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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 TO
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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MAXTOR CORPORATION
(NAME OF SUBJECT COMPANY)
MAXTOR CORPORATION
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
577729 10 6
(CUSIP NUMBER OF CLASS OF SECURITIES)
DR. CHONG SUP PARK
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MAXTOR CORPORATION
211 RIVER OAKS PARKWAY
SAN JOSE, CA 95134
(408) 432-1700
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSONS
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF PERSON(S) FILING STATEMENT)
COPY TO:
DIANE HOLT FRANKLE, ESQ.
GRAY CARY WARE & FREIDENRICH
A PROFESSIONAL CORPORATION
400 HAMILTON AVENUE
PALO ALTO, CA 94301-1825
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Maxtor Corporation, a Delaware
corporation (the "Company"), and the address of the principal executive offices
of the Company is 211 River Oaks Parkway, San Jose, California 95134. The title
of the class of equity securities to which this statement relates is the
Company's common stock, par value $.01 per share ("Share", collectively the
"Shares"), including the related common stock purchase rights (the "Rights")
issued pursuant to the Rights Agreement dated as of January 27, 1988, as amended
on September 10, 1994 and November 2, 1994 (the "Rights Agreement"), between the
Company and The First National Bank of Boston. The Rights will expire and be of
no force and effect on consummation of the Merger (as defined below).
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer by Hyundai Acquisition, Inc., a
Delaware corporation (the "Purchaser") and a wholly-owned subsidiary of Hyundai
Electronics America, a California corporation (the "Parent"), to purchase any
and all outstanding Shares at a price of $6.70 per Share, net to the seller in
cash, upon the terms and subject to the conditions set forth in the Purchaser's
Offer to Purchase dated November 8, 1995 and in the related Letter of
Transmittal (which, together with the Offer to Purchase and any amendments or
supplements thereto, collectively constitute the "Offer"), copies of which are
filed respectively as Exhibits 1 and 2 hereto and are hereby incorporated herein
by reference. The Offer is disclosed in a Tender Offer Statement on Schedule
14D-1 dated November 8, 1995 (the "Schedule 14D-1") and in a Rule 13e-3
Transaction Statement on Schedule 13E-3 dated November 8, 1995 (the "Schedule
13E-3"), both of which are filed with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules promulgated by the Commission thereunder.
The Offer is being made by Purchaser pursuant to the Agreement and Plan of
Merger dated November 2, 1995 by and among the Company, the Purchaser and Parent
(the "Merger Agreement").
As set forth in the Schedule 14D-1, the address of the principal executive
offices of each of the Purchaser and Parent is 510 Cottonwood Drive, Milpitas,
California 95035.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this statement, are set forth in Item 1 above.
(b) Except as described herein and in Schedule I hereto, to the knowledge
of the Company, as of the date hereof, there are no material contracts,
agreements, arrangements or understandings, or any potential or actual conflicts
of interest between the Company or its affiliates and (1) the Company and its
executive officers, directors or affiliates or (2) Parent, the Purchaser,
Hyundai Electronics Industries Co., Ltd. Hyundai Heavy Industries Co., Ltd.,
Hyundai Corporation and Hyundai Merchant Marine Co. Ltd. (collectively, the
"Hyundai Shareholders") and their respective executive officers, directors and
affiliates.
(1) Certain Contracts, Agreements, Arrangements or Understandings and any
Actual or Potential Conflicts of Interest Between (A) the Company or its
Affiliates and (B) the Company and its Executive Officers, Directors or
Affiliates.
Interests of Certain Persons in the Offer and the Merger. In considering
the recommendations of the Board of Directors and the Special Committee set
forth in Item 4(a) below, the Company's stockholders (other than holders of the
Class A Common Stock, par value $.01 per share (the "Class A Shares")), of the
Company should be aware that certain members of the Board and the Special
Committee, respectively, have interests in the Merger and the Offer with are
described in Schedule I below and which may present them with certain conflicts
of interest. Each of the Special Committee and the Board were aware of these
potential conflicts and considered them along with the other factors described
in Item 4(b)(2) below.
(2) Certain Contracts, Agreements, Arrangements or Understandings and any
Actual or Potential Conflicts of Interest Between (A) the Company or its
Affiliates and (B) the Purchaser and its Executive Officers, Directors or
Affiliates.
For a description of certain agreements and understandings between the
Company, on the one hand, and Parent or certain affiliates of Parent, on the
other, see the information set forth in Item 4 hereof under the
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heading "Background of the Transactions; Past Contacts, Transactions and
Negotiations with Parent and the Purchaser."
The Merger Agreement.
This description of the Merger Agreement is qualified in its entirety by
reference to the Merger Agreement, a copy of which is filed as Exhibit 3 hereto
and is hereby incorporated herein by reference.
The Offer. The Merger Agreement provides, among other things, for the
making of the Offer by the Purchaser, and further provides that following the
purchase of Shares pursuant to the Offer and promptly after the satisfaction or
waiver of certain other conditions, the Purchaser will be merged with and into
the Company (the "Merger"). The Purchaser's obligation to accept for payment or
pay for Shares is subject to the satisfaction of the conditions that are
described herein. Pursuant to the Merger Agreement, the Purchaser expressly
reserves the right to waive any of the conditions to the Offer, to the extent
permitted by applicable law, and to make any change in the terms or conditions
of the Offer; provided that, without the written consent of the Company, the
Purchaser shall not decrease the price per Share, decrease the number of Shares
sought, change the form of consideration payable, add additional conditions to
the Offer or make any other change in the terms or conditions of the Offer set
forth in the Merger Agreement in any manner that is adverse to the holders of
Shares. Notwithstanding the foregoing, the Purchaser may, in its sole
discretion, extend the expiration date from time to time if all conditions to
the Offer have not been satisfied or waived. Subject to the other conditions of
the Offer, the Purchaser intends to extend the Offer from time to time until the
obtainment of final approval of all necessary governmental officials and
agencies of the Republic of Korea (the "Korean Approval Condition") is
satisfied.
Consideration to be Paid in the Merger. The Merger Agreement provides
that, following the purchase of Shares pursuant to the Offer and upon the terms
and subject to the conditions set forth in the Merger Agreement, the Purchaser
will be merged with and into the Company, with the Company continuing as the
Surviving Corporation (the "Suviving Corporation"). In the Merger, each Share
other than: (i) Shares and Class A Shares held by the Purchaser or any of its
subsidiaries; (ii) Shares held by the Company or any of its subsidiaries; and
(iii) Shares as to which appraisal rights have been exercised pursuant to
Delaware General Corporation Law ("DGCL"), Section 262 ("Dissenting Shares"),
will be converted into the right to receive, in cash and without interest, $6.70
or such higher price paid for each Share in the Offer. Each share of common
stock of the Purchaser issued and outstanding immediately prior to the time of
the Merger will be converted into and become one share of common stock of the
surviving corporation (the "Surviving Corporation"). The Merger Agreement
provides that (i) the Merger shall close no later than the second business day
after satisfaction or waiver of all of the conditions to the Merger set forth in
the Merger Agreement; and (ii) on the Merger closing date (or such other date as
Parent and the Company may agree), the Company and Purchaser will file a
certificate of merger or, if applicable, a certificate of ownership and merger
(the "Certificate of Merger") with the Secretary of State of Delaware. The
Merger shall become effective when the Certificate of Merger is duly filed with
the Secretary of State of Delaware or at such time as is agreed by the parties
and specified in the Certificate of Merger (the "Effective Time").
Pursuant to the Merger Agreement, effective as of the Effective Time, each
outstanding stock option shall become fully exercisable and vested and shall
thereupon be canceled, and each holder of any such option shall be paid by the
Company promptly after the Effective Time for each such option an amount
determined by multiplying (i) the excess, if any, of $6.70 per Share over the
applicable exercise price of such option by (ii) the number of Shares previously
subject to such option immediately prior to its cancellation.
The Company agreed to take all actions reasonably necessary to cause the
last day of the "Offering Period" (as such term is used in the Company's 1992
Employee Stock Purchase Plan (the "1992 ESPP"), to be the date immediately prior
to the date on which the Purchaser accepts Shares for payment pursuant to the
Offer (the "Final Purchase Date"), and apply the funds within each participant's
withholdings account on the Final Purchase Date to the purchase of whole Shares
in accordance with the terms of the 1992 ESPP.
Board Representation. The Merger Agreement provides that, effective upon
Purchaser's purchase of at least the number of Shares that, together with the
Class A Shares, constitutes a majority of the outstanding voting stock of the
Company, Parent shall be entitled to designate the number of directors, rounded
up to the next whole number, on the Company's Board of Directors, such that the
percentage of its designees on the
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Board, together with the directors nominated by the Hyundai Shareholders, equals
the percentage of the aggregate number of outstanding Shares and Class A Shares
then beneficially owned by Parent and the Hyundai Shareholders. At such time as
Parent's designees constitute a majority of the Company's Board of Directors,
any amendment of the Merger Agreement, any termination of the Merger Agreement
by the Company, any extension of time for performance of any of the obligations
of Parent or the Purchaser thereunder, any waiver of any condition or any of the
Company's rights thereunder or other action by the Company thereunder will be
ineffective unless it is approved by a majority of the directors of the Company
then in office who were not officers of the Company or Parent or designees,
stockholders or affiliates of Parent and the full Board of Directors; provided,
that if there shall be no such directors, such actions may be effected by
majority vote of the entire Board of Directors of the Company.
The Merger Agreement provides that, from and after the Effective Time, the
directors and officers of the Purchaser will be the initial directors and
officers of the Surviving Corporation. Pursuant to the Merger Agreement, the
certificate of incorporation and the by-laws of the Company, as in effect
immediately prior to the Effective Time, will be the certificate of
incorporation and by-laws of the Surviving Corporation.
Stockholders' Meeting. The Merger Agreement provides that, if required by
applicable law, the Company will call a meeting of its stockholders to be held
as promptly as practicable following the purchase of Shares for the purpose of
considering and voting on the approval of the Merger and adoption of the Merger
Agreement. Under the Merger Agreement, at any such meeting, Parent has agreed to
vote, or cause to be voted, all Shares and Class A Shares owned by it, the
Purchaser, any of its other subsidiaries or the Hyundai Shareholders in favor of
approval of the Merger and adoption of the Merger Agreement.
Representations and Warranties. The Merger Agreement contains various
representations and warranties of the parties thereto. These include
representations and warranties of the Company with respect to corporate
existence and power, corporate authorization, governmental consents and
approvals, non-contravention, capitalization, subsidiaries, Commission reports,
financial statements, absence of certain changes, undisclosed liabilities,
litigation, taxes, compliance with laws, intellectual property and other
matters.
Parent and Purchaser have also made certain representations and warranties
with respect to corporate existence and power, corporate authorization,
governmental consents and approvals, non-contravention and other matters.
Conduct of Business Pending the Merger. The Company has agreed that,
except as expressly contemplated in the Merger Agreement, as set forth in the
company disclosure schedule or as agreed by Parent, during the period from the
date of the Merger Agreement until such time as the directors designated by
Parent and the Hyundai Shareholders together constitute a majority of the Board
(the "Appointment Date"), (i) the business of the Company and its subsidiaries
will be conducted only in the ordinary and usual course and, to the extent
consistent therewith, each will use its best efforts to preserve intact its
business organizations and maintain its existing relationships with customers,
suppliers, employees, creditors and business partners and (ii) the Company will
not, directly or indirectly, amend its or any of its subsidiaries' certificate
of incorporation or by-laws or similar organizational documents. The Company has
further agreed that during such period and subject to the same exceptions, the
Company will not, and will not permit any of its subsidiaries to, among other
things, (i)(a) declare, set aside or pay any dividend or other distribution in
respect of any of its capital stock or that of its subsidiaries, (b) split,
combine or reclassify the outstanding capital stock of the Company or any of its
subsidiaries, or (c) redeem, purchase or otherwise acquire any shares of capital
stock of the Company or any of its subsidiaries; (ii) issue, sell, pledge,
dispose of or encumber any additional shares of, or securities convertible into
or exchangeable for, or options, warrants, calls, commitments or rights of any
kind to acquire, any shares of capital stock of any class of the Company or its
subsidiaries (other than the issuance of Shares upon the exercise of outstanding
Company stock options); (iii) acquire or agree to acquire any material assets
not listed in the company disclosure schedule, either by purchase, merger,
consolidation, sale of shares in a subsidiary or otherwise; (iv) transfer,
lease, license, sell, mortgage, pledge, dispose of or encumber any material
assets other than in the ordinary and usual course of business and consistent
with past practice; (v) modify, amend or terminate any of its material contracts
or waive, release or assign any material rights or claims, except in the
ordinary course of business and consistent with past practice; (vi) incur or
assume any long-term debt, or except in the ordinary course of business, incur
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or assume any short-term indebtedness in amounts not consistent with past
practice, incur or modify any material indebtedness or other liability, assume,
guarantee, endorse or otherwise become liable or responsible for the obligations
of any other person, except in the ordinary course of business and consistent
with past practice except as set forth in the company disclosure schedule, make
any loans, advances or capital contributions to, or investments in, any other
person except as set forth in the company disclosure schedule, or enter into any
material commitment or transaction, except in the ordinary course of business
and consistent with past practice; (vii) pay, discharge or satisfy any claims,
liabilities or obligations, other than the payment, discharge or satisfaction of
any such claims, liabilities or obligations, in the ordinary course of business
and consistent with past practice, of claims, liabilities or obligations
reflected or reserved against in, or contemplated by, the consolidated financial
statements of the Company and its consolidated subsidiaries; (viii) take or
agree or commit to take any action that would make any representation or
warranty of the Company contained in the Merger Agreement inaccurate in any
respect at or as of any time prior to the Effective Time; or (ix) enter into an
agreement, contract, commitment or arrangement to do any of the foregoing, or to
authorize, recommend, propose or announce an intention to do any of the
foregoing.
The Company has agreed to afford Parent and its representatives access
during normal business hours prior to the Appointment Date to the properties,
books, contracts, commitments and records, of the Company and its subsidiaries
and during such period furnish Parent with such other information concerning its
business, properties and personnel as Parent may reasonably request.
Subject to the terms and conditions in the Merger Agreement, each of the
parties to the Merger Agreement has agreed to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the Merger and the other transactions contemplated
by the Merger Agreement. Pursuant to the Merger Agreement, each of the Company,
Parent and the Purchaser has agreed to take all reasonable actions necessary to
comply promptly with all legal requirements that may be imposed on it with
respect to the Merger Agreement and the transactions contemplated thereby and to
cooperate with each other in connection with any such requirements imposed upon
any of them or any of their subsidiaries in connection with the Merger Agreement
and the transactions contemplated thereby.
Other Offers. Pursuant to the Merger Agreement, the Company has agreed
that the Company and its subsidiaries or affiliates will not (and the Company
will use its best efforts to cause its officers, directors, employees and other
agents not to), directly or indirectly, take any action to encourage, solicit,
participate in or initiate discussions or negotiations with any entity or group
(other than Parent, any of its affiliates or representatives) concerning any
merger, tender offer, exchange offer, sale of assets, sale of shares of capital
stock or debt securities or similar transactions involving the Company or any
subsidiary, division or operating or principal business unit of the Company (an
"Acquisition Proposal").
Notwithstanding the foregoing, the Company may furnish information
concerning its business, properties or assets to any corporation, partnership,
person or other entity or group pursuant to appropriate confidentiality
agreements, and may negotiate and participate in discussions and negotiations
with such entity or group concerning an Acquisition Proposal, (x) if such entity
or group has on an unsolicited basis submitted a bona fide written proposal to
the Board of Directors of the Company relating to any such transaction which the
Special Committee determines represents a superior alternative to the
stockholders of the Company (other than the holders of the Class A Shares) to
the acquisition of the Company contemplated by the Merger Agreement and (y) if,
in the opinion of the Special Committee, only after receipt of advice from legal
counsel to the Special Committee, the failure to provide such information or to
engage in such discussions or negotiations would cause the Board of Directors to
violate its fiduciary duties to the Company's stockholders under applicable law.
The Company agreed to immediately communicate to Parent the terms of any
proposal or inquiry (and agreed to disclose any written materials received by
the Company in connection with such proposal or inquiry) and the identity of the
party making such proposal or inquiry which it may receive in respect of any
such transaction.
Agreement with Respect to Director and Officer Indemnification and
Insurance. Pursuant to the Merger Agreement and subject to certain limitations
set forth therein, Parent has agreed, subject to any limitation imposed from
time to time under applicable law, that, for a period of six years after the
Effective Time, it will
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cause the Surviving Corporation (or any successor) to indemnify, defend and hold
harmless the present and former officers, directors, employees and agents of the
Company and its subsidiaries against all losses, claims, damages, liabilities,
fees and expenses arising out of actions or omissions occurring at or prior to
the Effective Time to the full extent permitted under Delaware law, subject to
the Company's certificate of incorporation, by-laws and indemnification
agreements, all as in effect on the date of the Merger Agreement. Parent has
further agreed, subject to certain limitations set forth in the Merger
Agreement, that, for not less than three years after the Effective Time, Parent
or the Surviving Corporation shall maintain the Company's existing officers' and
directors' liability insurance. Parent has also agreed to cause the Surviving
Corporation to comply with the Company's existing indemnification agreements
with the Company's directors and executive officers.
Conditions to the Merger. Pursuant to the Merger Agreement, the respective
obligations of each party to consummate the Merger are subject to the
satisfaction or waiver (to the extent permitted by law), on or prior to the
Closing Date of the following conditions: (i) the adoption and approval of the
Merger Agreement by the requisite vote of the stockholders, if such vote is
required by applicable law and the certificate of incorporation of the Company,
to consummate the Merger, (ii) no statute, rule, order, decree or regulation
shall have been enacted or promulgated that prohibits the consummation of the
Merger; (iii) no order or injunction shall preclude, restrain, enjoin or
prohibit the consummation of the Merger and (iv) Parent, the Purchaser or their
affiliates shall have purchased the Shares pursuant to the Offer.
Termination. The Merger Agreement may be terminated and the Merger
contemplated therein may be abandoned at any time prior to the Effective Time,
whether before or after stockholder approval thereof (i) by the mutual consent
of Parent and the Company, (ii) by either Parent or the Company if the Offer
shall have expired without any Shares being purchased therein, or if the Shares
tendered in the Offer shall not have been accepted for payment by March 31,
1996; except that the right to terminate the Merger Agreement is not available
to any party whose failure to fulfill any obligation thereunder has been the
cause of, or resulted in, the failure of Parent or the Purchaser, as the case
may be, to purchase the Shares pursuant to the Offer on or prior to such date,
(iii) by either Parent or the Company if any Governmental Entity (as defined in
the Merger Agreement) shall have issued an order, decree or ruling or taken any
other action in each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the Merger Agreement and such
order, decree, ruling or other action shall have become final and
non-appealable, (iv) by the Board of Directors of the Company if prior to the
purchase of the Shares pursuant to the Offer, the Board decides that the Company
should enter into a definitive agreement providing for an acquisition of the
Company by a third party on terms determined by the Board to be superior to the
Offer, (v) by the Board of Directors of the Company if, prior to the purchase of
the Shares pursuant to the Offer, Parent or the Purchaser breaches or fails in
any material respect to perform or comply with any of the material covenants and
agreements in the Merger Agreement or breaches its representations and
warranties in any material respect, (vi) by the Board of Directors of the
Company if the Offer shall have expired, or shall have been withdrawn, abandoned
or terminated, without (in each case) Parent or the Purchaser, as the case may
be, purchasing any Shares, (vii) by the Board of Directors of the Company if
Parent, the Purchaser or any of their affiliates shall have failed to commence
the Offer on or prior to five business days following the date of the initial
public announcement of the Offer, (viii) by Parent or the Purchaser if prior to
the purchase of the Shares pursuant to the Offer, the Board of Directors of the
Company shall have withdrawn, or modified or changed in a manner adverse to
Parent or the Purchaser, its approval or recommendation of the Offer, the Merger
Agreement or the Merger or shall have recommended an Acquisition Proposal or
offer, or shall have executed an agreement in principle (or similar agreement)
or definitive agreement providing for a tender offer or exchange offer for any
shares of capital stock of the Company, or a merger, consolidation or other
business combination with a person or entity other than Parent, the Purchaser or
their affiliates; (ix) by Parent or the Purchaser, if Parent or the Purchaser
has terminated the Offer, without Parent or the Purchaser purchasing any Shares
thereunder, provided that Parent or the Purchaser has not failed to purchase the
Shares in the Offer in breach of the material terms thereof; or (x) by Parent or
the Purchaser if, due to an occurrence that if occurring after the commencement
of the Offer would result in a failure to satisfy any of the conditions set
forth in Annex A to the Merger Agreement, Parent, the Purchaser, or any of their
affiliates has failed to commence the offer on or prior to five business days
following the date of initial public announcement of the offer.
Fees and Expenses. Each party to the Merger Agreement has agreed to pay
its own fees and expenses.
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Amendment to the Rights Agreement.
In connection with the Company's entering into the Merger Agreement, on
November 2, 1995, the Company amended the Rights Agreement by entering into an
Amendment No. 2 thereto ("Rights Amendment"). The Rights Amendment has been
effected to provide that stock purchase rights will not trade separately from
shares. The Rights Amendment provides that no Distribution Date, Stock
Acquisition Date or Triggering Event (each as defined in the Rights Agreement)
shall be deemed to have occurred, and neither Parent nor any affiliate nor
associate thereof shall be deemed to have become an Acquiring Person (as defined
in the Rights Agreement), by reason of the Merger Agreement and the consummation
of the transactions contemplated thereby. However, if after November 2, 1995,
the Parent or any of its subsidiaries or any of their respective directors
becomes the beneficial owner of any Shares (other than by reason of the Merger
Agreement or the consummation of the transactions contemplated thereby or in any
transaction in conformity with the standstill provisions of the Stock Purchase
Agreement, dated as of September 10, 1993, among the Company and the Hyundai
Shareholders (as defined below), such provision of the Rights Amendment becomes
no longer applicable. The Rights Amendment also provides that the Rights will
expire and be of no force or effect upon consummation of the Merger.
Accordingly, the tender of a Share will constitute the tender of the associated
Right, and no additional consideration will be paid in respect thereof. The
foregoing summary is qualified in its entirety by reference to the Rights
Agreement, Amendment No. 1 thereto dated September 10, 1994 and the Rights
Amendment, copies of which are respectively filed as Exhibits 4, 5 and 6 hereto
and are hereby incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) The Board of Directors of the Company, based on the unanimous
recommendation of the Special Committee of the Board of Directors, has approved
the Offer, the Merger and the other transactions contemplated by the Merger
Agreement, has determined that the Offer, the Merger and the other transactions
contemplated by the Merger Agreement are fair to and in the best interests of
the Company's stockholders (other than holders of Class A Shares) and recommends
that the stockholders of the Company (other than holders of Class A Shares)
accept the Offer and tender their Shares.
A copy of a letter to all stockholders of the Company communicating the
recommendation of the Board of Directors and the Special Committee is filed as
Exhibit 7 hereto and is incorporated herein by reference.
(b)
Background of the Transaction; Past Contacts, Transactions and Negotiations
with Parent and the Purchaser.
The highly cyclical and competitive nature of the disk drive industry has
affected the Company since its inception in 1982. The disk drive industry
typically is characterized by rapid technological change, short product life
cycles and intense competition. In addition, the Company has not consistently
been able to bring products to market in a timely and cost-effective manner. As
a result of these and other factors, the Company has incurred cumulative net
losses over the last eleven quarters of approximately $418 million.
From the beginning of 1993 through September 1995, these losses decreased
the Company's available cash, leading the Company to seek a capital infusion in
1993, additional debt financing in 1993 and again in 1995, and the manufacture
by Hyundai Storage Division ("HSD") of Hyundai Electronics Industries Co., Ltd.
("HEI") of certain of the Company's products in 1995, as set forth below.
In early 1993, in light of its losses and the expectation of continuing
intense price competition in the disk drive industry, the Company decided to
seek to increase its capital base. It considered issuing additional equity or
other securities in the public market or selling all or part of the Company. In
March 1993, the Company's management first contacted HEI and its affiliates to
determine their possible interest in an investment in the Company. In order to
facilitate discussions between the parties, the Company and HEI entered into a
confidentiality agreement dated May 1, 1993. In May 1993, the Company retained
Bear, Stearns & Co. Inc. ("Bear Stearns") to aid the Company in exploring
strategic alternatives. In addition to contacting HEI and its affiliates, the
Company and Bear Stearns identified and contacted several other prospective
investors which the Company believed might be capable of and interested in a
purchase of or significant investment in the Company. Either the Company or Bear
Stearns provided each prospective purchaser with financial statements
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and a written overview of the Company and responded to all other due diligence
requests. However, the Company received no offers other than the offer from HEI
to invest in the Company, except for an indication that a third party was
interested in acquiring a fully secured debenture that would be convertible into
Shares. No specific terms were proposed by the third party, and after
considering the general nature of this potential offer, the Board of Directors
decided not to pursue it because it would have prevented the Company from
obtaining any other significant financing from third parties and because the
proposal was for substantially less financing than offered by HEI.
On several occasions between June and August 1993, representatives of the
Company and HEI met to discuss terms of a possible investment by HEI in the
Company. In August 1993, the parties negotiated extensively, primarily focusing
on voting rights, standstill provisions, the price and amount of capital stock
of the Company to be purchased, and the Company's ability to continue to
negotiate with parties with whom the Company had previously held discussions or
who independently contacted the Company.
On August 18, 1993, the parties executed a letter of intent and the next
day made a public announcement of its terms. Between August 18 and September 10,
1993, the Company and HEI negotiated the terms of a definitive stock purchase
agreement. On September 10, 1993, the Board of Directors approved and the
Company and HEI, Hyundai Heavy Industries Co., Ltd., Hyundai Corporation and
Hyundai Merchant Marine Co., Ltd. (collectively, the "Hyundai Shareholders")
entered into the Stock Purchase Agreement (the "Stock Purchase Agreement"), with
the closing of the transaction conditioned on Company stockholder approval and
other conditions.
Also in September 1993, the Company obtained a fully secured, asset-based
revolving line of credit from CIT Group/Business Credit, Inc. ("CIT"). The
original committed line of credit provided for borrowings of up to $76.0 million
over a two-year term and was secured by receivables, certain inventories and
other assets. CIT conditioned its line of credit on the Company meeting certain
financial covenants, particularly, minimum operating profit and net worth
covenants.
On December 20, 1993, the Company's stockholders voted to approve the
Hyundai Shareholders' investment in the Company and to amend and restate the
Company's Certificate of Incorporation (the "Restated Certificate") as described
below, as set forth in the Stock Purchase Agreement. The Korean government
approved the investment in the Company by the Hyundai Shareholders in late
January 1994. Shortly thereafter, on February 3, 1994, the Hyundai Shareholders
purchased an aggregate of 19,480,000 Class A Shares at a per share price of
$7.70, for an aggregate purchase price of $149,996,000, which Class A Shares
represented approximately 40% of the outstanding voting stock of the Company on
the date of issuance (the "Hyundai Investment").
The standstill provisions of the Stock Purchase Agreement restrict the
right of the Hyundai Shareholders and their affiliates to acquire additional
voting securities of the Company prior to August 18, 2000 without approval of
the Board of Directors when such purchases will result in the Hyundai
Shareholders owning collectively more than 45% of the outstanding voting stock
of the Company. However, the Hyundai Shareholders and their affiliates may make
a tender or exchange offer for all of the outstanding Shares provided that the
purchase price has been approved by a majority of the disinterested members of
the Board of Directors following negotiations conducted in good faith between
the Hyundai Shareholders or any of their affiliates and such members of the
Board of Directors. In addition, the Hyundai Shareholders and their affiliates
may make unlimited open market purchases if a third party acquires more than 20%
of the Shares or makes a tender or exchange offer for more than 40% of the
Company's total outstanding voting stock and (in each case) the Board of
Directors waives the application of the Rights Agreement to such third party.
Pursuant to the Stock Purchase Agreement, the Company adopted the Restated
Certificate at the closing of the Hyundai Investment. The Restated Certificate
provides that the Company will not take certain actions without the Hyundai
Shareholders' approval, including certain transactions or decisions with respect
to a core line of products, capital expenditures, new high-volume manufacturing
facilities, joint ventures, material exclusive licenses, changes in senior
management compensation arrangements and the issuance of stock in excess of 20%
of the outstanding voting securities of the Company. The Hyundai Shareholders
may not unreasonably withhold their approval of such a transaction or decision.
In addition, the Hyundai Shareholders
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have approval rights over any Corporate Sale (generally, any consolidation or
merger of the Company or the sale of all or substantially all of the assets of
the Company) of the Company until February 3, 1999, and, thereafter, a right of
approval if any Corporate Sale is not offered first to the Hyundai Shareholders
under a right of first refusal. Collectively, these rights are referred to
herein as the "Consent Rights." The Consent Rights remain in effect as long as
Hyundai Shareholders and their subsidiaries retain either substantially all the
Class A Shares and/or Shares issuable upon conversion thereof (so long as the
Class A Shares constitute at least 20% of the total outstanding voting stock of
the Company) or at least 30% of the total outstanding voting stock of the
Company.
In addition, the Stock Purchase Agreement and the Restated Certificate
entitle the Hyundai Shareholders to nominate the number of Company directors
equal to the Hyundai Shareholders' proportionate voting interest in the Company.
The Hyundai Shareholders' right to nominate directors is suspended during such
times as the Hyundai Shareholders and their affiliates no longer collectively
hold of record either (i) at least 80% of the Class A Shares and/or shares
issuable upon conversion thereof, or (ii) at least 20% of the total outstanding
voting stock of the Company. The Board of Directors as a whole, including the
Hyundai Shareholders' nominees, selects the balance of the nominees for
directors, and the Hyundai Shareholders must vote their shares for such
nominees. The Stock Purchase Agreement entitles the Hyundai Shareholders to
designate the director to be elected Chairman of the Board of the Company, and
the Board of Directors must elect the Hyundai Shareholders' designee. The
Hyundai Shareholders' right to designate the director to be elected as Chairman
of the Board terminates permanently at such time as Hyundai Shareholders and
their affiliates no longer collectively hold of record either (i) at least 80%
of the Class A Shares, or (ii) at least 60% of the Class A Shares and at least
20% of the total outstanding voting stock of the Company. On February 3, 1994,
the Hyundai Shareholders nominated Messrs. M. H. Chung, C. S. Park and I. B.
Jeon as directors of the Company. On February 7, 1994, the Board of Directors
increased the authorized number of directors from five to eight and elected
Messrs. Chung, Park and Jeon as directors. Additionally, on February 7, 1994,
the Board of Directors elected Mr. Chung, the Hyundai Shareholders' designee, as
Chairman of the Board of the Company.
An immediate effect of the Stock Purchase Agreement, as approved by the
Company's stockholders, was to give the Hyundai Shareholders considerable
influence over major strategic and operational decisions of the Company. The
Hyundai Shareholders' large equity stake in the Company and the Consent Rights
granted to them pursuant to the Stock Purchase Agreement created impediments to
a sale of the Company to a third party. The Board of Directors did not
anticipate a sale of the Company at the time the Company entered into the Stock
Purchase Agreement and believed that the capital infusion and statement of
confidence represented by the Hyundai Shareholders' investment would
substantially assist the Company's growth and prospects for returning to
profitability, to the ultimate benefit of all stockholders. The preceding
descriptions of the Stock Purchase Agreement and the Restated Certificate are
qualified in their entirety by reference to the full text of the Stock Purchase
Agreement and the Restated Certificate, which are filed as Exhibits 8 and 9,
respectively, hereto each of which is incorporated herein by reference.
Following the closing of the Hyundai Investment, the Company sought to
improve operating performance by closing its San Jose development operations,
focusing its product offerings and significantly reducing headcount, but with
mixed results. The Company's net losses during each of the four calendar
quarters of 1994 were $4.5 million, $12.2 million, $54.7 million and $16.4
million, respectively, and its net cash position declined from a quarter-end
high of approximately $189.4 million at March 26, 1994 to $104.3 million at
December 31, 1994.
In December 1994, the Board of Directors began to consider expanding the
relationship with HEI from a purely financial orientation to a more strategic
focus. The Board of Directors received a report from the then Chief Executive
Officer, Mr. Larry Smart. Mr. Smart described a variety of different forms that
a more strategic relationship might take, including a research and development
joint venture or a manufacturing partnership. In response to Mr. Smart's report,
Dr. Park stated on behalf of HEI that although providing additional financial
support would demonstrate the Hyundai Shareholders' continued commitment to the
Company, HEI preferred a more strategic and tangible expression of its
commitment which could utilize its manufacturing and technological competencies.
Dr. Park described as an example that HEI could establish a
8
<PAGE> 10
manufacturing facility in Korea that could help the Company reduce its capital
expenditure requirements and manufacture on a more cost-competitive basis. The
Board of Directors felt an expansion of the relationship was worth further
consideration, and directed management to gather additional information and
develop more specific ideas regarding the form such an expansion might take.
After several additional meetings and discussions among management
representatives of the parties, in January 1995, the Company and HEI entered
into a memorandum of understanding concerning the creation of a manufacturing
partnership (the "Manufacturing Memorandum").
On February 8, 1995, Mr. Smart resigned his positions as the Company's
President and Chief Executive Officer and a director. Following the
recommendation of members of the Board of Directors who were neither Company
executives nor nominees of the Hyundai Shareholders, the Board of Directors
appointed Dr. Park as President and Chief Executive Officer of the Company. In
connection with this appointment, Dr. Park resigned from his positions with HEI
and its affiliates, except his position as a director of Axil Computer, Inc.,
and Dr. Park retained his HEI retirement benefits. In anticipation of further
developments in the relationship between the Company and the Hyundai
Shareholders, and due to Dr. Park's former affiliation with the Hyundai
Shareholders, in February 1995, the Board of Directors established a special
committee comprised of independent outside directors of the Company who were not
employed by the Company or any Hyundai Shareholder. This committee was known as
the Special Committee for Hyundai/Maxtor Transactions (the "Transactions
Committee"). The Transactions Committee was required to review and approve all
significant proposed transactions between the Company and any Hyundai
Shareholder or affiliate of a Hyundai Shareholder.
On April 27, 1995, pursuant to the Manufacturing Memorandum, the Company
and HEI, through HSD, entered into a Manufacturing and Purchasing Agreement (the
"Manufacturing Agreement"), which the Transactions Committee reviewed and
approved. Pursuant to the Manufacturing Agreement, HSD will manufacture certain
mutually agreed Company-designed disk drives in a production facility operated
by HSD. HEI's additional manufacturing capacity was intended to supplement the
production of the Company's hard disk drive assembly plant in Singapore without
any capital expenditure on the Company's part. By entering into the
Manufacturing Agreement, the two companies intended to exchange technology to
enable the Company to obtain high-quality, low-cost manufacturing capacity from
HEI. Pursuant to the Manufacturing Agreement, HSD promptly commenced
preparations to manufacture a new proprietary Company-designed 2 1/2 inch hard
disk.
The Manufacturing Agreement was intended to increase the Company's
operating efficiencies and competitiveness once volume sales were achieved.
Between May and September, 1995, however, the Company's performance continued to
decline due, in part, to industry-wide price reductions for 3 1/2 inch disk
drives, component shortages and the usual soft demand for disk drive products
during late summer. As a result, the Company's cash flow was under increasing
pressure. These developments increased collaboration and planning between the
Company and HEI. The foregoing description is qualified in its entirety by
reference to the Manufacturing Agreement, a copy of which is filed as Exhibit 10
hereto and is hereby incorporated herein by reference.
During July 1995, as a result of significant operating losses and declining
cash balances, the Company required additional financing. However, the Company
recognized that its borrowing capacity was extremely limited, and that its cost
of borrowing was very high. In July 1995, the Company's management advised the
Board of Directors that, to meet the dual goals of lowering the overall cost of
debt to the Company and increasing its access to borrowing capacity, management
would seek out a new credit facility, but that in light of the Company's current
financial condition, any such facility would need to be supported by the
guaranty of HEI.
The proposed loan guaranty was submitted to the Transactions Committee for
review and recommendation to the full Board of Directors. Prior to considering
the proposed loan guaranty, the Transactions Committee retained special counsel
to advise it as to its duties in connection with the proposed loan guaranty.
In connection with considering the issues involved in seeking a loan
guaranty from HEI, the Transactions Committee discussed the advisability of
engaging in a more broad-reaching transaction, such as a sale of the
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<PAGE> 11
Company. In this regard, however, the Transactions Committee was aware of the
Consent Rights held by the Hyundai Shareholders with respect to the sale of the
Company to a third party, and the Hyundai Shareholders' expressed lack of
interest in purchasing the remaining equity interest in the Company. In light of
the then-current financial condition of the Company, the Transactions Committee
directed that the acting Chief Financial Officer of the Company prepare certain
liquidation and related analyses, as well as information regarding management's
two-year strategic plan. The Transactions Committee reviewed these materials in
connection with its determination regarding whether or not to approve the
proposed loan guaranty. After considering this information, the Transactions
Committee authorized the Company's management to proceed to negotiate the terms
of a guaranty, subject to the Transactions Committee's final review and
approval.
Thereafter, management approached HEI and requested that HEI provide an
unconditional guaranty of up to $100 million of prospective borrowings by the
Company. On July 17, 1995, HEI and the Company agreed and entered into a
memorandum of understanding for such a guaranty (the "Guaranty Memorandum"),
subject to negotiation of loan documents. At a meeting held on August 10, 1995,
the Transactions Committee met and approved in principle the terms of the
guaranty of the Company's proposed borrowing, which the Transactions Committee
had previously discussed on several occasions. The Transactions Committee
conditioned its approval of the guaranty upon the Company having a right to
substitute different collateral to support the guaranty in the event that it
chose to sell the assets supporting the guaranty. In August 1995, the Company
and HEI entered into a Guaranty and Recourse Agreement (the "Guaranty"),
pursuant to which HEI agreed to unconditionally guarantee up to $100 million of
indebtedness of the Company to Citibank, N.A. (in such capacity, "Citibank") and
certain financial institutions syndicated by Citibank (the "Lenders"). Also in
August 1995, the Company and the Lenders entered into a Credit Agreement (the
"Credit Agreement") which provides the Company with a $100 million line of
credit. As of October 31, 1995, approximately $94 million was outstanding under
the Credit Agreement and no borrowings were outstanding under the Company's $20
million secured line of credit with CIT.
The Guaranty requires HEI to keep the Guaranty in effect for a period of
one year and to renew it annually, provided that the Company is not in default
under its Guaranty obligations and the Company's financial performance has not
materially deteriorated, for a total term of three years. If the Company
defaults on its Credit Agreement loans, the Guaranty provides that the Company
will reimburse HEI within ninety days after HEI pays the Lenders pursuant to the
Guaranty (the "Reimbursement Date"). In its sole discretion, on the
Reimbursement Date, HEI may choose to receive the Company's common stock in
partial satisfaction of the Company's reimbursement obligations, up to the
amount which would result in HEI and the other Hyundai Shareholders owning 45%
of the outstanding stock of the Company, which was the standstill limitation
already provided in the Stock Purchase Agreement. The share price at which
shares would be issued to HEI would be the lesser of (i) the share's closing
price on the date of the Guaranty or (ii) the share's average daily closing
price for the ninety days preceding the Reimbursement Date. If a balance remains
after HEI has received the maximum Company shares permissible, as described
above, then the Company is required to assign to HEI shares which the Company
owns in four of its subsidiaries, as selected by the Company, equal to such
outstanding balance. The fair market value of the subsidiaries' stock selected
by the Company is to be determined by a mutually acceptable investment bank. The
preceding descriptions of the Guaranty and Credit Agreement are qualified in
their entirety by reference to the full text of the Guaranty and the Credit
Agreement, which is filed as Exhibits 11 and 12 respectively, hereto, each of
which is incorporated herein by reference.
During the summer of 1995, the Company's management developed a strategic
business plan which was intended to improve the Company's operational
efficiencies, with the goal of making the Company one of the top three companies
in the disk drive industry within two years. The plan aimed to increase the
Company's market share in the 3 1/2 inch and 2 1/2 inch markets with innovative
product designs. The Company believed that its plan was achievable in part due
to its growing success in selling existing products to major personal computer
manufacturers and to indications of strong interest by prospective customers in
the Company's 2 1/2 inch disk drive under development, which incorporates
certain of the Company's proprietary 1.8 inch disk drive technology to offer
unusually high capacity and small form factors. This plan, however, would
require
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<PAGE> 12
significant capital investment in manufacturing, and management concluded that
the Company lacked the financial resources to fully execute the plan by itself.
In August 1995, in connection with the Board of Director's consideration of
management's strategic plan, the Board asked the Transactions Committee to
consider the possibility of negotiating an outsourcing arrangement pursuant to
which the Company would sell substantially all of the Company's manufacturing
facilities and HEI would manufacture and supply the Company with all its disk
drive requirements on mutually agreed terms (the "Proposed Outsourcing
Transaction"). The Company believed that the Proposed Outsourcing Transaction
would improve the Company's liquidity through the cash provided by the sale of
manufacturing assets. In addition, the Company believed that this transaction
would have the ancillary benefit of relieving management of the burden of
managing and funding the Company's capital-intensive manufacturing operations
and would also allow management to focus on design, marketing and sales
functions, which the Company viewed as its core competencies.
After consulting with its own counsel, the Transactions Committee
determined to recommend to the full Board of Directors that it be charged with
negotiating the sale of the Company's manufacturing assets to a party which
would supply the Company's disk drive needs. In accordance with the Committee's
recommendation, the full Board of Directors changed the charge of the
Transactions Committee from the review and approval of Maxtor-Hyundai
transactions, to the negotiation of a sale of the Company's manufacturing
facilities to a supplier on the most advantageous terms. This newly-chartered
committee (referred to herein as the "Special Committee") was comprised of Mr.
Charles Hill, Chairman, Mr. Charles Christ and Mr. Gregory Gallo. After
discussing several different investment banking firms, the Special Committee
determined to retain Bear Stearns to advise it in the negotiation of the
Proposed Outsourcing Transaction. The Special Committee chose Bear Stearns as
its advisor in part due to the fact that Bear Stearns was familiar with the
Company, having represented the Company in connection with its sale of Class A
Shares to the Hyundai Shareholders pursuant to the Stock Purchase Agreement
described above.
Following the expansion of its charter, at a meeting held on August 19,
1995, the Special Committee considered the process it would follow in conducting
the sale of the Company's manufacturing facilities to a new supplier. In light
of the Special Committee's view that retooling the Company's factories in order
to produce its newest products would require approximately $50-60 million in
capital in addition to the consideration to be paid for purchasing the
facilities, the Special Committee concluded, based in part on the advice of Bear
Stearns, that the likely universe of credible buyers for the Company's
facilities appeared to be limited. The Special Committee also recognized that,
in light of the financial and other support previously provided to the Company
by HEI and the financial resources of HEI and its affiliates, HEI appeared to be
the most logical buyer for the Company's manufacturing assets, as part of an
outsourcing of its manufacturing operations. Accordingly, after considering,
among other things, the cash needs of the Company and its interest in
consummating a favorable transaction as quickly as possible, the Special
Committee determined to instruct Bear Stearns to approach HEI first, to
determine whether HEI had an interest in purchasing the Company's manufacturing
assets as part of an outsourcing transaction at a price which was attractive to
the Special Committee and the Company.
HEI responded to the Company's request by stating that it was willing to
consider the Proposed Outsourcing Transaction in order to support the Company's
needs, in light of the difficulty of seeking financial support from other
existing stockholders or other potential equity investors. Thereafter,
representatives of HEI and Bear Stearns met several times to negotiate this
transaction during late August and September 1995.
As a result of these negotiations, on September 19, 1995, the Company and
HEI signed a non-binding memorandum of understanding (the "Outsourcing
Memorandum"). The Outsourcing Memorandum provided that the parties would
negotiate in good faith definitive agreements by which: (i) HEI would acquire
all of the Company's manufacturing facilities in Singapore, Hong Kong and
Thailand for $100 million, subject to certain adjustments based on due diligence
and independent appraisals; and (ii) HEI and the Company would enter into a
long-term manufacturing and supply agreement on mutually acceptable terms under
which HEI would manufacture and supply all of the Company's disk drive
requirements. The Outsourcing Memorandum between HEI and the Company did not
prohibit the Company from receiving or considering other offers for
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<PAGE> 13
the assets being sold. While negotiating with HEI for the sale of the
manufacturing assets, the Special Committee, through Bear Stearns, received
expressions of interest and an offer for certain of the Company's manufacturing
assets, but no expression of interest or offer (other than that made by HEI) for
all of the assets being sold. The Special Committee did consider selling the
Company's printed circuit board assembly contract manufacturing subsidiary, IMS
International Manufacturing Services Limited ("IMS"), to a purchaser other than
HEI, and alternatively considered retaining IMS for the Company until better
values could be generated from the sale of IMS. In 1995, IMS has had increasing
success in marketing its manufacturing services to unaffiliated customers. The
foregoing description of the Outsourcing Memorandum is qualified in its entirety
by reference thereto, a copy of which is filed as Exhibit 13 hereto and is
hereby incorporated by reference.
Following execution and public announcement of the Outsourcing Memorandum,
HEI performed extensive due diligence on the manufacturing assets. Thereafter,
the Special Committee was advised that HEI reported that, based on its advisors'
valuation reports, there was a potential downward adjustment in the purchase
price, including approximately $9 million relating to the valuation of one of
the assets being sold. No final agreement was reached on price, or the assets
which would be sold.
Prior to and during the time that the Proposed Outsourcing Transaction was
being negotiated, Dr. Park, with the approval of the Board of Directors, engaged
in discussions with several major companies in the disk drive and related
industries, with a view towards seeking out interest on the part of such
companies in entering into some form of strategic alliance, partnership,
business combination or similar transaction with the Company. On October 13,
1995, approximately three weeks following the Company's press release announcing
the Outsourcing Memorandum with HEI, Dr. Park briefed the Special Committee on
the talks he had conducted and advised the Special Committee that only one of
the companies which he had contacted had expressed an interest in forming a
strategic alliance with the Company. Dr. Park also reported that the interested
company, a major multinational electronics manufacturer (the "Interested
Manufacturer"), indicated that its interest was in forming such an alliance with
both the Company and HEI.
Dr. Park also reported that during his discussions with the Interested
Manufacturer, he had discussed the possibility of a joint venture or a merger
between the Company and the Interested Manufacturer. After consideration, the
Interested Manufacturer had rejected the notion of a joint venture or a merger
between the Company and the Interested Manufacturer as part of its strategy, in
part due to the perceived lack of credibility of the Company due to its
historical failure to timely deliver products and its historical financial
performance. Dr. Park informed the Special Committee that the Interested
Manufacturer had indicated its interest in a potential joint venture or business
combination with a partner stronger than the Company in its stand-alone form,
such as HEI. After consulting first with the Chairman of the Special Committee,
who polled each member of the Special Committee and its advisors, and who
thereafter gave Dr. Park the authority to do so, Dr. Park briefly discussed with
HEI the Interested Manufacturer's concept of an HEI acquisition of Maxtor and a
subsequent joint venture. As a result of those discussions, Dr. Park reported to
the Special Committee that HEI had expressed its willingness to discuss a
possible acquisition of all of the Company, although the Company and HEI
recognized that there was no assurance that any joint venture would be formed
with the Interested Manufacturer. Thereafter, the Special Committee asked Dr.
Park to provide further information to the Special Committee regarding whether
HEI's interest in exploring a possible acquisition of the Company was
conditioned in any way on HEI's successful formation of a joint venture with the
Interested Manufacturer, and to elaborate on why HEI had appeared to change its
view with respect to being willing to consider the acquisition of the Company.
At a subsequent meeting, Dr. Park reported to the Special Committee
regarding a conversation he had with Mr. M.H. Chung, the Chairman of HEI.
Specifically, Dr. Park reported that he had been told by Mr. Chung that HEI's
willingness to discuss a possible acquisition of the Company was not conditioned
upon its ability to reach an agreement with the Interested Manufacturer with
respect to a joint venture, and that HEI believed an acquisition of the Company
would be a better way to support the financial viability of the Company than the
Proposed Outsourcing Transaction.
On October 16, 1995, Parent retained Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, "Merrill Lynch") to evaluate the possibility of
acquiring the remaining equity interest in the
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<PAGE> 14
Company. Parent instructed Merrill Lynch to prepare a financial analysis of the
Company. Merrill Lynch conducted its review and prepared a financial analysis,
which was presented to senior executives of Parent and HEI on October 23, 1995.
On October 17, 1995, after satisfying itself through its discussion with
Dr. Park that the exploration of a possible sale of the Company was a feasible
alternative to continuing negotiations regarding the Proposed Outsourcing
Transaction, the Special Committee recommended that the full Board of Directors
approve a resolution expanding its authority to encompass the exploration of,
and, if practicable, negotiation of the sale of the entire Company on terms and
conditions the Special Committee deemed to be in the best interests of the
Company and its stockholders, and to report to the full Board of Directors of
the Company upon conclusion of its negotiations with a recommendation for or
against approval by the full Board of Directors of any transaction involving the
sale of the entire Company. At the same meeting, counsel to the Special
Committee was instructed to negotiate with Bear Stearns, the financial advisor
to the Special Committee, to update its retention letter to encompass the
revised scope of the Special Committee's work. Thereafter, the Board of
Directors charged the Special Committee with the responsibility to explore and
negotiate the possible sale of the Company, and to make its recommendation in
that regard to the full Board of Directors.
On October 19, 1995, with the authorization of the Special Committee,
representatives of the Company, Parent and Merrill Lynch met with
representatives of the Interested Manufacturer. At this meeting, the Interested
Manufacturer and the Company each made presentations as to their respective
businesses in the context of a possible business combination. Management
representatives of the Company, Parent and the Interested Manufacturer met again
on October 25, 1995 to discuss further the respective businesses of the parties.
On October 24, 1995, financial and legal advisors of Parent, the Special
Committee and the Company held discussions about a possible acquisition by
Parent of all of the outstanding Shares not owned by the Hyundai Shareholders.
At this meeting legal advisors of Parent gave the legal representatives of the
Special Committee and the Company a draft merger agreement for the possible
acquisition.
On October 24, 1995, Parent's representatives delivered a letter to
representatives of the Special Committee stating that Parent was willing to
start negotiations with the Special Committee concerning a possible acquisition
by HEI of the remaining equity interest in the Company not already owned by the
Hyundai Shareholders at a per Share price of $5.15. Parent indicated in the
letter that its ability to proceed with the proposed acquisition would be
subject to several conditions, including the approval of the Company's
disinterested directors under the "standstill" provisions of the Stock Purchase
Agreement, obtaining the necessary Korean governmental approvals and the
satisfaction of certain applicable regulatory requirements. Following caucuses
by each side with its respective advisors, the representatives of Bear Stearns,
the financial advisor to the Special Committee, advised Parent's representatives
that Parent's letter would be presented to the Special Committee at a meeting
scheduled for the following day, but that Bear Stearns would not advise the
Special Committee to accept a price of $5.15.
In response to Bear Stearns' inquiry regarding Parent's rationale for the
$5.15 price, Merrill Lynch indicated that Parent's offer reflected the fact
that, under certain circumstances, if the Company continued its pattern of
quarterly losses, the equity value of the Company could be negative and the
Company would likely exhaust its cash reserves and borrowing capacity in the
near future, and that the Company's financial projections, based on past
performance, were not likely to be achieved.
Thereafter, on October 25, 1995, the Special Committee met and, after
receiving the advice of its financial advisors, determined to decline to accept
Parent's offer of $5.15 per Share. During that meeting the financial advisors to
the Special Committee presented their view that a higher price for the Company
could be supported.
Later that day, the legal and financial advisors of Parent and the Special
Committee met again. At this meeting, representatives of Bear Stearns made a
presentation justifying a range of prices between $6.30 and $12.33 per Share
based on a variety of different valuation methodologies and proposed a per Share
acquisition price of $10.75. Representatives of Merrill Lynch advised the
Special Committee's representatives that $10.75
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was not acceptable to the Parent and that $5.15 per Share was a full and fair
price. Representatives of Merrill Lynch also advised the Special Committee's
representatives that their client was reviewing its options concerning further
negotiations.
On October 26, 1995, the Company issued a press release stating that the
Special Committee did not accept Parent's offer per Share and that the parties
were reviewing their options concerning negotiations and announcing its
quarterly financial results, including net loss of $44.5 million for the quarter
ended September 30, 1995, compared to the $13.8 million net loss reported for
the quarter ended July 1, 1995. See Section 7. On October 26, 1995, the Hyundai
Shareholders filed an amendment to their Schedule 13D disclosing that Parent had
delivered the letter described above to the Special Committee. The Special
Committee also met on October 26, 1995 to consider the status of negotiations
and concluded that it would seek to continue discussions with Parent.
Thereafter, and after discussing the matter with the Special Committee and Bear
Stearns, Mr. Gallo of the Special Committee and Mr. Y. H. Kim, President and
Chief Executive Officer of Parent, met to discuss Parent's offer. At their
meeting, Mr. Gallo indicated that the Special Committee desired a price of $8.00
per Share and Mr. Kim indicated that he believed agreement would be difficult to
reach if the Special Committee were not willing to consider a price
significantly below $8.00, but that HEI would respond to the Special Committee's
position. Mr. Kim also reiterated Parent's view that $5.15 per Share was a full
and fair price for the Shares not already owned by the Hyundai Shareholders.
Later on October 26, 1995, Mr. Charles Hill, the Chairman of the Special
Committee, sent by facsimile to Mr. Chung, the Chairman of HEI, a letter
proposing that Parent pay $8.00 for each Share, and attaching a memorandum
explaining the Special Committee's justifications for a range of prices between
$6.30 and $12.33 per Share based on a number of different valuation
methodologies.
The Special Committee met again on October 27, 1995 to receive a briefing
from Mr. Gallo and to consider the posture of negotiations, and was advised that
management reported that several of the Company's suppliers had indicated their
intention to change the terms upon which they extended credit to the Company.
The Special Committee was also informed that these suppliers expressed
discomfort at the Company's reaction to Parent's original offer. In particular,
one of the Company's major suppliers had advised the Company that it intended to
reduce the Company's credit line with that supplier, with a negative cash impact
to the Company of up to $10 million.
On Saturday, October 28, 1995, Mr. Chung responded by letter to Mr. Hill's
October 26, 1995 letter by requesting that the Special Committee communicate
directly with Mr. Kim concerning the negotiations. Mr. Chung's letter to Mr.
Hill also reiterated Parent's offer of $5.15 per Share.
On Sunday, October 29, 1995, Mr. Kim and Mr. Hill spoke by telephone. Mr.
Kim told Mr. Hill that Parent was willing to increase its offer price for the
outstanding Shares to a price of $6.15 per Share, and that this was Parent's
"best and final" price. Later that evening, Parent's representatives provided to
representatives of the Special Committee their explanation of Parent's $6.15
offer, based on a number of valuation methodologies, and stated that the offer
would be withdrawn on Wednesday, November 1, 1995 at 5:00 p.m., California time
unless the Special Committee accepted it prior to that time. Also, in response
to a specific inquiry from Bear Stearns, Merrill Lynch reported that HEI had
made no determination as to whether to restart negotiations relating to the
Proposed Outsourcing Transaction or the terms thereof in the event that no
agreement was reached on the sale of the Company. Parent also advised the
Special Committee that it intended to amend its filing on Schedule 13D to
disclose its new offer, that the new offer was its "best and final offer," and
that the offer would be withdrawn if not accepted by November 1, 1995. During
the late evening of October 29, 1995, Mr. Hill, after consulting with the
Special Committee, called Mr. Kim and told him that if Parent agreed to a price
of $7.15, then he believed agreement could be reached quickly.
On October 30, 1995, Mr. Kim spoke with Dr. Park and indicated his concern
about the apparent impasse in negotiations. After reporting this conversation to
the Special Committee and requesting authority to do so, Dr. Park was authorized
to conduct a further discussion with Mr. Kim to determine the extent of the
increase which Parent would be willing to make in its offering price. Dr. Park
then did so, and reported back to the Special Committee that Parent appeared
willing to offer $6.30 per Share to conclude the negotiations, but that it did
not appear that Parent would be willing to offer a materially higher price. In a
conversation held
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later that same day between Mr. Hill and Mr. Kim, Mr. Kim confirmed that Parent
would be willing to consider paying $6.30 per Share.
At a meeting of the Special Committee held on October 31, 1995, Bear
Stearns provided its preliminary views as to the fairness of a possible
transaction in the range discussed with Parent, and briefly discussed its
analysis of that subject, and, in particular its view that there appeared to be
a high potential for value erosion at the Company in light of several factors,
including factors beyond the control of the Company such as access to components
to manufacture its products. During this discussion, several members of the
Special Committee noted their view that there appeared to be a significant risk
to the viability of the Company on a stand-alone basis during the next several
months, in part due to the Company's exposure to one or more large customers, as
well as the lack of a predictable supply of components available to the Company
and the difficulty of controlling its inventory, output and receivables
balances, and the possibility that customers would defer payment or reschedule
orders to the Company if the Christmas season was not as robust as expected. In
light of the Company's very tight cash situation, these members of the Special
Committee stated their views that it appeared that a prompt sale of the Company
was in the best interests of the Company and all of its constituencies, and
should be concluded as soon as practicable at the best price which could be
negotiated with Parent. Accordingly, the Special Committee authorized Mr. Hill
to conduct a final round of negotiations with Parent with a view towards
maximizing the price Parent was willing to offer to the Company's shareholders.
During the evening of October 31, 1995, Mr. Kim and Mr. Hill spoke again by
telephone. During that conversation, each indicated his willingness to favorably
consider an acquisition at a per Share price of $6.70.
During the evening of October 31, 1995, the Special Committee met and
discussed the $6.70 per Share price which Parent had indicated it would be
prepared to offer. In connection therewith, the Special Committee was advised by
its financial advisors that they would recommend to Bear Stearns' valuation
committee the issuance of a fairness opinion with regard to the $6.70 offer. The
Bear Stearns representatives also reiterated the basis for their recommendation,
which they had discussed with the Special Committee at its meeting earlier in
the day.
During this meeting, the Special Committee also received a report from
counsel to the Special Committee regarding the draft merger agreement, its
terms, and the issues to be negotiated between the parties. Following such
meeting, the Special Committee determined to request Bear Stearns to provide an
opinion as to the fairness of Parent's $6.70 offer, and instructed its counsel
and counsel for the Company to proceed with negotiation of the merger agreement
as promptly as practicable. The Special Committee also determined that it was
prepared to recommend an offer of $6.70, subject to the receipt of a fairness
opinion from its financial advisor and the negotiation of satisfactory
definitive documentation.
Thereafter, at a meeting held on November 1, 1995, the Special Committee
received the oral opinion of Bear Stearns, confirmed in writing, that the
proposed acquisition at a price of $6.70 per Share was fair from a financial
point of view to the stockholders (other than the holders of the Class A
Shares). The Special Committee also received a presentation by Bear Stearns
outlining the basis for its opinion, and a further report from its counsel and
the Company's counsel as to the draft merger agreement between the parties and
related matters. Bear Stearns advised the Special Committee that the Bear
Stearns Opinion was based, in part, on its view that the Company's financial
viability as a stand-alone company was questionable. Bear Stearns observed that
without a major equity infusion or other long-term financing, the Company might
not survive as an independent company, and therefore stockholders faced a
significant risk of continued value erosion. In particular, Bear Stearns advised
that based on the Company's own projections, by December 1995, it was likely to
have cash on hand of only $6 million, and borrowing capacity of only $31
million. These limited liquidity resources could quickly be exhausted in the
event that any of the assumptions underlying the Company's projections were not
accurate. In this regard, Bear Stearns also noted the historically significant
magnitude of the divergence of the Company's actual operating performance from
its internal financial projections. Bear Stearns also pointed out that the
Company's history of losses for eleven consecutive quarters, totaling
approximately $418 million, and the risk of a liquidity crisis if the Company's
vendors were to change or limit the terms of trade credit extended to the
Company, as some had done and others had indicated an
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intention to do, strongly supported their view. Bear Stearns also reviewed with
the Special Committee its view as to the implied value of the Company based on
implied values of comparable publicly traded companies, recent acquisitions in
the Company's industry and related industries and a premium analysis of storage
company acquisitions and acquisitions of remaining interests of selected
companies, in addition to other analyses and data. See "Opinion of Financial
Advisor" below.
Counsel to the Special Committee and counsel to the Company also advised
the Company on the form of merger agreement negotiated between the parties and
the outstanding issues to be negotiated. In particular, counsel advised the
Special Committee that the proposed agreement did not contain any financing
contingency, did not contain a minimum condition and allows the Company to
terminate the agreement under certain circumstances to accept a more desirable
transaction without any break-up fees. Following such presentations, the Special
Committee approved the Parent's $6.70 offer and determined to recommend it to
the full Board of Directors of the Company, subject to negotiation of definitive
documentation. Following the Special Committee's approval, a press release was
issued by the Company stating that the Special Committee had approved Parent's
acquisition proposal, subject to negotiation of a satisfactory acquisition
agreement. Negotiation of the Merger Agreement was completed on November 2,
1995.
On November 2, 1995, the Special Committee met with its financial and legal
advisors to discuss further the matters that were reviewed at the previous day's
Special Committee meeting. The Special Committee received presentations by its
counsel and counsel for the Company regarding the Merger Agreement. After this
discussion, representatives of Bear Stearns reaffirmed the opinion delivered the
previous day. After discussion of the presentation and the documents, the
Special Committee ratified the decision it had made the previous day to
recommend Parent's offer to the full Board and voted unanimously to recommend
that the full Board of Directors approve the Merger Agreement.
At that same meeting, the Special Committee also formally rejected an offer
it had received for the purchase of IMS from a prospective purchaser other than
HEI. The Special Committee took this action in order to respond formally to such
offer, and in light of its view that the sale of the Company to Parent better
maximized value to stockholders and all other constituencies of the Company than
the sale of the Company's manufacturing facilities, either together or
separately.
On November 2, 1995 the Company's Board of Directors, with Chairman M.H.
Chung absent, met to hear the report of the Special Committee. Chairman Hill of
the Special Committee and the Special Committee's legal advisor reviewed the
negotiations between the Special Committee and Parent concerning the acquisition
proposal. Following these presentations, the Special Committee unanimously
recommended the approval of the Offer, the Merger, and the Merger Agreement. A
representative of Bear Stearns answered questions regarding its fairness opinion
delivered to the Special Committee. Legal counsel for the Company then reviewed
with the Board of Directors the terms of the Merger Agreement, as well as an
amendment to the Company's Rights Agreement to exempt from the Rights Agreement
the transactions contemplated by the Merger Agreement. Following these
presentations, the Board of Directors, based on the recommendation of the
Special Committee, unanimously, with Chairman Chung absent, approved the Offer,
the Merger, the Merger Agreement and the amendment of the Rights Agreement. The
legal representatives of Parent, Purchaser and the Company finalized the Merger
Agreement and Parent, the Purchaser and the Company executed the Merger
Agreement. On the morning of November 3, 1995, the Company issued a press
release announcing the Board of Directors' approval of the transactions
contemplated by the Merger Agreement, based on the recommendation of the Special
Committee, and the parties' execution of the Merger Agreement.
On November 8, 1995, the Purchaser commenced the Offer.
Certain Litigation. On November 1, 1995, a purported class action styled
Wacholder v. Gallo, et al., C.A. No. 14668 (the "Wacholder Action") was filed in
the Court of Chancery of the State of Delaware in and for New Castle County. The
Wacholder Action names as defendants each member of the current Board of
Directors except Mr. Christ. The Wacholder Action also names as defendants HEI,
Parents and Mr. Ryal R. Poppa, a former director of the Company. The Wacholder
Action alleges that HEI controls and dominates the directors of the Company and
that the Company directors have approved the Parent's $6.70 proposal
notwithstanding the "gross inadequacy and unfairness of the price." The
Wacholder Action seeks relief
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including, inter alia, a preliminary and permanent injunction against the
consummation of the Offer, unspecified damages and attorneys' fees and costs.
The defendants in the Wacholder Action believe the allegations in the complaint
are without merit and those defendants which are subject to the jurisdiction of
the court intend to defend against the action vigorously.
Reasons for the Recommendation of the Board of Directors and the Special
Committee.
The Special Committee. As described above, at its meeting on November 1,
1995, the Special Committee unanimously approved the Offer and the Merger as
fair to the Company's stockholders (other than the holders of the Class A
Shares), subject to negotiation of definitive documents. At its meeting on
November 2, 1995, the Special Committee unanimously reaffirmed its approval of
the Offer and the Merger, unanimously approved the Merger Agreement and the
transactions contemplated thereby and unanimously decided to recommend approval
to the Board of Directors.
In reaching its conclusion and recommendation described above, the Special
Committee considered the following factors:
(i) the substantial premium which $6.70 per Share represents over
current and recent trading prices;
(ii) the opinion of Bear Stearns to the effect that, as of the date of
its opinion and based upon and subject to certain matters stated therein,
the consideration to be received by the holders of Shares (other than Class
A Shares) pursuant to the Offer and the Merger was fair from a financial
point of view to such holders. The full text of the Bear Stearns Opinion,
which sets forth the assumptions made, matters considered and limitations
on the review undertaken by Bear Stearns, is attached hereto as Exhibit I.
Stockholders are urged to read the Bear Stearns Opinion carefully and in
its entirety for assumptions made, matters considered and limits of the
review by Bear Stearns;
(iii) the results of the inquiries made by the Company to several
major companies in the disk drive and related industries regarding a
possible strategic alliance, partnership, business combination or similar
transaction with the Company which indicated that none of those companies
expressed any interest in entering into any such transaction except the
Interested Manufacturer, and the Interested Manufacturer had declined
outright to consider a joint venture or merger with the Company as a
stand-alone entity;
(iv) the business, results of operations, financial condition and
future prospects of the Company;
(v) the uncertainty of the Company's cash position, and the fact that
the Company was relying heavily on the cash to be generated from the
proposed outsourcing transaction in the event that the negotiations
regarding the sale of the Company did not succeed, and the observation of
its financial advisor that without a major equity infusion or other
long-term financing, the Company might not survive as an independent
company;
(vi) the terms of the Offer, the Merger and the Merger Agreement,
including the structural feature of the Offer and the Merger providing for
a prompt cash tender offer for all outstanding shares to be followed by a
merger for the same consideration, thereby enabling stockholders to obtain
the benefits of the transaction in exchange for their Shares at the
earliest possible time;
(vii) other provisions of the Offer and Merger Agreement, including
the fact that the Offer is not subject to any financing or minimum
conditions, and that the Merger Agreement allows the Company to terminate
under certain circumstances to accept more desirable transactions without
paying any break-up fee;
(viii) the fact that Parent indicated, through Merrill Lynch, that HEI
had made no determination as to whether to restart negotiations regarding
the sale of the Company's manufacturing assets or the terms thereof in the
absence of a sale of the Company;
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(ix) the extensive arm's-length negotiations between the Special
Committee and Parent leading to the belief of the Special Committee that
$6.70 per Share represented the highest price per Share that could be
negotiated with Parent; and
(x) the deadline placed on the offer by Parent and the risk that
Parent would withdraw its offer after that deadline.
In view of the wide variety of factors considered by the Special Committee,
the Special Committee did not find it practical to, and did not, quantify or
otherwise assign relative weights to the foregoing factors or determine that any
factor was of particular importance. Rather, the Special Committee viewed its
position and recommendation as being based on the totality of the information
presented to and considered by it.
Having considered all the foregoing, and other relevant factors, the
Special Committee concluded that the Offer and the Merger, taken together, was
the best available alternative for the Company, its stockholders and other
constituencies and was fair to and in the best interests of the Company's
stockholders (other than holders of Class A Shares).
The Board of Directors. At its November 2, 1995 meeting, discussed above,
the Board of Directors, comprised of the three members of the Special Committee
and Messrs. Park, Balanson and Jeon, with Chairman M.H. Chung absent, met to
receive the recommendations of the Special Committee and consider the Offer, the
Merger and the other transactions contemplated by the Merger Agreement. In such
meeting, the Board of Directors unanimously approved the Offer, the Merger and
the other transactions contemplated by the Merger Agreement, determined that the
Offer, the Merger and the transactions contemplated by the Merger Agreement are
fair to and in the best interests of the Company's stockholders (other than
holders of Class A Shares) and determined to recommend that the stockholders of
the Company (other than holders of Class A Shares) accept the Offer and tender
their Shares.
In so doing, the Board of Directors gave predominant weight to the
recommendations of the Special Committee, having taken into account the purposes
for which the Special Committee had been formed and having received a
presentation from the Special Committee regarding its extensive arm's length
negotiations, deliberations and consultation with financial and legal advisors.
The Board of Directors also attached significance to the Bear Stearns Opinion to
the Special Committee that, as of the date of such opinion, the Offer and Merger
were fair from a financial point of view to the Company's stockholders (other
than the holders of Class A Shares). See "Opinion of Financial Advisor" below.
Opinion of Financial Advisor.
On November 1, 1995, at the request of the Special Committee, Bear Stearns
delivered an oral opinion to the Special Committee, subsequently confirmed in
writing by delivery of its written opinion dated as of November 1, 1995 (the
"Bear Stearns Opinion"), to the effect that, as of that date, the Offer and the
Merger were fair, from a financial point of view, to the stockholders of the
Company (other than the holders of the Class A Shares). The full text of the
Bear Stearns Opinion is attached as Exhibit 14 to this Schedule 14D-9 and
incorporated herein by reference. The Bear Stearns Opinion is also included as
Appendix I to this Schedule 14D-9. The Company's stockholders are urged to, and
should, read such opinion carefully in its entirety for assumptions made,
matters considered and limits of the review by Bear Stearns.
The Bear Stearns Opinion addresses only the fairness of the Offer and the
Merger, from a financial point of view, to the stockholders of the Company
(other than the holders of Class A Shares) as of the date set forth therein and
does not constitute a recommendation to any stockholder of the Company to accept
the Offer and tender his Shares. The summary of the Bear Stearns Opinion set
forth herein is qualified in its entirety by reference to the full text of such
Opinion.
Bear Stearns evaluated the financial terms of the Offer and the Merger and
participated in the discussions concerning the consideration to be received.
However, the consideration to be received by the Company's stockholders as a
result of the Offer and the Merger was determined by negotiation between the
Special Committee and Parent after consultation by each of such parties with its
financial advisor. In connection with rendering its Opinion, Bear Stearns, among
other things: (i) reviewed the Merger Agreement in substantially
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final form; (ii) reviewed the Company's Annual Reports to Stockholders and
Annual Reports on Form 10-K for the fiscal years ended March 31, 1993 through
1995, and its Quarterly Report on Form 10-Q for the period ended July 1, 1995;
(iii) reviewed certain operating and financial information, including
projections, provided to Bear Stearns by management relating to the Company's
business and prospects; (iv) met with certain members of the Company's senior
management to discuss its operations, historical financial statements and future
prospects; (v) visited the Company's facilities in San Jose, California; (vi)
reviewed the historical prices and trading volume of the Shares; (vii) reviewed
publicly available financial data and stock market performance data of other
publicly-held companies which it deemed generally comparable to the Company;
(viii) reviewed the financial terms of certain other recent acquisitions of
companies which it deemed generally comparable to the Company; and (ix)
conducted such other studies, analyses, inquiries and investigations as it
deemed appropriate.
In connection with its activities on the Special Committee's behalf, Bear
Stearns relied upon and assumed, without independent verification (i) the
accuracy and completeness of all of the financial and other information provided
to it for purposes of its Opinion and (ii) the reasonableness of the assumptions
made by the management of the Company with respect to its projected financial
results. In addition, Bear Stearns did not make or seek to obtain appraisals of
the Company's assets and liabilities in rendering the Bear Stearns Opinion. Bear
Stearns further relied upon the assurances of the management of the Company that
such management was not aware of any facts that would make the information
provided to Bear Stearns incomplete or misleading. The Bear Stearns Opinion is
also necessarily based upon the economic, market and other conditions as in
effect on, and the information made available to it as of, the date of the
Opinion.
The following is a summary of certain information considered by Bear
Stearns in connection with providing the Bear Stearns Opinion to the Special
Committee.
Bear Stearns noted that the Company has been unprofitable on an operating
basis for 11 consecutive quarters and, in that time, had net losses of
approximately $418 million on revenue of approximately $3.0 billion. During this
time, the Share price has fallen from the $12-15 range to the $4-6 range. For
the quarter ended September 30, 1995, the Company reported a net loss of $44.5
million, compared to the $13.8 million loss in the June quarter. Bear Stearns
also observed that the Company has frequently underperformed relative to its
internal financial projections. In four of the last five quarters, the Company
has recorded revenue and pretax income (excluding non-recurring items) well
below internal expectations. Given the uncertainty surrounding the Company's
ability to achieve its financial projections, Bear Stearns noted that the
Company's liquidity situation was likely to continue to worsen.
Comparable Company Analysis. Bear Stearns compared certain actual and
estimated financial data, stock market data and multiples of income statement
parameters of certain other publicly traded companies deemed to be generally
comparable to the Company. Such companies were used in this analysis because
they were deemed by Bear Stearns to operate in the same general industry (disk
drives) as the Company. Bear Stearns used the following five companies it
considered to be generally comparable (the "Comparable Companies"): Conner
Peripherals, Inc. ("Conner"), Micropolis Corporation, Quantum Corporation
("Quantum"), Seagate Technology, Inc. ("Seagate") and Western Digital
Corporation. Bear Stearns excluded Conner from calculations involving valuation
multiples because, in its view, Conner's stock is no longer trading on the basis
of its financial performance but is instead trading on the basis of its pending
merger with Seagate. Bear Stearns observed that no company used in this analysis
as a comparison is identical to the Company. In particular, such companies have
different product mixes and different proportions of original equipment
manufacturer ("OEM") and distribution sales and have different operating
histories and financial conditions.
Financial data compared included market value, enterprise value (defined as
market value plus debt less cash), revenues, earnings before interest, taxes,
depreciation and amortization ("EBITDA"), earnings before interest and taxes
("EBIT"), net income, earnings per share, gross margin, EBITDA margin, EBIT
margin and projected earnings per share based on a compilation of earnings
estimates of securities analysts. Multiples compared included enterprise value
to latest twelve months revenues, enterprise value to latest twelve months
EBITDA, enterprise value to latest twelve months EBIT and price per share to
latest twelve months and projected calendar 1995 and 1996 earnings per share.
The earnings projections for the Comparable Companies were based upon the
consensus published projections of financial analysts. The range of earnings
projections
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for the Company were based on information provided by the Company. In performing
the Comparable Company analyses, Bear Stearns focused primarily on the implied
equity values per share derived by applying the harmonic mean multiples of
certain income statement parameters at which the Comparable Companies traded to
the Company's respective income statement parameters.
Based on the harmonic mean (an average which gives equal weight to equal
dollar investments) multiple of enterprise value to revenues for the twelve
months ended September 30, 1995 ("LTM") of 0.35x for the Comparable Companies,
the Company's implied equity value per share was $4.38. This harmonic mean
multiple compared to a range of 0.25x to 0.59x for the Comparable Companies.
Based on the harmonic mean multiple of price per share to projected calendar
1996 earnings of 7.2x for the Comparable Companies, the Company's implied equity
value per share ranged from $3.60 to $7.20. This harmonic mean multiple compared
to a range of 5.4x to 8.8x for the Comparable Companies. A derivation of implied
value based on LTM EBITDA, LTM EBIT, LTM earnings per share or projected
calendar 1995 earnings per share produced results which were not meaningful due
to the Company's operating losses during these periods. The overall range of
values indicated from the above analyses resulted in an overall range of implied
equity value per share for the Company of $3.60 to $7.20. Bear Stearns noted
that the $6.70 offer price was towards the high end of this range of values.
Bear Stearns noted that its analysis indicated that: (i) the Company's LTM
gross margin was 7.1% as compared to a mean LTM gross margin for the Comparable
Companies of 16.3%; (ii) the Company's LTM EBIT margin was (6.8%) as compared to
a mean LTM EBIT margin for the Comparable Companies of 5.1%; and (iii) the
Company's LTM net margin was (7.5%) as compared to a mean LTM net margin for the
Comparable Companies of 3.6%. Bear Stearns also noted that: (i) the Company's
cash balance as a percentage of LTM revenues was 1.5% as compared to a mean cash
balance as a percentage of LTM revenues for the Comparable Companies of 13.9%;
(ii) the Company's ratio of total debt to total capitalization was 106% as
compared to a mean ratio of total debt to total capitalization for the
Comparable Companies of 40%; and (iii) the Company had negative tangible net
worth as of September 30, 1995.
Comparable Transaction Analysis. Bear Stearns analyzed the multiples of
various financial statistics implied by the consideration paid in eight pending
or consummated merger and acquisition transactions since 1990 involving
companies deemed to be generally comparable to the Company. Such companies were
used in this analysis because they were deemed by Bear Stearns to operate in the
same general industry sector as the Company. To the extent information was
publicly available for these transactions, multiples analyzed included price per
share to latest twelve months and projected earnings per share and aggregate
transaction value (defined as the total price paid for all equity securities of
a company plus debt less cash) to latest twelve months revenues, EBITDA and
EBIT. The transactions analyzed included: Conner and Seagate; the Disk Drive
Division ("Digital") of Digital Equipment Corporation and Quantum; Sunward
Technologies, Inc. and Read-Rite Corporation; Archive Corporation and Conner
Peripherals, Inc.; Colorado Memory Systems, Inc. and Hewlett-Packard Company;
Dastek, Inc. and Komag Incorporated; WangDAT, Inc. and Rexon Incorporated; and
Cipher Data Products, Inc. and Archive Corporation (collectively, the
"Comparable Transactions"). Bear Stearns observed that no company used in this
analysis as a comparison is identical to the Company. In particular, such
companies have different product offerings and market positions than the Company
and have different operating histories and financial conditions. In performing
the Comparable Transactions analyses, Bear Stearns focused primarily on the
implied equity values per share derived by applying the harmonic mean multiples
of certain income statement parameters at which the Comparable Transactions were
completed to the Company's respective income statement parameters.
Based on the harmonic mean multiple of aggregate transaction value to
latest twelve months revenues of 0.77x for the Comparable Transactions, the
Company's implied equity value per share was $12.31. This harmonic mean multiple
compared to a range of 0.45x to 1.69x for the Comparable Transactions. Based on
the harmonic mean multiple of price per share to projected next year earnings
per share of 9.2x for the Comparable Transactions, the Company's implied equity
value per share ranged from $4.60 to $9.20. This harmonic mean multiple compared
to a range of 7.2x to 15.9x for the Comparable Transactions. A derivation of
implied value based on LTM EBITDA, LTM EBIT, LTM earnings per share or projected
current year earnings per share produced results which were not meaningful due
to the Company's operating losses during
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these periods. The overall range of values indicated from the above analyses
resulted in an overall range of implied equity value per share for the Company
of $4.60 to $12.31. Bear Stearns noted that the $6.70 offer price was within
this range of values.
Bear Stearns observed that two recent transactions involving disk drive
companies (i.e., Conner/Seagate and Digital/Quantum) were more comparable than
the other transactions and therefore analyzed the multiples of various financial
statistics implied by the consideration paid in each of these transactions
separately.
Based on the multiple of aggregate transaction value to latest twelve
months revenues of 0.54x for the Conner/Seagate transaction, the Company's
implied equity value per share was $7.97. Based on the multiple of price per
share to projected next year earnings per share of 15.9x for the Conner/Seagate
transaction, the Company's implied equity value per share ranged from $7.95 to
$15.90. A derivation of implied value based on LTM EBITDA, LTM EBIT, LTM
earnings per share or projected current year earnings per share produced results
which were not meaningful due to the Company's operating losses during these
periods. The overall range of values indicated from the above analyses resulted
in an overall range of implied equity value per share for the Company of $7.95
to $15.90. Bear Stearns noted that the $6.70 offer price was below the low end
of this range of values by approximately 16%. Bear Stearns also noted that its
analysis indicated that: (i) the Company's LTM gross margin was 7.1% as compared
to Conner's LTM gross margin of 16.4%; (ii) the Company's LTM EBIT margin was
(6.8%) as compared to Conner's LTM EBIT margin of 2.2%; and (iii) the Company's
LTM net margin was (7.5%) as compared to Conner's LTM net margin of 1.3%. Bear
Stearns also noted that: (i) the Company's cash balance as a percentage of LTM
revenues was 1.5% as compared to Conner's cash balance as a percentage of LTM
revenues of 13.8%; and (ii) the Company's ratio of total debt to total
capitalization was 106% as compared to Conner's ratio of total debt to total
capitalization of 58%.
Based on the multiple of aggregate transaction value to latest twelve
months revenues of 0.45x for the Digital/Quantum transaction, the Company's
implied equity value per share was $6.27. A derivation of implied value based on
LTM EBITDA, LTM EBIT, LTM earnings per share or projected current or next year
earnings per share produced results which were (i) not meaningful due to the
Company's operating losses during these periods; or (ii) not available due to
insufficient data. Bear Stearns noted that the $6.70 offer price exceeded the
implied equity value per share of $6.27 by approximately 6%. Bear Stearns also
noted that its analysis indicated that: (i) the Company's LTM gross margin was
7.1% as compared to Digital's gross margin of 1.1% for the twelve months ended
October 1, 1994; (ii) the Company's LTM EBIT margin was (6.8%) as compared to
Digital's EBIT margin of (17.1%) for the twelve months ended October 1, 1994;
and (iii) the Company's LTM net margin was (7.5%) as compared to Digital's net
margin of (17.3%) for the twelve months ended October 1, 1994.
Review of Historical Trading Data and Acquisition Premiums. Bear Stearns
reviewed the historical public trading prices of the Company's Common Stock for
the period from January 1, 1990 through October 31, 1995. Bear Stearns observed
that during the last 52-week period, Maxtor's high Share closing price was $7.00
and its low Share closing price was $3.63. Bear Stearns also observed that the
Share price has closed higher than the $6.70 offer price only once since May
1994.
Bear Stearns reviewed the premiums paid by acquirors in the public
Comparable Transactions relative to the stock price of the target company one
trading day prior, ten trading days prior and thirty trading days prior to the
announcement of the transaction. The means of the premiums paid relative to the
target's stock price one trading day prior, ten trading days prior and thirty
trading days prior to the announcement of the public Comparable Transactions
discussed above (i.e., Conner/Seagate, Sunward/Read-Rite, Archive/Conner and
Cipher Data/Archive) were 46%, 59% and 53%, respectively. The offer price of
$6.70 per share represents a premium of 43%, 60% and 26% over the closing price
of the Shares one trading day prior, ten trading days prior and thirty trading
days prior, respectively, to the first public announcement that discussions
regarding an acquisition of the Company were underway. The offer price of $6.70
per share represents a premium of 12%, 25% and 49% over the closing price of the
Company's common stock one trading day prior, ten trading days
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prior and thirty trading days prior, respectively, to the first public
announcement of the proposed outsourcing transaction.
Bear Stearns also reviewed certain publicly available information relating
to thirteen completed and pending acquisitions of remaining interests greater
than 20% since January 1, 1994 involving publicly traded companies. Such
analysis examined the premiums paid by significant shareholders relative to the
stock price of the target company one trading day prior, ten trading days prior
and thirty trading days prior to the announcement of the transaction. The means
of the premiums paid relative to the target's stock price one trading day prior,
ten trading days prior and thirty trading days prior in acquisitions of
remaining interests were 26%, 44% and 48%, respectively. Bear Stearns does not
consider the average premiums paid in other transactions to be a relevant
standard of fairness.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying Bear Stearns' opinion. In arriving at its opinion, Bear Stearns
considered the results of all such analyses. The analyses were prepared solely
for purposes of providing its opinion as to the fairness of the Offer and the
Merger, from a financial point of view, to the stockholders of the Company
(other than the holders of the Class A Shares) and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be significantly more
or less favorable than suggested by such analyses. As described above, the Bear
Stearns Opinion and presentation to the Special Committee was one of many
factors taken into consideration by the Special Committee in making its
determination to approve the Offer, the Merger and the Merger Agreement. The
foregoing summary does not purport to be a complete description of the analysis
performed by Bear Stearns.
In the ordinary course of its business, Bear Stearns may actively trade the
equity and equity-related securities of the Company for its own account and for
the accounts of customers and, accordingly, may, at any time, hold a long or
short position in such securities.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The Special Committee of the Board of Directors of the Company selected
Bear Stearns as its financial advisor in connection with the transactions
contemplated by the Merger Agreement. Bear Stearns was selected by the Special
Committee because of its qualifications and expertise in providing advice to
companies in the disk drive and data storage industries, as well as its
reputation as an internationally recognized investment banking firm and its
reputation and experience in rendering fairness opinions. In addition, the
Special Committee considered the fact that Bear Stearns was familiar with the
Company, having represented the Company in connection with its sale of Class A
Shares to the Hyundai Shareholders pursuant to the Stock Purchase Agreement as
described above.
Pursuant to a letter agreement, dated October 24, 1995, the Company agreed
to pay Bear Stearns (a) a fee of $400,000 for rendering its opinion in
connection with the Offer and the Merger and (b) an additional fee of 1.125% of
the total consideration paid by Purchaser in the Offer and the Merger (excluding
debt guaranteed by Purchaser or its affiliates), against which will be credited
(i) the $400,000 fee and (ii) a $300,000 fee paid pursuant to a letter agreement
dated August 24, 1995 (discussed below). The Company has also agreed to
reimburse Bear Stearns for its reasonable out-of-pocket expenses up to $50,000,
including the reasonable fees and disbursements of counsel, and to indemnify
Bear Stearns and certain related persons against certain liabilities in
connection with the engagement of Bear Stearns, including certain liabilities
under the federal securities laws.
In connection with the Proposed Outsourcing Transaction, the Special
Committee retained Bear Stearns to assist it as its exclusive financial advisor.
Pursuant to a letter agreement, dated August 24, 1995, the Company agreed to pay
Bear Stearns (a) an initial fee $100,000; (b) a fee of $200,000 for rendering
its opinion in connection with the Proposed Outsourcing Transaction; (c) an
additional fee of $200,000 upon closing if an outsourcing agreement was
consummated with HEI; and (d) 1.00% of the fair market value of
22
<PAGE> 24
the total consideration paid by any purchaser other than HEI, against which
would be credited (i) the $100,000 fee and (ii) the $200,000 opinion fee. The
Company agreed to reimburse Bear Stearns for its reasonable out-of-pocket
expenses up to $25,000, including the reasonable fees and disbursements of
counsel, and to indemnify Bear Stearns and certain related persons against
certain liabilities in connection with the engagement of Bear Stearns, including
certain liabilities under the federal securities laws. Bear Stearns was paid a
total of $300,000 under the terms of this letter agreement.
Except as set forth above, neither the Company nor any person acting on its
behalf has employed, retained or compensated any person to make solicitations or
recommendations to the Company's stockholders with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) To the best of the Company's knowledge, no transactions in the Shares
have been effected during the past 60 days by the Company or by any executive
officer, director, affiliate or subsidiary of the Company, except that Richard
Brantmeyer, Senior Vice President, Sales and Marketing, purchased 4,000 Shares
on the open market at $4.25 per Share on October 16, 1995.
(b) To the best of the Company's knowledge, all of its executive officers,
directors, affiliates or subsidiaries presently intend to tender into the Offer
any Shares which are held of record or beneficially owned by such persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company has not
undertaken any negotiations in response to the Offer, and no negotiations are
underway, which relate to or would result in (i) an extraordinary transaction
involving the Company, (ii) a purchase, sale or transfer of a material amount of
the assets of the Company, (iii) a tender offer for or other acquisition of
securities by or of the Company or (iv) a material change in the present
capitalization or dividend policy of the Company.
(b) Except as described in Item 3(b) and Item 4 above, there are presently
no transactions, board resolutions, agreements in principle or signed contracts
in response to the Offer which relate to or would result in one or more of the
matters referred to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) Korean Governmental Approvals. The Offer is conditioned on, among
other things, the obtainment of final approval of all necessary governmental
officials and agencies of the Republic of Korea to consummate the Offer, the
Merger and the other transactions contemplated by the Merger Agreement, without
any conditions reasonably deemed by Parent to materially adversely affect the
intended benefits to it and its affiliates of the Offer, the Merger and the
other transactions contemplated by the Merger Agreement. HEI expects to submit
an approval application with the Bank of Korea (the "BOK") pursuant to the
Foreign Exchange Control Act of Korea (the "FECA") in connection with the Offer,
the Merger and the transactions contemplated by the Merger Agreement. Under FECA
and the rules promulgated thereunder, overseas investments by a Korean resident
are permissible in principle when the shares to be acquired by the Korean
investor will constitute 20% or more of the outstanding shares of a company.
Because the Offer, the Merger and the transactions contemplated by the Merger
Agreement contemplate an investment of over $10 million in a foreign country,
Parent and the Purchaser must also obtain approval of the Overseas Investment
Deliberation Committee (the "OIDC"), a committee of Korean government officials
operating under the auspices of the BOK and the Korean Ministry of Finance and
Economy (the "MOFE"). The OIDC considers factors such as the general
appropriateness of the investment, possible negative effects of the transaction
upon the Korean economy or Korean foreign policy, whether the transaction would
be against Korean social or public order, and whether the Korean investor has
previously violated Korean foreign investment policies.
Once all the necessary documents for the BOK approval are prepared and
filed with the BOK, the BOK preliminarily reviews the application and forwards
it to the MOFE. The MOFE then arranges for review of the application by the
OIDC, and the OIDC determines whether or not to approve the application.
Following the OIDC's decision, the MOFE returns the application to the BOK along
with the OIDC's decision. The BOK then issues its final decision on approval
shortly after such receipt. The Purchaser will not accept for payment
23
<PAGE> 25
Shares validly tendered pursuant to the Offer unless and until the Korean
Approval Condition is satisfied. It is not possible to predict the amount of
time necessary to obtain this governmental approval or whether such approval can
be obtained. It is anticipated, however, that the time necessary to obtain such
approval will extend beyond the Expiration Date, and the Company has been
advised that, subject to the other conditions to the Offer, the Purchaser
intends to extend the Offer from time to time until such approval has been
received. It is expected that the application will be submitted by Parent by
November 15, 1995.
(b) Antitrust. Under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), and the rules that have been promulgated
thereunder by the Federal Trade Commission (the "FTC"), certain acquisition
transactions may not be consummated unless certain information has been
furnished to the Antitrust Division of the Department of Justice (the "Antitrust
Division") and the FTC and certain waiting period requirements have been
satisfied. Parent expects to file a Notification and Report Form with respect to
the Offer, the Merger and the other transactions contemplated by the Merger
Agreement by November 10, 1995.
Under the provisions of the HSR Act applicable to the Offer, the purchase
of Shares under the Offer may not be consummated until the expiration of a
15-calendar day waiting period following the filing by Parent. Accordingly, if
such filing is made on the expected date of November 10, 1995, the waiting
period with respect to the Offer will expire at 11:59 p.m., New York City time,
on November 25, 1995, unless Parent receives a request for additional
information or documentary material, or the Antitrust Division and the FTC
terminate the waiting period prior thereto. If, within such 15-day period,
either the Antitrust Division or the FTC requests additional information or
material from Parent concerning the Offer, the waiting period will be extended
and would expire at 11:59 p.m., New York City time, on the tenth calendar day
after the date of substantial compliance by Parent with such request. Only one
extension of the waiting period pursuant to a request for additional information
is authorized by the HSR Act. Thereafter, such waiting period may be extended
only by court order or with the consent of Parent. The Purchaser will not accept
for payment Shares tendered pursuant to the Offer unless and until the waiting
period requirements imposed by the HSR Act with respect to the Offer have been
satisfied.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as the Purchaser's acquisition of Shares
pursuant to the Offer and the Merger. At any time before or after the
Purchaser's acquisition of Shares, the Antitrust Division or the FTC could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the acquisition of Shares pursuant
to the Offer or otherwise or seeking divestiture of Shares acquired by the
Purchaser or divestiture of substantial assets of Parent or its subsidiaries.
Private parties and state attorneys general may also bring action under the
antitrust laws under certain circumstances. Based upon an examination of
publicly available information relating to the businesses in which Parent and
the Company are engaged, Parent and the Purchaser believe that the acquisition
of Shares by the Purchaser will not violate the antitrust laws. Nevertheless,
there can be no assurance that a challenge to the Offer or other acquisition of
Shares by the Purchaser on antitrust grounds will not be made or, if such a
challenge is made, of the result.
(c) Exon-Florio Provision. The requirements of Section 2171 of the Defense
Production Act of 1950, as amended (the "Exon-Florio Provision"), applies to all
acquisitions proposed or pending on or after August 23, 1988, by or with foreign
persons which could result in foreign control of persons engaged in interstate
commerce in the United States. The Exon-Florio Provision empowers the President
of the United States to prohibit or suspend mergers, acquisitions or takeovers
by or with foreign persons if the President finds, after investigations,
credible evidence that the foreign person might take action that threatens to
impair the national security of the United States and that other provisions of
existing law do not provided adequate and appropriate authority to protect the
national security. The President has designated The Committee on Foreign
Investment in the United States ("CFIUS") as the agency authorized under the
Exon-Florio Provision to receive notices and other information, to determine
whether investigations should be undertaken and to make investigations. CFIUS is
comprised of representatives of the Departments of Treasury, State, Commerce,
Defense and Justice, the Office of Management and Budget, the United States
Trade Representative's Office and the Council of Economic Advisors. Any
determination by CFIUS that an investigation is called for must be made within
30 days after its acceptance of written notification concerning a proposed
transaction. In the event that CFIUS determines to undertake an investigation,
such investigation must be
24
<PAGE> 26
completed within 45 days after such determination. Upon completion or
termination of any such investigation, the Committee must report to the
President and present its recommendation. The President then has 15 days in
which to suspend or prohibit the proposed transaction or to seek other
appropriate relief. In order for the President to exercise his authority to
suspend or prohibit an acquisition, the President must make two findings: (i)
that there is credible evidence that leads the President to believe that the
foreign interest exercising control might take action that threatens to impair
national security and (ii) that provisions of law other than the Exon-Florio
Amendment and the International Emergency Economic Powers Act do not provide
adequate and appropriate authority for the President to protect the national
security in connection with the acquisition. Such findings are not subject to
judicial review. If the President makes such findings, he may take action for
such time as he considers appropriate to suspend or prohibit the relevant
acquisition. The President may direct the Attorney General to seek appropriate
relief, including divestment relief, in the District Courts of the United States
in order to implement and enforce the Exon-Florio Amendment. The Exon-Florio
Amendment does not obligate the parties to an acquisition to notify CFIUS of a
proposed transaction. However, if notice of a proposed acquisition is not
submitted to CFIUS, then the transaction remains indefinitely subject to review
by the President under the Exon-Florio Amendment, unless it is determined that
CFIUS does not have jurisdiction over the transaction.
The Purchaser and the Company have not yet determined whether CFIUS has
jurisdiction and therefore whether a filing is appropriate with regard to the
transactions contemplated by the Merger Agreement. Although the Purchaser
believes that the transactions contemplated by the Merger Agreement should not
raise any national security concerns, there can be no assurance that CFIUS will
not determine to conduct an investigation of the proposed transaction and, if an
investigation is commenced, there can be no assurance regarding the outcome of
such investigation. If the results of such investigation are adverse to the
Purchaser, the Purchaser may not be obligated to accept for payment or pay for
any Shares tendered pursuant to the Offer.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<S> <C>
Exhibit 1 Offer to Purchase dated November 8, 1995.(1)
Exhibit 2 Letter of Transmittal dated November 8, 1995.(1)
Exhibit 3 Agreement and Plan of Merger among Maxtor Corporation, Hyundai Acquisition,
Inc. and Hyundai Electronics America dated as of November 2, 1995.(1)(2)
Exhibit 4 Rights Agreement dated as of January 27, 1988 between Maxtor Corporation and
The First National Bank of Boston, as Rights Agent.(1)(3)
Exhibit 5 Amendment to Rights Agreement dated as of September 10, 1993 between Maxtor
Corporation and The First National Bank of Boston, as Rights Agent.(1)(4)
Exhibit 6 Amendment No. 2 to Rights Agreement dated as of November 2, 1995 between Maxtor
Corporation and The First National Bank of Boston, as Rights Agent.(1)
Exhibit 7 Letter to Stockholders of Maxtor Corporation dated November 9, 1995.*
Exhibit 8 Stock Purchase Agreement among Hyundai Electronics Industries Co., Ltd. Hyundai
Heavy Industries Co., Ltd. Hyundai Corporation and Hyundai Merchant Marine Co.,
Ltd. and Maxtor Corporation dated September 10, 1993.(1)(5)
Exhibit 9 Restated Certificate of Incorporation of Maxtor Corporation effective February
3, 1994.(1)(5)
Exhibit 10 Manufacturing and Purchasing Agreement between Maxtor Corporation and Hyundai
Electronics Industries Co., Ltd. dated April 27, 1995. (confidential treatment
has been requested for portions of this exhibit)(1)(6)
Exhibit 11 Guaranty and Recourse Agreement between Maxtor Corporation and Hyundai
Electronics Industries Co., Ltd. dated as of August 31, 1995.(1)
Exhibit 12 Credit Agreement among Maxtor Corporation, as Borrower, and the Initial Lenders
Named therein and the Issuing Bank, as Initial Lenders and the Issuing Bank,
and Citibank, N.A., as Administrative Agent, dated as of August 31, 1995.(1)
</TABLE>
25
<PAGE> 27
<TABLE>
<S> <C>
Exhibit 13 Memorandum of Understanding between Hyundai Electronics Industries Co., Ltd.
and Maxtor Corporation dated September 19, 1995.(1)
Exhibit 14 Opinion of Bear, Stearns & Co. Inc. dated November 1, 1995.(1)(2)*
Exhibit 15 Forms of Indemnity Agreements between Maxtor Corporation and its officers and
directors.(1)
Exhibit 16 Press Release, dated November 1, 1995 issued by Maxtor Corporation.(1)
Exhibit 17 Press Release, dated November 3, 1995 issued by Maxtor Corporation.(1)
</TABLE>
- ------------
* Included with Schedule 14D-9 mailed to stockholders.
(1) Filed as an exhibit to Maxtor Corporation's Schedule 14D-9 dated November 8,
1995 (the "Original Schedule 14D-9").
(2) Included as an exhibit to the Offer to Purchase dated November 8, 1995 filed
as Exhibit 1 to the Original Schedule 14D-9.
(3) Filed as an exhibit to Maxtor Corporation's Report on Form 8-K (File No.
0-14016) as filed with the Securities and Exchange Commission on February 8,
1988 and incorporated herein by reference.
(4) Filed as an exhibit to Maxtor Corporation's Report on Form 10-K (File No.
0-14016) as filed with the Securities and Exchange Commission on June 24,
1994 and incorporated herein by reference.
(5) Filed as an exhibit to Maxtor Corporation's Report on Form 10-Q (File No.
0-014016) as filed with the Securities and Exchange Commission on February
7, 1994 and incorporated herein by reference.
(6) Filed as an exhibit to Maxtor Corporation's Report on Form 10-K (File No.
0-014016) as filed with the Securities and Exchange Commission on June 23,
1995 and incorporated herein by reference.
26
<PAGE> 28
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
November 9, 1995
MAXTOR CORPORATION
By /s/ GLENN H. STEVENS
------------------------------------
Glenn H. Stevens
Vice President, General Counsel
and Secretary
<PAGE> 29
SCHEDULE I
INFORMATION WITH RESPECT TO THE INTERESTS
OF CERTAIN PERSONS IN THE OFFER AND MERGER
In considering the recommendations of the Board and the special Committee
set forth in Item 4(a) of the Solicitation/Recommendation Statement on Schedule
14D-9 (the "Schedule 14D-9") of which this Schedule I is a part, the Company's
stockholders (other than holders of Class A Shares) should be aware that certain
members of the Board and the Special Committee, respectively, have interests in
the Merger and the Offer which are described below and which may present them
with certain conflicts of interest.
Interests of Certain Officers and Directors of the Company Affiliated with
Parent and the Purchaser
In considering the recommendation of the Board of Directors, stockholders
of the Company should be aware that certain officers and directors of the
Company have certain interests in the proposed transaction, including those
referred to below, that present actual or potential conflicts of interest in
connection with the Offer and the Merger. The Board of Directors and the Special
Committee were aware of these potential or actual conflicts of interest and
considered them along with other matters described under Item 3(b) of this
Schedule 14D-9.
Interests of Certain Board Members with Respect to Compensation for Services
Provided to the Company.
During fiscal 1995, non-employee members of the Board of Directors received
the following compensation: (i) $18,000 per year; (ii) $1,000 per scheduled or
special board meeting or special committee meeting; (iii) $750 per scheduled
committee meeting or telephonic board or committee meeting; and (iv)
nonqualified stock options pursuant to the Company's 1986 Outside Directors
Stock Option Plan (the "1986 Plan"). In addition, non-employee members of the
Board of Directors with no other medical coverage are entitled to participate in
a medical insurance plan and a deferred compensation life insurance plan
available to all members of the Board of Directors. Effective in fiscal 1996
non-employee members of the Board of Directors receive the following
compensation: (i) $22,000 per year; (ii) $2,000 per year for service as a
committee chairperson; (iii) $1,500 per board meeting; (iv) $1,000 per committee
meeting; and (v) nonqualified stock options pursuant to the 1986 Plan and the
1996 Outside Directors Stock Option Plan (the "1996 Plan").
Mr. Gallo, a member of the Special Committee, is a member of Gray Cary Ware
& Freidenrich, which serves as principal outside legal counsel for the Company,
including representing the Company in the transactions described herein, and
which also represents Parent in certain pending litigation.
Interests of Executive Officers and Directors with Respect to Shares Currently
Held and Shares Subject to
Company Stock Options.
The Company's Fiscal 1988 Stock Option Plan (the "1988 Plan") provides that
upon a "transfer of control" (as defined in the 1988 Plan), the Board of
Directors, in its discretion, may (i) provide that all Shares acquired on
exercise of an option will become fully vested upon the "transfer of control,"
or (ii) arrange for the surviving or acquiring corporation to assume the
Company's rights and obligations under the option or substitute an option for
such corporation's stock for an option outstanding under the 1988 Plan. In
connection with the Merger, the Board of Directors has provided that all
outstanding options under the 1988 Plan will become fully vested upon the
Effective Time (as defined below), and upon the Effective Time, each option will
be canceled. The Company's 1995 Stock Option Plan, 1986 Plan and 1996 Plan each
provides that upon a "transfer of control" all Shares acquired on exercise of an
option will become fully vested upon the "transfer of control." In connection
with the Merger, all outstanding options under such plans will automatically
become fully vested upon the Effective Time, and upon the Effective Time, each
option will be canceled. In return for the cancellation of the options under the
Company's option plans, each optionee will receive an amount equal to the
product of (i) the excess, if any, of $6.70 over the per Share exercise price of
the option, and (ii) the number of Shares for which the option is unexercised.
<PAGE> 30
The Company's 1992 Employee Stock Purchase Plan (the "Purchase Plan")
permits the Board of Directors to establish a different term for an offering as
well as a different commencing and/or ending date for an offering. In connection
with the Merger, the Board of Directors has provided that as of the date
immediately prior to the date on which the Purchaser accepts Shares for payment
pursuant to the Offer (the "Final Purchase Date"), (i) Shares will be purchased
with payroll deductions accumulated during the Purchase Plan offering in
operation immediately prior to the Final Purchase Date, and (ii) the Purchase
Plan will terminate, subject to the consummation of the Merger.
In August 1995, the Board granted the following options to certain
executive officers and employee directors of the Company: Richard D. Balanson
(60,000), Katherine C. Young (40,000), Nathan Kawaye (40,000) and Glenn H.
Stevens (40,000). Also in August 1995, the non-employee directors of the Company
received the following automatic grants of options pursuant to the 1996 Plan and
the 1986 Plan: Greg M. Gallo (15,000), Charles Hill (15,000) and Charles Christ
(30,000).
To the knowledge of the Company, directors and officers of the Company, as
a group, beneficially own, directly or indirectly, or exercise control or
direction over 1,616,208 Shares, representing approximately 5% of the
outstanding Shares on a Fully Diluted Basis.
The directors and executive officers of the Company will be entitled to
receive, as contemplated by the Merger Agreement, cash payments, in the manner
set forth in the table below (See "The Merger Agreement -- Consideration to be
Paid in the Merger" under Item 3(b) of this Schedule 14D-9):
<TABLE>
<CAPTION>
SHARES AND OPTION AMOUNTS WITH RESPECT TO THE
COMPANY'S DIRECTORS AND EXECUTIVE OFFICERS
-------------------------------------------------
DOLLAR
AMOUNT OPTIONS
OWNED AT OFFER CONVERTED DOLLAR TOTAL CASH
NAME SHARES PRICE TO CASH AMOUNT CONSIDERATION
- ------------------------------------------ ------ -------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
M.H. Chung................................ 0 $ 0 35,000 $ 48,875 $ 48,875
Richard Balanson.......................... 4,651 31,162 360,000 664,500 695,662
Charles Christ............................ 0 0 30,000 60,375 60,375
Gregory Gallo............................. 9,954 66,692 65,000 260,500 327,192
Charles Hill.............................. 200 1,340 45,000 209,625 210,965
I.B. Jeon................................. 2,500 16,750 35,000 48,875 65,625
C.S. Park................................. 0 0 520,000 1,024,000 1,024,000
Rick Brantmeyer........................... 4,000 26,800 100,000 245,000 271,800
Nathan Kawaye............................. 10,396 69,653 111,707 193,454 263,108
Glenn Stevens............................. 0 0 100,000 161,250 161,250
Katherine Young........................... 0 0 160,000 293,250 293,250
------ -------- --------- ---------- -------------
Total................................ 31,701 $212,397 1,561,707 $3,209,704 $ 3,422,101
</TABLE>
Indemnification Agreements.
Since December 1986, the Company has entered into indemnification
agreements with its officers and directors, the form of which was approved by
the stockholders in October of 1986 (the "Indemnification Agreements"). It is
the Company's policy to enter into such Indemnification Agreements with all
officers and directors. Pursuant to the Indemnification Agreements, the Company
has agreed to indemnify its officers and directors to the maximum extent
permitted under the DGCL. For directors and certain officers, the
Indemnification Agreements, as amended, also provide that the Company must
procure a letter of credit in an amount not less than $300,000 for each director
and in an amount not less than $175,000 for each officer and keep such letters
of credit in effect during the term of the Indemnification Agreements. The
Company has obtained such letters of credit. On June 7, 1994, the Board of
Directors authorized the discontinuance of the Company's obligation to provide
letters of credit to future directors and officers and authorized the Company to
request all present holders of letters of credit to return them to the Company
for cancellation. The Company does provide letters of credit for certain former
officers and directors. The Company does not maintain letters of credit for any
current officers or directors. Forms of the Indemnification Agreements are
qualified in their
<PAGE> 31
entirety by reference thereto, copies of which are filed as Exhibit 15 to this
Schedule 14D-9 and are hereby incorporated herein by reference.
In addition, the Merger Agreement contains certain provisions with respect
to indemnification of directors and executive officers and maintenance of
directors and officers insurance subsequent to the Effective Time.
<PAGE> 32
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
- ----------- -------------------------------------------------------------------------------
<S> <C> <C>
Exhibit 1 Offer to Purchase dated November 8, 1995.(1)
Exhibit 2 Letter of Transmittal dated November 8, 1995.(1)
Exhibit 3 Agreement and Plan of Merger among Maxtor Corporation, Hyundai
Acquisition, Inc. and Hyundai Electronics America dated as of November
2, 1995.(1)(2)
Exhibit 4 Rights Agreement dated as of January 27, 1988 between Maxtor Corporation
and The First National Bank of Boston, as Rights Agent.(1)(3)
Exhibit 5 Amendment to Rights Agreement dated as of September 10, 1993 between
Maxtor Corporation and The First National Bank of Boston, as Rights
Agent.(1)(4)
Exhibit 6 Amendment No. 2 to Rights Agreement dated as of November 2, 1995 between
Maxtor Corporation and The First National Bank of Boston, as Rights
Agent.(1)
Exhibit 7 Letter to Stockholders of Maxtor Corporation dated November 9, 1995.*
Exhibit 8 Stock Purchase Agreement among Hyundai Electronics Industries Co., Ltd.
Hyundai Heavy Industries Co., Ltd. Hyundai Corporation and Hyundai
Merchant Marine Co., Ltd. and Maxtor Corporation dated September 10,
1993.(1)(5)
Exhibit 9 Restated Certificate of Incorporation of Maxtor Corporation effective
February 3, 1994.(1)(5)
Exhibit 10 Manufacturing and Purchasing Agreement between Maxtor Corporation and
Hyundai Electronics Industries Co., Ltd. dated April 27, 1995.
confidential treatment has been requested for portions of this
exhibit)(1)(6)
Exhibit 11 Guaranty and Recourse Agreement between Maxtor Corporation and Hyundai
Electronics Industries Co., Ltd. dated as of August 31, 1995.(1)
Exhibit 12 Credit Agreement among Maxtor Corporation, as Borrower, and the Initial
Lenders Named therein and the Issuing Bank, as Initial Lenders and the
Issuing Bank, and Citibank, N.A., as Administrative Agent, dated as of
August 31, 1995.(1)
Exhibit 13 Memorandum of Understanding between Hyundai Electronics Industries Co.,
Ltd. and Maxtor Corporation dated September 19, 1995.(1)
Exhibit 14 Opinion of Bear, Stearns & Co. Inc. dated November 1, 1995.(1)(2)*
Exhibit 15 Forms of Indemnity Agreements between Maxtor Corporation and its
officers and directors.(1)
Exhibit 16 Press Release, dated November 1, 1995 issued by Maxtor Corporation.(1)
Exhibit 17 Press Release, dated November 3, 1995 issued by Maxtor Corporation.(1)
</TABLE>
- ------------
* Included with Schedule 14D-9 mailed to stockholders.
(1) Filed as an exhibit to Maxtor Corporation's Schedule 14D-9 dated November 8,
1995 (the "Original Schedule 14D-9").
(2) Included as an exhibit to the Offer to Purchase dated November 8, 1995 filed
as Exhibit 1 to the Original Schedule 14D-9.
(3) Filed as an exhibit to Maxtor Corporation's Report on Form 8-K (File No.
0-14016) as filed with the Securities and Exchange Commission on February 8,
1988 and incorporated herein by reference.
(4) Filed as an exhibit to Maxtor Corporation's Report on Form 10-K (File No.
0-14016) as filed with the Securities and Exchange Commission on June 24,
1994 and incorporated herein by reference.
(5) Filed as an exhibit to Maxtor Corporation's Report on Form 10-K (File No.
0-014016) as filed with the Securities and Exchange Commission on February
7, 1994 and incorporated herein by reference.
(6) Filed as an exhibit to Maxtor Corporation's Report on Form 10-K (File No.
0-014016) as filed with the Securities and Exchange Commission on June 23,
1995 and incorporated herein by reference.
<PAGE> 1
November 9, 1995
Dear Stockholders:
I am pleased to inform you that, on November 2, 1995, the Company entered
into an Agreement and Plan of Merger with Hyundai Electronics America ("HEA")
and Hyundai Acquisition, Inc., a wholly owned subsidiary of HEA ("Hyundai
Acquisition"), pursuant to which Hyundai Acquisition is commencing a cash tender
offer (the "Offer") to purchase all outstanding shares of the Company's Common
Stock at $6.70 per share. Following the completion of the Offer, upon the terms
and subject to the conditions of the Merger Agreement, Hyundai Acquisition will
be merged (the "Merger") into the Company, and each share of the Company's
Common Stock not purchased in the Offer (other than any shares owned by the
Company or any of its subsidiaries, Hyundai Acquisition or any of its
subsidiaries and any dissenting stockholders) will be converted into the right
to receive $6.70 per share in cash, without interest. Upon consummation of these
transactions, HEA and other companies in the Hyundai business group will own the
entire equity interest in the Company.
The Company's Board of Directors, based on the unanimous recommendation of
a Special Committee comprised of directors not employed by the Company, HEA or
other companies in the Hyundai business group, has unanimously approved the
Offer, the Merger and the Merger Agreement, determined that the Offer and Merger
are fair to and in the best interests of the Company's stockholders, and
recommends that stockholders accept the Offer and tender their shares pursuant
to the Offer.
In arriving at their decisions, the Special Committee and the Board of
Directors gave careful consideration to a number of factors described in the
attached Schedule 14D-9 that is being filed today with the Securities and
Exchange Commission. Among other things, the Special Committee considered the
opinion of Bear Stearns & Co. Inc. that the consideration to be offered to the
stockholders of the Company (other than the holders of Class A Common Stock,
which are companies in the Hyundai business group), in the Offer and the Merger
is fair, from a financial point of view, to such holders.
Accompanying this letter, in addition to the attached Schedule 14D-9
relating to the Offer, is the Offer to Purchase, dated November 8, 1995, of
Hyundai Acquisition, together with related materials including a Letter of
Transmittal to be used for tendering your shares. These documents set forth the
terms and conditions of the Offer and the Merger, provide detailed information
about these transactions and include instructions as to how to tender your
shares. I urge you to read the enclosed materials carefully.
Very truly yours,
LOGO
Dr. C. S. Park
President and Chief Executive Officer
