
10/20/99 6,399.5 40.06
10/21/99 4,926.6 41.31
</TABLE>
<PAGE> 45
<TABLE>
<S> <C> <C> <C>
10/22/99 5,819.0 41.86
10/25/99 3,436.2 41.75
10/26/99 3,185.6 39.92
10/27/99 4,008.4 41.61
10/28/99 6,510.8 44.94
10/29/99 6,155.6 47.94
11/1/99 4,491.2 47.11
11/2/99 5,449.7 46.56
11/3/99 6,678.9 47.64
11/4/99 9,453.8 48.36
11/5/99 6,780.2 48.03
11/8/99 5,043.2 49.11
11/9/99 7,067.9 51.06
11/10/99 4,122.2 51.50
11/11/99 3,770.3 50.53 < November 11, 1999 - Announces that it plans to
11/12/99 3,546.7 51.58 release new versions of its products that run on
11/15/99 3,813.8 53.39 multiple operating systems
11/16/99 5,587.7 58.19
11/17/99 5,731.0 57.56
11/18/99 5,397.1 61.39
11/19/99 8,323.2 64.67
11/22/99 6,625.5 68.71
11/23/99 6,042.5 67.08
11/24/99 3,672.6 68.00
11/26/99 1,366.1 69.83
11/29/99 4,280.1 66.79
11/30/99 10,845.8 61.04
12/1/99 5,845.5 62.83
12/2/99 4,778.7 66.25
12/3/99 5,847.3 70.75
12/6/99 3,851.6 69.42
12/7/99 3,027.9 69.00
12/8/99 5,064.5 69.67
12/9/99 5,503.7 71.96
12/10/99 3,990.8 72.71
12/13/99 3,546.5 71.71
12/14/99 3,136.8 68.50
12/15/99 4,928.7 72.13
12/16/99 6,672.3 75.33
12/17/99 7,726.2 78.31
12/20/99 3,943.7 83.58
12/21/99 5,455.8 82.63
12/22/99 3,536.0 89.67
12/23/99 4,334.1 95.42
12/27/99 4,469.7 89.08
12/28/99 2,682.2 90.04
12/29/99 2,488.5 93.33
12/30/99 2,785.2 91.25
12/31/99 3,435.9 95.42
1/3/00 5,201.9 94.67
1/4/00 5,553.3 86.88
1/5/00 8,132.9 84.79
</TABLE>
<PAGE> 46
<TABLE>
<S> <C> <C> <C>
1/6/00 6,312.5 76.04
1/7/00 8,425.1 83.00
1/10/00 9,742.7 95.88
1/11/00 5,247.8 88.04
1/12/00 5,166.0 84.00
1/13/00 4,296.8 93.00
1/14/00 4,891.2 97.61
1/18/00 3,276.0 98.42
1/19/00 2,645.6 98.50
1/20/00 5,800.4 103.83
1/21/00 6,030.8 114.38
1/24/00 8,909.4 100.83
1/25/00 5,244.6 106.63
1/26/00 4,091.9 104.75
1/27/00 5,247.3 105.17 < January 27, 2000 - Announces 4Q99 revenues of
1/28/00 13,607.0 102.67 $226.2MM, up 80% Y/Y, and EPS of $0.13, up 46%
1/31/00 6,764.0 97.25 Y/Y; also announces 3-for-2 stock split
2/1/00 5,081.1 103.13
2/2/00 4,901.9 102.42
2/3/00 3,907.7 103.71
2/4/00 6,167.3 104.63
2/7/00 3,489.3 103.92
2/8/00 6,392.9 113.13
2/9/00 4,644.6 109.83
2/10/00 4,622.1 118.92
2/11/00 3,665.1 115.01
2/14/00 2,609.3 112.38
2/15/00 4,359.3 110.67
2/16/00 3,740.0 110.79
2/17/00 2,913.6 115.67
2/18/00 4,621.7 115.38
2/22/00 3,595.7 114.63
2/23/00 5,486.9 122.08
2/24/00 5,214.0 126.50
2/25/00 4,142.3 120.79
2/28/00 4,318.8 125.38
2/29/00 4,124.9 131.92
3/1/00 3,965.1 134.17
3/2/00 3,619.7 136.42
3/3/00 5,690.9 148.25
3/6/00 5,443.6 159.06
3/7/00 5,648.7 163.69
3/8/00 5,231.9 158.81
3/9/00 4,972.5 162.94
3/10/00 4,819.2 168.69
3/13/00 4,886.2 165.75
3/14/00 4,164.1 154.75
3/15/00 8,699.3 133.44
3/16/00 8,592.2 151.75
3/17/00 4,678.7 164.38
3/20/00 6,372.9 142.50
3/21/00 7,392.6 148.56
</TABLE>
<PAGE> 47
================================================================================
Source: Factset and Bloomberg
<PAGE> 48
================================================================================
VENUS OVERVIEW
================================================================================
INDEXED PRICE PERFORMANCE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LAST TWELVE MONTHS
INDEX
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LTM INDEX (BASE 100)
-------------------------------------------------------------
DATE VENUS COMPARABLES (1) NASDAQ S&P500
- --------- ------- --------------- ------ ------
<S> <C> <C> <C> <C>
19-Mar-99 100.0 100.0 100.0 100.0
22-Mar-99 96.5 97.6 99.0 99.8
23-Mar-99 86.4 92.2 95.9 97.1
24-Mar-99 89.8 97.1 97.7 97.6
25-Mar-99 91.2 100.1 100.6 99.3
26-Mar-99 88.5 100.9 99.9 98.7
29-Mar-99 99.2 103.6 103.0 100.8
30-Mar-99 97.4 103.0 102.4 100.1
31-Mar-99 92.5 101.4 101.7 99.0
1-Apr-99 94.2 99.1 103.0 99.6
5-Apr-99 100.5 96.7 105.7 101.7
6-Apr-99 101.6 92.2 105.9 101.4
7-Apr-99 94.2 88.8 105.1 102.1
8-Apr-99 89.9 92.4 106.3 103.4
9-Apr-99 91.1 94.4 107.1 103.8
12-Apr-99 90.3 92.9 107.3 104.6
13-Apr-99 94.6 89.6 106.7 103.9
14-Apr-99 98.9 91.8 103.6 102.2
15-Apr-99 95.5 92.5 104.2 101.8
16-Apr-99 92.5 89.4 102.6 101.5
19-Apr-99 73.4 83.1 96.9 99.2
20-Apr-99 79.2 86.4 99.5 100.5
21-Apr-99 80.5 93.0 102.8 102.8
22-Apr-99 83.2 98.6 105.8 104.6
23-Apr-99 87.2 99.4 107.0 104.4
26-Apr-99 86.3 104.1 109.5 104.7
27-Apr-99 80.8 103.2 107.5 104.9
28-Apr-99 77.7 100.9 105.3 104.0
29-Apr-99 73.7 98.1 104.4 103.4
30-Apr-99 81.3 99.0 105.0 102.8
3-May-99 82.5 98.1 104.7 104.3
4-May-99 83.5 95.0 102.6 102.5
5-May-99 83.6 96.2 104.7 103.7
6-May-99 83.0 94.3 102.1 102.5
7-May-99 81.2 95.3 103.4 103.5
10-May-99 79.6 96.3 104.3 103.2
11-May-99 82.6 100.2 106.0 104.3
12-May-99 85.7 102.6 107.7 105.0
13-May-99 89.3 100.6 106.6 105.3
14-May-99 90.5 100.2 104.4 103.0
17-May-99 90.3 102.0 105.8 103.1
18-May-99 93.3 101.7 105.7 102.6
19-May-99 93.8 105.2 106.4 103.5
20-May-99 92.3 105.5 105.0 103.0
21-May-99 92.3 104.5 104.1 102.4
24-May-99 90.9 103.2 101.3 100.6
25-May-99 90.5 100.1 98.3 98.9
</TABLE>
29
<PAGE> 49
<TABLE>
<S> <C> <C> <C> <C>
26-May-99 94.0 101.1 100.2 100.4
27-May-99 101.3 101.5 99.9 98.6
28-May-99 101.1 104.2 102.0 100.2
1-Jun-99 101.5 103.9 99.6 99.6
2-Jun-99 103.0 105.5 100.5 99.7
3-Jun-99 102.1 106.7 99.3 100.0
4-Jun-99 107.1 110.6 102.4 102.2
7-Jun-99 111.2 113.9 104.3 102.7
8-Jun-99 108.4 110.6 102.2 101.4
9-Jun-99 106.9 110.1 104.1 101.5
10-Jun-99 102.9 109.1 102.6 100.3
11-Jun-99 103.0 107.8 101.1 99.6
14-Jun-99 101.1 106.1 99.1 99.6
15-Jun-99 102.3 106.9 99.7 100.1
16-Jun-99 103.1 119.8 104.0 102.4
17-Jun-99 102.0 123.0 105.1 103.1
18-Jun-99 101.9 123.4 105.9 103.4
21-Jun-99 106.5 126.7 108.6 103.8
22-Jun-99 108.2 125.7 106.6 102.8
23-Jun-99 108.9 126.8 107.3 102.6
24-Jun-99 107.1 124.4 105.5 101.3
25-Jun-99 105.4 126.6 105.4 101.2
28-Jun-99 107.4 129.2 107.5 102.5
29-Jun-99 106.7 130.4 109.1 104.0
30-Jun-99 108.7 133.5 110.9 105.7
1-Jul-99 107.5 134.0 111.8 106.3
2-Jul-99 110.2 135.7 113.2 107.1
6-Jul-99 121.3 135.5 113.0 106.8
7-Jul-99 118.5 136.3 113.3 107.4
8-Jul-99 119.4 137.7 114.5 107.3
9-Jul-99 119.1 138.6 115.4 108.0
12-Jul-99 114.1 138.3 115.2 107.7
13-Jul-99 116.8 136.8 114.7 107.3
14-Jul-99 122.0 136.9 116.4 107.6
15-Jul-99 122.1 140.5 117.3 108.5
16-Jul-99 140.2 145.8 118.3 109.2
19-Jul-99 143.7 145.0 116.9 108.3
20-Jul-99 131.7 135.4 112.8 106.0
21-Jul-99 135.1 140.4 114.1 106.2
22-Jul-99 137.0 132.3 110.9 104.7
23-Jul-99 139.7 132.7 111.2 104.4
26-Jul-99 131.1 128.3 108.2 103.7
27-Jul-99 125.1 131.3 110.7 104.9
28-Jul-99 126.1 132.9 111.8 105.1
29-Jul-99 120.7 128.9 109.0 103.2
30-Jul-99 128.6 128.3 109.0 102.3
2-Aug-99 126.6 127.2 108.4 102.2
3-Aug-99 125.1 122.9 106.9 101.8
4-Aug-99 122.3 120.9 104.9 100.5
5-Aug-99 128.1 125.7 106.0 101.1
6-Aug-99 122.3 124.9 105.2 100.1
9-Aug-99 114.1 121.9 104.0 99.9
</TABLE>
<PAGE> 50
<TABLE>
<S> <C> <C> <C> <C>
10-Aug-99 112.4 120.0 102.8 98.6
11-Aug-99 122.4 125.4 105.9 100.2
12-Aug-99 117.8 124.9 105.3 99.9
13-Aug-99 120.3 132.3 108.9 102.2
16-Aug-99 124.4 133.3 109.3 102.4
17-Aug-99 126.0 133.5 110.3 103.5
18-Aug-99 125.3 132.1 109.8 102.6
19-Aug-99 120.5 130.8 108.3 101.9
20-Aug-99 134.7 133.4 109.4 102.9
23-Aug-99 140.4 138.0 112.3 104.7
24-Aug-99 139.7 142.0 113.7 104.9
25-Aug-99 141.7 144.1 115.9 106.3
26-Aug-99 140.4 143.3 114.6 104.8
27-Aug-99 135.4 142.1 113.9 103.8
30-Aug-99 132.6 138.5 112.0 101.9
31-Aug-99 135.7 140.2 113.1 101.6
1-Sep-99 141.4 142.4 113.6 102.4
2-Sep-99 144.2 140.7 112.9 101.5
3-Sep-99 150.3 148.5 117.4 104.5
7-Sep-99 150.9 150.1 117.2 103.9
8-Sep-99 154.8 150.8 116.0 103.5
9-Sep-99 162.3 154.9 117.8 103.7
10-Sep-99 162.6 161.1 119.2 104.0
13-Sep-99 152.6 158.9 117.5 103.5
14-Sep-99 157.2 159.9 118.5 102.8
15-Sep-99 160.8 153.4 116.2 101.4
16-Sep-99 164.1 150.6 115.9 101.5
17-Sep-99 178.8 157.4 118.5 102.8
20-Sep-99 177.7 159.4 119.2 102.8
21-Sep-99 172.5 154.0 116.5 100.6
22-Sep-99 182.1 156.9 118.0 100.9
23-Sep-99 176.1 151.2 113.6 98.5
24-Sep-99 177.0 148.3 113.2 98.3
27-Sep-99 175.9 149.3 114.1 98.8
28-Sep-99 183.8 150.8 113.8 98.7
29-Sep-99 175.4 148.7 112.8 97.6
30-Sep-99 173.9 150.5 113.4 98.7
1-Oct-99 169.8 149.5 113.0 98.7
4-Oct-99 178.9 156.6 115.5 100.4
5-Oct-99 194.7 159.4 115.6 100.2
6-Oct-99 196.0 165.5 118.0 102.0
7-Oct-99 190.3 164.6 118.1 101.4
8-Oct-99 188.0 169.0 119.2 102.8
11-Oct-99 198.3 174.0 120.4 102.8
12-Oct-99 193.6 172.6 118.6 101.1
13-Oct-99 190.4 169.5 115.7 98.9
14-Oct-99 186.6 170.2 115.9 98.8
15-Oct-99 208.7 167.6 112.8 96.0
18-Oct-99 194.1 165.4 111.1 96.5
19-Oct-99 193.0 166.5 111.0 97.1
20-Oct-99 206.4 174.2 115.2 99.2
21-Oct-99 212.9 173.6 115.7 98.8
</TABLE>
<PAGE> 51
<TABLE>
<S> <C> <C> <C> <C>
22-Oct-99 215.7 175.6 116.3 100.2
25-Oct-99 215.2 177.1 116.3 99.6
26-Oct-99 205.7 178.9 116.1 98.7
27-Oct-99 214.5 178.4 115.7 99.8
28-Oct-99 231.6 185.7 118.7 103.3
29-Oct-99 247.1 197.4 122.5 104.9
1-Nov-99 242.8 201.7 122.6 104.2
2-Nov-99 239.9 201.3 123.1 103.7
3-Nov-99 245.5 205.5 125.1 104.3
4-Nov-99 249.2 206.9 126.2 104.9
5-Nov-99 247.5 216.7 128.1 105.5
8-Nov-99 253.1 219.3 129.8 106.0
9-Nov-99 263.1 213.0 129.1 105.1
10-Nov-99 265.4 219.8 130.3 105.7
11-Nov-99 260.4 222.9 132.1 106.3
12-Nov-99 265.9 225.3 133.0 107.4
15-Nov-99 275.2 227.7 133.0 107.3
16-Nov-99 299.9 233.9 136.0 109.3
17-Nov-99 296.6 241.4 135.0 108.6
18-Nov-99 316.4 249.6 138.2 109.7
19-Nov-99 333.3 248.2 139.2 109.4
22-Nov-99 354.1 245.2 140.1 109.4
23-Nov-99 345.7 239.8 138.1 108.1
24-Nov-99 350.5 245.5 141.3 109.1
26-Nov-99 359.9 247.4 142.4 109.0
29-Nov-99 344.2 244.2 141.3 108.4
30-Nov-99 314.6 239.0 137.8 106.9
1-Dec-99 323.8 242.9 138.5 107.6
2-Dec-99 341.4 254.6 142.6 108.4
3-Dec-99 364.6 271.3 145.4 110.3
6-Dec-99 357.8 276.0 146.5 109.5
7-Dec-99 355.6 284.0 148.1 108.5
8-Dec-99 359.1 280.1 148.1 108.0
9-Dec-99 370.9 286.8 148.4 108.4
10-Dec-99 374.7 294.5 149.5 109.1
13-Dec-99 369.6 293.0 151.1 108.9
14-Dec-99 353.0 285.3 147.5 108.0
15-Dec-99 371.7 299.2 149.6 108.8
16-Dec-99 388.3 307.9 153.4 109.2
17-Dec-99 403.6 309.5 155.0 109.4
20-Dec-99 430.8 315.8 156.3 109.1
21-Dec-99 425.8 330.5 161.5 110.3
22-Dec-99 462.1 343.6 162.6 110.5
23-Dec-99 491.8 346.4 163.9 112.2
27-Dec-99 459.1 340.2 164.2 112.1
28-Dec-99 464.1 339.2 164.1 112.2
29-Dec-99 481.0 343.9 166.9 112.6
30-Dec-99 470.3 343.4 166.7 112.7
31-Dec-99 491.8 338.5 168.1 113.1
3-Jan-00 487.9 339.9 170.6 112.0
4-Jan-00 447.7 318.7 161.1 107.7
5-Jan-00 437.0 309.7 160.1 107.9
</TABLE>
<PAGE> 52
<TABLE>
<S> <C> <C> <C> <C>
6-Jan-00 391.9 299.0 153.9 108.0
7-Jan-00 427.8 319.6 160.4 110.9
10-Jan-00 494.1 334.6 167.3 112.2
11-Jan-00 453.8 313.1 161.9 110.7
12-Jan-00 432.9 301.7 159.0 110.2
13-Jan-00 479.3 311.5 163.4 111.6
14-Jan-00 503.1 325.7 167.9 112.8
18-Jan-00 507.2 328.5 170.6 112.0
19-Jan-00 507.7 332.6 171.5 112.1
20-Jan-00 535.1 319.4 173.0 111.3
21-Jan-00 589.5 322.0 174.9 110.9
24-Jan-00 519.7 304.7 169.2 107.9
25-Jan-00 549.5 307.6 172.1 108.5
26-Jan-00 539.9 308.7 168.1 108.1
27-Jan-00 542.0 308.1 166.8 107.6
28-Jan-00 529.1 289.8 160.5 104.7
31-Jan-00 501.2 289.3 162.7 107.3
1-Feb-00 531.5 312.1 167.3 108.5
2-Feb-00 527.8 313.5 168.3 108.5
3-Feb-00 534.5 330.9 173.9 109.7
4-Feb-00 539.2 332.3 175.3 109.6
7-Feb-00 535.6 333.7 178.5 109.6
8-Feb-00 583.0 341.9 182.9 111.0
9-Feb-00 566.1 346.3 180.2 108.7
10-Feb-00 612.9 359.7 185.3 109.0
11-Feb-00 592.8 351.2 181.5 106.8
14-Feb-00 579.2 353.1 182.5 107.0
15-Feb-00 570.4 345.0 182.6 107.9
16-Feb-00 571.0 353.5 182.9 106.8
17-Feb-00 596.1 366.1 187.9 106.8
18-Feb-00 594.6 353.8 182.2 103.6
22-Feb-00 590.8 376.5 181.0 104.1
23-Feb-00 629.2 397.7 187.9 104.7
24-Feb-00 652.0 409.3 190.7 104.2
25-Feb-00 622.5 398.7 189.6 102.6
28-Feb-00 646.2 394.8 189.1 103.8
29-Feb-00 679.9 398.5 194.0 105.2
1-Mar-00 691.5 394.7 197.6 106.1
2-Mar-00 703.1 398.8 196.4 106.3
3-Mar-00 764.1 424.5 203.0 108.5
6-Mar-00 819.8 414.6 202.6 107.1
7-Mar-00 843.6 417.4 200.2 104.3
8-Mar-00 818.5 437.7 202.3 105.2
9-Mar-00 839.8 459.5 208.4 107.9
10-Mar-00 869.4 447.0 208.5 107.4
13-Mar-00 854.3 435.4 202.7 106.5
14-Mar-00 797.6 411.9 194.4 104.6
15-Mar-00 687.7 398.3 189.3 107.1
16-Mar-00 782.1 417.8 194.8 112.3
17-Mar-00 847.2 427.1 198.2 112.7
20-Mar-00 734.4 415.8 190.4 112.1
21-Mar-00 765.7 417.6 194.6 115.0
</TABLE>
<PAGE> 53
================================================================================
Note:
1. Comparable companies include Microsoft, Cisco, Oracle, i2 Technologies,
Siebel Systems, and Legato Systems.
<PAGE> 54
================================================================================
VENUS OVERVIEW
================================================================================
TRADING STATISTICS OF SELECTED COMPARABLE COMPANIES
- --------------------------------------------------------------------------------
[BAR GRAPH]
<TABLE>
<CAPTION>
CALENDAR YEAR 2001 ESTIMATES
---------------------------------------------------
AGG. VALUE /
COMPANY P/E RATIO P/E 5 YR GROWTH SALES
x x x
- -------------- ----------- --------------- -------------
<S> <C> <C> <C>
i2 Technologies 300 6.66 23.3
- ------------------------------------------------------------------------
Venus 222 4.43 40.5
- ------------------------------------------------------------------------
Siebel Systems 132 2.77 14.4
Cisco 96 3.20 17.4
Oracle 90 3.61 17.2
Microsoft 49 2.09 16.3
Legato Systems 38 0.76 5.3
</TABLE>
================================================================================
30
<PAGE> 55
================================================================================
SECTION 6
================================================================================
APPENDIX
- --------------------------------------------------------------------------------
<PAGE> 56
PROJECT SPACE
- --------------------------------------------------------------------------------
TRANSACTION SUMMARY -- VENUS SHARES
($MM, EXCEPT PER SHARE AMOUNTS)
VENUS SHARES
<TABLE>
<CAPTION> # OF VENUS
SHARES
----------
<S> <C>
Discount on Venus Shares 14.6257%
Exchange Factor 0.853743x
Venus Shares Held by Star 128.059967
----------
TOTAL SHARES ISSUED FOR VENUS SHARES 109.330300
</TABLE>
<TABLE>
INVESTMENTS (BASED ON 3/21/00 CLOSING PRICE)
<CAPTION>
STIPULATED VENUS
PRE-TAX LIQUIDITY POST-DISCOUNT TAX POST-TAX SHARES
VALUE DISCOUNT PRE-TAX VALUE BASIS VALUE(1) ISSUED
-------- --------- ------------- ----- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SanDisk $ 530.8 20.0% $424.6 $ 7.7 $257.9 1.735643
Gadzoox $ 217.3 40.0% $130.4 $30.6 $ 90.4 0.608830
CVC $ 85.0 40.0% $ 51.0 $11.0 $ 35.0 0.235603
Dragon(2) $ 199.4 40.0% $119.6 $36.2 $ 86.3 0.580683
-------- ------ ----- ------ ----------
Total $1.032.4 $725.6 $85.5 $469.6 3.160759
TOTAL SHARES ISSUED FOR INVESTMENTS (BASED ON 3/21/00 CLOSING PRICE) 3.160759
% of Venus Shares Held by Star 30.143%
Total Shares Issued for Venus Shares and Investments 112.491059
*Discount to Underlying Venus Shares 12.1575%
</TABLE>
CASH
<TABLE>
<CAPTION>
# OF VENUS
AMOUNT SHARES
------- ----------
<S> <C> <C>
TOTAL SHARES ISSUED FOR CASH (BASED ON 3/21/00 CLOSING PRICE) $500.00 3.365587
----------
3.365587
Total Shares Issued for Venus Shares, Investments and Cash 115.856646
*Discount to Underlying Venus Shares 9.5294%
- ------------------------------------------------------------------------------------
TOTAL VENUS SHARES ISSUED (BASED ON 3/21/00 CLOSING PRICE) 115.856646
Value of Venus Shares (based on 3/21/00 closing price)(3) $17,212.0
Total Discount on Venus Shares, Investments and Cash 9.5294%
TOTAL VALUE OF VENUS STOCK PER STAR SHARE (BASED ON
3/21/00 CLOSING PRICE)(4) $69.55
NUMBER OF VENUS SHARES PER STAR SHARE 0.468
- ------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Based on 40.0% tax rate.
(2) Dragon based on assumed value of $560MM.
(3) Reflects Venus closing price of $148.56 as of 3/21/00.
(4) Reflects total net shares in merger of 247.5MM.
<PAGE> 57
PROJECT SPACE
- --------------------------------------------------------------------------------
TRANSACTION SUMMARY - CASH
($MM, except per share amounts)
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
CASH CALCULATION
- --------------------------------------------------------------------------------
Cash at 12/99 $ 1,543.0
Plus: operating cash flow in 2H00 (before tax) $ 50.0
Plus: Q3 SanDisk Proceeds $ 468.2
Plus: Financial Buyer Proceeds $ 2,000.0
Less: Value of Options Rolled $ (200.0)
Less: Total Debt $ (705.0)
Less: Cash Assumed by Financial Buyer $ (800.0)
Less: Remaining Tax Liability $ (92.8)
Less: Cash Converted Into Venus Shares $ (500.0)
Less: Transaction Costs $ (150.0)
---------
CASH AFTER CLOSING OF TRANSACTION $ 1,613.4
- --------------------------------------------------------------------------------
TAX CALCULATION
- --------------------------------------------------------------------------------
Estimated Tax Gain for Fiscal 2000 $ 1,700.0
Plus: Financial Buyer Proceeds $ 2,000.0
Less: Value of Options Rolled $ (200.0)
Less: Current Tax Basis $(1,910.4)
Plus: Excess Cash to be Repatriated $ 732.6
Less: In-the-Money Value of Options $(1,552.8)
Plus: Golden Parachute Costs $ 100.0
---------
Total Gain $ 869.4
% Tax Rate 40.0%
Total Tax Liability $ 347.8
Less: Taxes Paid at 12/99 $ (255.0)
---------
REMAINING TAX LIABILITY $ 92.8
- --------------------------------------------------------------------------------
TAX BASIS CALCULATION
- --------------------------------------------------------------------------------
Consolidated tax basis at 12/99 $ 1,430.2
Less: Basis in Venus $ (159.6)
Less: Basis in Investments $ (85.5)
Plus: Basis in Debt $ 725.3
---------
TOTAL TAX BASIS $ 1,910.4
- --------------------------------------------------------------------------------
OVERSEAS CASH CALCULATION
- --------------------------------------------------------------------------------
Overseas Cash at 12/99 $ 1,482.6
Overseas Cash Generated in 2HFY00 $ 50.0
---------
Pro-forma Overseas Cash 6/00 $ 1,532.6
Less: Cash retained by Buyer $ (800.0)
CASH TO BE REPATRIATED $ 732.6
</TABLE>
<PAGE> 58
PROJECT SPACE
- --------------------------------------------------------------------------------
SUM-OF-PARTS VALUATION
($MM)
<TABLE>
<CAPTION>
CY 2001E IMPLIED AGG. VALUE/
AGGREGATE VALUE IMPLIED P/E(1) CY 2000E SALES(1)
---------------- --------------- ------------------
SEGMENT LOW HIGH LOW HIGH 2000E 2001E
- -------------------------------------------------------------- ------- ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Disc Drives $1,300 - $2,900 7.6x - 17.1x 0.20x - 0.45x
Assumes No Leverage
IMG (based on DCE)(1) $300 - $500 45.5x - 75.8x 1.43x - 2.38x
20.0x - 30.0x Forward P/E, 25.0% Discount Rate, No Leverage
Tape (based on comparables)(1) $100 - $200 5.0x - 10.0x 0.26x - 0.52x
5.0x - 10.0x 2001E P/E
XioTech $180 - $360
------- ------
TOTAL AGGREGATE VALUE $1,880 - $3,960 0.24x - 0.44x
Pre-Tax Value of Securities Held 0 - 0
Total Debt 0 - 0
Cash (before repatriation)(2) $750 - $750
------- ------
TOTAL EQUITY VALUE $2,630 - $4,710 16.4 x - 29.4x
</TABLE>
Notes:
(1) Based on Base Case scenario.
(2) Assumes no repatriation of cash.
<PAGE> 59
PROJECT SPACE
- --------------------------------------------------------------------------------
SUMMARY INFORMATION - INVESTMENTS
($MM, except per share data)
<TABLE>
<CAPTION>
# OF SHARES CURRENT PRE-TAX POST-TAX
ASSET HELD SHARE PRICE EQUITY VALUE TAX BASIS TAX LEAKAGE(1) EQUITY VALUE(1)
- ----------------------------------------- ----------- ----------- ------------ --------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Venus 128.1 $148.56 $19,024.9 $159.6 $7,546.1 $11,478.8
OTHER PUBLIC INVESTMENTS:
SanDisk 4.1 $130.00 $ 530.8 $ 7.7 $ 209.2 $ 321.5
Gadzoox Networks 5.1 $ 42.56 $ 217.3 $ 30.6 $ 74.7 $ 142.6
CVC 2.4 $ 35.00 $ 85.0 $ 11.0 $ 29.6 $ 55.4
--------- ------ -------- ---------
TOTAL OTHER PUBLIC INVESTMENTS: $ 833.0 $ 49.3 $ 313.5 $ 519.5
PRIVATE INVESTMENTS:
Dragon Systems(2) 6.5 $ 199.4 $ 36.2 $ 65.3 $ 134.1
iCompression $ 3.0 $ 3.0 $ 0.0 $ 3.0
Turbo Linux $ 3.0 $ 3.0 $ 0.0 $ 3.0
--------- ------ -------- ---------
TOTAL PRIVATE INVESTMENTS: $ 205.4 $ 42.2 $ 65.3 $ 140.1
--------- ------ -------- ---------
TOTAL INVESTMENTS (EXCLUDING VENUS AND CASH): $ 1,038.4 $ 91.5 $ 378.8 $ 659.6
========= ====== ======== =========
NET CASH:
Cash (including proceeds from SanDisk sales) $ 1,817.1 $346.0 $ 588.4 $ 1,228.6
Debt ($ 705.0) $ 0.0 $ 0.0 ($ 705.0)
--------- ------ -------- ---------
TOTAL NET CASH $ 1,112.1 $346.0 $ 588.4 $ 523.6
========= ====== ======== =========
</TABLE>
Notes:
(1) Assumes tax rate of 40.0%.
(2) Based on assumed value of $560MM.
<PAGE> 1
PROJECT SPACE
================================================================================
BOARD DISCUSSION MATERIALS
MARCH 29, 2000
- --------------------------------------------------------------------------------
<PAGE> 2
================================================================================
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Section 1 Executive Summary
Section 2 Valuation Analysis
Section 3 Alternative Transaction Structures
Section 4 Operating Business Valuation
Section 5 Venus Overview
<PAGE> 3
================================================================================
SECTION 1
================================================================================
EXECUTIVE SUMMARY
- --------------------------------------------------------------------------------
<PAGE> 4
================================================================================
EXECUTIVE SUMMARY
================================================================================
SUMMARY OF PROPOSAL
- --------------------------------------------------------------------------------
o STAR'S BOARD HAS RECEIVED AN INTEGRATED MERGER PROPOSAL FROM VENUS AND A
FINANCIAL BUYER GROUP
o UNDER THIS PROPOSAL, STAR WOULD MERGE INTO VENUS, WITH THE CONDITION THAT
STAR'S OPERATING BUSINESSES ARE SOLD TO THE FINANCIAL BUYER GROUP
IMMEDIATELY PRIOR TO CLOSING OF THE MERGER
- Star shareholders would receive Venus shares and cash as merger
consideration
- Indicated value of approximately $77.50 per share (0.47 shares of Venus
and $5 of cash), based on current prices(1)
- Prior to the closing of the merger, the Financial Buyer Group would
acquire operating assets (with $800 million of working capital cash) for
$2.0 billion and assume golden parachute liabilities up to $100 million
- Venus would receive Star's 128.1 million Venus shares for 109.3 million
newly issued Venus shares
- Venus would issue additional Venus shares for certain Star
investments, valued at their after tax value and specified liquidity
discounts for a total number of shares of approx. 112.6 million
- Venus may also elect to deliver an additional $750 million of stock
in exchange for additional cash being retained for Venus's benefit
- Additional payments may be available to Star shareholders post-closing
based on potential tax refunds or other credits
o PROPOSED STRUCTURE APPEARS ATTRACTIVE RELATIVE TO ALTERNATIVE TRANSACTION
STRUCTURES
- Significant premium versus most status quo outcomes
- Venus shares received directly by Star shareholders in a tax-efficient
manner
- No uncertainty regarding future trading valuation of drives business
- Eliminates uncertainty related to trading value of an "HoldCo" structure
- Can be executed relatively near-term
Note
1. All values in this presentation relating to the merger consideration are
based on Venus share price of $154.94 as of 3/28/00 and tax assumptions and
transaction mechanics based on Star management estimates.
2
<PAGE> 5
================================================================================
EXECUTIVE SUMMARY
================================================================================
TRANSACTION SUMMARY
- --------------------------------------------------------------------------------
MAJOR TRANSACTION TERMS
- --------------------------------------------------------------------------------
VENUS MERGER:
o At closing of the merger with Venus, Star will hold securities and cash:
- all Venus shares currently held by Star (128.1 million shares post
split)
- other investments (SanDisk, Gadzoox, CVC, Dragon)
- $500 million cash, at Venus' option (decided at closing), can be
increased to $750 million if Star sells $200 million or more of
securities prior to closing
o Venus will issue shares to Star Shareholders (the "Stock Consideration"):
- 109.3 million Venus shares (14.6257% nominal discount to underlying
shares; 10.3% effective discount)
- Additional Venus shares for securities, valued at after-tax values at
specified liquidity discounts(1) (approx. 3.3 million shares based on
current prices)
- Additional shares for $500 million of cash (approx. 3.2 million shares
based on current prices), if applicable
- Actual shares for investments/cash to be determined at closing
- --------------------------------------------------------------------------------
FINANCIAL BUYER ACQUISITION:
o Prior to closing of the merger, the Financial Buyer Group will purchase
Star's operating businesses:
- Operating Assets: Disc Drives, Software, Tape, XIOtech
- $800 million cash
o Consideration Paid:
- $2.0 billion
- assumption of excess parachute payment liability up to $100 million
- --------------------------------------------------------------------------------
OTHER CASH:
o Shareholders will receive cash at closing in the merger (the "Cash
Consideration") (approx. $1.3 billion, or $5 per share)
- excess cash
- tax liability
- debt
- options adjustments
o Star shareholders to receive potential additional cash payment related to
any tax refund after the final tax return has been filed (six to nine months
after closing)
- --------------------------------------------------------------------------------
ESTIMATED VALUE TO BE RECEIVED BY STAR SHAREHOLDERS:
o Approximate value per share: $77.50 (as of 3/28/00)
- 0.47 Venus shares
- $5 cash
o Additional tax payment: up to an estimated $1.60 per share
- --------------------------------------------------------------------------------
Note:
1. Discount is 20% for SanDisk and 40% for other investments.
3
<PAGE> 6
================================================================================
EXECUTIVE SUMMARY
================================================================================
OTHER TRANSACTION TERMS
- --------------------------------------------------------------------------------
ADDITIONAL TRANSACTION TERMS
- --------------------------------------------------------------------------------
ACCOUNTING TREATMENT:
Purchase Accounting for both transactions
- --------------------------------------------------------------------------------
TAX TREATMENT:
o Stock portion of merger consideration tax-free to Star shareholders; cash
portion taxable
o Sale of operating business: taxable transaction to Star
- --------------------------------------------------------------------------------
RESTRICTED STOCK:
vesting TBD
- --------------------------------------------------------------------------------
OPTIONS TREATMENT:
$200 million of in-the-money amount to be rolled into new operating company;
remainder to be accelerated
- --------------------------------------------------------------------------------
TREATMENT OF DEBT:
Debt to be defeased or retired prior to Closing
- --------------------------------------------------------------------------------
EXCLUDED LIABILITIES:
- - Star to assume some operating liabilities: Accrued Interest, Accrued Stock
Purchase Plan Costs, Accrued Bonuses, Accrued Profit Sharing
- - Star to extinguish Canadian tax liability associated with recapitalization
of Star Software prior to closing (ruling, settlement or payment); potential
to obtain refund
- --------------------------------------------------------------------------------
FINANCING COMMITMENT:
Signed commitment letters submitted by Financial Buyer Group
- - $640MM senior debt
- - $400MM subordinated debt
- - $200MM senior revolving debt
- --------------------------------------------------------------------------------
INDEMNIFICATION:
Financial Buyer Group to indemnify Venus against all tax and other liabilities
not relating to the Venus shares
- --------------------------------------------------------------------------------
REPRESENTATIONS AND WARRANTIES:
Customary public company representations and warranties
- --------------------------------------------------------------------------------
CLOSING CONDITIONS:
Star and Venus shareholder votes; regulatory approval; cross-conditioned on
Financial Buyer acquisition
- --------------------------------------------------------------------------------
4
<PAGE> 7
================================================================================
EXECUTIVE SUMMARY
================================================================================
ANALYSIS OF ASSETS ACQUIRED
- --------------------------------------------------------------------------------
o TWO STEP TRANSACTION:
- OPERATING BUSINESS IS SOLD TO FINANCIAL BUYER GROUP AND DEBT IS RETIRED
AND OPTIONS ARE EXERCISED
- VENUS MERGES WITH REMAINING STAR FOR STOCK AND CASH
o VENUS MAY ALSO ELECT TO ISSUE ADDITIONAL STOCK FOR $500 MILLION OF CASH
[FLOW CHART]
Notes:
(1) Assumes Venus elects to issue shares for $500 million of cash.
(2) Includes X10tech and telecoms business.
5
<PAGE> 8
================================================================================
EXECUTIVE SUMMARY
================================================================================
SUMMARY OF MERGER CONSIDERATION
- --------------------------------------------------------------------------------
o THE INDICATED VALUE OF THE PROPOSAL IS APPROXIMATELY $77.50 PER SHARE, BASED
ON CURRENT PRICES
o STAR SHAREHOLDERS MAY BE ENTITLED TO ADDITIONAL PAYMENTS FOR TAX REFUNDS
<TABLE>
<CAPTION>
VENUS ISSUES SHARES FOR $500MM OF CASH VENUS ISSUES NO SHARES FOR CASH
------------------------------------------- -------------------------------------------
APPROX. APPROX.
VENUS APPROXIMATE VALUE VENUS APPROXIMATE VALUE
SHARES TOTAL PER STAR SHARES TOTAL PER STAR
ISSUED VALUE(1) SHARE(2) ISSUED VALUE(1) SHARE(2)
---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Buyer Purchase Price $ 2,000.0 $ 2,000.0
Less: Cash Retained by Venus ($ 500.0) $ 0.0
Plus: Net Excess Cash ($ 248.9) ($ 248.9)
---------- ---------- ---------- ----------
Cash Consideration $ 1,251.1 $ 5.05 $ 1,751.1 $ 7.07
Venus Shares 109.33 $ 16,939.4 109.33 $ 16,939.4
Investments 3.26 $ 505.1 3.26 $ 505.1
Retained Venus Cash 3.23 $ 500.0 0.00 $ 0.0
---------- ---------- ---------- ---------- ---------- ----------
Stock Consideration 115.82 $ 17,944.4 $ 72.43 112.59 $ 17,444.4 $ 70.41
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL $ 19,195.5 $ 77.48 $ 19,195.5 $ 77.48
==============================================================================================================================
Potential Tax Refund $ 396.8 $ 1.60 $ 396.8 $ 1.60
POTENTIAL TOTAL $ 19,592.3 $ 79.08 $ 19,592.3 $ 79.08
</TABLE>
Notes:
(1) Reflects Venus closing price of $154.94 as of 3/28/00.
(2) Reflects total net shares in merger of 247.7MM.
6
<PAGE> 9
================================================================================
EXECUTIVE SUMMARY
================================================================================
REALIZED VALUE FOR STAR SHAREHOLDERS
($MM, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
APPROXIMATE VALUE PER STAR SHARE PREMIUM TO STAR(5) PREMIUM TO UNAFFECTED STAR(6)
-------------------------------- ---------------------- -------------------------------
PREMIUM / 3/28/2000 30-DAY AVG 3/8/2000 10-DAY AVG 30-DAY AVG
PRO FORMA (DISCOUNT) VENUS --------- ---------- -------- ---------- ----------
VENUS PRICE VENUS PRICE TO CURRENT STOCK(1)(2) CASH(3) TOTAL(4) $68.00 $57.38 $54.50 $51.27 $46.53
- ------------- ----------- ---------- ----------- ------- -------- --------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$110.00 (29%) $ 53.55 $ 5.14 $ 58.70 (14%) 2% 8% 14% 26%
30 Day Avg. $119.70 (23%) $ 57.63 $ 5.12 $ 62.75 (8%) 9% 15% 22% 35%
$120.00 (23%) $ 57.76 $ 5.12 $ 62.88 (8%) 10% 15% 23% 35%
$130.00 (16%) $ 61.96 $ 5.09 $ 67.06 (1%) 17% 23% 31% 44%
$140.00 (10%) $ 66.16 $ 5.07 $ 71.24 5% 24% 31% 39% 53%
10 Day Avg. $140.50 (9%) $ 66.37 $ 5.07 $ 71.44 5% 25% 31% 39% 54%
$150.00 (3%) $ 70.36 $ 5.06 $ 75.42 11% 31% 38% 47% 62%
5 Day Avg. $153.25 (1%) $ 71.72 $ 5.05 $ 76.77 13% 34% 41% 50% 65%
------------------------------------------------------------------------------------------------------------
Current $154.94 0% $ 72.43 $ 5.05 $ 77.48 14% 35% 42% 51% 67%
============================================================================================================
3/8/2000 $158.81 3% $ 74.06 $ 5.04 $ 79.10 16% 38% 45% 54% 70%
$160.00 3% $ 74.56 $ 5.04 $ 79.60 17% 39% 46% 55% 71%
All-Time High $168.69 9% $ 78.20 $ 5.03 $ 83.23 22% 45% 53% 62% 79%
$170.00 10% $ 78.75 $ 5.03 $ 83.78 23% 46% 54% 63% 80%
$180.00 16% $ 82.94 $ 5.02 $ 87.96 29% 53% 61% 72% 89%
$190.00 23% $ 87.13 $ 5.01 $ 92.14 35% 61% 69% 80% 98%
$200.00 29% $ 91.32 $ 5.00 $ 96.32 42% 68% 77% 88% 107%
$210.00 36% $ 95.51 $ 4.99 $100.50 48% 75% 84% 96% 116%
$220.00 42% $ 99.70 $ 4.98 $104.68 54% 82% 92% 104% 125%
</TABLE>
Notes:
(1) Based on exchange discount of 14.6257% post Venus shares post-liquidity,
post-tax investments and $500MM of cash.
(2) Based on Star's ownership of 128.1MM Venus shares and Venus closing price of
$154.94 as of 3/28/00.
(3) Assumes Venus elects to retain $500.0MM of cash; Star tax basis of assets
sold of $2,002.2MM, corporate tax rate of 40.0% and transaction costs of
$150.0MM.
(4) Based on Star pro forma shares of 247.7MM, including common shares of
227.1MM and net exercised options of 30.6MM.
(5) Analysis based on trading days; averages are for trading period ending
3/28/00.
(6) Analysis based on trading days; averages are for unaffected trading period
ending 3/8/00.
7
<PAGE> 10
================================================================================
EXECUTIVE SUMMARY
================================================================================
TRANSACTION CONSIDERATIONS
- --------------------------------------------------------------------------------
BENEFITS:
+ Delivers Venus shares to Star shareholders in tax-efficient manner
+ Significant premium to historical share price
+ Fixed cash amount received for drives and other operating businesses (no
exposure to public market valuation)
+ No execution risk on drives business post-closing, including industry
conditions, market conditions, and management retention
ISSUES:
- - Exposure to Venus stock valuation
- - Lose potential upside on other businesses (software, telecom, SAN)
8
<PAGE> 11
================================================================================
SECTION 2
================================================================================
VALUATION ANALYSIS
- --------------------------------------------------------------------------------
<PAGE> 12
================================================================================
VALUATION ANALYSIS
================================================================================
IMPLIED VALUATION OF THE OPERATING BUSINESSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY VALUE ($MM)
-----------------------------------------------------------
AFTER-TAX VALUE OF IMPLIED VALUE OF
DATE STAR SECURITIES AND CASH (1) OPERATING BUSINESS
- --------- --------- ----------------------- ------------------
<S> <C> <C> <C> <C>
28-Mar-00 $16,915.9 $13,443.8 $ 3,472.1
27-Mar-00 17,896.6 14,535.7 3,361.0
24-Mar-00 17,700.5 14,015.0 3,685.5
23-Mar-00 17,406.3 13,708.7 3,697.6
22-Mar-00 16,965.0 13,959.7 3,005.3
21-Mar-00 16,180.4 12,910.1 3,270.3
20-Mar-00 16,392.9 12,406.5 3,986.4
17-Mar-00 17,112.1 14,096.2 3,015.8
16-Mar-00 16,491.0 13,128.8 3,362.2
15-Mar-00 14,533.7 11,726.6 2,807.0
14-Mar-00 16,147.7 13,438.2 2,709.6
13-Mar-00 17,308.2 14,260.5 3,047.7
10-Mar-00 16,000.6 14,501.1 1,499.5
09-Mar-00 14,545.9 14,129.6 416.3
08-Mar-00 13,385.4 13,829.2 (443.7) 3/8/00 - CNBC story speculates about a
07-Mar-00 13,532.5 14,152.3 (619.8) transaction with Venus
06-Mar-00 13,663.3 13,767.7 (104.4)
03-Mar-00 13,483.5 12,922.8 560.7
02-Mar-00 12,600.9 12,004.3 596.6
01-Mar-00 12,453.8 11,825.8 628.0
29-Feb-00 11,636.5 11,601.4 35.1
28-Feb-00 11,603.8 11,079.9 523.9
25-Feb-00 11,326.0 10,710.5 615.4
24-Feb-00 11,718.3 11,115.9 602.4
23-Feb-00 11,309.6 10,753.7 556.0
22-Feb-00 10,721.2 10,173.7 547.5
18-Feb-00 10,901.0 10,239.0 662.0
17-Feb-00 11,342.3 10,277.2 1,065.1
16-Feb-00 11,554.8 9,873.5 1,681.3
15-Feb-00 11,293.3 9,856.4 1,436.9
14-Feb-00 11,195.2 9,991.4 1,203.8
11-Feb-00 11,276.9 10,179.0 1,097.9
10-Feb-00 11,571.2 10,484.7 1,086.4
09-Feb-00 11,031.8 9,775.6 1,256.2
08-Feb-00 11,129.8 10,025.8 1,104.0
07-Feb-00 10,884.7 9,319.1 1,565.5
04-Feb-00 10,508.7 9,361.6 1,147.2
03-Feb-00 10,165.5 9,284.1 881.4
02-Feb-00 10,034.7 9,179.7 855.0
01-Feb-00 9,854.9 9,224.2 630.8
31-Jan-00 9,528.0 8,770.8 757.2
28-Jan-00 9,658.8 9,177.7 481.1
27-Jan-00 9,724.2 9,407.5 316.7
26-Jan-00 9,953.0 9,320.5 632.6
25-Jan-00 10,002.0 9,466.5 535.6
24-Jan-00 9,756.9 9,026.1 730.7
</TABLE>
10
<PAGE> 13
<TABLE>
<S> <C> <C> <C>
21-Jan-00 10,214.5 10,069.8 144.7
20-Jan-00 10,198.2 9,256.8 941.4
19-Jan-00 9,904.0 8,827.6 1,076.3
18-Jan-00 10,230.9 8,817.3 1,413.6
14-Jan-00 10,427.0 8,758.5 1,668.5
13-Jan-00 9,985.7 8,414.1 1,571.6
12-Jan-00 9,854.9 7,705.9 2,149.1
11-Jan-00 10,639.5 8,009.7 2,629.8
10-Jan-00 10,181.8 8,615.4 1,566.5
07-Jan-00 9,773.2 7,616.1 2,157.1
06-Jan-00 9,511.7 7,085.1 2,426.6
05-Jan-00 10,018.4 7,769.5 2,248.9
04-Jan-00 10,083.8 7,931.7 2,152.1
03-Jan-00 11,162.5 8,533.1 2,629.4
31-Dec-99 11,309.6 8,592.1 2,717.5
30-Dec-99 11,375.0 8,276.9 3,098.2
29-Dec-99 11,538.5 8,446.8 3,091.6
28-Dec-99 11,407.7 8,202.0 3,205.7
27-Dec-99 11,800.0 8,115.9 3,684.1
23-Dec-99 11,326.0 8,600.7 2,725.3
22-Dec-99 10,737.6 8,140.2 2,597.4
21-Dec-99 10,373.9 7,608.6 2,765.3
20-Dec-99 10,574.1 7,721.8 2,852.3
17-Dec-99 10,721.2 7,323.7 3,397.5
16-Dec-99 10,835.6 7,108.8 3,726.8
15-Dec-99 9,805.9 6,863.7 2,942.2
14-Dec-99 9,577.1 6,575.2 3,001.8
13-Dec-99 9,871.3 6,859.5 3,011.8
10-Dec-99 9,282.9 6,933.6 2,349.2
09-Dec-99 9,397.3 6,871.9 2,525.4
08-Dec-99 9,462.7 6,706.1 2,756.5
07-Dec-99 9,364.6 6,635.4 2,729.2
06-Dec-99 9,593.4 6,662.4 2,931.0
03-Dec-99 9,528.0 6,774.7 2,753.3
02-Dec-99 9,168.5 6,429.5 2,738.9
01-Dec-99 9,005.0 6,152.2 2,852.8
30-Nov-99 8,808.9 6,026.3 2,782.6
29-Nov-99 9,201.1 6,485.3 2,715.9
26-Nov-99 9,135.8 6,675.4 2,460.3
24-Nov-99 9,315.6 6,520.5 2,795.1
23-Nov-99 9,495.3 6,453.2 3,042.1
22-Nov-99 9,642.5 6,595.5 3,047.0
19-Nov-99 9,266.5 6,295.2 2,971.3
18-Nov-99 8,890.6 6,055.3 2,835.3
17-Nov-99 8,531.0 5,761.2 2,769.8
16-Nov-99 8,939.6 5,826.8 3,112.8
15-Nov-99 9,005.0 5,456.7 3,548.3
12-Nov-99 8,808.9 5,309.2 3,499.6
11-Nov-99 8,269.5 5,233.3 3,036.2
10-Nov-99 8,416.6 5,324.1 3,092.5
09-Nov-99 8,106.0 5,265.4 2,840.6
08-Nov-99 7,893.5 5,130.0 2,763.6
</TABLE>
<PAGE> 14
<TABLE>
<S> <C> <C> <C>
05-Nov-99 7,517.6 5,007.3 2,510.3
04-Nov-99 7,403.2 5,012.1 2,391.1
03-Nov-99 7,092.6 4,926.1 2,166.5
02-Nov-99 6,912.9 4,815.3 2,097.6
01-Nov-99 6,782.1 4,871.2 1,910.9
29-Oct-99 6,831.1 4,899.4 1,931.8
28-Oct-99 6,536.9 4,660.2 1,876.7
27-Oct-99 6,193.7 4,402.2 1,791.4
26-Oct-99 6,144.6 4,283.8 1,860.8
25-Oct-99 6,210.0 4,452.2 1,757.8
22-Oct-99 6,324.4 4,450.8 1,873.7
21-Oct-99 6,275.4 4,409.6 1,865.8
20-Oct-99 6,716.7 4,322.8 2,393.9
19-Oct-99 6,487.9 4,096.0 2,391.9
18-Oct-99 6,340.8 4,091.7 2,249.1
15-Oct-99 6,618.6 4,324.8 2,293.9
14-Oct-99 6,814.8 4,015.3 2,799.4
13-Oct-99 6,847.5 4,068.3 2,779.1
12-Oct-99 7,337.8 4,128.9 3,208.9
11-Oct-99 7,435.9 4,203.0 3,232.9
08-Oct-99 6,961.9 4,062.7 2,899.2
07-Oct-99 7,092.6 4,114.6 2,978.0
06-Oct-99 7,435.9 4,189.9 3,246.0
05-Oct-99 7,337.8 4,160.3 3,177.5
04-Oct-99 7,272.4 3,916.4 3,356.1
01-Oct-99 7,158.0 3,762.4 3,395.6
30-Sep-99 7,141.7 3,833.4 3,308.2
29-Sep-99 7,043.6 3,872.4 3,171.2
28-Sep-99 6,912.9 4,004.1 2,908.8
27-Sep-99 6,945.5 3,895.6 3,049.9
24-Sep-99 6,831.1 3,905.6 2,925.5
23-Sep-99 6,978.2 3,889.0 3,089.3
22-Sep-99 7,484.9 4,024.2 3,460.7
21-Sep-99 7,566.6 3,880.3 3,686.4
20-Sep-99 7,762.8 3,980.8 3,782.0
17-Sep-99 7,632.0 3,966.7 3,665.4
16-Sep-99 7,484.9 3,743.1 3,741.9
15-Sep-99 7,550.3 3,698.4 3,851.9
14-Sep-99 7,484.9 3,671.0 3,813.9
13-Sep-99 7,762.8 3,613.5 4,149.3
10-Sep-99 7,926.2 3,795.8 4,130.5
09-Sep-99 7,713.8 3,806.4 3,907.4
08-Sep-99 7,795.5 3,696.0 4,099.5
07-Sep-99 8,285.8 3,626.0 4,659.9
03-Sep-99 8,482.0 3,626.4 4,855.5
02-Sep-99 8,024.3 3,513.6 4,510.8
01-Sep-99 7,991.6 3,468.9 4,522.8
31-Aug-99 7,811.8 3,398.9 4,412.9
30-Aug-99 7,860.9 3,348.5 4,512.4
27-Aug-99 7,730.1 3,404.5 4,325.6
26-Aug-99 7,713.8 3,488.1 4,225.7
25-Aug-99 7,713.8 3,521.1 4,192.6
</TABLE>
<PAGE> 15
<TABLE>
<S> <C> <C> <C>
24-Aug-99 7,828.2 3,460.9 4,367.3
23-Aug-99 7,795.5 3,436.3 4,359.2
20-Aug-99 7,615.7 3,340.9 4,274.8
19-Aug-99 7,632.0 3,124.6 4,507.4
18-Aug-99 7,452.2 3,204.9 4,247.4
17-Aug-99 7,239.8 3,230.7 4,009.1
16-Aug-99 7,158.0 3,227.7 3,930.4
13-Aug-99 6,782.1 3,149.4 3,632.7
12-Aug-99 6,520.6 3,068.6 3,452.0
11-Aug-99 6,618.6 3,125.5 3,493.1
10-Aug-99 6,471.5 2,949.1 3,522.4
09-Aug-99 6,455.2 2,968.0 3,487.2
06-Aug-99 6,455.2 3,103.8 3,351.4
05-Aug-99 6,128.3 3,207.6 2,920.7
04-Aug-99 6,144.6 3,070.4 3,074.3
03-Aug-99 6,242.7 3,143.1 3,099.6
02-Aug-99 6,373.5 3,185.3 3,188.1
30-Jul-99 6,161.0 3,236.5 2,924.5
29-Jul-99 6,193.7 3,103.6 3,090.1
28-Jul-99 6,291.7 3,202.3 3,089.5
27-Jul-99 5,948.5 3,144.8 2,803.7
26-Jul-99 5,866.8 3,255.5 2,611.3
23-Jul-99 5,817.7 3,388.6 2,429.2
22-Jul-99 5,703.3 3,367.4 2,335.9
21-Jul-99 5,899.5 3,336.1 2,563.4
20-Jul-99 5,817.7 3,267.4 2,550.3
19-Jul-99 6,046.6 3,445.6 2,601.0
16-Jul-99 6,079.3 3,396.0 2,683.2
15-Jul-99 6,978.2 3,131.0 3,847.3
14-Jul-99 7,043.6 3,110.9 3,932.7
13-Jul-99 6,471.5 3,028.6 3,443.0
12-Jul-99 6,602.3 2,988.2 3,614.1
09-Jul-99 6,536.9 3,061.5 3,475.4
08-Jul-99 6,275.4 3,063.2 3,212.2
07-Jul-99 6,291.7 3,050.4 3,241.4
06-Jul-99 6,046.6 3,092.8 2,953.8
02-Jul-99 6,144.6 2,925.6 3,219.0
01-Jul-99 6,112.0 2,882.4 3,229.5
30-Jun-99 5,834.1 2,671.5 3,162.6
29-Jun-99 6,259.1 2,641.5 3,617.6
28-Jun-99 6,880.2 2,646.8 4,233.4
25-Jun-99 6,847.5 2,615.0 4,232.5
24-Jun-99 6,847.5 2,642.5 4,204.9
23-Jun-99 6,945.5 2,670.0 4,275.6
22-Jun-99 6,880.2 2,663.4 4,216.7
21-Jun-99 6,961.9 2,636.0 4,325.9
18-Jun-99 6,635.0 2,562.5 4,072.5
17-Jun-99 6,553.3 2,559.2 3,994.1
16-Jun-99 6,716.7 2,575.3 4,141.4
15-Jun-99 6,733.1 2,561.9 4,171.1
14-Jun-99 7,207.1 2,542.8 4,664.3
11-Jun-99 7,190.7 2,570.6 4,620.1
</TABLE>
<PAGE> 16
<TABLE>
<S> <C> <C> <C>
10-Jun-99 7,158.0 2,571.0 4,587.0
09-Jun-99 7,174.4 2,632.7 4,541.6
08-Jun-99 7,305.1 2,653.0 4,652.1
07-Jun-99 7,762.8 2,695.2 5,067.6
04-Jun-99 7,354.2 2,631.4 4,722.8
03-Jun-99 7,632.0 2,558.0 5,074.0
02-Jun-99 7,354.2 2,571.2 4,783.0
01-Jun-99 7,043.6 2,550.0 4,493.7
28-May-99 7,027.3 2,540.2 4,487.1
27-May-99 7,010.9 2,542.5 4,468.5
26-May-99 7,043.6 2,434.4 4,609.2
25-May-99 6,961.9 2,379.0 4,582.9
24-May-99 6,978.2 2,387.0 4,591.3
21-May-99 7,174.4 2,411.2 4,763.2
20-May-99 7,435.9 2,411.9 5,024.0
19-May-99 7,484.9 2,431.3 5,053.7
18-May-99 7,337.8 2,422.6 4,915.2
17-May-99 7,043.6 2,376.9 4,666.7
14-May-99 7,321.5 2,380.1 4,941.4
13-May-99 7,370.5 2,363.2 5,007.3
12-May-99 7,828.2 2,310.0 5,518.1
11-May-99 7,746.4 2,262.9 5,483.6
10-May-99 7,583.0 2,219.4 5,363.6
07-May-99 7,076.3 2,243.5 4,832.8
06-May-99 6,667.7 2,268.3 4,399.3
05-May-99 6,978.2 2,274.6 4,703.6
04-May-99 7,207.1 2,273.7 4,933.4
03-May-99 6,782.1 2,250.5 4,531.6
30-Apr-99 6,422.5 2,232.5 4,190.0
29-Apr-99 6,291.7 2,118.0 4,173.8
28-Apr-99 6,700.4 2,179.3 4,521.0
27-Apr-99 7,550.3 2,226.7 5,323.6
26-Apr-99 6,667.7 2,309.4 4,358.3
23-Apr-99 6,586.0 2,322.4 4,263.5
22-Apr-99 6,716.7 2,263.3 4,453.4
21-Apr-99 6,536.9 2,221.0 4,315.9
20-Apr-99 6,340.8 2,200.9 4,139.9
19-Apr-99 6,144.6 2,114.9 4,029.7
16-Apr-99 6,357.1 2,401.9 3,955.3
15-Apr-99 6,635.0 2,445.0 4,190.0
14-Apr-99 6,504.2 2,498.5 4,005.7
13-Apr-99 6,095.6 2,430.8 3,664.8
12-Apr-99 5,997.5 2,364.6 3,632.9
09-Apr-99 6,569.6 2,377.3 4,192.3
08-Apr-99 7,223.4 2,364.2 4,859.2
07-Apr-99 7,060.0 2,430.4 4,629.6
06-Apr-99 7,174.4 2,542.3 4,632.1
05-Apr-99 7,288.8 2,525.1 4,763.7
01-Apr-99 7,010.9 2,432.1 4,578.8
31-Mar-99 6,863.8 2,406.6 4,457.2
30-Mar-99 6,569.6 2,480.9 4,088.8
29-Mar-99 6,536.9 2,509.7 4,027.2
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C> <C>
26-Mar-99 6,324.4 2,349.8 3,974.6
</TABLE>
================================================================================
Note:
1. After-Tax value of securities and net cash based on after-tax value of
holdings of 128.1MM shares of Venus, 4.1MM shares of SanDisk, 5.1MM shares
of Gadzoox Networks, 2.4MM shares of CVC, $225.7MM holding in Dragon
Systems, and $480MM in net cash after repatriation. Assumes tax rate of 40%.
<PAGE> 18
PROJECT SPACE
- - The merger consideration reflects a 15% - 45% premium to Star's stock price
over recent trading periods
================================================================================
VALUATION ANALYSIS
================================================================================
IMPLIED HISTORICAL TRANSACTION PREMIUM ANALYSIS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
IMPLIED VALUE OF
MERGER
PERIOD VENUS PRICE CONSIDERATION STAR PRICE IMPLIED PREMIUM
- -------------- ----------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
CURRENT(1)
3/28/2000 $155 $ 77 $ 68 14%
30-Day Average $143 $ 73 $ 57 26%
UNAFFECTED(2)
3/8/2000 $159 $ 79 $ 55 45%
5-Day Average $153 $ 77 $ 54 41%
10-Day Average $140 $ 71 $ 51 39%
30-Day Average $120 $ 63 $ 47 35%
60-Day Average $105 $ 56 $ 45 26%
120-Day Average $ 76 $ 45 $ 39 15%
</TABLE>
Notes:
(1) Analysis based on trading period ending 3/28/00.
(2) Analysis based on trading days; averages are for trading period ending
3/8/00.
11
<PAGE> 19
PROJECT SPACE
- - THE MERGER CONSIDERATION FROM VENUS REFLECTS A 47% PREMIUM TO THE UNDERLYING
AFTER-TAX VALUE OF STAR'S INVESTMENTS
================================================================================
VALUATION ANALYSIS
================================================================================
VALUE REALIZED FOR VENUS SHARES / OTHER INVESTMENTS
($MM)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VENUS WITH OTHER
SHARES ONLY SECURITIES(1)
----------- -------------
<S> <C> <C>
Underlying Shares 128.1 128.1
Shares Received 109.3 112.6
"Nominal Discount"(1) 14.6257% 12.1%
Value of Venus Shares Received by Star Shareholders $ 16,939 $ 17,444
- ------------------------------------------------------------------------------------------------
"Nominal" Premium to After-Tax Value 42% 40%
================================================================================================
Value Lost by Star vs. Pre-Tax Venus Value $ 3,049 $ 3,049
Portion of discount "recovered" by Star shareholders(2) $ 857 $ 857
Total Value to Star Shareholders $ 17,797 $ 18,302
"Effective Discount"(2) 10.3% 7.8%
- ------------------------------------------------------------------------------------------------
"Effective" Premium to After-Tax Value 49% 47%
================================================================================================
</TABLE>
Notes:
(1) Reflects discount to underlying shares held by Star.
(2) Reflects benefit accruing to Star shareholders through their pro forma 30%
stake in Venus, based on 5.1% financial accretion to Venus.
- --------------------------------------------------------------------------------
TAXABLE SALE VS. VENUS MERGER
$Bn
- --------------------------------------------------------------------------------
[BAR GRAPH]
$12.5Bn
Current after-tax value of Venus stake and Other Investments(1)
$17.4Bn
Value of Venus stake and investments realized
- --------------------------------------------------------------------------------
Note:
(1) Other investments valued at stipulated liquidity discounts.
12
<PAGE> 20
PROJECT SPACE
================================================================================
VALUATION ANALYSIS
================================================================================
OPERATING COMPANY VALUATION MATRIX
($MM)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Equity Value / Cash Net Income(1)
Aggregate Equity -----------------------------------------------------------------------
Value / Value / Base Case Upside Case Sensitivity Case
Aggregate CY2000E CY2000E ------------------------------------- ----------- ----------------
Equity Value Value(1) Revenue Revenue CY2000E CY2001E CY2002E CY2002E CY2002E
- ------------ --------- --------- --------- --------- --------- --------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Statistic: $7,018 $7,018 $ 147 $ 217 $ 318 $ 584 $ 213
============================================================================================================================
$1,700 $ 950 0.14x 0.24x 11.5x 7.8x 5.3x 2.9x 8.0x
$1,800 $1,050 0.15x 0.26x 12.2x 8.3x 5.7x 3.1x 8.5x
$1,900 $1,150 0.16x 0.27x 12.9x 8.7x 6.0x 3.3x 8.9x
- ----------------------------------------------------------------------------------------------------------------------------
$2,000 $1,250 0.18x 0.28x 13.6x 9.2x 6.3x 3.4x 9.4x
- ----------------------------------------------------------------------------------------------------------------------------
$2,100 $1,350 0.19x 0.30x 14.2x 9.7x 6.6x 3.6x 9.9x
$2,200 $1,450 0.21x 0.31x 14.9x 10.1x 6.9x 3.8x 10.3x
$2,300 $1,550 0.22x 0.33x 15.6x 10.6x 7.2x 3.9x 10.8x
$2,400 $1,650 0.24x 0.34x 16.3x 11.0x 7.5x 4.1x 11.3x
</TABLE>
Notes:
(1) Equity value assumes no debt and total cash of $800.0MM and $50.0MM in
golden parachute liabilities.
Base case as provided by management.
Upside case as provided by management.
Sensitivity case same as base case but assuming 2000E gross margins for
desktop segment of disc drive business remain constant throughout 2008E.
13
<PAGE> 21
PROJECT SPACE
- - THE PROPOSED TRANSACTION REFLECTS A 12% - 36% PREMIUM TO A HYPOTHETICAL
AFTER-TAX SUM-OF-THE-PARTS ANALYSIS
- - THESE VALUES WOULD NOT BE REALIZABLE TODAY GIVEN LIQUIDITY AND OTHER
CONSTRAINTS
================================================================================
VALUATION ANALYSIS
================================================================================
HYPOTHETICAL SUM-OF-THE-PARTS VALUE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOW HIGH
-------- --------
<S> <C> <C>
Operating Businesses(1) $ 1,000 $ 4,000
Venus Shares(2) $ 11,969 $ 11,969
Other Investments(3) $ 712 $ 712
Cash (after-tax)(4) $ 1,185 $ 1,185
Debt $ (755) $ (705)
-------- --------
TOTAL $ 14,161 $ 17,161
Per Share $ 57.16 $ 69.27
- ------------------------------------------------------------------------------
INDICATED TRANSACTION VALUE(5) $ 19,196 $ 19,196
Per Share $ 77.48 $ 77.48
% Premium to Sum-of-the-Parts 36% 12%
==============================================================================
</TABLE>
Notes:
(1) Excludes cash, includes Drives, Tape, Software and XIOtech. Range reflects
base case discounted equity value up to the hypothetical sum-of-the-parts
value.
(2) After-tax value.
(3) After-tax value of SanDisk, CVC, Gadzoox and Dragon Systems.
(4) Includes SanDisk proceeds.
(5) Based on prices as of 3/28/00.
14
<PAGE> 22
PROJECT SPACE
================================================================================
SECTION 3
================================================================================
ALTERNATIVE TRANSACTION STRUCTURES
- --------------------------------------------------------------------------------
<PAGE> 23
PROJECT SPACE
================================================================================
ALTERNATIVE TRANSACTION STRUCTURES
================================================================================
OVERVIEW OF STRUCTURES
- --------------------------------------------------------------------------------
- - Each structure must be evaluated on a number of dimensions
- Value for shareholders
- Timing / certainty
- Management impact
- Risk / uncertainty
- - The proposed structure (Venus Merger / Sale of Businesses) has many benefits
versus other structures
- Most certainty of value (fixed number of Venus shares, cash portion
determined with fixed formula)
- Achievable near-term
- Management support
- "Permanent" resolution of embedded Venus investments
16
<PAGE> 24
PROJECT SPACE
- - The current proposal offers the most certainty to Star shareholders in terms
of value and completion risk
================================================================================
ALTERNATIVE TRANSACTION STRUCTURES
================================================================================
SUMMARY VALUATION
- --------------------------------------------------------------------------------
VALUE PER STAR SHARE (1)
$
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE PER STAR SHARE (1)
------------------------
LOW HIGH
------ ------
<S> <C> <C>
Current Proposal (Venus Merger/Sale) (2) $77.48 $82.47
Status Quo (3) 33.69 95.39
HoldCo / Tax-Free Spin (4) 69.75 88.78
HoldCo / Taxable Spin (5) 69.75 88.78
Venus Merger / Spin (6) 75.76 86.78
</TABLE>
- --------------------------------------------------------------------------------
Notes:
(1) Reflects Venus share price of $154.94 as of 3/28/00.
(2) High end includes pick-up related to Venus EPS accretion and includes
amount from tax refund, shown in different color.
(3) Assumes operating business trades at 10 - 15 P/E, annual Venus share price
increases /(decreases) 40%-(20%). Star continues to sell Venus shares and
repurchases own shares, 20% discount rate applied.
(4) Assumes tax-free spin-off of operating businesses, which is assumed to
trade at equity values of $1,500 - 3,500 million, remaining Star holding
Venus shares as well as Software and Tape businesses will trade at 5-20%
discount to the pre-tax value of underlying Venus shares.
(5) Assumes taxable spin-off of all assets excluding Venus shares, SpinCo is
assumed to trade at equity values of $1,500 - 3,500 million. Remaining Star
(holding only Venus shares) will trade at 5-20% discount to the pre-tax
value of the underlying Venus shares.
(6) Assumes spin-off of all assets excluding Venus shares and investments,
SpinCo is assumed to trade at equity values of $1,500 - 3,500 million.
Remaining Star (holding Venus shares and other investments) will merge
with Venus under same structure as current proposal.
17
<PAGE> 25
PROJECT SPACE
================================================================================
ALTERNATIVE TRANSACTION STRUCTURES
================================================================================
OVERVIEW OF POTENTIAL STRUCTURES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1. CURRENT PROPOSAL (VENUS MERGER / SALE)
- Sale of Operating Business to Financial Buyer
- Merge remaining Star (holding Venus shares and investments) with Venus
- Star shareholders to receive Venus shares and cash
- --------------------------------------------------------------------------------
2. STATUS QUO
- Continue current business model
- Manage Operating Businesses under scrutiny of public markets
- Sell Venus shares (taxable transaction)
- Buy-back Star stock
- --------------------------------------------------------------------------------
3. HOLDCO / TAX-FREE SPIN
- Spin-off Drives in tax-free transaction
- HoldCo would hold Venus shares, software and tape
- Continue to manage under scrutiny of public markets
- --------------------------------------------------------------------------------
4. HOLDCO / TAXABLE SPIN
- Spin-off all operating businesses, investments and excess net cash
- Remaining shell would hold only Venus shares
- --------------------------------------------------------------------------------
5. VENUS MERGER / SPIN
- Spin off Operating Businesses to shareholders (tax-free to shareholders,
taxable to Star)
- Merge remaining Star (holding Venus shares and investments) with Venus
- Star shareholders to receive Venus shares and shares in Operating
Company
- --------------------------------------------------------------------------------
18
<PAGE> 26
PROJECT SPACE
================================================================================
SECTION 4
================================================================================
OPERATING BUSINESS VALUATION
- --------------------------------------------------------------------------------
<PAGE> 27
PROJECT SPACE
================================================================================
OPERATING BUSINESS VALUATION
================================================================================
SUMMARY VALUATION
($MM, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OPERATING BUSINESSES EQUITY VALUE (1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OPERATING BUSINESSES EQUITY VALUE(1)
------------------------------------
PROPOSAL LOW HIGH
---------- ------ ------
<S> <C> <C> <C>
TRADING VALUATION
Comparable Companies
.20x - .45x CY2000E Revenue $2,000 $2,200 $4,000
Discounted Equity Value
8x - 16x CY2001E Net Income
Upside 2,000 2,900 6,000
Base 2,000 1,500 3,100
Sensitivity 2,000 1,200 2,400
8x - 16x CY2002E Net Income
Upside 2,000 3,400 7,300
Base 2,000 1,800 4,000
Sensitivity 2,000 1,200 2,700
PRIVATE MARKET VALUATION
DCF Analysis Upside Case 2,000 5,400 6,900
DCF Analysis Base Case 2,000 3,500 4,400
DCF Analysis Sensitivity Case 2,000 2,400 2,900
Hypothetical Sum-of-the-Parts Analysis 2,000 2,600 4,700
</TABLE>
Note:
(1) Reflects all operating businesses with a balance sheet of $800MM of cash
and $50 million of non-operating liabilities.
20
<PAGE> 28
================================================================================
OPERATING BUSINESS VALUATION
================================================================================
SUMMARY VALUATION
($MM, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGREGATE
MULTIPLE RANGE VALUE(1) EQUITY VALUE(1)
FINANCIAL --------------- ---------------- ----------------
VALUATION METHODOLOGY STATISTIC LOW HIGH LOW HIGH LOW HIGH
- ---------------------------------------------------------- --------- ------ ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
TRADING VALUATION
Value Based on Comparable Companies
CY2000E Revenue(2) $7,135 0.20x- 0.45x $1,425- $3,200 $2,175- $3,950
Value Based on Discounted Equity Value Analysis CY2001E(3)
15.0% - 20.0% Discount Rate - Upside Case $ 419 8.0x- 16.0x $2,060- $5,164 $2,910- $6,014
15.0% - 20.0% Discount Rate - Base Case $ 217 8.0x- 16.0x $663- $2,276 $1,513- $3,126
15.0% - 20.0% Discount Rate - Sensitivity Case $ 166 8.0x- 16.0x $303- $1,532 $1,153- $2,382
Value Based on Discounted Equity Value Analysis CY2002E(3)
15.0% - 20.0% Discount Rate - Upside Case $ 584 8.0x- 16.0x $2,531- $6,440 $3,381- $7,290
15.0% - 20.0% Discount Rate - Base Case $ 318 8.0x- 16.0x $998- $3,133 $1,848- $3,983
15.0% - 20.0% Discount Rate - Sensitivity Case $ 213 8.0x- 16.0x $382- $1,807 $1,232- $2,657
PRIVATE MARKET VALUATION
Value Based on Discounted Cash Flow Analysis - Upside Case
6.0x - 9.0x EBITA exit multiple, 15.0% Discount Rate $4,681- $6,139 $5,431- $6,889
Value Based on Discounted Cash Flow Analysis - Base Case
6.0x - 9.0x EBITA exit multiple, 15.0% Discount Rate $2,789- $3,696 $3,539- $4,446
Value Based on Discounted Cash Flow Analysis - Sensitivity Case
6.0x - 9.0x EBITA exit multiple, 15.0% Discount Rate $1,624- $2,169 $2,374- $2,919
Value Based on Hypothetical Sum-of-the-Parts Valuation $1,880- $3,960 $2,630- $4,710
</TABLE>
Notes:
(1) Based on $800.0MM of cash and no debt and assumed $50.0MM in golden
parachute liabilities.
(2) Based on MSDW research.
(3) Discounted to 3/28/00.
21
<PAGE> 29
================================================================================
OPERATING BUSINESS VALUATION
================================================================================
HISTORICAL AGGREGATE VALUE / REVENUE
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
REVENUE MULTIPLE
---------------------------------------------------------
DATE MXTR WDC HDD CURRENT PROPOSAL
- -------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C>
3/28/00 0.56 x 0.44 x 0.17 x 0.18 x
3/27/00 0.60 0.47 0.19 0.18
3/24/00 0.56 0.49 0.18 0.18
3/23/00 0.53 0.49 0.18 0.18
3/22/00 0.53 0.45 0.18 0.18
3/21/00 0.51 0.41 0.17 0.18
3/20/00 0.47 0.40 0.18 0.18
3/17/00 0.51 0.42 0.17 0.18
3/16/00 0.51 0.43 0.16 0.18
3/15/00 0.47 0.37 0.13 0.18
3/14/00 0.47 0.39 0.13 0.18
3/13/00 0.50 0.39 0.15 0.18
3/10/00 0.46 0.30 0.12 0.18
3/9/00 0.47 0.32 0.14 0.18
3/8/00 0.40 0.27 0.12 0.18
3/7/00 0.37 0.27 0.11 0.18
3/6/00 0.33 0.28 0.11 0.18
3/3/00 0.31 0.27 0.10 0.18
3/2/00 0.31 0.28 0.11 0.18
3/1/00 0.33 0.28 0.12 0.18
2/29/00 0.30 0.27 0.09 0.18
2/28/00 0.26 0.24 0.08 0.18
2/25/00 0.23 0.24 0.07 0.18
2/24/00 0.24 0.25 0.08 0.18
2/23/00 0.25 0.26 0.09 0.18
2/22/00 0.22 0.25 0.09 0.18
2/18/00 0.23 0.26 0.08 0.18
2/17/00 0.24 0.27 0.08 0.18
2/16/00 0.24 0.27 0.09 0.18
2/15/00 0.24 0.27 0.09 0.18
2/14/00 0.22 0.28 0.09 0.18
2/11/00 0.23 0.29 0.09 0.18
2/10/00 0.24 0.28 0.09 0.18
2/9/00 0.25 0.29 0.09 0.18
2/8/00 0.25 0.30 0.09 0.18
2/7/00 0.26 0.31 0.09 0.18
2/4/00 0.27 0.30 0.10 0.18
2/3/00 0.27 0.30 0.10 0.18
2/2/00 0.27 0.28 0.10 0.18
2/1/00 0.27 0.28 0.10 0.18
1/31/00 0.24 0.28 0.08 0.18
1/28/00 0.27 0.28 0.08 0.18
1/27/00 0.28 0.27 0.09 0.18
1/26/00 0.30 0.30 0.09 0.18
1/25/00 0.29 0.31 0.09 0.18
1/24/00 0.28 0.28 0.10 0.18
</TABLE>
22
<PAGE> 30
<TABLE>
<S> <C> <C> <C> <C>
1/21/00 0.30 0.30 0.12 0.18
1/20/00 0.31 0.32 0.16 0.18
1/19/00 0.31 0.34 0.14 0.18
1/18/00 0.31 0.30 0.13 0.18
1/14/00 0.30 0.27 0.12 0.18
1/13/00 0.30 0.26 0.12 0.18
1/12/00 0.29 0.27 0.12 0.18
1/11/00 0.29 0.31 0.10 0.18
1/10/00 0.31 0.29 0.11 0.18
1/7/00 0.28 0.33 0.11 0.18
1/6/00 0.26 0.27 0.10 0.18
1/5/00 0.25 0.26 0.09 0.18
1/4/00 0.24 0.27 0.10 0.18
1/3/00 0.26 0.24 0.09 0.18
12/31/99 0.26 0.25 0.07 0.18
12/30/99 0.25 0.23 0.06 0.18
12/29/99 0.23 0.23 0.05 0.18
12/28/99 0.22 0.22 0.06 0.18
12/27/99 0.22 0.23 0.07 0.18
12/23/99 0.23 0.23 0.06 0.18
12/22/99 0.22 0.23 0.07 0.18
12/21/99 0.21 0.23 0.07 0.18
12/20/99 0.22 0.24 0.07 0.18
12/17/99 0.23 0.25 0.07 0.18
12/16/99 0.18 0.24 0.06 0.18
12/15/99 0.18 0.22 0.04 0.18
12/14/99 0.18 0.22 0.05 0.18
12/13/99 0.18 0.22 0.05 0.18
12/10/99 0.18 0.22 0.05 0.18
12/9/99 0.19 0.22 0.06 0.18
12/8/99 0.21 0.22 0.06 0.18
12/7/99 0.21 0.23 0.06 0.18
12/6/99 0.21 0.23 0.06 0.18
12/3/99 0.20 0.23 0.07 0.18
12/2/99 0.20 0.23 0.06 0.18
12/1/99 0.20 0.23 0.06 0.18
11/30/99 0.21 0.23 0.07 0.18
11/29/99 0.22 0.25 0.06 0.18
11/26/99 0.23 0.23 0.06 0.18
11/24/99 0.23 0.23 0.06 0.18
11/23/99 0.23 0.23 0.06 0.18
11/22/99 0.24 0.23 0.08 0.18
11/19/99 0.24 0.23 0.08 0.18
11/18/99 0.26 0.24 0.08 0.18
11/17/99 0.26 0.24 0.08 0.18
11/16/99 0.25 0.23 0.07 0.18
11/15/99 0.25 0.23 0.07 0.18
11/12/99 0.25 0.23 0.07 0.18
11/11/99 0.23 0.23 0.07 0.18
11/10/99 0.26 0.25 0.08 0.18
11/9/99 0.20 0.20 0.06 0.18
11/8/99 0.20 0.19 0.05 0.18
</TABLE>
<PAGE> 31
<TABLE>
<S> <C> <C> <C> <C>
11/5/99 0.19 0.18 0.04 0.18
11/4/99 0.17 0.18 0.04 0.18
11/3/99 0.17 0.20 0.04 0.18
11/2/99 0.17 0.20 0.04 0.18
11/1/99 0.18 0.20 0.05 0.18
10/29/99 0.18 0.20 0.05 0.18
10/28/99 0.17 0.20 0.05 0.18
10/27/99 0.16 0.20 0.04 0.18
10/26/99 0.16 0.19 0.05 0.18
10/25/99 0.17 0.19 0.06 0.18
10/22/99 0.18 0.21 0.04 0.18
10/21/99 0.18 0.21 0.04 0.18
10/20/99 0.19 0.21 0.04 0.18
10/19/99 0.18 0.21 0.04 0.18
10/18/99 0.19 0.21 0.04 0.18
10/15/99 0.19 0.22 0.04 0.18
10/14/99 0.20 0.22 0.05 0.18
10/13/99 0.19 0.22 0.05 0.18
10/12/99 0.21 0.22 0.06 0.18
10/11/99 0.21 0.23 0.06 0.18
10/8/99 0.22 0.22 0.04 0.18
10/7/99 0.22 0.23 0.05 0.18
10/6/99 0.22 0.24 0.06 0.18
10/5/99 0.22 0.23 0.06 0.18
10/4/99 0.23 0.24 0.07 0.18
10/1/99 0.23 0.25 0.07 0.18
9/30/99 0.23 0.23 0.08 0.18
9/29/99 0.22 0.23 0.07 0.18
9/28/99 0.21 0.24 0.06 0.18
9/27/99 0.21 0.25 0.08 0.18
9/24/99 0.19 0.26 0.08 0.18
9/23/99 0.20 0.27 0.07 0.18
9/22/99 0.21 0.26 0.08 0.18
9/21/99 0.21 0.25 0.09 0.18
9/20/99 0.20 0.27 0.09 0.18
9/17/99 0.21 0.28 0.10 0.18
9/16/99 0.21 0.27 0.09 0.18
9/15/99 0.23 0.29 0.11 0.18
9/14/99 0.24 0.30 0.10 0.18
9/13/99 0.24 0.31 0.12 0.18
9/10/99 0.25 0.31 0.12 0.18
9/9/99 0.25 0.32 0.12 0.18
9/8/99 0.24 0.33 0.11 0.18
9/7/99 0.26 0.34 0.11 0.18
9/3/99 0.26 0.35 0.10 0.18
9/2/99 0.25 0.35 0.10 0.18
9/1/99 0.23 0.37 0.09 0.18
8/31/99 0.22 0.35 0.07 0.18
8/30/99 0.22 0.33 0.07 0.18
8/27/99 0.21 0.32 0.08 0.18
8/26/99 0.22 0.33 0.09 0.18
8/25/99 0.22 0.34 0.10 0.18
</TABLE>
<PAGE> 32
<TABLE>
<S> <C> <C> <C> <C>
8/24/99 0.23 0.34 0.09 0.18
8/23/99 0.22 0.33 0.09 0.18
8/20/99 0.22 0.34 0.10 0.18
8/19/99 0.24 0.39 0.12 0.18
8/18/99 0.22 0.33 0.10 0.18
8/17/99 0.20 0.28 0.07 0.18
8/16/99 0.18 0.26 0.08 0.18
8/13/99 0.16 0.23 0.07 0.18
8/12/99 0.16 0.22 0.06 0.18
8/11/99 0.16 0.23 0.07 0.18
8/10/99 0.16 0.23 0.05 0.18
8/9/99 0.16 0.23 0.05 0.18
8/6/99 0.16 0.24 0.05 0.18
8/5/99 0.16 0.25 0.05 0.18
8/4/99 0.16 0.24 0.06 0.18
8/3/99 0.17 0.25 0.08 0.18
8/2/99 0.18 0.27 0.08 0.18
7/30/99 0.18 0.29 0.07 0.18
7/29/99 0.17 0.29 0.08 0.18
7/28/99 0.17 0.29 0.08 0.18
7/27/99 0.16 0.29 0.06 0.18
7/26/99 0.15 0.29 0.06 0.18
7/23/99 0.16 0.30 NA 0.18
7/22/99 0.16 0.33 NA 0.18
7/21/99 0.16 0.35 NA 0.18
7/20/99 0.16 0.34 NA 0.18
7/19/99 0.16 0.35 NA 0.18
7/16/99 0.17 0.36 NA 0.18
7/15/99 0.21 0.39 NA 0.18
7/14/99 0.22 0.40 NA 0.18
7/13/99 0.18 0.34 NA 0.18
7/12/99 0.18 0.35 NA 0.18
7/9/99 0.18 0.36 NA 0.18
7/8/99 0.17 0.36 NA 0.18
7/7/99 0.18 0.37 NA 0.18
7/6/99 0.18 0.37 NA 0.18
7/2/99 0.17 0.37 NA 0.18
7/1/99 0.17 0.37 NA 0.18
6/30/99 0.16 0.37 NA 0.18
6/29/99 0.14 0.36 NA 0.18
6/28/99 0.14 0.37 NA 0.18
6/25/99 0.14 0.36 NA 0.18
6/24/99 0.14 0.37 NA 0.18
6/23/99 0.15 0.38 NA 0.18
6/22/99 0.15 0.38 NA 0.18
6/21/99 0.15 0.38 NA 0.18
6/18/99 0.15 0.38 NA 0.18
6/17/99 0.15 0.37 NA 0.18
6/16/99 0.15 0.39 NA 0.18
6/15/99 0.14 0.39 NA 0.18
6/14/99 0.17 0.41 NA 0.18
6/11/99 0.18 0.42 NA 0.18
</TABLE>
<PAGE> 33
<TABLE>
<S> <C> <C> <C> <C>
6/10/99 0.18 0.43 NA 0.18
6/9/99 0.17 0.44 NA 0.18
6/8/99 0.17 0.42 NA 0.18
6/7/99 0.19 0.44 NA 0.18
6/4/99 0.18 0.43 NA 0.18
6/3/99 0.19 0.44 NA 0.18
6/2/99 0.20 0.44 NA 0.18
6/1/99 0.20 0.45 NA 0.18
5/28/99 0.20 0.45 NA 0.18
5/27/99 0.20 0.44 NA 0.18
5/26/99 0.20 0.44 NA 0.18
5/25/99 0.21 0.47 NA 0.18
5/24/99 0.21 0.49 NA 0.18
5/21/99 0.23 0.50 NA 0.18
5/20/99 0.23 0.52 NA 0.18
5/19/99 0.24 0.50 NA 0.18
5/18/99 0.25 0.50 NA 0.18
5/17/99 0.27 0.50 NA 0.18
5/14/99 0.26 0.51 NA 0.18
5/13/99 0.25 0.51 NA 0.18
5/12/99 0.27 0.49 NA 0.18
5/11/99 0.26 0.47 NA 0.18
5/10/99 0.24 0.47 NA 0.18
5/7/99 0.22 0.43 NA 0.18
5/6/99 0.22 0.43 NA 0.18
5/5/99 0.23 0.44 NA 0.18
5/4/99 0.22 0.43 NA 0.18
5/3/99 0.22 0.45 NA 0.18
4/30/99 0.19 0.46 NA 0.18
4/29/99 0.17 0.47 NA 0.18
4/28/99 0.19 0.46 NA 0.18
4/27/99 0.19 0.50 NA 0.18
4/26/99 0.18 0.42 NA 0.18
4/23/99 0.19 0.43 NA 0.18
4/22/99 0.28 0.42 NA 0.18
4/21/99 0.25 0.38 NA 0.18
4/20/99 0.24 0.40 NA 0.18
4/19/99 0.25 0.40 NA 0.18
4/16/99 0.28 0.40 NA 0.18
4/15/99 0.27 0.41 NA 0.18
4/14/99 0.31 0.40 NA 0.18
4/13/99 0.30 0.40 NA 0.18
4/12/99 0.28 0.42 NA 0.18
4/9/99 0.29 0.41 NA 0.18
4/8/99 0.29 0.42 NA 0.18
4/7/99 0.27 0.42 NA 0.18
4/6/99 0.26 0.43 NA 0.18
4/5/99 0.27 0.44 NA 0.18
4/1/99 0.27 0.45 NA 0.18
3/31/99 0.25 0.45 NA 0.18
3/30/99 0.25 0.45 NA 0.18
3/29/99 0.26 0.47 NA 0.18
</TABLE>
<PAGE> 34
<TABLE>
<S> <C> <C> <C> <C>
3/26/99 0.26 0.48 NA 0.18
</TABLE>
================================================================================
<PAGE> 35
================================================================================
OPERATING BUSINESS VALUATION
================================================================================
HISTORICAL FINANCIAL PERFORMANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL(1) ESTIMATED PROJECTED - BASE CASE
---------------------------------------------------------- --------- --------------------------------
1995A 1996A 1997A 1998A 1999A 2000E 2001E 2002E 2003E
-------- -------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL REVENUE $7,256.2 $8,588.4 $8,507.4 $6,522.2 $6,539.2 $6,619.0 $7,417.1 $8,563.8 $9,503.5
% Growth 18.4% N.M. (23.3%) 0.3% 1.2% 12.1% 15.5% 11.0%
GROSS PROFIT 1,373.4 1,581.0 1,846.8 820.1 1,357.1 1,261.3 1,405.8 1,692.1 2,042.1
% of Sales 18.9% 18.4% 21.7% 12.6% 20.8% 19.1% 19.0% 19.8% 21.5%
EBITA 495.2 575.6 1,021.2 (144.3) 360.5 141.3 188.8 316.1 448.9
% of Sales 6.8% 6.7% 12.0% (2.2%) 5.5% 2.1% 2.5% 3.7% 4.7%
</TABLE>
Note:
(1) Data from 1997 onwards excludes NSMG contribution.
23
<PAGE> 36
================================================================================
OPERATING BUSINESS VALUATION
================================================================================
COMPARISON OF PROJECTIONS(1)
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
COMPARISON OF PROJECTIONS (1)
--------------------------------------------------------------------------------------------------------
REVENUES ($MM) GROSS MARGIN (%)
------------------------------------------------- ----------------------------------------------------
UPSIDE BUYER SENSITIVITY UPSIDE BUYER SENSITIVITY
FISCAL YEAR BASE CASE CASE CASE CASE BASE CASE CASE CASE CASE
- ----------- --------- --------- --------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997A $ 8,507.4 21.7%
1998A 6,522.2 12.6
1999A 6,539.2 20.8
2000E 6,619.0 $ 6,619.0 $ 6,619.0 $ 6,619.0 19.1 19.1% 19.1% 19.1%
2001E 7,417.1 8,185.1 7,393.2 7,417.1 19.0 19.5 18.9 18.1
2002E 8,563.8 10,145.9 7,797.4 8,563.8 19.8 22.4 19.4 18.9
2003E 9,503.5 11,283.1 8,309.7 9,503.5 21.5 23.0 19.4 19.3
2004E 10,416.3 12,626.1 8,801.2 10,416.3 22.2 23.7 19.3 20.1
2005E 11,359.0 13,960.5 9,269.1 11,359.0 23.1 24.5 19.4 21.1
2006E 12,349.7 15,404.2 9,759.1 12,349.7 24.5 25.4 19.6 22.1
2007E 13,582.6 17,131.5 10,355.1 13,582.6 26.0 26.8 20.3 23.8
2008E 15,132.2 19,298.7 11,087.7 15,132.2 27.8 28.2 21.2 25.7
</TABLE>
================================================================================
Notes:
1. Sources:
Base Case: Base Case as provided by management
Upside Case: Upside Case as provided by management
Buyer Case: Projections developed by Financial Buyer
Sensitivity Case: same as Base Case but assuming 2000E gross margins for
desktop segment of disc drive business remain constant throughout 2008.
24
<PAGE> 37
================================================================================
OPERATING BUSINESS VALUATION
================================================================================
COMPARISON OF PROJECTIONS(1)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMPARISON OF PROJECTIONS (1)
--------------------------------------------------------------------------------------------------------
EBITA ($MM) EBITA MARGIN (%)
------------------------------------------------- ----------------------------------------------------
Upside Buyer Sensitivity Upside Buyer Sensitivity
Fiscal Year Base Case Case Case Case Base Case Case Case Case
- ----------- --------- --------- --------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997A $ 1,021.2 12.0%
1998A -144.3 -2.2
1999A 360.5 5.5
2000E 141.3 $ 141.3 $ 141.3 $ 141.3 2.1 2.1% 2.1% 2.1%
2001E 188.8 364.5 188.8 124.7 2.5 4.5 2.6 1.7
2002E 316.1 689.0 322.1 242.3 3.7 6.8 4.1 2.8
2003E 448.9 782.6 363.2 242.1 4.7 6.9 4.4 2.5
2004E 498.6 866.8 377.9 281.5 4.8 6.9 4.3 2.7
2005E 613.9 999.8 403.4 385.9 5.4 7.2 4.4 3.4
2006E 724.2 1167.0 406.5 436.4 5.9 7.6 4.2 3.5
2007E 842.1 1348.9 443.2 539.8 6.2 7.9 4.3 4.0
2008E 988.2 1563.3 492.8 670.8 6.5 8.1 4.4 4.4
</TABLE>
================================================================================
Notes:
1. Sources:
Base Case: Base Case as provided by management
Upside Case: Upside Case as provided by management
Buyer Case: Projections developed by Financial Buyer
Sensitivity Case: same as Base Case but assuming 2000E gross margins for
desktop segment of disc drive business remain constant throughout 2008.
25
<PAGE> 38
================================================================================
OPERATING BUSINESS VALUATION
================================================================================
PROJECTED FUTURE PROFITABILITY(1)
- --------------------------------------------------------------------------------
- - ALL OF THE PROJECTIONS REFLECT FINANCIAL IMPROVEMENT VERSUS 2000E RESULTS
- - GIVEN THE CYCLICALITY OF THE DRIVES BUSINESS, FUTURE EARNINGS ARE DIFFICULT
TO PREDICT
<TABLE>
<CAPTION>
EBITA ($MM)
------------------------------------------------------------------------
DRIVES SOFTWARE TAPES SAN / NAS CONSUMER
------ -------- ------ --------- --------
<S> <C> <C> <C> <C> <C>
2000 $161.0 ($28.0) $ 23.0 $ 1.3 ($16.0)
2003-Sensitivity 144.8 41.3 39.1 12.0 5.0
2003-Buyer 298.4 22.8 36.0 6.0 0.0
2003-Base 351.6 41.3 39.1 12.0 5.0
2003-Upside 635.5 41.3 39.1 25.5 41.3
</TABLE>
================================================================================
Notes:
1. Sources:
Base Case: Base Case as provided by management
Upside Case: Upside Case as provided by management
Buyer Case: Projections developed by Financial Buyer
Sensitivity Case: same as Base Case but assuming 2000E gross margins for
desktop segment of disc drive business remain constant throughout 2008.
26
<PAGE> 39
================================================================================
SECTION 5
================================================================================
VENUS OVERVIEW
- --------------------------------------------------------------------------------
<PAGE> 40
================================================================================
VENUS OVERVIEW
================================================================================
VENUS STOCK PRICE PERFORMANCE
LAST TWELVE MONTHS
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
DATE VOLUME (000'S) PRICE
- -------- -------------- --------
<S> <C> <C> <C>
3/26/99 2,339.1 $ 17.17
3/29/99 3,135.6 19.25
3/30/99 2,318.0 18.90
3/31/99 2,689.2 17.94
4/1/99 1,107.9 18.28
4/5/99 2,669.0 19.50
4/6/99 2,207.7 19.72
4/7/99 6,528.2 18.28
4/8/99 6,229.4 17.44
4/9/99 3,214.8 17.67
4/12/99 2,558.7 17.51
4/13/99 2,951.6 18.36
4/14/99 5,129.6 19.19
4/15/99 4,016.7 18.53 < April 15, 1999 - Announces 1Q99 revenues of $71.9MM,
4/16/99 6,046.7 17.94 up 84% Y/Y, and EPS of $0.06, up 45% Y/Y
4/19/99 10,915.2 14.25
4/20/99 7,219.8 15.36
4/21/99 3,730.5 15.61
4/22/99 4,271.0 16.14
4/23/99 3,118.1 16.92
4/26/99 3,351.6 16.75
4/27/99 2,849.4 15.68
4/28/99 8,463.2 15.08
4/29/99 4,913.1 14.29
4/30/99 3,765.6 15.78
5/3/99 2,471.4 16.00
5/4/99 4,438.8 16.21
5/5/99 6,324.3 16.22
5/6/99 2,763.0 16.11
5/7/99 3,077.6 15.75
5/10/99 3,123.0 15.44
5/11/99 2,332.4 16.03
5/12/99 4,878.5 16.63
5/13/99 7,093.4 17.32
5/14/99 6,663.6 17.56
5/17/99 2,088.5 17.51
5/18/99 4,417.7 18.11
5/19/99 3,461.0 18.19
5/20/99 5,087.7 17.92
5/21/99 1,494.0 17.92
5/24/99 3,691.8 17.64
5/25/99 3,231.0 17.56
5/26/99 7,851.2 18.24
5/27/99 15,427.4 19.65
5/28/99 8,571.6 19.61
6/1/99 11,040.8 19.69
6/2/99 6,521.0 19.99
</TABLE>
28
<PAGE> 41
<TABLE>
<S> <C> <C> <C>
6/3/99 4,578.3 19.82
6/4/99 5,519.7 20.78
6/7/99 8,307.9 21.58 < June 7, 1999 - Announces 2-for-1 stock split
6/8/99 5,582.7 21.03
6/9/99 3,935.7 20.75
6/10/99 3,483.9 19.96
6/11/99 2,894.0 19.99
6/14/99 5,490.0 19.61
6/15/99 2,339.6 19.85
6/16/99 6,268.5 20.00
6/17/99 2,599.7 19.79
6/18/99 3,864.2 19.78 < June 18, 1999 - Adopts shareholder rights plan
6/21/99 5,574.2 20.67
6/22/99 6,844.5 21.00
6/23/99 2,653.2 21.14
6/24/99 2,914.2 20.78
6/25/99 2,231.6 20.44
6/28/99 2,158.2 20.83
6/29/99 3,461.4 20.69
6/30/99 4,742.6 21.10
7/1/99 3,456.5 20.86
7/2/99 2,541.2 21.39
7/6/99 7,449.3 23.53
7/7/99 4,715.6 22.99
7/8/99 3,398.4 23.17
7/9/99 1,627.7 23.11
7/12/99 3,938.4 22.14
7/13/99 2,138.4 22.67
7/14/99 2,948.4 23.67
7/15/99 2,989.1 23.69 < July 15, 1999 - Announces 2Q99 revenues of $155.7MM,
7/16/99 10,101.6 27.19 up 70% Y/Y, and EPS of $0.97, up 51% Y/Y
7/19/99 4,661.6 27.89 < July 19, 1999 - Terry Cunningham resigns as President
7/20/99 7,461.9 25.56 and Chief Operating Officer
7/21/99 6,146.6 26.22
7/22/99 3,936.8 26.58
7/23/99 2,558.3 27.11
7/26/99 3,112.2 25.44
7/27/99 7,606.1 24.28
7/28/99 3,552.8 24.46
7/29/99 3,183.8 23.42
7/30/99 2,375.3 24.94
8/2/99 2,183.2 24.56
8/3/99 2,813.2 24.28
8/4/99 2,110.1 23.72
8/5/99 5,115.8 24.86
8/6/99 2,431.6 23.72
8/9/99 4,244.4 22.14 < August 8, 1999 - Acquires assets of Noview for
8/10/99 18,937.1 21.81 undisclosed terms
8/11/99 8,119.1 23.75
8/12/99 5,185.6 22.86
8/13/99 4,044.4 23.33
8/16/99 5,060.9 24.14
</TABLE>
<PAGE> 42
<TABLE>
<S> <C> <C> <C>
8/17/99 3,904.7 24.44
8/18/99 2,178.7 24.31
8/19/99 2,180.5 23.39
8/20/99 5,815.8 26.14
8/23/99 7,795.6 27.25
8/24/99 4,291.2 27.11
8/25/99 2,353.1 27.50
8/26/99 1,738.6 27.25
8/27/99 2,578.1 26.28
8/30/99 1,567.1 25.74
8/31/99 2,098.6 26.33
9/1/99 2,652.1 27.44
9/2/99 3,730.1 27.97
9/3/99 4,974.8 29.17
9/7/99 2,600.1 29.28
9/8/99 3,169.6 30.03
9/9/99 3,258.2 31.49
9/10/99 4,839.1 31.54
9/13/99 4,855.3 29.61
9/14/99 3,970.4 30.50
9/15/99 4,519.4 31.19
9/16/99 3,336.3 31.83
9/17/99 5,405.0 34.69
9/20/99 3,927.6 34.47
9/21/99 3,431.3 33.47
9/22/99 2,967.3 35.33
9/23/99 2,537.8 34.17
9/24/99 4,168.6 34.33
9/27/99 3,140.3 34.14
9/28/99 4,052.7 35.67
9/29/99 3,808.1 34.04
9/30/99 6,537.6 33.75
10/1/99 4,090.5 32.94
10/4/99 3,339.5 34.71
10/5/99 8,388.7 37.78 < October 5, 1999 - Announces agreement with Microsoft
10/6/99 4,331.7 38.03 to provide data-protection software to Microsoft
10/7/99 3,647.9 36.92
10/8/99 3,010.1 36.47
10/11/99 2,786.0 38.47
10/12/99 3,123.2 37.56
10/13/99 2,460.4 36.94
10/14/99 3,924.0 36.21 < October 14, 1999 - Announces 3Q99 revenues of
10/15/99 12,585.4 40.49 $183.4MM, up 75% Y/Y, and EPS of $0.09, up 76% Y/Y;
10/18/99 12,255.8 37.67 also announces 3-for-2 stock split
10/19/99 5,020.4 37.44
10/20/99 6,399.5 40.06
10/21/99 4,926.6 41.31
10/22/99 5,819.0 41.86
10/25/99 3,436.2 41.75
10/26/99 3,185.6 39.92
10/27/99 4,008.4 41.61
10/28/99 6,510.8 44.94
</TABLE>
<PAGE> 43
<TABLE>
<S> <C> <C> <C>
10/29/99 6,155.6 47.94
11/1/99 4,491.2 47.11
11/2/99 5,449.7 46.56
11/3/99 6,678.9 47.64
11/4/99 9,453.8 48.36
11/5/99 6,780.2 48.03
11/8/99 5,043.2 49.11
11/9/99 7,067.9 51.06
11/10/99 4,122.2 51.50
11/11/99 3,770.3 50.53 < November 11, 1999 - Announces that it plans to
11/12/99 3,546.7 51.58 release new versions of its products that run on
11/15/99 3,813.8 53.39 multiple operating systems
11/16/99 5,587.7 58.19
11/17/99 5,731.0 57.56
11/18/99 5,397.1 61.39
11/19/99 8,323.2 64.67
11/22/99 6,625.5 68.71
11/23/99 6,042.5 67.08
11/24/99 3,672.6 68.00
11/26/99 1,366.1 69.83
11/29/99 4,280.1 66.79
11/30/99 10,845.8 61.04
12/1/99 5,845.5 62.83
12/2/99 4,778.7 66.25
12/3/99 5,847.3 70.75
12/6/99 3,851.6 69.42
12/7/99 3,027.9 69.00
12/8/99 5,064.5 69.67
12/9/99 5,503.7 71.96
12/10/99 3,990.8 72.71
12/13/99 3,546.5 71.71
12/14/99 3,136.8 68.50
12/15/99 4,928.7 72.13
12/16/99 6,672.3 75.33
12/17/99 7,726.2 78.31
12/20/99 3,943.7 83.58
12/21/99 5,455.8 82.63
12/22/99 3,536.0 89.67
12/23/99 4,334.1 95.42
12/27/99 4,469.7 89.08
12/28/99 2,682.2 90.04
12/29/99 2,488.5 93.33
12/30/99 2,785.2 91.25
12/31/99 3,435.9 95.42
1/3/00 5,201.9 94.67
1/4/00 5,553.3 86.88
1/5/00 8,132.9 84.79
1/6/00 6,312.5 76.04
1/7/00 8,425.1 83.00
1/10/00 9,742.7 95.88
1/11/00 5,247.8 88.04
1/12/00 5,166.0 84.00
</TABLE>
<PAGE> 44
<TABLE>
<S> <C> <C> <C>
1/13/00 4,296.8 93.00
1/14/00 4,891.2 97.61
1/18/00 3,276.0 98.42
1/19/00 2,645.6 98.50
1/20/00 5,800.4 103.83
1/21/00 6,030.8 114.38
1/24/00 8,909.4 100.83
1/25/00 5,244.6 106.63
1/26/00 4,091.9 104.75
1/27/00 5,247.3 105.17 < January 27, 2000 - Announces 4Q99 revenues of
1/28/00 13,607.0 102.67 $226.2MM, up 80% Y/Y, and EPS of $0.13, up 46% Y/Y;
1/31/00 6,764.0 97.25 also announces 3-for-2 stock split
2/1/00 5,081.1 103.13
2/2/00 4,901.9 102.42
2/3/00 3,907.7 103.71
2/4/00 6,167.3 104.63
2/7/00 3,489.3 103.92
2/8/00 6,392.9 113.13
2/9/00 4,644.6 109.83
2/10/00 4,622.1 118.92
2/11/00 3,665.1 115.01
2/14/00 2,609.3 112.38
2/15/00 4,359.3 110.67
2/16/00 3,740.0 110.79
2/17/00 2,913.6 115.67
2/18/00 4,621.7 115.38
2/22/00 3,595.7 114.63
2/23/00 5,486.9 122.08
2/24/00 5,214.0 126.50
2/25/00 4,142.3 120.79
2/28/00 4,318.8 125.38
2/29/00 4,124.9 131.92
3/1/00 3,965.1 134.17
3/2/00 3,619.7 136.42
3/3/00 5,690.9 148.25
3/6/00 5,443.6 159.06
3/7/00 5,648.7 163.69
3/8/00 5,231.9 158.81
3/9/00 4,972.5 162.94
3/10/00 4,819.2 168.69
3/13/00 4,886.2 165.75
3/14/00 4,164.1 154.75
3/15/00 8,699.3 133.44
3/16/00 8,592.2 151.75
3/17/00 4,678.7 164.38
3/20/00 6,372.9 142.50
3/21/00 7,392.6 148.56
3/22/00 4,627.9 162.25
3/23/00 3,537.7 158.94
3/24/00 3,655.2 162.56
3/27/00 3,681.6 168.44
3/28/00 5,084.6 154.94
</TABLE>
<PAGE> 45
================================================================================
Source: Factset and Bloomberg
<PAGE> 46
================================================================================
VENUS OVERVIEW
================================================================================
INDEXED PRICE PERFORMANCE
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
LTM INDEX (BASE 100)
------------------------------------------------------
DATE VENUS COMPARABLES (1) NASDAQ S&P500
- -------- ------- --------------- ------ ------
<S> <C> <C> <C> <C>
03/26/99 100.0 100.0 100.0 100.0
03/29/99 112.1 102.6 103.0 102.1
03/30/99 110.1 102.1 102.5 101.4
03/31/99 104.5 100.5 101.7 100.3
04/01/99 106.5 98.2 103.1 100.9
04/05/99 113.6 95.8 105.8 103.0
04/06/99 114.9 91.4 106.0 102.7
04/07/99 106.5 87.9 105.2 103.4
04/08/99 101.6 91.6 106.4 104.8
04/09/99 102.9 93.5 107.2 105.1
04/12/99 102.0 92.1 107.4 105.9
04/13/99 107.0 88.8 106.8 105.2
04/14/99 111.8 90.9 103.6 103.6
04/15/99 107.9 91.6 104.2 103.1
04/16/99 104.5 88.6 102.7 102.8
04/19/99 83.0 82.4 97.0 100.5
04/20/99 89.5 85.7 99.6 101.8
04/21/99 90.9 92.2 102.9 104.2
04/22/99 94.0 97.7 105.9 105.9
04/23/99 98.5 98.5 107.1 105.8
04/26/99 97.6 103.2 109.6 106.0
04/27/99 91.3 102.2 107.6 106.2
04/28/99 87.9 100.0 105.4 105.3
04/29/99 83.3 97.2 104.5 104.7
04/30/99 91.9 98.1 105.1 104.1
05/03/99 93.2 97.3 104.8 105.6
05/04/99 94.4 94.1 102.7 103.8
05/05/99 94.5 95.3 104.8 105.0
05/06/99 93.9 93.4 102.2 103.8
05/07/99 91.7 94.4 103.5 104.8
05/10/99 90.0 95.5 104.4 104.5
05/11/99 93.4 99.3 106.1 105.7
05/12/99 96.8 101.7 107.7 106.3
05/13/99 100.9 99.7 106.7 106.6
05/14/99 102.3 99.3 104.5 104.3
05/17/99 102.0 101.0 105.9 104.4
05/18/99 105.5 100.8 105.8 103.9
05/19/99 106.0 104.2 106.5 104.8
05/20/99 104.4 104.6 105.1 104.4
05/21/99 104.4 103.5 104.2 103.7
05/24/99 102.8 102.3 101.4 101.9
05/25/99 102.3 99.2 98.4 100.1
05/26/99 106.2 100.2 100.3 101.7
05/27/99 114.5 100.6 100.0 99.9
05/28/99 114.2 103.3 102.1 101.5
06/01/99 114.7 102.9 99.7 100.9
06/02/99 116.4 104.5 100.5 100.9
</TABLE>
29
<PAGE> 47
<TABLE>
<S> <C> <C> <C> <C>
06/03/99 115.5 105.7 99.3 101.3
06/04/99 121.0 109.6 102.4 103.5
06/07/99 125.7 112.8 104.3 104.0
06/08/99 122.5 109.6 102.3 102.7
06/09/99 120.9 109.1 104.1 102.8
06/10/99 116.3 108.1 102.7 101.6
06/11/99 116.4 106.8 101.2 100.8
06/14/99 114.2 105.1 99.1 100.9
06/15/99 115.6 106.0 99.8 101.4
06/16/99 116.5 118.7 104.1 103.7
06/17/99 115.3 121.9 105.2 104.5
06/18/99 115.2 122.3 106.0 104.7
06/21/99 120.4 125.5 108.7 105.2
06/22/99 122.3 124.5 106.7 104.1
06/23/99 123.1 125.7 107.4 103.9
06/24/99 121.0 123.3 105.6 102.6
06/25/99 119.1 125.5 105.5 102.5
06/28/99 121.4 128.0 107.6 103.8
06/29/99 120.6 129.2 109.2 105.4
06/30/99 122.9 132.2 111.0 107.0
07/01/99 121.5 132.8 111.9 107.7
07/02/99 124.6 134.4 113.3 108.5
07/06/99 137.1 134.2 113.1 108.2
07/07/99 133.9 135.1 113.4 108.8
07/08/99 135.0 136.4 114.6 108.7
07/09/99 134.6 137.3 115.5 109.4
07/12/99 129.0 137.1 115.3 109.1
07/13/99 132.0 135.6 114.8 108.6
07/14/99 137.9 135.6 116.5 109.0
07/15/99 138.0 139.2 117.4 109.9
07/16/99 158.4 144.5 118.4 110.6
07/19/99 162.5 143.7 117.0 109.7
07/20/99 148.9 134.2 112.9 107.4
07/21/99 152.8 139.1 114.2 107.5
07/22/99 154.9 131.1 111.0 106.1
07/23/99 157.9 131.5 111.3 105.8
07/26/99 148.2 127.2 108.3 105.1
07/27/99 141.4 130.1 110.8 106.2
07/28/99 142.5 131.7 111.8 106.4
07/29/99 136.4 127.7 109.1 104.5
07/30/99 145.3 127.2 109.1 103.6
08/02/99 143.0 126.1 108.5 103.5
08/03/99 141.4 121.7 107.0 103.1
08/04/99 138.2 119.8 105.0 101.8
08/05/99 144.8 124.6 106.1 102.4
08/06/99 138.2 123.8 105.3 101.4
08/09/99 129.0 120.8 104.1 101.2
08/10/99 127.0 118.9 102.9 99.9
08/11/99 138.3 124.2 106.0 101.5
08/12/99 133.2 123.8 105.4 101.2
08/13/99 135.9 131.1 109.0 103.5
08/16/99 140.6 132.1 109.3 103.7
</TABLE>
<PAGE> 48
<TABLE>
<S> <C> <C> <C> <C>
08/17/99 142.4 132.3 110.4 104.8
08/18/99 141.6 130.9 109.9 103.9
08/19/99 136.2 129.6 108.4 103.2
08/20/99 152.3 132.2 109.5 104.2
08/23/99 158.7 136.8 112.4 106.0
08/24/99 157.9 140.7 113.8 106.3
08/25/99 160.2 142.8 116.0 107.7
08/26/99 158.7 142.0 114.7 106.2
08/27/99 153.1 140.8 114.0 105.1
08/30/99 149.9 137.3 112.1 103.2
08/31/99 153.4 138.9 113.2 102.9
09/01/99 159.9 141.1 113.7 103.8
09/02/99 162.9 139.4 113.0 102.8
09/03/99 169.9 147.2 117.5 105.8
09/07/99 170.6 148.7 117.3 105.3
09/08/99 174.9 149.4 116.1 104.8
09/09/99 183.4 153.5 117.9 105.1
09/10/99 183.7 159.7 119.3 105.4
09/13/99 172.5 157.4 117.6 104.8
09/14/99 177.7 158.5 118.6 104.2
09/15/99 181.7 152.0 116.3 102.7
09/16/99 185.4 149.2 116.0 102.8
09/17/99 202.1 156.0 118.6 104.1
09/20/99 200.8 158.0 119.3 104.1
09/21/99 195.0 152.6 116.6 101.9
09/22/99 205.8 155.5 118.1 102.2
09/23/99 199.0 149.8 113.7 99.8
09/24/99 200.0 146.9 113.3 99.6
09/27/99 198.9 147.9 114.2 100.0
09/28/99 207.8 149.5 113.9 100.0
09/29/99 198.3 147.4 112.9 98.9
09/30/99 196.6 149.1 113.5 100.0
10/01/99 191.9 148.2 113.1 100.0
10/04/99 202.2 155.2 115.6 101.7
10/05/99 220.1 157.9 115.7 101.4
10/06/99 221.5 164.0 118.1 103.3
10/07/99 215.0 163.1 118.3 102.7
10/08/99 212.5 167.5 119.3 104.1
10/11/99 224.1 172.5 120.5 104.1
10/12/99 218.8 171.0 118.7 102.4
10/13/99 215.2 167.9 115.8 100.2
10/14/99 210.9 168.7 116.0 100.0
10/15/99 235.8 166.1 112.9 97.2
10/18/99 219.4 163.9 111.2 97.8
10/19/99 218.1 165.0 111.1 98.3
10/20/99 233.3 172.6 115.3 100.5
10/21/99 240.6 172.1 115.8 100.1
10/22/99 243.9 174.1 116.4 101.5
10/25/99 243.2 175.5 116.4 100.8
10/26/99 232.5 177.3 116.2 99.9
10/27/99 242.4 176.8 115.8 101.1
10/28/99 261.8 184.0 118.9 104.6
</TABLE>
<PAGE> 49
<TABLE>
<S> <C> <C> <C> <C>
10/29/99 279.3 195.6 122.6 106.2
11/01/99 274.4 199.9 122.7 105.6
11/02/99 271.2 199.5 123.3 105.1
11/03/99 277.5 203.7 125.2 105.6
11/04/99 281.7 205.0 126.3 106.2
11/05/99 279.8 214.7 128.2 106.8
11/08/99 286.1 217.3 130.0 107.3
11/09/99 297.4 211.1 129.2 106.4
11/10/99 300.0 217.8 130.5 107.1
11/11/99 294.3 220.8 132.2 107.7
11/12/99 300.5 223.3 133.2 108.8
11/15/99 311.0 225.6 133.1 108.7
11/16/99 339.0 231.8 136.1 110.7
11/17/99 335.3 239.2 135.1 110.0
11/18/99 357.6 247.4 138.4 111.1
11/19/99 376.7 246.0 139.3 110.9
11/22/99 400.2 243.0 140.2 110.8
11/23/99 390.8 237.6 138.2 109.5
11/24/99 396.1 243.3 141.4 110.5
11/26/99 406.8 245.2 142.5 110.4
11/29/99 389.1 242.0 141.4 109.7
11/30/99 355.6 236.8 137.9 108.3
12/01/99 366.0 240.7 138.6 109.0
12/02/99 385.9 252.3 142.7 109.8
12/03/99 412.1 268.8 145.5 111.7
12/06/99 404.4 273.5 146.6 111.0
12/07/99 401.9 281.4 148.3 109.9
12/08/99 405.8 277.6 148.2 109.4
12/09/99 419.2 284.2 148.6 109.8
12/10/99 423.5 291.8 149.6 110.5
12/13/99 417.7 290.3 151.2 110.3
12/14/99 399.0 282.7 147.6 109.4
12/15/99 420.1 296.5 149.7 110.2
12/16/99 438.8 305.1 153.6 110.6
12/17/99 456.2 306.7 155.1 110.8
12/20/99 486.9 312.9 156.4 110.5
12/21/99 481.3 327.5 161.7 111.7
12/22/99 522.3 340.5 162.8 112.0
12/23/99 555.8 343.3 164.1 113.7
12/27/99 518.9 337.1 164.3 113.6
12/28/99 524.5 336.1 164.2 113.6
12/29/99 543.7 340.8 167.1 114.1
12/30/99 531.6 340.3 166.9 114.2
12/31/99 555.8 335.4 168.2 114.5
01/03/00 551.5 336.8 170.8 113.4
01/04/00 506.1 315.8 161.3 109.1
01/05/00 493.9 306.9 160.3 109.3
01/06/00 443.0 296.3 154.1 109.4
01/07/00 483.5 316.7 160.5 112.4
01/10/00 558.5 331.5 167.4 113.6
01/11/00 512.9 310.3 162.1 112.1
01/12/00 489.3 299.0 159.1 111.7
</TABLE>
<PAGE> 50
<TABLE>
<S> <C> <C> <C> <C>
01/13/00 541.7 308.6 163.6 113.0
01/14/00 568.6 322.7 168.0 114.2
01/18/00 573.3 325.6 170.8 113.4
01/19/00 573.8 329.6 171.6 113.5
01/20/00 604.9 316.5 173.2 112.7
01/21/00 666.3 319.1 175.1 112.4
01/24/00 587.4 302.0 169.3 109.3
01/25/00 621.1 304.8 172.3 109.9
01/26/00 610.2 305.9 168.2 109.5
01/27/00 612.6 305.4 167.0 109.0
01/28/00 598.1 287.1 160.7 106.0
01/31/00 566.5 286.7 162.9 108.7
02/01/00 600.7 309.3 167.5 109.9
02/02/00 596.6 310.7 168.4 109.8
02/03/00 604.1 327.9 174.1 111.1
02/04/00 609.5 329.3 175.4 111.0
02/07/00 605.3 330.7 178.6 111.0
02/08/00 659.0 338.8 183.0 112.4
02/09/00 639.8 343.2 180.4 110.0
02/10/00 692.7 356.4 185.4 110.4
02/11/00 670.0 348.0 181.7 108.1
02/14/00 654.6 349.9 182.6 108.4
02/15/00 644.7 341.9 182.7 109.3
02/16/00 645.4 350.3 183.0 108.2
02/17/00 673.8 362.8 188.0 108.2
02/18/00 672.1 350.6 182.4 104.9
02/22/00 667.7 373.1 181.1 105.4
02/23/00 711.2 394.1 188.1 106.1
02/24/00 736.9 405.6 190.9 105.5
02/25/00 703.6 395.1 189.8 103.9
02/28/00 730.3 391.2 189.2 105.1
02/29/00 768.4 394.9 194.1 106.5
03/01/00 781.6 391.2 197.8 107.5
03/02/00 794.7 395.2 196.5 107.7
03/03/00 863.6 420.6 203.2 109.9
03/06/00 926.6 410.8 202.7 108.5
03/07/00 953.5 413.7 200.4 105.7
03/08/00 925.1 433.7 202.4 106.5
03/09/00 949.2 455.3 208.6 109.3
03/10/00 982.6 443.0 208.7 108.8
03/13/00 965.5 431.5 202.8 107.9
03/14/00 901.5 408.1 194.6 106.0
03/15/00 777.3 394.7 189.4 108.5
03/16/00 884.0 414.0 195.0 113.7
03/17/00 957.5 423.2 198.3 114.2
03/20/00 830.1 412.1 190.6 113.6
03/21/00 865.4 413.8 194.8 116.5
03/22/00 945.1 435.9 201.1 117.0
03/23/00 925.8 445.4 204.2 119.1
03/24/00 947.0 450.0 205.2 119.1
03/27/00 981.2 465.3 205.0 118.8
03/28/00 902.5 446.9 199.8 117.5
</TABLE>
================================================================================
Note:
1. Comparable companies include Microsoft, Cisco, Oracle, i2 Technologies,
Siebel Systems and Legato Systems.
<PAGE> 51
================================================================================
VENUS OVERVIEW
================================================================================
TRADING STATISTICS OF SELECTED COMPARABLE COMPANIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CALENDAR YEAR 2001 ESTIMATES
-------------------------------------------------
AGG VALUE /
COMPANY P/E RATIO P/E 5 YR GROWTH SALES
- ------- --------- --------------- -----------
<S> <C> <C> <C>
VeriSign 625 x 10.4 x 91.8 x
Broadvision 396 7.9 47.7
i2 Technologies 304 6.8 23.6
- -------------------------------------------------------------------------
Venus 231 4.6 42.2
- -------------------------------------------------------------------------
Siebel Systems 140 3.0 15.3
Cisco 108 3.6 19.2
Oracle 97 3.9 18.4
Microsoft 50 2.1 16.5
Legato Systems 44 0.9 6.3
=========================================================================
</TABLE>
30
<PAGE> 1
PROJECT SUEZ
PRELIMINARY WORKING PAPERS PREPARED FOR DISCUSSION
MARCH 23, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
OVERVIEW OF TRANSACTION
Summary Description ..................................................................4-7
Consideration Paid by Victory.........................................................8
Consideration Paid to Suez Shareholders...............................................9
Transaction Considerations............................................................10
Pro Forma Effect on Victory...........................................................11
Sensitivity of Value Recapture at Closing.............................................12
CAPITAL MARKETS UPDATE
APPENDIX
Victory Trading History...............................................................15
Discount of Suez Market Value to Net Asset Value......................................16
</TABLE>
2
<PAGE> 3
OVERVIEW OF TRANSACTION
3
<PAGE> 4
SUMMARY DESCRIPTION
PRE-TRANSACTION ASSETS*
The following illustration depicts the assets held by Suez prior to both the
Stock Purchase and the Merger.
[GRAPHIC]
Prior to Transaction
o Suez transfers all assets and liabilities other than (i) Monetary Assets /
Liabilities, (ii) Equity Holdings and (iii) Victory Holdings to a (set of)
subsidiary(ies) represented by the Operating Assets box above
* Note: The Summary Description is meant to reflect the economic substance
(rather then the legal structure) of the Transaction.
4
<PAGE> 5
SUMMARY DESCRIPTION (CONTINUED)
STEP 1: SALE OF OPERATING ASSETS TO SAC (THE "STOCK PURCHASE")*
The following illustration depicts the sale of the Operating Assets to SAC in
exchange for the Purchase Price.
[GRAPHIC]
Pursuant to Stock Purchase by SAC
o Structured as Stock Purchase by SAC of all of Suez's subsidiaries which hold
the Operating Assets
- Subsidiary(ies) purchased will hold all liabilities (absolute, accrued,
contingent or otherwise) of Suez
- SAC indemnifies Suez for potential, current or continuing liabilities
- SAC is responsible for Suez's golden parachute excise tax payments up to
$100MM that result from the existing contractual requirements of Suez
(remaining payments to be deducted from cash available to be distributed
to Suez shareholders)
o SAC pays $2BN in cash to Suez for the Operating Assets
- Assumes: 1) $800MM in operating cash (remains with Operating Assets to
fund working capital)
2) Non-cash working capital of at least $0
3) No net tax liability
4) Up to $200MM of purchase price financed through rollover
of Suez management options
* Note: The Summary Description is meant to reflect the economic substance
(rather then the legal structure) of the Transaction.
5
<PAGE> 6
SUMMARY DESCRIPTION (CONTINUED)
STEP 2: MERGER OF SUEZ INTO VICTORY (THE "MERGER")*
The following illustration depicts the merger of Suez, which now holds only the
(i) Monetary Assets / Liabilities, (ii) Equity Holdings, and (iii) Victory
holdings, into a subsidiary of Victory in exchange for both the Stock
Consideration and the Cash Consideration.
[GRAPHIC]
Pursuant to Merger
o Tax-free Merger of Suez into a subsidiary of Victory
o Victory shall pay the sum of (i) Stock Consideration and (ii) Cash
Consideration to Suez shareholders (including optionees) for all of the
outstanding capital stock of Suez
- Stock Consideration shall equal the sum of the (i) "Victory Shares",
(ii) "Security Shares" and (iii) "Cash Shares" (see next page)
- Cash Consideration shall equal the sum of the cash received pursuant to
the Stock Purchase (subject to adjustments described later) plus net
value of existing Monetary Assets / Liabilities less Retained Cash and
Liability Cash
o Retained Cash shall equal an amount up to $500MM to be retained by
Victory (plus cash, if any, from sales of Equity Holdings by Suez
prior to Closing)
o Liability Cash shall equal an amount of cash sufficient to satisfy
existing or anticipated liabilities retained by Suez (now owned by
Victory) subsequent to the Stock Purchase
* Note: The Summary Description is meant to reflect the economic substance
(rather then the legal structure) of the Transaction.
6
<PAGE> 7
SUMMARY DESCRIPTION (CONTINUED)
POST-TRANSACTION*
The following illustration depicts the final result of both the Stock Purchase
and the Merger, pursuant to which SAC holds the Operating Assets, and Victory
holds (i) Suez, and (ii) the Victory Assets and Operating Business.
[GRAPHIC]
* Note: The Summary Description is meant to reflect the economic substance
(rather then the legal structure) of the Transaction.
7
<PAGE> 8
CONSIDERATION PAID BY VICTORY
($MM, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
NUMBER OF VICTORY SHARES TO BE
DISTRIBUTED TO SUEZ
SHAREHOLDERS
---------------------------------------
CALCULATION OF STOCK CONSIDERATION DETERMINATION ESTIMATED
POINT NUMBER
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Victory Shares
Victory Shares Assumed Held by Suez at Closing Announcement 128,059,966
Times 0.853743x
---------------
Illustrative Victory Shares Issued 109,330,300
Security Shares
Estimated Aggregate After-Tax Market Value(1)(2)(3)(4)(5) Closing $ 431.4
Divided by: Estimated Victory Share Price - Closing(6) $ 162.25
---------------
Illustrative Victory Shares Issued 2,658,985
Cash Shares
Retained Cash Shareholder Vote $ 500.0
Divided by: Estimated Victory Share Price - Vote (7) $ 162.25
---------------
Illustrative Victory Shares Issued 3,081,664
- --------------------------------------------------------------------------------------------------------
Total Illustrative Victory Shares Issued 115,070,948
Illustrative Exchange Ratio Based on Victory Shares Assumed 0.899x
Held by Suez at Closing
Illustrative Discount to Victory Shares Assumed Held by Suez at Closing 10.1%
Illustrative Stock Consideration(8) 0.466x
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes average closing stock price of SanDisk, Gadzoox and CVC, Inc. over
the five trading days up to and including the second trading day preceding
the shareholder vote on the Merger equals the closing stock price of such
security of $129.31, $41.50 and $36.94, respectively, as of March 22,
2000.
(2) Assumes a pre-tax value of $275.0MM for all of Dragon Systems, of which
Suez owns 35.6%.
(3) Based on a liquidity discount of 20.0% for SanDisk holdings. Based on a
liquidity discount of 40.0% for Gadzoox, CVC, Inc and Dragon Systems
holdings.
(4) Based on a tax rate of 40.0%. Assumes tax bases in holdings as provided by
Morgan Stanley.
(5) Assumes 4.1MM, 5.1MM, 2.4MM and 6.5MM shares of SanDisk, Gadzoox, CVC,
Inc. and Dragon Systems, respectively are held by Suez at Closing (i.e.,
no sale of shares during pendency of Transaction.)
(6) Assumes average closing stock price of Victory over the five trading days
up to and including the second trading day prior to Closing equals the
Victory closing stock price of $162.25, as of March 22, 2000.
(7) Assumes average closing stock price of Victory over the five trading days
up to and including the trading day preceding the tenth day prior to
shareholder vote related to the Merger equals the Victory closing stock
price of $162.25, as of March 22, 2000.
(8) Assumes 247.0MM Suez shares outstanding at Closing. Based on (i) $200MM of
option rollover, and (ii) complete net exercise as provided by Goldman,
Sachs.
8
<PAGE> 9
CONSIDERATION PAID TO SUEZ SHAREHOLDERS
($MM, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
WHEN SHARES/
SOURCES OF VALUE FOR SUEZ SHAREHOLDERS DETERMINED OPTIONS PRICE VALUE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Illustrative Value of Stock Consideration
Victory Shares Announcement 109.3 $ 162.25 $ 17,739
Security Shares Closing 2.7 162.25 431
Cash Shares Shareholder Vote 3.1 162.25 500
- ------------------------------------------------------------------------------------------------------------------
ILLUSTRATIVE VICTORY VALUE TO BE DISTRIBUTED TO SUEZ
SHAREHOLDERS(1) 247.0 $ 75.59 $ 18,670
- ------------------------------------------------------------------------------------------------------------------
Illustrative Value of Cash Consideration(2)
Sale of Operating Business to SAC Announcement $ 2,000
Less: Value of Suez Management Option Rollover Announcement (200)
Plus: Cash on Suez Balance Sheet (as of February 2000) Closing 1,608
Plus: Cash from Sales of SanDisk Shares Prior to
Announcement Announcement 470
Less: Operating Cash Retained by SAC Announcement (800)
Less: SAC Working Capital `Make Whole'(3) Closing 0
Less: Taxes Payable (as of February 2000)(4) Closing (276)
Less: Transaction-Related Taxes(5) Closing 0
Plus: Tax Refund Due to Excess Options-Related Comp
Deduction(6) Closing 325
Less: Repayment of Suez Debt Outstanding (including
Call Premium) Announcement (775)
Less: Estimated Suez Transaction Fees Announcement (30)
- ------------------------------------------------------------------------------------------------------------------
TOTAL CASH CONSIDERATION $ 2,322
- ------------------------------------------------------------------------------------------------------------------
Less: Retained Cash (exchanged for `Cash Shares') Shareholder Vote (500)
- ------------------------------------------------------------------------------------------------------------------
ILLUSTRATIVE CASH TO BE DISTRIBUTED TO SUEZ SHAREHOLDERS(1) 247.0 $ 7.38 $ 1,822
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
TOTAL CONSIDERATION TO BE DISTRIBUTED TO SUEZ
SHAREHOLDERS(1) 247.0 $ 82.96 $20,492
PREMIUM / (DISCOUNT) TO CURRENT(7) 21.7%
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes 247.0MM Suez shares outstanding at Closing. Based on (i) $200MM of
option rollover and (ii) complete net exercise as provided by Goldman,
Sachs.
(2) Based on assumptions set forth by Goldman, Sachs as of March 17, 2000.
(3) Cash is reduced by the amount required for net non-cash working capital
(excluding taxes) to equal zero.
(4) Defined as any taxes owed by Suez aside from those related to the Stock
Purchase or the Merger.
(5) Represents taxes on sale of operating business, cash repatriation, and
sales of SanDisk shares prior to announcement. Assumed to be offset by
options-related comp deduction.
(6) Represents tax refund due to existence of excess comp deduction after
transaction-related taxes are paid. Estimated FY 2000 tax of $325MM is the
maximum likely available tax refund.
(7) Based on Suez closing price of $68.19 on March 22, 2000.
9
<PAGE> 10
TRANSACTION CONSIDERATIONS
MAJOR BENEFITS OF TRANSACTION TO VICTORY:
o Results in a value recapture to Victory shareholders of approximately $3.0BN
- Could be increased based on value realized for Security Shares
(recapture the Liquidity Discount of almost $200MM)
- Results in 2.8% and 13.5% accretion to Victory CY2001 RPS and EPS,
respectively
o Increases float/liquidity of Victory stock
o Removes overhang from potential future liquidity events in Victory stock by
Suez
o Distributes the control of the Suez block broadly in the market
o Creates opportunity for investors to buy blocks of stock
- Existing investors can increase stake without driving up Victory price
- New investors (i.e., large cap funds) can buy into Victory
o Provides for broader shareholder base
ISSUES TO CONSIDER:
o May have a short-term impact on Victory stock price as the market absorbs
the supply resulting from the transaction
o Results in potential on-going liabilities related to potential breaches of
indemnification obligations of SAC
10
<PAGE> 11
PRO FORMA EFFECT ON VICTORY
IMPACT ON CURRENT STREET ESTIMATES ($MM, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
VICTORY PROJECTIONS
STAND-ALONE (1) PRO FORMA
-------------------------- ---------------------------
H2:2000 CY2001 H2:2000 CY2001
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 575.4 $ 1,498.5 $ 575.4 $ 1,498.5
Operating Income 179.8 465.7 179.8 465.7
Net Income(2) 118.3 304.9 134.2 336.6
- ------------------------------------------------------------------------------------------------
Weighted Average Shares 455.6 475.9 442.6 462.9
Number of Shares Retired -- -- 13.0 13.0
- ------------------------------------------------------------------------------------------------
Per Share
- ------------------------------------------------------------------------------------------------
RPS $ 1.26 $ 3.15 $ 1.30 $ 3.24
% Accretion -- -- 2.9% 2.8%
EPS 0.26 0.64 0.30 0.73
% Accretion -- -- 16.7% 13.5%
- ------------------------------------------------------------------------------------------------
Current Trading Multiples
Aggr. Value / Revenues(3) 65.0x 49.9x -- --
P/E(3) 312.4 253.3 -- --
Breakeven Trading Multiples
Aggr. Value / Revenues(3) -- -- 62.3x 47.8x
P/E(3) -- -- 267.6 223.1
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on current research report from Credit Suisse First Boston.
(2) Assumes interest of 5.0% is earned on cash gained in transaction. Assumes
40.0% tax rate. Based on $556.4MM after-tax value of equity holdings
(assumes no liquidity discount), and $500.0MM of additional cash retained
by Victory.
(3) Based on current market price of $162.25 for Victory as of March 22, 2000.
11
<PAGE> 12
SENSITIVITY OF VALUE RECAPTURE AT CLOSING
($MM, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
A/T
DISCOUNTED Assumed Victory Share Price
MARKET ----------------------------------------------------------------------------------
VALUE OF $ 100.00 $ 120.00 $ 140.00 $ 160.00 $ 162.25 $ 180.00 $ 200.00
EQUITY ----------------------------------------------------------------------------------
HOLDINGS PREMIUM / (DISCOUNT) TO
(1)(2)(3) CURRENT (4) -38.4% -26.0% -13.7% -1.4% 0.0% 10.9% 23.3%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$200.0 Illustrative Stock 116.3 115.2 114.3 113.7 113.6 113.2 112.8
Consideration (Shares)
Illustrative Exchange 0.908x 0.899x 0.893x 0.888x 0.887x 0.884x 0.881x
Ratio Per Victory Share(5)
Victory Share (Stock or $ 1,673 $ 2,048 $ 2,422 $ 2,797 $ 2,839 $ 3,171 $ 3,546
Cash) Value Recaptured (4)(5)
Security Share Value $ 266 $ 266 $ 266 $ 266 $ 266 $ 266 $ 266
-------- -------- -------- -------- -------- -------- --------
Recaptured(4)(6)
Total Value Recaptured(4) $ 1,939 $ 2,314 $ 2,689 $ 3,063 $ 3,105 $ 3,438 $ 3,812
250.0 Illustrative Stock 116.8 115.6 114.7 114.0 114.0 113.5 113.1
Consideration (Shares)
Illustrative Exchange 0.912x 0.903x 0.896x 0.890x 0.890x 0.886.x 0.883x
Ratio Per Victory Share(5)
Victory Share (Stock or $ 1,623 $ 1,998 $ 2,372 $ 2,747 $ 2,789 $ 3,121 $ 3,496
Cash) Value Recaptured (4)(5)
Security Share Value $ 337 $ 337 $ 337 $ 337 $ 337 $ 337 $ 337
-------- -------- -------- -------- -------- -------- --------
Recaptured(4)(6)
Total Value Recaptured(4) $ 1,959 $ 2,334 $ 2,709 $ 3,083 $ 3,123 $ 3,458 $ 3,832
300.0 Illustrative Stock 117.3 116.0 115.0 114.3 114.3 113.8 113.3
Consideration (Shares)
Illustrative Exchange 0.916x 0.906x 0.898x 0.893x 0.892x 0.888x 0.885x
Ratio Per Victory Share(5)
Victory Share (Stock or $ 1.573 $ 1,948 $ 2,322 $ 2,697 $ 2,739 $ 3,071 $ 3,446
Cash) Value Recaptured (4)(5)
Security Share Value $ 407 $ 407 $ 407 $ 407 $ 407 $ 407 $ 407
-------- -------- -------- -------- -------- -------- --------
Recaptured(4)(6)
Total Value Recaptured(4) $ 1,980 $ 2,354 $ 2,729 $ 3,103 $ 3,145 $ 3,478 $ 3,852
431.4 Illustrative Stock 118.6 117.1 116.0 115.2 115.1 114.5 114.0
Consideration (Shares)
Illustrative Exchange 0.926x 0.914x 0.906x 0.899x 0.899x 0.894x 0.893x
Ratio Per Victory Share(5)
Victory Share (Stock or $ 1,442 $ 1,816 $ 2,191 $ 2,565 $ 2,607 $ 2,940 $ 3,315
Cash) Value Recaptured (4)(5)
Security Share Value $ 591 $ 591 $ 591 $ 591 $ 591 $ 591 $ 591
-------- -------- -------- -------- -------- -------- --------
Recaptured(4)(6)
Total Value Recaptured(4) $ 2,032 $ 2,407 $ 2,781 $ 3,156 $ 3,198 $ 3,531 $ 3,905
500.0 Illustrative Stock 119.3 117.7 116.5 115.6 115.5 114.9 114.3
Consideration (Shares)
Illustrative Exchange 0.932x 0.919x 0.910x 0.903x 0.902x 0.897x 0.893x
Ratio Per Victory Share(5)
Victory Share (Stock or $ 1,373 $ 1,748 $ 2,122 $ 2,497 $ 2,539 $ 2,871 $ 3,246
Cash) Value Recaptured (4)(5)
Security Share Value $ 687 $ 687 $ 687 $ 687 $ 687 $ 687 $ 687
-------- -------- -------- -------- -------- -------- --------
Recaptured(4)(6)
Total Value Recaptured(4) $ 2,060 $ 2,434 $ 2,809 $ 3,183 $ 3,226 $ 3,558 $ 3,933
600.0 Illustrative Stock 120.3 118.5 117.2 116.2 116.1 115.4 114.8
Consideration (Shares)
Illustrative Exchange 0.940x 0.925x 0.915x 0.907x 0.907x 0.901x 0.897x
Ratio Per Victory Share(5)
Victory Share (Stock or $ 1,273 $ 1,998 $ 2,022 $ 2,397 $ 2,439 $ 2,771 $ 3,146
Cash) Value Recaptured (4)(5)
Security Share Value $ 827 $ 827 $ 827 $ 827 $ 827 $ 827 $ 827
-------- -------- -------- -------- -------- -------- --------
Recaptured(4)(6)
Total Value Recaptured(4) $ 2,100 $ 2,474 $ 2,849 $ 3,224 $ 3,266 $ 3,598 $ 3,973
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on a liquidity discount of 20.0% for SanDisk holdings. Based on a
liquidity discount of 40.0% for Gadzoox, CVC, Inc. and Dragon Systems
holdings.
(2) Based on a tax rate of 40.0%. Assumes tax bases in holdings as provided by
Morgan Stanley.
(3) Assumes relative values of SanDisk, Gadzoox, CVC, Inc. and Dragon Systems
holdings move exactly together.
(4) Based on current market price of $162.25 for Victory as of March 22, 2000.
(5) Based on 128.1MM shares of Victory currently held by Suez.
(6) Represents after-tax market value of Equity Holdings not accounting for
liquidity discount.
12
<PAGE> 13
CAPITAL MARKETS UPDATE
13
<PAGE> 14
APPENDIX
14
<PAGE> 15
VICTORY TRADING HISTORY
SEPTEMBER 1, 1999 TO MARCH 22, 2000
The following table contains representative data points from the illustration
contained in the original presentation:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
9/1/1999 10/1/1999 11/1/1999 12/1/1999 1/3/2000 2/1/2000 3/1/2000 3/22/2000
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Victory Closing Price $ 27.44 $ 32.94 $ 47.11 $ 62.83 $ 94.67 $ 103.13 $ 134.17 $ 162.25
Victory Volume (000s) 2,652.1 4,090.5 4,491.2 5,845.5 5,201.9 5,081.1 3,965.1 4,627.1
Suez Closing Price $ 33.88 $ 30.69 $ 29.25 $ 37.75 $ 46.00 $ 41.00 $ 50.94 $ 68.19
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
o Victory closed at a period low of $27.44 on September 1, 1999
o Victory closed at an all-time high of $168.89 on March 10, 2000
o As of March 22, 2000, the average Victory closing price for:
(i) the last 5 trading days was $153.89
(ii) the last 10 trading days was $155.50
(iii) the last 15 trading days was $154.75
(iv) the last 20 trading days was $148.00
(v) the last 30 trading days was $136.84
(vi) the last 60 trading days was $117.04
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<PAGE> 16
DISCOUNT OF SUEZ MARKET VALUE TO NET ASSET VALUE(1)
DISCOUNT / (PREMIUM) OF SUEZ MARKET VALUE TO SUEZ NET ASSET VALUE (PRE- AND
AFTER-TAX) (SEPTEMBER 1, 1999 TO MARCH 22, 2000)
The following table contains representative data points from the illustration
contained in the original presentation:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
9/1/1999 10/1/1999 11/1/1999 12/1/1999 1/3/2000 2/1/2000 3/1/2000 3/22/2000
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Disc./(Prem.) of MV (2) 12.2% 22.4% 36.2% 31.0% 32.4% 41.7% 41.9% 32.7%
to NAV (Pre-Tax)
Disc./(Prem.) of MV (2) (8.5%) 0.0% 14.6% 4.5% 3.8% 16.2% 14.9% (0.2%)
to NAV (After-Tax) (3)
Total $ Disc./(Prem.) of MV (2) $ 1,125 $ 2,147 $ 4,179 $ 4,253 $ 5,515 $ 7,575 $ 9,583 $ 8,640
to NAV (Pre-Tax)
Total $ Disc./(Prem.) of MV (2) $ (634) $ 1 $ 1,253 $ 443 $ 451 $ 2,050 $ 2,324 $ (42)
to NAV (After-Tax) (3)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Assumes that the Operating Assets (including $800MM of cash) are valued at
fair market value.
(2) Based on Suez daily closing share price.
(3) Assumes that Suez equity holdings (Victory, Gadzoox, SanDisk, CVC, and
Dragon Systems) are fully-taxed using a 40% tax rate.
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