<PAGE> 1
As filed with the Securities and Exchange Commission on _______________
Registration No. ________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MAXTOR CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 77-0123732
(State of other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
</TABLE>
510 Cottonwood Drive, Milpitas, California 95035
(Address of principal executive offices) (Zip code)
MAXTOR CORPORATION
1998 RESTRICTED STOCK PLAN
AMENDED AND RESTATED 1996 STOCK OPTION PLAN
1998 EMPLOYEE STOCK PURCHASE PLAN
(Full title of the plans)
Glenn H. Stevens
Vice President, General Counsel and Secretary
MAXTOR CORPORATION
510 Cottonwood Drive
Milpitas, California 95035
(Name and address of agent for service)
Telephone number, including area code, of agent for service: (408) 432-1700
This registration statement shall hereafter become effective in accordance with
Rule 462 promulgated under the Securities Act of 1933, as amended.
<PAGE> 2
- --------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed maximum Proposed maximum
Title of Securities to Amount to be offering price aggregate offering Amount of
be registered(1) registered(2) per share(3) price(3) registration fee
- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
1998 Restricted Stock Plan
(the "Stock Plan")
Common Stock 390,000 $7.00 $2,730,000 $805.35
Par Value $0.01
Amended and Restated 1996
Stock Option Plan
(the "Option Plan")
Common Stock 1,442,330 $6.2174 $8,967,542.50 $17,454.68
Par Value $0.01 7,219,767 $6.95325 $50,200,844
1998 Employee Stock
Purchase Plan
the "Purchase Plan")
Common Stock 1,700,000 $5.92 $10,064,000 $2,968.88
Par Value $0.01
TOTALS 10,752,097 $71,962,386.50 $21,228.91
</TABLE>
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1 The securities to be registered include options and rights to acquire
Common Stock.
2 Pursuant to Rule 416(a), this registration statement also covers any
additional securities that may be offered or issued in connection with any
stock split, stock dividend or similar transaction.
3 Estimated pursuant to Rule 457 solely for purposes of calculating the
registration fee. As to shares subject to outstanding purchase rights under
the Stock Plan, the price is computed on the basis of the weighted average
purchase price. As to shares subject to outstanding but unexercised options
under the Option Plan, the price is computed on the basis of the weighted
average exercise price. As to the remaining shares under the Option Plan,
the $6.95325 price is based upon the average of the high and low prices of
the Common Stock on August 4, 1998, as reported on the Nasdaq National
Market. The Purchase Plan establishes a purchase price equal to 85% of the
fair market value of the Company's Common Stock, and, therefore, the price
for shares under this plan is based upon 85% of the average of the high and
low prices of the Common Stock on August 4, 1998, as reported on the Nasdaq
National Market.
<PAGE> 3
REOFFER PROSPECTUS
390,000 SHARES
MAXTOR CORPORATION
COMMON STOCK
This S-3 Reoffer Prospectus filed under Form S-8 Prospectus covers 390,000
shares of common stock, 0.01 par value (the "Common Stock"), of Maxtor
Corporation (the "Company"), which have been issued pursuant to the Company's
1998 Restricted Stock Plan. The shares offered by this Prospectus are for the
account of the individuals listed in the Selling Securityholders section below
(the "Selling Securityholders").
The Company will not receive any of the proceeds from sales of Common Stock by
the Selling Securityholders.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
PROSPECTIVE PURCHASERS SHOULD CAREFULLY REVIEW
THE MATTERS SET FORTH IN "RISK FACTORS" BELOW.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is August 7, 1998.
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith, files
annual and quarterly reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the Commission's
Public Reference Section, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, as well as at the Commission's Regional Offices at 7 World Trade Center,
13th Floor, New York, New York 10048; and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. The Company's Common Stock is quoted
on the Nasdaq National Market, and such reports, proxy statements and other
information can also be inspected at the offices of the Nasdaq National Market,
1735 K Street, N.W., Washington D.C., 20006. A registration statement on Form
S-8 with respect to the Common Stock offered hereby (the "Registration
Statement") has been filed with the Commission under the Securities Act of 1933,
as amended (the "Securities Act"). This Prospectus does not contain all of the
information contained in such Registration Statement and the exhibits and
schedules thereto, certain portions of which have been omitted pursuant to the
rules and regulations of the Commission. For further information with respect to
the Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus regarding the contents of any contract or any other
documents are not necessarily complete and, in each instance, reference is
hereby made to the copy of such contract or document filed as an exhibit to the
Registration Statement. The Registration Statement, including exhibits thereto,
may be inspected without charge at the Securities and Exchange Commission's
principal office in Washington, D.C., and copies of all or any part thereof may
be obtained from the Public Reference Section, Securities and Exchange
Commission, Washington, D.C., 20549, upon payment of the prescribed fees.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference into this Prospectus:
(a) The Company's latest prospectus filed pursuant to Rule 424(a) under the
Securities Act, containing audited financial statements for the Company's latest
fiscal year.
(b) All other reports filed pursuant to Section 13(a) or 15(d) of the Exchange
Act since the end of the fiscal year covered by the annual report referred to in
(a) above.
(c) The description of the Common Stock contained in the Company's Amendment No.
4 to Registration Statement on Form S-1, filed pursuant to the Exchange Act on
July 30, 1998, including any amendment or report filed for the purpose of
updating such description.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14, or 15(d) of the Exchange Act, prior to the filing of a post-effective
amendment that indicates that all securities have been sold or which deregisters
all securities then remaining unsold, shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. The Company hereby undertakes to provide without charge to each
person to whom a Prospectus is delivered, upon written or oral request of such
person, a copy of any and all of the documents that have been incorporated by
reference in the Registration Statement of which this Prospectus is a part (not
including exhibits to the information that is incorporated by reference unless
such exhibits are specifically incorporated by reference into such documents).
Such requests may be directed to Investor Relations, Maxtor Corporation, 510
Cottonwood Drive, Milpitas, California 95035, or telephone at (408) 432-1700.
<PAGE> 4
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning of
the U.S. federal securities laws that involve risks and uncertainties. The
statements contained in this Prospectus that are not purely historical,
including, without limitation, statements regarding the Company's expectations,
beliefs, intentions or strategies regarding the future, are forward-looking
statements. In this Prospectus, the words "anticipates," "believes," "expects,"
"intends," "future" and similar expressions also identify forward-looking
statements. The Company makes these forward-looking statements based upon
information available on the date hereof, and assumes no obligation to update
any such forward-looking statements. The Company's actual results could differ
materially from those anticipated in this Prospectus as a result of certain
factors including, but not limited to, those set forth in the following risk
factors and elsewhere in this Prospectus. In addition to the other information
in this Prospectus, prospective investors should consider carefully the
following risk factors in evaluating the Company and its business before
purchasing shares of Common Stock.
HISTORY OF OPERATING AND NET LOSSES; ACCUMULATED DEFICIT
During each of the 19 consecutive quarters ended September 27, 1997, the
Company incurred significant operating losses ranging from $125.5 million to
$3.1 million per quarter, with net losses ranging from $130.2 million to $4.5
million, primarily as a result of delayed product introductions, product
performance and quality problems, low manufacturing yields and under-utilization
of manufacturing capacity, high operating expenses and overall market conditions
in the HDD industry, including fluctuations in demand and declining average
selling prices ("ASPs"). As of June 27, 1998, the Company had a stockholders'
deficit of approximately $777.9 million. While the Company achieved operating
profits and positive net income for the quarter ended December 27, 1997, it
recorded operating and net losses for the fiscal year ended December 27, 1997.
The Company also recorded operating and net losses in the six months ended June
27, 1998 due to a $9.9 million compensation expense related to variable features
of the Option Plan. The Option Plan has been amended and restated to remove the
variable features and provide for fixed award options. There can be no assurance
that the factors that led to the Company's history of operating losses have been
overcome or that the Company will achieve profitability on either an operating
or net income basis in any future quarterly or annual periods. Consequently,
recent operating results should not be considered indicative of future financial
performance. See "-- Expected Volatility of Stock Price; Absence of Current
Trading Market for the Common Stock"."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; AVERAGE SELLING PRICE EROSION;
MANAGEMENT OF GROWTH
The Company has experienced, and expects to continue to experience,
fluctuations in sales and operating results from quarter-to-quarter. As a
result, the Company believes that period-to-period comparisons of its operating
results are not necessarily meaningful, and that such comparisons cannot be
relied upon as indicators of future performance. The Company's operating results
may be subject to significant quarterly fluctuations as a result of a number of
factors, including: (i) the Company's ability to be among the first-to-volume
production with competitive products; (ii) fluctuations in HDD product demand as
a result of the cyclical and seasonal nature of the personal computer ("PC")
industry; (iii) the availability and extent of utilization of manufacturing
capacity; (iv) changes in product or customer mix; (v) entry of new competitors;
(vi) the complex and difficult process of qualifying the Company's products with
its customers; (vii) cancellation or rescheduling of significant orders; (viii)
deferrals of customer orders in anticipation of new products or enhancements;
(ix) the impact of price protection measures and return privileges granted by
the Company to certain distributors and retailers; (x) component and raw
material costs and availability, particularly with respect to components
obtained from sole or limited sources; (xi) the availability of adequate capital
resources; (xii) increases in research and development expenditures to maintain
the Company's competitive position; (xiii) changes in the Company's strategy;
(xiv) personnel changes; and (xv) other general economic and competitive
factors. Moreover, since a large portion of the Company's operating expenses,
including rent, salaries, capital lease and debt payments and equipment
depreciation, are relatively fixed and difficult to reduce or modify, the
adverse effect of any decrease in revenue as a result of fluctuations in product
demand or otherwise will be magnified by the fixed nature of such operating
expenses and could have a material adverse effect on the Company's business,
financial condition and results of operations.
<PAGE> 5
In addition, the HDD industry is characterized by rapidly declining ASPs
over the life of a product even for those products which are competitive and
timely-to-market. The Company anticipates that this market characteristic will
continue for the foreseeable future. In general, the ASP for a given product in
the desktop HDD market decreases over time as increases in the supply of
competitive products and cost reductions occur and as technological advancements
are achieved. The rate of ASP decline accelerates when, as is currently the case
in the HDD industry, some competitors lower prices to absorb excess capacity,
liquidate excess inventories, restructure or attempt to gain market share. The
Company expects ASPs to continue to decline for the remainder of the year. This
continuing price erosion could have a material adverse effect on the Company's
business, financial condition and results of operations.
In July 1996, the Company began to modify its management and operational
structures. From the first quarter of 1997 to the first quarter of 1998, the
Company's timely introduction and volume production of competitive products
resulted in quarterly revenue growth. Such restructuring activities and revenue
growth placed and are expected in the future to place a significant strain on
the Company's personnel and resources. The Company's ability to maintain the
advantages of the restructuring and to manage future growth, if any, will depend
on its ability to: (i) continue to implement and improve its operational,
financial and management information and control systems on a timely basis; (ii)
hire, train, retain and manage an expanding employee base; and (iii) maintain
effective cost controls, all while being among the first-to-volume production
with competitive products. The inability of the Company's management to maintain
the advantages of the restructuring, to manage future growth effectively and to
continue to be among the first-to-volume production with competitive products
could have a material adverse effect on the Company's business, financial
condition and results of operations.
RISKS OF FAILED EXECUTION; CHANGING CUSTOMER BUSINESS MODELS
PC original equipment manufacturers ("OEMs") compete in a market that is
consolidating market share among the top ten PC OEMs, which accounted for
greater than 50% of all PC units shipped during 1997 and the first six months of
1998. A majority of the Company's HDDs are sold to PC OEMs, which accounted for
74.1% of the Company's revenues for the first six months of 1998. The process of
qualifying the Company's products with these PC OEM customers can be complex and
difficult. These PC OEMs use the quality, storage capacity and performance
characteristics of HDDs to select their HDD providers. PC OEMs typically seek to
qualify three or four providers for a given HDD product generation. To qualify
consistently with PC OEMs and thus succeed in the desktop HDD industry, an HDD
provider must consistently execute on its product development and manufacturing
processes in order to be among the first-to-market entry and first-to-volume
production at leading storage capacity per disk with competitive prices. Once a
PC OEM has chosen its qualified HDD vendors for a given PC product, it generally
will purchase HDDs from those vendors for the life of that product. If a
qualification opportunity is missed, the Company may not have another
opportunity to do business with that PC OEM until the next generation of the
Company's products is introduced. The effect of missing a product qualification
opportunity is magnified by the limited number of high volume PC OEMs. Failure
to reach the market on time or to deliver timely volume production usually
results in significantly decreased gross margins due to rapidly declining ASPs
and dramatic losses in market share. Failure to obtain significant PC OEM
customer qualifications for new or existing products in a timely manner would
have a material adverse effect on the Company's business, financial condition
and results of operations.
In addition to developing and qualifying new products, the Company must
address the increasingly changing and sophisticated business needs of its
customers. For example, PC OEMs and other PC suppliers are starting to adopt
build-to-order manufacturing models which reduce their component inventories and
related costs and enable them to tailor their products more specifically to the
needs of their customers. Various PC OEM customers also are considering or have
implemented a "channel assembly" model in which the PC OEM ships a minimal
computer system to the dealer or other assembler, and component suppliers
(including HDD manufacturers such as the Company) ship parts directly to the
dealer or other assembler for installation at its location. Finally, certain PC
suppliers have adopted just-in-time inventory management processes which require
component suppliers to maintain inventory at or near the PC supplier's
production facility. Together,
<PAGE> 6
these changing models increase the Company's capital requirements and costs,
complicate the Company's inventory management strategies, and make it more
difficult to match manufacturing plans with projected customer demand, thereby
increasing the risk of inventory obsolescence and ASP erosion as a result of
later shipments to customers. The Company's failure to manage its manufacturing
output or inventory in response to these new customer demands and other similar
demands that may arise in the future as customers further change their ordering
and assembly models could lead to a decline in the demand for the Company's
products and a loss of existing or potential new customers and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
HIGHLY COMPETITIVE INDUSTRY
Although the Company's share of the desktop HDD market has increased
steadily since the first quarter of 1997, this market segment and the HDD market
in general are intensely competitive and characterized by rapid technological
change, rapid rates of product and technology obsolescence, changing customer
requirements, dramatic shifts in market share and significant erosion of ASPs.
Consequently, there can be no assurance that the Company will be able to improve
on, or prevent the erosion of, the Company's present share of the desktop HDD
market.
The Company competes primarily with manufacturers of 3.5-inch HDDs,
including Fujitsu Limited ("Fujitsu"), Quantum Corporation ("Quantum"), Samsung
Company Limited ("Samsung"), Seagate Technology, Inc. ("Seagate") and Western
Digital Corporation ("Western Digital"), many of which have a larger share of
the desktop HDD market than the Company. Other companies, such as International
Business Machines Corporation ("IBM"), will be significant competitors of the
Company in one or more of the markets into which the Company plans to expand its
product portfolio, and could be significant competitors of the Company in its
current market should they choose to commit significant resources to providing
desktop HDDs.
Most of the Company's competitors offer a broader array of product lines
and have significantly greater financial, technical, manufacturing and marketing
resources than the Company. Unlike the Company, certain of the Company's
competitors manufacture a significant number of the components used in their
HDDs and thus may be able to achieve significant cost advantages over the
Company. Certain competitors have preferred vendor status with many of the
Company's customers, extensive marketing power and name recognition, and other
significant advantages over the Company. In addition, such competitors may
determine, for strategic reasons or otherwise, to consolidate, lower the prices
of their products or bundle their products with other products. The Company's
competitors have established and may in the future establish financial or
strategic relationships among themselves or with existing customers, resellers
or other third parties. New competitors or alliances could emerge and rapidly
acquire significant market share.
The Company believes that important competitive factors in the HDD market
are quality, storage capacity, performance, price, time-to-market entry,
time-to-volume production, PC OEM product qualifications, breadth of product
lines, reliability, and technical service and support. The Company believes it
generally competes favorably with respect to these factors. The failure of the
Company to develop and market products that compete successfully with those of
other suppliers in the HDD market would have a material adverse effect on the
Company's business, financial condition and results of operations.
FLUCTUATION IN PRODUCT DEMAND; FOCUS ON SINGLE MARKET
The Company presently offers a single product family which is designed for
the desktop PC segment of the HDD industry. The demand for the Company's HDD
products is therefore dependent to a large extent on the overall market for
desktop PCs which, in turn, is dependent on PC life cycles, demand by end-users
for increased PC performance and functionality at lower prices (including
increased storage capacity), availability of substitute products, including
laptop PCs, and overall foreign and domestic economic conditions. The desktop PC
and HDD markets are characterized by periods of rapid growth followed by periods
of oversupply,
<PAGE> 7
and by rapid price and gross margin erosion. This environment makes it difficult
for the Company and its PC OEM customers to reliably forecast demand for the
Company's products. The Company does not enter into long-term supply contracts
with its PC OEM customers, and such customers often have the right to defer or
cancel orders with limited notice and without significant penalty. If demand for
desktop PCs falls below the customers' forecasts, or if customers do not manage
inventories effectively, they may cancel or defer shipments previously ordered
from the Company. Moreover, while there has been significant growth in the
demand for desktop PCs over the past several years, according to International
Data Corporation ("IDC"), the growth rate in the desktop PC market has slowed in
recent quarters. Because of the Company's reliance on the desktop segment of the
PC market, the Company will be more strongly affected by changes in market
conditions for desktop PCs than would a company with a broader range of
products. Any decrease in the demand for desktop PCs could lead in turn to a
decrease in the demand for the Company's HDD products, which would have a
material adverse effect on the Company's business, financial condition and
results of operations.
Although the desktop PC segment is currently the largest segment of the HDD
market, the Company believes that over time, market demand may shift to other
market segments that may experience significantly faster growth. In addition,
the Company believes that to remain a significant provider of HDDs to major PC
OEMs, the Company will need to offer a broader range of HDD products for the
existing and new product categories of its PC OEM customers. For these reasons,
the Company will need to develop and manufacture new products which address
additional HDD market segments and emerging technologies to remain competitive
in the HDD industry. Examples of potentially important market segments that the
Company's current products are not positioned to address include: (i) the
client-server market, which may continue to grow in part as a result of the
emerging market trend toward "network computers" (which utilize central servers
for data storage and thereby reduce the need for desktop storage); (ii) lower
cost (typically below $1,000), lower performance PC systems principally for the
consumer marketplace; and (iii) laptop PCs. Significant technological innovation
and re-engineering will be required for the Company to produce products that
effectively compete in these and other new or growing segments of the HDD
market, and there can be no assurance that the Company will be able to design or
produce such new products on a timely or cost-effective basis, if at all, while
maintaining the required product quality or that such products or other future
products will attain market acceptance. Certain of the Company's competitors
have significant advantages over the Company in one or more of these and other
potentially significant new or growing market segments.
RAPID TECHNOLOGICAL CHANGE AND PRODUCT DEVELOPMENT
The HDD industry is characterized by rapid technological change, rapid
rates of product and technology obsolescence, changing customer requirements,
dramatic shifts in market share and significant erosion of ASPs, any of which
may render the Company's products obsolete. The Company's future results of
operations will depend on its ability to enhance current products and to develop
and introduce volume production of new competitive products on a timely and
cost-effective basis. To succeed, the Company also must keep pace with and
correctly anticipate technological developments and evolving industry standards
and methodologies.
Both in the desktop HDD market for which the Company's current products are
designed and in any other HDD market segments in which the Company may compete
in the future, advances in magnetic, optical or other technologies, or the
development of entirely new technologies, could result in the creation of
competitive products that have better performance and/or lower prices than the
Company's products. Examples of such new technologies include "giant
magneto-resistive" ("GMR") head technology (which already has been introduced by
IBM and which Western Digital reportedly will use in its products pursuant to an
agreement with IBM) and optically-assisted recording technologies (which
currently are being developed by companies such as TeraStor Corporation and
Seagate). Currently, the Company intends to incorporate GMR head technology into
future products and is evaluating the various approaches to and timing of such a
transition. The Company has decided not to pursue optically-assisted recording
technologies at this time.
There can be no assurance that the Company's existing markets will not be
eroded by technological developments; that the Company will be successful in
developing, manufacturing and marketing product
<PAGE> 8
enhancements or new products that respond to and anticipate technological
change, such as the transition to GMR head technology and changing customer
requirements; or that its new products and product enhancements will be
introduced or manufactured in volume on a timely basis and will adequately meet
the requirements of the marketplace and achieve any significant degree of market
acceptance. Inability to introduce or achieve volume production of competitive
products on a timely basis has in the past and could in the future have a
material adverse effect on the Company's business, financial condition and
results of operations.
Unlike some of its competitors, the Company does not manufacture any of the
components used in its HDDs, including key components such as heads, disks and
printed circuit boards ("PCBs"). The Company's product development process
therefore involves incorporating components designed by and purchased from third
party suppliers. As a consequence, the success of the Company's products is in
great part dependent on the Company's ability to gain access to and integrate
components which utilize leading-edge technology. The successful management of
these integration projects depends on the timely availability and quality of key
components, the availability of appropriately skilled personnel, the ability to
integrate different products from a variety of vendors effectively, and the
management of difficult scheduling and delivery problems. There can be no
assurance that the Company will be able to manage successfully the various
complexities encountered in integration projects. The Company's success will
depend in part on its relationships with key component suppliers, and there can
be no assurance that such relationships will develop, that the Company will
identify the most advantageous suppliers with which to establish such
relationships, or that existing or future relationships with component suppliers
will continue for any significant time period.
TRANSITION TO AND DEPENDENCE ON INFORMATION SYSTEMS; YEAR 2000 PROBLEM
The Company is preparing to implement a new enterprise-wide information
system (the "SAP System") provided by SAP, AG ("SAP"), in the fourth quarter of
1998. The SAP System is designed to automate more fully the Company's business
processes and will affect most of the Company's functional areas including,
without limitation, finance, procurement, inventory control, collections, order
processing and manufacturing, and its implementation will require certain
upgrades in the Company's existing computer hardware systems. Historically,
there have been substantial delays in the implementation of such systems at
other companies. Unlike most companies, which implement new information systems
in stages over time, the Company has chosen to install and activate the SAP
System across most functional areas of the Company simultaneously. The Company
believes it is among the first to undertake such a broad, simultaneous
implementation of the SAP System. This approach may substantially increase the
risk of delay or failure in the SAP System's implementation.
Implementation of the SAP System will be complex, expensive and time
intensive and its successful implementation could be adversely affected by
various factors including: (i) any failure to provide adequate training to
employees; (ii) any failure to retain skilled members of the implementation team
or to find suitable replacements for such personnel; (iii) the scope of the
implementation plan being expanded by unanticipated changes in the Company's
business; (iv) any inability to extract data from the Company's existing
information system and convert that data into a format that can be accepted by
the SAP System; (v) any failure to devise and run appropriate testing procedures
that accurately reflect the demands that will be placed on the SAP System
following its implementation; and (vi) any failure to develop and implement
adequate fall-back procedures in the event that difficulties or delays arise
during the initial start-up phase of the SAP System.
In connection with the implementation of the SAP System, the Company may
experience functional and performance problems, including problems relating to
the SAP System's response time and data integrity. In addition, resolution of
any such problems could entail additional costs. Moreover, as a result of the
Company's simultaneous implementation approach, the Company will not have an
operational backup information system in the event of a failure of the SAP
System. There can be no assurance that the Company will be able to implement the
SAP System successfully on a timely and cost effective basis or that the SAP
System will not fail or prove to be unsuitable for the Company's needs. The
inability of the Company to implement or resolve
<PAGE> 9
problems with the SAP System in a timely manner could have a material adverse
effect on the Company's business, financial condition and results of operations.
No amounts have been accrued in the Company's consolidated financial statements
included elsewhere in this Prospectus for any probable expenses or lost revenue
that could result from problems in implementing the SAP System.
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, in less
than two years, computer systems and/or software used by many companies,
including Maxtor, will need to be upgraded to comply with such "Year 2000"
requirements. Because of the Company's change in its fiscal year end in 1996,
the Company's current information systems will need to be upgraded by January
1999 to avoid Year 2000 problems. While the SAP System is expected to resolve
this potential problem, there can be no assurance that the SAP System can be
implemented successfully and on a timely basis. Moreover, the Company could be
adversely impacted by Year 2000 issues faced by major distributors, suppliers,
customers, vendors and financial service organizations with which the Company
interacts. Any disruption in the Company's operations as a result of Year 2000
noncompliance, whether by the Company or a third party, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON AND INTEGRATION OF KEY PERSONNEL; HIRING ADDITIONAL SKILLED
PERSONNEL
The Company's success depends upon the continued contributions of its key
management, engineering and other technical personnel many of whom, and in
particular Michael R. Cannon, the Company's President and Chief Executive
Officer, would be extremely difficult to replace. The Company does not have
employment contracts with any of its key personnel other than Mr. Cannon; Paul
J. Tufano, its Vice President, Finance and Chief Financial Officer; William F.
Roach, its Senior Vice President, Worldwide Sales and Marketing; Dr. Victor B.
Jipson, its Senior Vice President, Engineering; Phillip C. Duncan, its Vice
President, Human Resources; and K.H. Teh, its Vice President, Worldwide
Manufacturing. Furthermore, the Company does not maintain key person life
insurance on any of its personnel. In addition, the majority of the Company's
senior management and a significant number of its other employees have been with
the Company for less than two years. The Company's inability to retain its
existing personnel and effectively manage the integration of new personnel could
have a material adverse effect on the Company's business, financial condition
and results of operations.
To maintain its current market position and support future growth, the
Company will need to hire, train, integrate and retain significant numbers of
additional highly skilled managerial, engineering, manufacturing, sales,
marketing, support and administrative personnel. Competition worldwide for such
personnel is extremely intense, and there can be no assurance that the Company
will be able to attract and retain such additional personnel. The Company
believes that certain competitors recently have made targeted efforts to recruit
personnel from the Company, and such efforts have resulted in the Company losing
some skilled managers. There can be no assurance that such personnel losses will
not continue or increase in the future. Delays in hiring or the inability to
hire, train, integrate or retain required personnel, particularly engineers,
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, companies in the HDD industry
whose employees accept positions with competitive companies frequently claim
that their competitors have engaged in unfair hiring practices. There can be no
assurance that the Company will not receive such claims in the future as it
seeks to hire qualified personnel or that such claims will not involve the
Company in litigation. Consequently, the Company could incur substantial costs
in defending itself against any such claims, regardless of their merits.
CONTROL BY AND DEPENDENCE ON HYUNDAI
Upon completion of the Offerings, Hyundai Electronics America ("HEA") will
own approximately 44%-48% depending on whether the Underwriters' over-allotment
options were exercised in full) of the shares of the outstanding Common Stock.
Five out of the seven members of the Company's Board of Directors (the "Board")
are currently employees of HEA or one of its affiliates. Immediately following
the Offerings, HEA will have the contractual right to
<PAGE> 10
designate one person for nomination to serve as a director in each of the three
classes of the Board. Accordingly, HEA will be able to influence or control
major decisions of corporate policy and to determine the outcome of any major
transaction or other matter submitted to the Company's stockholders or
directors, including borrowings, issuances of additional Common Stock and other
securities of the Company, the declaration and payment of any dividends on
Common Stock, potential mergers or acquisitions involving the Company,
amendments to the Company's Amended and Restated Certificate of Incorporation
(the "Amended and Restated Certificate of Incorporation") and Bylaws (the
"Bylaws") and other corporate governance issues. In particular, the affirmative
vote of two-thirds of the outstanding voting stock is required to approve
certain types of amendments to the Amended and Restated Certificate of
Incorporation. Consequently, HEA will be able to block approval of any such
amendments that may be proposed in the future as long as it owns at least
one-third of the Common Stock and may be able to make it difficult to achieve
approval of any such amendment for as long as it owns a significant amount of
Common Stock even if its ownership falls below one-third. The Company has
granted HEA the contractual right to maintain its ownership interest at 30%
through 2000. Stockholders other than HEA therefore are likely to have little or
no influence on decisions regarding such matters. HEA and the Company have
entered into a Stockholder Agreement under which the Company has granted HEA
certain rights to require the Company to register HEA's shares of Common Stock
and the right to designate for nomination up to three members of the Board so
long as ownership by HEA and certain of its affiliates is between 50% and 10% of
the outstanding voting securities of the Company. In the Stockholder Agreement,
HEA has agreed to certain restrictions on its rights to solicit proxies, to
acquire additional shares of Common Stock and to compete with the Company.
Conflicts of interest may arise from time to time between the Company and
HEA or its affiliates in a number of areas relating to their past and ongoing
relationships, including potential competitive business activities, corporate
opportunities, tax matters, intellectual property matters, indemnity agreements,
registration rights, sales or distributions by HEA of all or any portion of its
ownership interest in the Company or HEA's ability to control the management and
affairs of the Company. There can be no assurance that HEA and the Company will
be able to resolve any potential conflict or that, if resolved, the Company
would not receive more favorable resolution if it were dealing with an
unaffiliated party. The Amended and Restated Certificate of Incorporation
specifies certain circumstances in which a transaction between the Company and
HEA or an affiliated entity will be deemed fair to the Company and its
stockholders, and prescribes guidelines under which HEA and its affiliates will
be deemed not to have breached any fiduciary duty or duty of loyalty to the
Company, or to have usurped a corporate opportunity available to the Company, if
specified conditions are met.
HEI served as guarantor for the Company's borrowings under various
revolving bank credit facilities from August 1995 through June 1998. At March
28, 1998, aggregate indebtedness of the Company guaranteed by Hyundai
Electronics Industries ("HEI") of which HEA is a majority owned subsidiary under
such facilities was $170.0 million. Due to the economic conditions in Korea and
significant recent devaluations of the Korean won versus the U.S. dollar, HEI's
reported financial condition as of year-end 1997 was not in compliance with
certain financial covenants applicable to HEI as guarantor under such revolving
credit facilities, and such non-compliance constituted a default by the Company
under such revolving credit facilities and also a default (through a
cross-default clause) under an uncommitted credit facility of the Company that
is repayable on demand of the lender, is not guaranteed and had an outstanding
principal amount of $30.0 million as of June 27, 1998. The default under the
revolving credit facilities was waived by the lending banks in June 1998 in
exchange for Hyundai Heavy Industries Co., Ltd. ("HHI"), a partial owner of HEA,
becoming the guarantor under such facilities in place of HEI and an increase in
pricing to reflect borrowing rates based on HHI's current credit rating. As of
June 27, 1998, aggregate indebtedness of $170.0 million under the revolving
credit facilities was guaranteed by HHI. To date, the lender under the demand
facility has not demanded repayment of the $30.0 million outstanding under that
facility. The Company intends to use a portion of the proceeds of the Offerings
to pay down in full all outstanding amounts under each of its bank revolving
credit facilities and any amounts then outstanding under the demand facility and
thereafter to terminate the revolving credit facilities. The Company and HEA
have agreed that prior to mid-August, 1998, they will replace the Company's
revolving line of credit from HEA, which has an outstanding principal balance of
$55.0 million, with a long-term, subordinated note in the same principal amount.
The Company intends to obtain replacement revolving credit facilities following
the public offering that, occurred in July 1998 (the "Public Offering"), that do
<PAGE> 11
not depend on any Hyundai entity guarantees. However, the Company believes that
current market conditions for such facilities are not as favorable as they have
been at certain times in the past, that for various reasons the number of
potential lenders actively providing credit facilities to companies in the data
storage industry may have decreased recently, and that the terms on which the
remaining potential lenders are willing to offer such facilities have become
significantly more restrictive and/or costly. Consequently, there can be no
assurance that the Company will be able to obtain any such replacement facility
or as to the terms and amount of any such facility that it is able to obtain.
Any failure to obtain adequate credit facilities on acceptable terms would have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, as a majority-owned subsidiary of HEA, the
Company has the benefit of a letter of support from HEI under which HEI agrees
to provide sufficient financial support to ensure that the Company will continue
as a going concern. Following the Public Offering, the Company believes that it
will no longer have the benefit of the support letter.
HEA could decide to sell or otherwise dispose of all or a portion of its
shares of Common Stock at some future date, and there can be no assurance that
HEI or HEA will maintain any past or future relationships or arrangements with
the Company following any transfer by HEA of a controlling or substantial
interest in the Company or that other holders of Common Stock will be allowed to
participate in such transaction. Sales by HEA of substantial amounts of Common
Stock in the public market could adversely affect prevailing market prices for
the Common Stock.
Since 1996, the Company has been a member of the HEA U.S. consolidated tax
group for U.S. federal income tax purposes. Certain material tax consequences
result from such affiliation.
HEI and IBM are parties to a patent cross license agreement (the "IBM
License Agreement"), under which HEI and its subsidiaries, including the
Company, are licensed with respect to certain IBM patents. HEI is required under
the IBM License Agreement to pay IBM a license fee, payable in installments
through 2007. HEI has entered into a sublicense with the Company (the
"Sublicense Agreement") pursuant to which the Company is obligated to pay IBM a
portion of the license fee otherwise due from HEI under the IBM License
Agreement, payable in annual installments, when such amounts are due from HEI to
IBM. Under the IBM License Agreement, if Maxtor ceases to be a majority-owned
subsidiary of HEA, the Company can obtain a royalty-free license under the same
terms from IBM upon the joint request of HEI and the Company and the fulfillment
of certain conditions. Pursuant to the Sublicense Agreement, HEI has agreed to
cooperate to obtain such a license for the Company once the Company ceases to be
a majority-owned subsidiary, and the Company has agreed to continue to pay IBM
the Company's allocated portion of the license fee following the grant of such a
license from IBM. The Company intends to obtain such a license following the
Public Offering. HEI and the Company have indemnified each other for certain
liabilities arising from their acts or omissions relating to the IBM License
Agreement.
As discussed more fully above in "-- Transition to and Dependence on
Information Systems; Year 2000 Problem," the Company is preparing to implement
the SAP System. The Company's rights to the SAP System are governed by a license
agreement between Hyundai Information Technology Co., Ltd. ("HIT"), an affiliate
of HEI, and SAP, which provides that the Company will have the right to use
existing software releases so long as the Company remains an affiliate of HIT.
The Company currently is discussing with SAP the terms under which the Company
could obtain a direct license with SAP. In the event the Company is no longer a
majority-owned subsidiary of HEA and is not able to obtain a direct license with
SAP, the Company will not be entitled to receive new releases of SAP's
information system software or expand the system for other functions. As a
result, the Company would not be able to effectively utilize its new information
system in the future, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
<PAGE> 12
CERTAIN TAX RISKS
Due to the Company's operating losses, its net operating loss ("NOL")
carryforwards and its favorable tax status in Singapore, the Company's tax
expense historically has represented only a small percentage of the Company's
expenses. The Company's foreign and U.S. tax liability will increase
substantially in future periods if the Company attains profitability.
In December 1997 the Company's Singapore subsidiary, Maxtor Peripherals (S)
Pte. Ltd ("Maxtor Singapore"), was granted pioneer tax status in Singapore, thus
exempting it from paying Singapore income taxes until June 30, 2003, subject to
the ongoing satisfaction of certain conditions. Maxtor Singapore is eligible for
up to two additional two-year extensions of this pioneer tax status, subject to
the satisfaction of certain additional conditions. There can be no assurance
that Maxtor Singapore will be able to satisfy or, if satisfied, to maintain
compliance with, the required conditions. If Maxtor Singapore is unable to
satisfy and maintain compliance with the required conditions and is unable to
obtain a waiver of any such failure, it would lose its pioneer tax status, or
would be ineligible for such extensions, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Since 1996, the Company has been a member of the HEA U.S. consolidated tax
group for U.S. federal income tax purposes (the "HEA Tax Group"). On December
27, 1997, for federal income tax purposes, the Company had NOL carryforwards of
approximately $616.7 million and tax credit carryforwards of approximately $18.8
million which will expire beginning in fiscal year 1999. In June 1998, the
Company caused Maxtor Singapore to pay a $400.0 million dividend which will
utilize a substantial portion of the Company's NOL carryforwards. In addition, a
substantial portion of the remaining NOL carryforwards likely will be utilized
by the HEA Tax Group for the 1998 tax year and in connection with amendments to
returns for prior years. As a result, there will be a significant reduction in
the NOL carryforwards available to the Company for federal income tax purposes
for subsequent tax years. Utilization and payment for the Company's NOL
carryforwards by the HEA Tax Group is governed by a Tax Allocation Agreement
among the Company, HEA and certain other affiliates of HEA, as amended (the "Tax
Allocation Agreement"). Under the Tax Allocation Agreement, neither HEA nor the
Company shall reimburse the other for any utilization of the other member's NOLs
or other tax attributes in the consolidated or combined income tax returns,
except that each party shall reimburse the other for any use of the other
party's tax attributes as a result of any return or amended return filed after
September 15, 1999 or by a taxing authority adjustment after September 15, 1999.
As a result of the Company's acquisition by HEA, utilization of
approximately $253.0 million of the Company's NOL carryforwards and the
deduction equivalent of approximately $18.3 million of tax credit carryforwards
is limited to approximately $22.4 million per year. After the Public Offering,
the amount of the Company's U.S. federal taxable income for any tax year ending
after the date of the Public Offering which may be offset by the Company's NOL
carryforwards remaining after deconsolidation from the HEA Tax Group will be
limited to an amount equal to the aggregate value of the Common Stock and the
Series A Preferred Stock immediately before the ownership change multiplied by
the long-term tax exempt rate then in effect (e.g., 5.15% for ownership changes
occurring during July 1998).
For periods during which the Company is or was a member of the HEA Tax
Group, the Company and its subsidiaries have filed or will file tax returns as
part of the HEA Tax Group. After the Public Offering, the Company will cease to
be a member of the HEA Tax Group. However, the Company will remain liable for
its allocable share of the consolidated or combined tax return liability and for
tax deficiencies of the entire HEA Tax Group which relate to the period during
which the Company was a member of the HEA Tax Group. There can be no assurance
that the HEA Tax Group will satisfy all tax obligations for such periods or that
additional liabilities will not be assessed for such periods. In addition, there
can be no assurance that the Company's share of the consolidated or combined tax
liability will not be increased as a result of subsequent events, such as taxing
authority audit adjustments or the filing of amended returns affecting either
the Company's items of gain, income, loss, deduction or credit or another
member's items of gain, income, loss, deduction or credit. The Company has
agreed to indemnify and reimburse HEA if any member of the HEA Tax Group is
required to pay any tax, interest or penalty to any taxing authority related to
any additional Company separate tax return liability and if there is any
increase in the consolidated or combined tax return liability resulting from
revisions to the Company's taxable income or revisions to another HEA Tax Group
member's taxable income,
<PAGE> 13
except to the extent such revisions to another HEA Tax Group member's taxable
income are made after September 15, 1999. HEA has agreed to indemnify and
reimburse the Company if the Company or any of its subsidiaries is required to
pay any tax, interest or penalty to any taxing authority related to any separate
tax return of any member of the HEA Tax Group other than the Company or its
subsidiaries, and if the Company or any of its subsidiaries is required to pay
to any taxing authority any amount in excess of the Company's share of the
consolidated or combined tax return liability.
RISKS ASSOCIATED WITH LEVERAGE
The Company historically has operated with significant amounts of debt as
compared to its equity. At June 27, 1998, the Company had outstanding
approximately $350.5 million in principal amount of indebtedness. In the first
six months of 1998 and for the fiscal year ended December 31, 1997 and nine
months ended December 28, 1996, the Company's interest payments were $10.0
million, $26.5 million and $13.4 million, respectively. During the first quarter
of 1998, the Company repaid $5.0 million of principal under long term debt
agreements. Following the expected application of the estimated net proceeds to
the Company of the Offerings to repay a portion of the Company's debt and
planned repayments of debt after June 27, 1998 as well as prior to the
Offerings, the Company will continue to have at least $150.5 million in
principal amount of indebtedness outstanding, including $5.2 million of
short-term borrowings and current portions of long-term debt. The Company also
has an asset securitization program under which the Company sells its accounts
receivable on a non-recourse basis. At June 27, 1998, $100.0 million of accounts
receivable was securitized under the program. Continuance of the program is
subject to certain conditions, including a condition that all of the long-term
public senior debt securities of HHI not fall below a specified rating. The
Company has begun negotiations with respect to a $200.0 million asset
securitization program which does not require any support from HEA or any of its
affiliates and the Company believes it will be able to close this program and
terminate its existing securitization program by July 31, 1998. However, there
can be no assurance that the Company will be able to obtain commitments to enter
into such a program or will be able to implement successfully the new
securitization program. Failure of the Company to close the replacement asset
securitization program or to obtain alternative financing would have a material
adverse effect on the Company's business, financial condition and results of
operations.
Following the Public Offering, the Company will continue to be subject to
the risks associated with leverage, which include: (i) principal and interest
repayment obligations which require the expenditure of substantial amounts of
cash, the availability of which will be dependent on the Company's future
performance; (ii) the inability to repay principal or interest when due or
violation of loan covenants, which could result in a default on the debt,
acceleration of its principal amount and legal actions against the Company; and
(iii) adverse effects of interest expense on the Company's business, financial
condition and results of operations.
SINGLE MANUFACTURING FACILITY; FUTURE NEED FOR ADDITIONAL CAPACITY
The Company's volume manufacturing operations currently are based in a
single facility in Singapore. A fire, flood, earthquake or other disaster or
condition affecting the Company's facility could disable such facility. Any
damage to, or condition interfering with the operation of, the Company's
manufacturing facility could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company anticipates that it may need additional manufacturing capacity
as early as the beginning of the year 2000. In anticipation of that need, in the
summer of 1997, HEI began construction of a 450,000 square foot manufacturing
facility in Dalian, China (the "Dalian Facility") for the purpose of making
additional manufacturing capacity available to Maxtor. The Dalian Facility is
only partially completed and construction is continuing at a reduced pace. HEI
has expended approximately $23.0 million on the construction to date. An
additional estimated $60.0 million investment will be required to complete the
Dalian
<PAGE> 14
Facility to the point where manufacturing lines can be installed, and an
estimated additional $25.0 million of machinery and equipment will be required
to make the facility ready for its initial phase of operation. The Company and
HEI have agreed to discuss the terms under which the Dalian Facility will be
completed and by which the Company would either buy or lease the Dalian Facility
from HEI, and the Company intends to utilize the Dalian Facility if acceptable
terms can be agreed upon. There can be no assurance that the Company will be
able to successfully negotiate any such agreement with HEI or that the Dalian
Facility will be completed by the time Maxtor requires additional capacity. The
terms of any agreement with regard to the Dalian Facility are subject to the
approval of the Affiliated Transactions Committee of the Board. Moreover, any
such agreement would be conditioned on the transfer of HEI's business license
for the Dalian Facility and the transfer of HEI's tax holiday status and other
regulatory concessions in Dalian to the Company. If the Company is unable to
reach agreement with HEI on acceptable terms or obtain the tax holiday status
and other regulatory concessions and the applicable business license, the
Company may need to acquire additional manufacturing capacity at other sites. In
addition to the Dalian Facility, the Company currently is investigating other
manufacturing facilities within Asia. Although the Company believes that
alternative manufacturing facilities will be available, a failure by the Company
to obtain, on a timely basis, a facility or facilities which allow the Company
to meet its customers' demands will limit the Company's growth and could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is experiencing space constraints at its Longmont, Colorado
facility and is exploring opportunities to obtain additional space in the
Longmont area. There can be no assurance that the Company will be able to obtain
additional space that can accommodate its needs or that, if obtained, such
additional space will be available to the Company on terms at least as favorable
as the terms governing its current lease.
NEED FOR ADDITIONAL CAPITAL
The HDD industry is capital intensive. The Company will require substantial
additional working capital to fund its business. The Company's future capital
requirements will depend on many factors, including the rate of sales growth, if
any, the level of profitability, if any, the timing and extent of spending to
support facilities upgrades and product development efforts, the timing and size
of business or technology acquisitions, the timing of introductions of new
products and enhancements to existing products. Any future equity financing will
decrease existing stockholders' percentage equity ownership and may, depending
on the price at which the equity is sold, result in significant economic
dilution to such stockholders. Moreover, in connection with future equity
offerings, the Company may issue preferred stock with rights, preferences or
privileges senior to those of the Common Stock. Pursuant to the Amended and
Restated Certificate of Incorporation, the Board has authority to issue up to 95
million shares of preferred stock and to fix the rights, preferences and
privileges of such shares (including voting rights) without any further action
or vote by the stockholders.
Upon the closing of the Public Offering, the Company intends to terminate
its existing bank revolving lines of credit and to seek a new line of credit
which may be used from time-to-time to fund the Company's working capital
requirements. The Company and HEA have agreed that prior to closing of the
Public Offering, they will replace the Company's revolving line of credit from
HEA, which has an outstanding principal balance of $55.0 million, with a
long-term, subordinated note in the same principal amount. The Company also
plans to replace its existing receivables securitization facility with a new
$200.0 million facility, and has begun negotiations with respect to such new
facility. There can be no assurance that any required financing of the Company
will be available on acceptable terms, when needed, if at all. The
unavailability of, or delays in obtaining, any necessary financing could prevent
or delay the continued development and marketing of the Company's products and
may require curtailment of various operations of the Company and, if adequate
funds were not available from operating profits, would have a material adverse
effect on the Company's business, financial condition and results of operations.
<PAGE> 15
CUSTOMER CONCENTRATION
The Company focuses its marketing efforts on and sells its HDDs to a
limited number of PC OEMs, distributors and retailers. During the six months
ended June 27, 1998, two customers, Dell Computer Corporation ("Dell") and IBM,
accounted for approximately 27% and 17%, respectively, of the Company's revenue,
and the Company's top ten customers accounted for approximately 74% of the
Company's revenue. During the fiscal year ended December 27, 1997, two PC OEM
customers, Compaq Computer Corporation ("Compaq") and Dell, accounted for
approximately 21% and 10%, respectively, of the Company's revenue, and the
Company's top ten customers accounted for approximately 60% of the Company's
revenue. During the fiscal year ended December 28, 1996, one customer, SED
International Holdings, Inc. ("SED"), a distributor, accounted for approximately
16% of the Company's revenue and the Company's top ten customers accounted for
approximately 75% of the Company's revenue. During the fiscal year ended March
30, 1996, while no customer accounted for more than 10% of the Company's
revenue, the Company's top ten customers accounted for approximately 51% of the
Company's revenue.
The Company anticipates that a relatively small number of customers will
continue to account for a significant portion of its revenue for the foreseeable
future, and that the proportion of its revenue derived from such customers may
continue to increase in the future. The ability of the Company to maintain
strong relationships with its principal customers, including in particular its
PC OEM customers, is essential to the ongoing success and profitability of the
Company. Although the Company believes its relationships with key customers
generally are good, in order to maintain its customer relationships,
particularly with PC OEMs, the Company must be among the first-to-volume
production with competitive products. The concentration of sales in a relatively
small number of major customers represents a business risk that loss of one or
more accounts, or a decrease in the volume of products sold to such accounts,
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Due to the intense competition in the HDD market, customers may choose from
various suppliers and therefore can make substantial demands on their chosen
suppliers. The Company's customers generally are not obligated to purchase any
minimum volume and generally are able to terminate their relationship with the
Company at will. Consequently, major customers have significant leverage over
the Company and may attempt to change the terms, including pricing and delivery
terms, upon which the Company sells its products. Moreover, as the Company's PC
OEM, distributor and retail customers are pressured to reduce prices in response
to competitive factors, the Company may be required to reduce the prices of its
products before it knows how, or if, internal cost reductions can be obtained.
If the Company is forced to change the terms, including pricing, upon which the
Company sells its products or is unable to achieve required cost reductions in
connection with reductions in the prices of its products, the Company's
operating margins could decline and such decline could have a material adverse
effect on the Company's business, financial condition and results of operations.
DEPENDENCE ON SUPPLIERS OF COMPONENTS AND SUB-ASSEMBLIES
The Company does not manufacture any of the components used in its HDDs and
therefore is dependent on qualified suppliers for the components that are
essential for manufacturing the Company's products, including heads, head stack
assemblies, media and integrated circuits. A number of the key components used
by the Company in its products are available from only one or a limited number
of outside suppliers. Currently, the Company purchases DSP/controller and
spin/servo integrated circuits only from Texas Instruments, Inc. ("TI") and
purchases channel integrated circuits only from Lucent Technologies, Inc.
("Lucent"). Some of the components required by the Company may periodically be
in short supply, and the Company has, on occasion, experienced temporary delays
or increased costs in obtaining components. As a result, the Company must allow
for significant lead times when procuring certain components. In addition,
<PAGE> 16
cancellation by the Company of orders for components due to cut-backs in
production precipitated by market oversupply, reduced demand, transition to new
products or technologies or otherwise can result in payment by the Company of
significant cancellation charges to suppliers. The Company orders the majority
of its components on a purchase order basis and only has limited long-term
volume purchase agreements with certain existing suppliers. Any inability of the
Company to obtain sufficient quantities of components meeting the Company's
specifications, or to develop in a timely manner alternative sources of
component supply if and as required in the future, could adversely affect the
Company's ability to manufacture its products and deliver them on a timely
basis, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
Because the Company does not manufacture any of the components used in its
HDDs, the Company's product development process involves incorporating
components designed by and purchased from third party suppliers. As a
consequence, the success of the Company's products is in great part dependent on
the Company's ability to gain access to and integrate components which utilize
leading-edge technology. The successful management of these integration projects
depends on the timely availability and quality of key components, the
availability of appropriately skilled personnel, the ability to integrate
different products from a variety of vendors effectively, and the management of
difficult scheduling and delivery problems. There can be no assurance that the
Company will be able to manage successfully the various complexities encountered
in integration projects. The Company's success will depend in part on its
relationships with key component suppliers, and there can be no assurance that
such relationships will develop, that the Company will identify the most
advantageous suppliers with which to establish such relationships, or that
existing or future relationships with component suppliers will continue for any
significant time period.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY; RISK OF THIRD PARTY CLAIMS OF
INFRINGEMENT
The Company has patent protection on certain aspects of its technology and
also relies on trade secret, copyright and trademark laws, as well as
contractual provisions to protect its proprietary rights. There can be no
assurance that the Company's protective measures will be adequate to protect the
Company's proprietary rights; that others, including competitors with
substantially greater resources, have not developed or will not independently
develop or otherwise acquire equivalent or superior technology; or that the
Company will not be required to obtain licenses requiring it to pay royalties to
the extent that the Company's products may use the intellectual property of
others, including, without limitation, Company products that may also be subject
to patents licensed by the Company. There can be no assurance that any patents
will be issued pursuant to the Company's current or future patent applications,
or that patents issued pursuant to such applications or any patents the Company
owns or has licenses to use will not be invalidated, circumvented or challenged.
Moreover, there can be no assurance that the rights granted under any such
patents will provide competitive advantages to the Company or be adequate to
safeguard and maintain the Company's proprietary rights. Litigation may be
necessary to enforce patents issued or licensed to the Company, to protect trade
secrets or know-how owned by the Company or to determine the enforceability,
scope and validity of the proprietary rights of the Company or others. The
Company could incur substantial costs in seeking enforcement of its issued or
licensed patents against infringement or the unauthorized use of its trade
secrets and proprietary know-how by others or in defending itself against claims
of infringement by others, which could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
the laws of certain countries in which the Company's products are manufactured
and sold, including various countries in Asia, may not protect the Company's
products and intellectual property rights to the same extent as the laws of the
United States, and there can be no assurance that such laws will be enforced in
an effective manner. The failure of the Company to enforce and protect its
intellectual property rights could have a material adverse effect on the
Company's business, financial condition and results of operations.
As a majority-owned subsidiary of HEA, the Company has had the benefit of
certain third party intellectual property rights on terms that may have been
more favorable than would have been available to the Company if it were not a
majority-owned subsidiary of HEA. There can be no assurance that the Company
will be able to obtain similar rights in the future on terms as favorable as
those currently available to it.
<PAGE> 17
The HDD industry, like many technology-based industries, is characterized
by frequent claims and litigation involving patent and other intellectual
property rights. The Company, its component suppliers and certain users of the
Company's products have from time to time received, and may in the future
receive, communications from third parties asserting patent infringement against
the Company, its component suppliers or its customers which may relate to
certain of the Company's products. If the Company is notified of such a claim,
it may have to obtain appropriate licenses or cross-licenses, modify its
existing technology or design non-infringing technology. There can be no
assurance that the Company can obtain adequate licenses or cross-licenses on
favorable terms or that it could modify its existing technology or design
non-infringing technology and, in either case, the failure to do so could have a
material adverse effect on the Company's business, financial condition and
results of operations. Although the Company to date has not been a party to any
material intellectual property litigation, certain of its competitors have been
sued on patents having claims related to HDDs and there can be no assurance that
third parties will not initiate infringement actions against the Company or that
the Company could defend itself against such claims. If there is an adverse
ruling against the Company in an infringement lawsuit, it could result in the
issuance of an injunction against the Company or its products and/or the payment
of monetary damages equal to a reasonable royalty or recovered lost profits or,
in the case of a finding of a willful infringement, treble damages. Accordingly,
such an adverse ruling could have a material adverse effect on the Company's
business, financial condition and results of operations.
Similar to certain other providers of HDDs, the Company has received
correspondence from Papst-Motoren GmbH and Papst Licensing (collectively
"Papst") claiming infringement of at least 13 HDD motor patents. The patents
relate to motors that the Company purchases from motor vendors and the use of
such motors in HDDs. While the Company believes that it has meritorious defenses
against a lawsuit if filed, the results of litigation are inherently uncertain
and there can be no assurance that Papst will not assert other infringement
claims relating to current patents, pending patent applications and future
patents or patent applications; will not initiate a lawsuit against the Company;
or that the Company will be able to successfully defend itself against such a
lawsuit. A favorable outcome for Papst in such a lawsuit could result in the
issuance of an injunction against the Company or its products and/or the payment
of monetary damages equal to a reasonable royalty or recovered lost profits or,
in the case of a finding of a willful infringement, treble damages and could
have a material adverse effect on the Company's business, financial condition
and results of operations.
DEPENDENCE ON INTERNATIONAL OPERATIONS; RISKS FROM INTERNATIONAL SALES
The Company conducts all of its volume manufacturing and testing operations
and purchases a substantial portion of its key components outside of the U.S. In
addition, the Company derives a significant portion of its revenue from sales of
its products to foreign distributors and retailers. Dependence on revenue from
international sales and managing international operations each involve a number
of inherent risks, including economic slowdown and/or downturn in the computer
industry in such foreign markets, international currency fluctuations, general
strikes or other disruptions in working conditions, political instability, trade
restrictions, changes in tariffs, the difficulties associated with staffing and
managing international operations, generally longer receivables collection
periods, unexpected changes in or impositions of legislative or regulatory
requirements, reduced protection for intellectual property rights in some
countries, potentially adverse taxes, delays resulting from difficulty in
obtaining export licenses for certain technology and other trade barriers.
International sales also will be impacted by the specific economic conditions in
each country. For example, the Company's international contracts are denominated
primarily in U.S. dollars. Significant fluctuations in currency exchange rates
against the U.S. dollar, particularly the recent significant depreciation in the
currencies of Japan, Korea, Taiwan and Singapore relative to the U.S. dollar,
have caused the Company's products to become relatively more expensive to
distributors and retailers in those countries, and thus have caused, and may
continue to cause, deferrals, delays and cancellations of orders. The Company
attempts to minimize the impact of foreign currency exchange rate changes on
certain underlying assets, liabilities and anticipated cash flows for operating
expenses denominated in foreign currencies by entering into short-term, foreign
exchange (primarily forward purchase and sale) contracts. There can be no
assurance that
<PAGE> 18
all foreign currency exposures will be adequately covered, and these factors, as
well as other unanticipated factors, could have a material adverse effect on
future international sales of the Company's products and consequently, on the
Company's business, financial condition and results of operations.
STORMEDIA; LEGAL PROCEEDINGS
The Company currently is involved in a dispute with StorMedia Incorporated
("StorMedia"), which arises out of an agreement among the Company, StorMedia and
HEI which became effective on November 17, 1995 (the "StorMedia Agreement").
Pursuant to the StorMedia Agreement, StorMedia agreed to supply disk media to
the Company. StorMedia's disk media did not meet the Company's specifications
and functional requirements as required by the StorMedia Agreement and the
Company ultimately terminated the StorMedia Agreement. After a class action
securities lawsuit was filed against StorMedia by certain of its shareholders in
September 1996 which alleged, in part, that StorMedia failed to perform under
the StorMedia Agreement, StorMedia sued HEI, Mong Hun Chung (HEI's chairman),
Dr. Chong Sup Park (HEA's President and then President of the Company who signed
the StorMedia Agreement on behalf of the Company) and K.S. Yoo (the individual
who signed the StorMedia Agreement on behalf of HEI) (collectively the "
Original Defendants") in the U.S. District Court for the Northern District of
California (the "Federal Suit"). In the Federal Suit, StorMedia alleged that at
the time HEI entered into the StorMedia Agreement, it knew that it would not and
could not purchase the volume of products which it committed to purchase, and
that failure to do so caused damages to StorMedia in excess of $206 million.
In December 1996, the Company filed a complaint against StorMedia and
William Almon (StorMedia's Chairman and Chief Executive Officer) in a Colorado
state court seeking approximately $100 million in damages and alleging, among
other claims, breach of contract, breach of implied warranty of fitness and
fraud under the StorMedia Agreement (the "Colorado Suit"). This proceeding was
stayed pending resolution of the Federal Suit. The Federal Suit was permanently
dismissed early in February 1998. On February 24, 1998, StorMedia filed a new
complaint in Santa Clara County Superior Court for the State of California for
$206 million, alleging fraud and deceit against the Original Defendants and
negligent misrepresentation against HEI and the Company (the "California Suit").
On May 18, 1998, the stay on the Colorado Suit was lifted by the Colorado state
court. The Company's motion to dismiss, or in the alternative, stay the
California Suit, is pending.
The Company believes that it has meritorious defenses against the claims
alleged by StorMedia and intends to defend itself vigorously. However, due to
the nature of litigation and because the pending lawsuits are in the very early
pre-trial stages, the Company cannot determine the possible loss, if any, that
may ultimately be incurred either in the context of a trial or as a result of a
negotiated settlement. The litigation could result in significant diversion of
time by the Company's technical personnel, as well as substantial expenditures
for future legal fees. After consideration of the nature of the claims and facts
relating to the litigation, including the results of preliminary discovery, the
Company's management believes that the resolution of this matter will not have a
material adverse effect on the Company's business, financial condition or
results of operations. However, the results of these proceedings, including any
potential settlement, are uncertain and there can be no assurance that they will
not have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company has been notified of certain other claims, including claims of
patent infringement. While the ultimate outcome of these claims and the claims
described above is not determinable, the Company does not believe that
resolution of these matters will have a material adverse effect on the Company's
business, financial condition or results of operations. No amounts related to
any claims or actions have been reserved in the Company's financial statements.
<PAGE> 19
WARRANTY EXPOSURE
Products offered by the Company may contain defects in hardware, firmware
or workmanship that may remain undetected or that may not become apparent until
after commercial shipment. The Company generally provides a standard three year
warranty on its products. This standard warranty contains a limit on damages and
an exclusion of liability for consequential damages and for negligent or
improper use of the product. The Company establishes a reserve, at the time of
product shipment, in an amount equal to its estimated warranty expenses. The
Company had warranty reserves of $22.7 million and $26.2 million as of December
27, 1997 and June 27, 1998, respectively. While the Company believes that its
warranty reserves will be sufficient to cover its warranty expenses, there can
be no assurance that such reserves will be sufficient or that the limitations on
liability contained in the Company's warranty will be enforceable. The Company's
failure to maintain sufficient warranty reserves or the unenforceability of such
liability limitations could have a material adverse effect on the Company's
business, financial condition and results of operations.
EXPECTED VOLATILITY OF STOCK PRICE; ABSENCE OF CURRENT TRADING MARKET FOR THE
COMMON STOCK
In recent years the stock market in general, and the market for shares of
high technology and HDD companies in particular, have experienced extreme price
fluctuations which have often been unrelated to the operating performance of the
affected companies. The trading price of the Common Stock may be subject to
extreme fluctuations both in response to business-related issues (e.g.,
quarterly fluctuations in operating results, announcements of new products by
the Company or its competitors, and the gain or loss of significant PC OEM or
other customers) and in response to stock market-related influences (e.g.,
changes in analysts' estimates, the presence or absence of short-selling of the
Common Stock and events affecting other companies that the market deems
comparable to the Company). The trading price of the Common Stock also may be
affected by events relating to HEA and HEI, including sales of Common Stock by
HEA or the perception that such sales may occur (due to the financial condition
of HEA or otherwise). Further, the trading price of the Common Stock may be
subject to extreme fluctuations in response to general economic conditions in
the U.S., Korea, Southeast Asia and elsewhere, such as interest rates, inflation
rates, exchange rates, unemployment rates, and trade surpluses and deficits.
There can be no assurance that the trading price of the Common Stock will not
decline below its initial offering price to the public. Immediately prior to the
Offerings there was no public market for the Common Stock and there can be no
assurance that following the Public Offering an active trading market will
develop or be maintained. The Public Offering price was determined by
negotiations among the Company and various representatives of the underwriters
and may not be indicative of prices that will prevail in the trading market
following the Public Offering.
In addition, it is likely that in some future quarter or quarters the
Company's operating results will be below the expectations of public market
analysts or investors. In such event, the trading price of the Common Stock
could be materially and adversely affected.
ENVIRONMENTAL MATTERS
Although the Company uses only a limited variety of chemicals in its
manufacturing and research operations, the Company is still subject to a wide
range of environmental protection regulations in the U.S. and Singapore. While
the Company has not experienced any material adverse effect on its operations as
a result of such laws, there can be no assurance that future regulations would
not have a material adverse effect on the Company's business, financial
condition and results of operations. The Company believes that its activities
conform to all present environmental regulations in all material aspects. In the
U.S., environmental regulations often require parties to fund remedial action
regardless of fault. As a consequence, it is often difficult to estimate the
future impact of environmental matters, including potential liabilities. There
can be no assurance that the amount of capital expenditures and other expenses
which might be required to complete remedial actions and to continue to comply
with applicable environmental laws will not have a material adverse effect on
the Company's business, financial condition and results of operations.
<PAGE> 20
EFFECT OF ANTITAKEOVER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"), which prohibits a publicly held
Delaware corporation from engaging in any "business combination" with an
"interested stockholder" for three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the corporation's board of directors approved either the business combination or
the transaction that resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding shares owned by management directors and
certain employee stock plans); or (iii) on or subsequent to such date, the
business combination is approved by the corporation's board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least two-thirds of the outstanding
voting stock not owned by the interested stockholder. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years prior did own, 15% or more of the corporation's voting stock.
In addition, pursuant to the Amended and Restated Certificate of
Incorporation, the Board has authority to issue up to 95 million shares of
preferred stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of these shares without any further vote or action by
the stockholders. The rights of the holders of the Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such preferred stock may have other rights, including
economic rights, senior to the Common Stock, and as a result, the issuance of
such preferred stock could have a material adverse effect on the market price of
the Common Stock. The Company has no present plan to issue shares of preferred
stock.
The Amended and Restated Certificate of Incorporation provides that the
Board will be divided into three classes of directors serving staggered
three-year terms. As a result, only one of the three classes of the Board will
be elected each year. The directors are removable only for cause upon the
affirmative vote of the holders of at least a majority of the voting power of
all outstanding shares of voting stock, voting as a single class. The Board has
the exclusive right to set the authorized number of directors and to fill
vacancies on the Board. The Amended and Restated Certificate of Incorporation
requires that any action required or permitted to be taken by stockholders of
the Company must be effected at a duly called annual or special meeting of the
stockholders and may not be effected by a consent in writing. In addition,
special meetings of the stockholders of the Company may be called only by the
Board, the Chairman of the Board, or the Chief Executive Officer of the Company.
Advance notice is required for stockholder proposals or director nominations by
stockholders. These provisions may be amended only by the affirmative vote of at
least two-thirds of the outstanding voting stock of the Company, voting as a
single class. In addition, the Company has entered into a Stockholder Agreement
with HEA which grants HEA certain rights to designate directors for nomination,
requires HEA to vote in favor of other Board nominees so long as HEA's rights to
designate nominees are honored, and restricts HEA's right to solicit proxies or
acquire additional shares of Common Stock.
These provisions could discourage potential acquisition proposals and could
delay or prevent a change in control of the Company. Such provisions could
diminish the opportunities for a holder of Common Stock to participate in tender
offers, including tender offers at a price above the then current market price
of the Common Stock. Such provisions also may inhibit fluctuations in the market
price of the Common Stock that could result from takeover attempts.
<PAGE> 21
SHARES ELIGIBLE FOR FUTURE SALE
Sales of shares of Common Stock in the public market after the Public
Offering could adversely affect the market price of the Common Stock. Upon
completion of the Public Offering, the Company will have approximately
91,974,998 shares of Common Stock outstanding, of which 47,500,000 shares
(54,625,000 shares if the Underwriters' over-allotment options are exercised in
full) will be freely transferable without restriction or registration under the
Securities Act of 1933, as amended (the "Securities Act"), unless such shares
are held by affiliates of the Company, as that term is defined in Rule 144 under
the Securities Act, and assuming no exercise of options to purchase Common Stock
after June 27, 1998. The Company and its officers, directors and certain
stockholders have agreed that, during the period beginning from July 30, 1998
and continuing to and including the date 180 days thereafter, they will not
offer, sell, contract to sell or otherwise dispose of any securities of the
Company (other than pursuant to employee stock option plans existing, or on the
conversion or exchange of convertible or exchangeable securities outstanding, on
such date) which are substantially similar to the Common Stock or which are
convertible into or exchangeable for securities which are substantially similar
to the shares of the Common Stock without the prior written consent of Smith
Barney Inc., except for the Common Stock offered in connection with the Public
Offering.
Smith Barney Inc. may, however, in its sole discretion, at any time without
notice, release all or any portion of the shares of Common Stock subject to such
lock-up agreements. Sales of shares of Common Stock by existing stockholders in
the public market, or the availability of such shares for sale, could adversely
affect the market price of the Common Stock. HEA, which upon the closing of the
Public Offering, will own approximately 44,029,850 shares of Common Stock, has
certain rights with respect to registration of such shares of Common Stock for
sale to the public. As has been publicly reported, many Korean companies have
been affected adversely by recent economic conditions in Korea. The financial
condition of HEA or its affiliates could influence any decision concerning HEA's
disposition of Common Stock after the Public Offering. Sales of Common Stock by
HEA or the perception that such sales may occur could adversely affect the
trading price of the Common Stock. In addition, approximately 1,951,044 shares
of Common Stock are issuable upon exercise of vested outstanding options granted
under the Option Plan. The Company intends to file a registration statement
immediately after the closing of the Public Offering to allow resale of such
option shares.
<PAGE> 22
THE COMPANY
The Company is a leading provider of hard disk drive storage products for
desktop PC systems. The Company's principal offices are located at 510
Cottonwood Drive, Milpitas, California 95035, and its telephone number is (408)
432-1700.
SELLING SECURITYHOLDERS
The following is a list of the selling securityholders and the amount of shares
to be sold:
<TABLE>
<CAPTION>
Selling Securityholders Title Number of Shares
<S> <C>
Michael R. Cannon President and CEO 100,000
William F. Roach Senior VP, Worldwide Sales 35,000
Dr. Victor P. Jipson Senior VP, Engineering 35,000
Paul J. Tufano VP, Finance and CFO 35,000
Phillip C. Duncan VP, Human Resources 15,000
Pantelis Alexopoulos VP, Advanced Technology and Chief
Technology Officer 35,000
David L. Beaver VP, Materials 10,000
Michael D. Cordano VP, Strategic Account Sales 10,000
John Hagerman VP, Strategic Initiatives 10,000
Kevin Magenis VP, Engineering 20,000
Misha Rozenberg VP, Quality 15,000
Glenn H. Stevens VP, General Counsel and Secretary 15,000
Kee Hong Teh VP, Worldwide Manufacturing 35,000
Michael J. Wingert VP, Engineering 20,000
</TABLE>
PLAN OF DISTRIBUTION
The shares of Common Stock covered by the Prospectus may be offered or sold from
time to time on the Nasdaq National Market by the Selling Securityholders, or by
pledgees, donees, transferees or other successors in interest. The shares will
be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act. Such sales may be made in the "Pink Sheets," in block trades,
pursuant to purchases by a broker or a dealer as principal, in private
transactions, in negotiated transactions or otherwise, at prices and at terms
then prevailing or at negotiated prices. The Company will not receive any of the
proceeds from sales by the Selling Securityholders.
Any broker or dealer involved in the offer or sale of the shares included herein
may receive brokerage commissions or discounts. To the knowledge of the Company,
there is currently no agreement with any broker or dealer respecting such
transactions. Upon sale of such shares, the Selling Securityholders or anyone
effecting sales on behalf of the Selling Securityholders may be deemed an
underwriter, as that term is defined in the Securities Act. Each Selling
Securityholder does not believe that he or she is an underwriter within the
meaning of the Securities Act. All expenses of the registration of the Common
Stock covered by this Prospectus are to be borne by the Company.
LEGAL MATTERS; EXPERTS
The validity of the Common Stock will be passed upon for the Company by Gray
Cary Ware & Freidenrich LLP.
The financial statements of Maxtor Corporation incorporated by reference in this
Reoffer Prospectus have been audited by PricewaterhouseCoopers LLP and Ernst &
Young, LLP, independent public accountants, and are included in reliance upon
their authority as experts in accounting and auditing.
--------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY
OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
--------------------
390,000 SHARES
MAXTOR CORPORATION
COMMON STOCK
------------------------
REOFFER PROSPECTUS
------------------------
AUGUST 7, 1998
<PAGE> 23
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference
Maxtor Corporation (the "Company") hereby incorporates by reference in
this registration statement the following documents:
(a) The Company's latest prospectus filed pursuant to Rule 424(a)
under the Securities Act of 1933, as amended (the "Securities Act"), containing
audited financial statements for the Company's latest fiscal year.
(b) All other reports filed pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") since the end
of the fiscal year covered by the annual report referred to in (a) above.
(c) The description of the Company's Common Stock contained in the
Company's Amendment No. 4 to Registration Statement on Form S-1, filed pursuant
to Section 12 of the Exchange Act on July 30, 1998, including any amendment or
report filed for the purpose of updating such description.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to the filing of a
post-effective amendment to this registration statement which indicates that all
securities offered hereby have been sold or which deregisters all securities
remaining unsold, shall be deemed to be incorporated by reference in this
registration statement and to be a part hereof from the date of filing of such
documents.
Item 4. Description of Securities
Inapplicable.
Item 5. Interests of Named Experts and Counsel
Inapplicable.
Item 6. Indemnification of Directors and Officers
Delaware law authorizes corporations to eliminate the personal
liability of directors to corporations and their stockholders for monetary
damages for breach or alleged breach of the directors' fiduciary "duty of care."
While the relevant statute does not change directors' duty of care, it enables
corporations to limit available relief to equitable remedies such as injunction
or rescission. The statute has no effect on directors' duty of loyalty, acts or
omissions not in good faith or involving intentional misconduct or knowing
violations of law, illegal payment of dividends or approval of any transaction
from which a director derives an improper personal benefit.
The Certificate of Incorporation and the By-Laws of the Company provide
for mandatory indemnification of its officers, directors and key employees to
the full extent permitted by Section 145 of the General Corporation Law of the
State of Delaware. The Company also has entered into indemnification agreements
with its officers and directors which provide, among other things, mandatory
indemnification of such individuals in situations in which indemnification is
only permissive under Section 145. Section 145 of the General Corporation Law of
the State of Delaware provides for indemnification in terms sufficiently broad
to indemnify such individuals, under certain circumstances, for liabilities
(including reimbursement of expenses incurred) arising under the Securities Act
of 1933, as amended (the "Securities Act").
<PAGE> 24
Item 7. Exemption From Registration Claimed
Inapplicable.
Item 8. Exhibits
See Exhibit Index.
Item 9. Undertakings
(a) Rule 415 Offering.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the registrant pursuant to section 13 or section 15(d)
of the Exchange Act that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Filing incorporating subsequent Exchange Act documents by
reference.
The undersigned registrant hereby undertakes that, for purposes
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(h) Request for acceleration of effective date or filing of
registration statement on Form S-8.
Insofar as indemnification for liabilities arises under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid
<PAGE> 25
by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Milpitas, State of California, on August 7,
1998.
MAXTOR CORPORATION
By: /s/ Glenn H. Stevens
--------------------------------
Glenn H. Stevens
Vice President, General Counsel
and Secretary
<PAGE> 26
POWER OF ATTORNEY
The officers and directors of Maxtor Corporation whose signatures
appear below hereby constitute and appoint Michael R. Cannon and Glenn H.
Stevens, and each of them, their true and lawful attorneys and agents, with full
power of substitution, each with power to act alone, to sign and execute on
behalf of the undersigned any amendment or amendments to this registration
statement on Form S-8, and each of the undersigned does hereby ratify and
confirm all that each of said attorney and agent, or their and his substitutes,
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the dates indicated on August 7, 1998:
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C>
/s/ Michael R. Cannon President, Chief Executive Officer and
- --------------------------- Director (Principal Executive Officer)
Michael R. Cannon
/s/ Paul J. Tufano Vice President, Finance, and Chief
- --------------------------- Financial Officer (Principal Financial
Paul J. Tufano and Accounting Officer)
/s/ Dr. Chong Sup Park Chairman of the Board
- ---------------------------
Dr. Chong Sup Park
- --------------------------- Director
Charles Hill
/s/ Charles F. Christ
- --------------------------- Director
Charles F. Christ
- --------------------------- Director
Y. H. Kim
- --------------------------- Director
Philip S. Paul
/s/ Chang See Chung
- --------------------------- Director
Chang See Chung
</TABLE>
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<S> <C>
4.1 Amended and Restated Certificate of Incorporation of the Company dated
July 24, 1998 (1)
4.2 Amended and Restated Bylaws of the Company dated July 24, 1998 (1)
4.3 Stockholder Agreement dated June 25, 1998 (1)
5 Opinion regarding legality
23.1 Consent of Counsel (included in Exhibit 5)
23.2 Consent of PricewaterhouseCoopers L.L.P., Independent Accountants
23.3 Consent of Ernst & Young L.L.P., Independent Auditors
24 Power of Attorney (included in signature pages to this registration
statement)
99.1 1998 Restricted Stock Plan (2)
99.2 Stock Grant Agreement under 1998 Restricted Stock Plan (2)
99.3 1998 Employee Stock Purchase Plan (2)
99.4 Amended and Restated 1996 Stock Option Plan (2)
</TABLE>
(1) Incorporated by reference to the Company's Registration Statement on
Amendment 3 to Form S-1 filed with the Commission on July 30, 1998
(2) Incorporated by reference to the Company's Registration Statement on
Amendment 2 to Form S-1 filed with the Commission on June 29, 1998
<PAGE> 1
Exhibit 5
[GRAY CARY WARE & FREIDENRICH LLP LETTERHEAD]
400 Hamilton Avenue, Palo Alto, CA 94301-1825
Phone 650-328-6561 Fax 650-327-3699 www.gcwf.com
August 5, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: MAXTOR CORPORATION
REGISTRATION STATEMENT ON FORM S-8
Gentlemen and Ladies:
As legal counsel for Maxtor Corporation, a Delaware corporation (the "Company"),
we are rendering this opinion in connection with the registration under the
Securities Act of 1933, as amended, of up to 390,000 shares of the Common Stock
of the Company, $0.01 par value, granted under the Maxtor Corporation 1998
Restricted Stock Plan (the "Stock Plan"), up to 1,700,000 shares of Common Stock
under the Maxtor Corporation 1998 Employee Stock Purchase Plan (the "Purchase
Plan") and up to 8,662,097 shares of Common Stock under the Maxtor Corporation
Amended and Restated 1996 Stock Option Plan (the "Option Plan").
We have examined all instruments, documents and records which we deemed relevant
and necessary for the basis of our opinion hereinafter expressed. In such
examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
We are admitted to practice only in the State of California and we express no
opinion concerning any law other than the law of the State of California, the
corporation laws of the State of Delaware and the federal law of the United
States. As to matters of Delaware corporation law, we have based our opinion
solely upon our examination of such laws and the rules and regulations of the
authorities administering such laws, all as reported in standard, unofficial
compilations. We
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have not obtained opinions of counsel licensed to practice in jurisdictions
other than the State of California.
Based on such examination, we are of the opinion that the 390,000 shares of
Common Stock granted under the Stock Plan, the 1,700,000 shares of Common Stock
which may be issued upon the exercise of purchase rights granted under the
Purchase Plan and the 8,662,097 shares of Common Stock which may be issued upon
the exercise of stock options granted under the Option Plan are duly authorized
shares of the Company's Common Stock, and, when issued against payment of the
purchase price therefor in accordance with the provisions of the Stock Plan,
Purchase Plan and Option Plan, respectively, will be validly issued, fully paid
and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement referred to above and the use of our name wherever it
appears in said Registration Statement.
Respectfully submitted,
/s/ Gray Cary Ware & Freidenrich LLP
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GRAY CARY WARE & FREIDENRICH LLP
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Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement of
Maxtor Corporation (the "Company") on Form S-8 (File No. ______________)
pertaining to the Company's 1998 Restricted Stock Plan, 1998 Employee Stock
Purchase Plan and Amended and Restated 1996 Stock Option Plan of our report
dated February 3, 1998, except for Notes 7 and 10 for which the date is April 9,
1998, the ninth paragraphs of Notes 1 and 7, for which the date is June 3, 1998,
and the first paragraph of Note 14, for which the date is July 24, 1998, which
includes an emphasis of a matter related to the Company's ultimate parent,
Hyundai Electronics Industries, Co., Ltd., on our audits of the consolidated
financial statements and schedule of Maxtor Corporation as of December 28, 1996
and December 27, 1997, and for the nine month period ended December 28, 1996
and for the year ended December 27, 1997, which report is included in the
Company's 1997 Annual Report on Form 10-K/A, Amendment No. 1.
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
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San Jose, California
August 5, 1998
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Exhibit 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the Maxtor Corporation 1998 Restricted Stock Plan, 1998
Employee Stock Purchase Plan and Amended and Restated 1996 Stock Option Plan of
our report dated April 25, 1996, except for the first paragraph of the
"Subsequent Event" footnote as to which the date is July 24, 1998, with respect
to the consolidated financial statements and schedule of Maxtor Corporation (a
wholly-owned subsidiary of Hyundai Electronics America) for the year ended March
30, 1996, included in its Registration Statement on Form S-1 (No. 333-56099),
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
/s/ ERNST & YOUNG LLP
San Jose, California
August 5, 1998
