<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 11, 2000.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
MAXTOR CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5045 77-0123732
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION NUMBER) IDENTIFICATION NO.)
</TABLE>
510 COTTONWOOD DRIVE
MILPITAS, CALIFORNIA 95035
TELEPHONE: (408) 432-1700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL R. CANNON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MAXTOR CORPORATION
510 COTTONWOOD DRIVE
MILPITAS, CALIFORNIA 95035
TELEPHONE: (408) 432-1700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
DIANE HOLT FRANKLE LARRY W. SONSINI
HENRY LESSER MICHAEL KENNEDY
GRAY CARY WARE & FREIDENRICH LLP WILSON SONSINI GOODRICH & ROSATI
400 HAMILTON AVENUE 650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94301-1825 PALO ALTO, CA 94304-1050
(650) 833-2000 (650) 493-6811
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this Registration Statement and the
satisfaction or waiver of all other conditions to the merger of a subsidiary of
Quantum Corporation holding the assets of the Quantum Hard Disk Drive Group into
Maxtor Corporation pursuant to an Amended and Restated Agreement and Plan of
Merger and Reorganization, dated as of October 3, 2000, as described in the
enclosed joint proxy statement/prospectus.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(a) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share............... 138,320,000(1) $6.07(2) $839,603,000 $221,700
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</TABLE>
(1) Represents the maximum number of shares of the registrant's common stock to
be issued in connection with the merger transaction, based on a conversion
ratio of 1.52 shares of Maxtor common stock to be issued for each share of
Quantum HDD common stock, and approximately 78,000,000 shares of Quantum HDD
common stock estimated to be outstanding at the anticipated closing along
with approximately 13,000,000 shares issuable pursuant to options to
purchase shares of Quantum HDD common stock outstanding at the anticipated
closing.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and 457(c) under the Securities Act. The proposed
maximum aggregate offering price per unit is based on the average of the
high and low prices of Quantum HDD common stock as reported on the New York
Stock Exchange on December 7, 2000, divided by the conversion ratio of 1.52.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE
AND MAY BE CHANGED. MAXTOR MAY NOT ISSUE THE COMMON STOCK TO BE ISSUED IN
CONNECTION WITH THE TRANSACTIONS DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS JOINT PROXY
STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES NOR A
SOLICITATION OF AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE
OFFER OR SALE IS NOT PERMITTED. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
SUBJECT TO COMPLETION, DATED DECEMBER 11, 2000.
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[MAXTOR LOGO] [QUANTUM LOGO]
</TABLE>
TO THE STOCKHOLDERS OF
MAXTOR CORPORATION AND QUANTUM CORPORATION
A MERGER PROPOSAL -- YOUR VOTE IS VERY IMPORTANT!
Maxtor Corporation and Quantum Corporation have entered into an amended and
restated merger agreement that provides for the split-off by Quantum of its hard
disk drive business, Quantum HDD, into a newly formed, wholly owned subsidiary
of Quantum, Insula Corporation, or Spinco, and the merger of Spinco into Maxtor.
In the merger, holders of Quantum HDD common stock will receive 1.52 shares of
Maxtor common stock in exchange for each share of Quantum HDD common stock they
own. Maxtor common stock is listed on The Nasdaq National Market under the
trading symbol "MXTR" and closed at $ per share on December , 2000.
Immediately after completion of the merger, the former holders of Quantum HDD
common stock will own between 50.1% and 51% of Maxtor's outstanding common
stock. Quantum's DLT and storage systems business, Quantum DSS, will continue
operations following the merger under the name Quantum Corporation as a
publicly-traded corporation.
The combined hard disk drive company created by the merger will be called
Maxtor Corporation and will be led by Michael R. Cannon, Maxtor's current
president and chief executive officer. At closing, on a pro forma basis, Maxtor
will have combined annual revenues of over $6 billion and an annual shipping
rate of more than 50 million hard disk drives for use in desktop personal
computers, Intel-based servers, and consumer electronics applications. Moreover,
on a pro forma basis, Maxtor and Quantum expect the merger to generate
annualized cost savings of $120 million to $200 million within 18 to 24 months
following its completion.
Maxtor is requesting that its stockholders vote to adopt the merger
agreement and approve the merger. If approved, the merger will result in the
issuance of approximately 118,600,000 shares of Maxtor common stock in the
merger, as well as the amendment and restatement of Maxtor's restated
certificate of incorporation to eliminate until the 2004 annual meeting the
requirement that the number of directors in each of the three classes into which
Maxtor's board of directors is divided be as nearly equal as reasonably
possible, and also to increase the authorized number of shares of Maxtor common
stock from 250,000,000 to 525,000,000. In addition, in two separate proposals,
Maxtor is requesting that its stockholders approve amendments to Maxtor's 1996
stock option plan and 1998 employee stock purchase plan to increase the shares
reserved for issuance from 22,975,685 and 4,500,000 to 39,975,685 and 8,000,000,
respectively. The approval by Maxtor stockholders of these two additional
proposals is not required in order for the merger proposal described above to be
approved. If approved, these two additional proposals will take effect only if
the merger is completed.
Quantum is requesting that its stockholders vote to adopt the merger
agreement and approve the merger with Maxtor, and as a separate proposal, to
amend and restate Quantum's restated certificate of incorporation to delete all
provisions relating to the class of tracking common stock designated as "Quantum
Corporation -- HDDG Common Stock," and to amend and restate other provisions to
reflect the absence of tracking stock, as applicable. The approval by Quantum
stockholders of the additional proposal is not required for the merger proposal
to be approved. If approved, this additional proposal will take effect only if
the merger is completed.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED THE SECURITIES TO BE ISSUED UNDER THIS JOINT PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE BOARD OF DIRECTORS OF MAXTOR UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN
FAVOR OF EACH OF ITS THREE PROPOSALS AS OUTLINED ABOVE. LIKEWISE, THE BOARD OF
DIRECTORS OF QUANTUM UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF EACH OF
ITS TWO PROPOSALS AS OUTLINED ABOVE. YOUR VOTE IS VERY IMPORTANT. WHETHER OR NOT
YOU PLAN TO ATTEND THE MEETING, PLEASE TAKE THE TIME TO VOTE BY COMPLETING AND
MAILING THE ENCLOSED PROXY CARD TO US.
<PAGE> 3
This joint proxy statement/prospectus provides you with detailed
information about the proposed split-off of Quantum HDD and its merger with
Maxtor, a summary description of which begins on page 6, and a fuller
description of which begins on page 49. YOU SHOULD ALSO CAREFULLY READ THE
SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE 25 FOR A DISCUSSION OF
SPECIFIC RISKS THAT YOU SHOULD CONSIDER IN DETERMINING HOW TO VOTE ON THE
PROPOSED MERGER.
This joint proxy statement/prospectus is dated December , 2000 and is
first being mailed to stockholders of Maxtor and Quantum on or about December
, 2000.
The dates, times, and places of the two special meetings are as follows:
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For Maxtor stockholders: For Quantum stockholders:
February , 2001, 10:00 a.m. February , 2001, 10:00 a.m.
Sheraton San Jose Hotel Quantum Corporation Headquarters
Palo Alto Room 500 McCarthy Boulevard
1801 Barber Lane Milpitas, California 95035
Milpitas, California 95035
</TABLE>
We strongly support the proposed transactions and join with our boards of
directors in enthusiastically recommending that you vote in favor of the
proposals presented to you for approval.
<TABLE>
<S> <C>
Michael R. Cannon Michael A. Brown
President and Chief Executive Officer Chairman and Chief Executive Officer
Maxtor Corporation Quantum Corporation
</TABLE>
ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about Maxtor and Quantum from other documents that are not
included in or delivered with the joint proxy statement/prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain the documents incorporated by reference in this joint
proxy statement/prospectus by requesting them in writing or by telephone or over
the Internet from the appropriate company at one of the following addresses:
<TABLE>
<S> <C>
Maxtor Corporation Quantum Corporation
Jenifer Kirtland, Investor Relations Renee Budig
510 Cottonwood Drive 500 McCarthy Boulevard
Milpitas, California 95035 Milpitas, California 95035
Phone: (408) 432-4270 Phone: (408) 324-7044
E-Mail: [email protected] E-Mail: [email protected]
Web Address: www.maxtor.com Web Address: www.quantum.com
</TABLE>
IF YOU WOULD LIKE TO REQUEST ANY DOCUMENTS, PLEASE DO SO BY JANUARY ,
2001 IN ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETINGS. SEE "WHERE YOU CAN
FIND MORE INFORMATION," BEGINNING ON PAGE 139.
<PAGE> 4
[MAXTOR LOGO]
MAXTOR CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD FEBRUARY [ ], 2001
The Special Meeting of Stockholders of Maxtor Corporation will be held in
the Palo Alto Room of the Sheraton San Jose Hotel, located at 1801 Barber Lane,
Milpitas, California 95305, on , February [ ], 2001, at 10:00
a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to adopt the Amended and
Restated Agreement and Plan of Merger and Reorganization, dated as of
October 3, 2000, by and among Maxtor, Quantum Corporation, Hawaii
Acquisition Corporation, and Insula Corporation, a wholly owned subsidiary
of Quantum ("Spinco"), pursuant to which Spinco will merge with Maxtor, and
to approve the merger. Adoption of the merger agreement will also
constitute approval of the other transactions contemplated under the merger
agreement.
2. To consider and vote upon a proposal to approve the amendment of
Maxtor's amended and restated 1996 stock option plan to increase the number
of shares of common stock authorized for issuance thereunder from
22,975,685 to 39,975,685. Even if approved, this proposal will only take
effect if the merger is completed.
3. To consider and vote upon a proposal to approve the amendment of
Maxtor's 1998 employee stock purchase plan to increase the number of shares
of common stock authorized for issuance thereunder from 4,500,000 to
8,000,000. Even if approved, this proposal will only take effect if the
merger is completed.
4. To transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the joint proxy
statement/prospectus that accompanies this notice.
The board of directors has fixed the close of business on December , 2000
as the record date for the determination of stockholders entitled to notice of
and to vote at this Special Meeting and at any adjournment or postponement
thereof.
By Order of the Board of Directors
of Maxtor Corporation
Glenn H. Stevens
Vice President, General Counsel
and Secretary
Milpitas, California
December , 2000
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN,
AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 5
[QUANTUM LOGO]
QUANTUM CORPORATION
500 MCCARTHY BOULEVARD
MILPITAS, CA 95035
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
Date: February [ ], 2001
Time: 10:00 a.m. PST
Place: Quantum Corporation Headquarters
500 McCarthy Boulevard
Milpitas, California 95035
-------------------------
At the meeting you will be asked:
1. To consider and vote upon a proposal to adopt the Amended and
Restated Agreement and Plan of Merger and Reorganization, dated as of
October 3, 2000, by and among Quantum, Maxtor Corporation, Hawaii
Acquisition Corporation and Insula Corporation, a wholly owned subsidiary
of Quantum ("Spinco"), pursuant to which Spinco will merge with Maxtor,
with Maxtor as the surviving corporation, and to approve the merger. In the
merger, each share of Quantum HDD common stock will be exchanged for 1.52
shares of Maxtor common stock. Quantum's DLT and storage systems business,
Quantum DSS, will continue operations following the merger under the name
Quantum Corporation as a publicly-traded corporation. Adoption of the
merger agreement will also constitute approval of the other transactions
contemplated by the merger agreement.
2. To consider and vote upon a proposal to amend Quantum's restated
certificate of incorporation to delete all provisions relating to the class
of common stock designated as "Quantum Corporation -- HDDG Common Stock"
and to amend and restate other provisions to reflect the absence of
tracking stock, as applicable. Even if approved, the amendment and
restatement of the restated certificate of incorporation will take effect
only if the merger is completed.
3. To transact such other business as may properly come before the
special meeting or any adjournment or postponement thereof.
The attached joint proxy statement/prospectus contains a more complete
description of these items of business. Only holders of record of Quantum common
stock at the close of business on December , 2000, the record date, are
entitled to vote on the matters listed in this notice of special meeting. You
may vote in person at the Quantum Special Meeting even if you have returned a
proxy.
By Order of the Board of Directors
of Quantum Corporation
Richard L. Clemmer
Chief Financial Officer
Milpitas, California
December , 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN,
DATE AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED STAMPED
ENVELOPE.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS............. 6
The Companies............................................. 6
Risk Factors.............................................. 7
The Structure of the Merger............................... 7
Tax Consequences.......................................... 7
The Merger Agreement...................................... 8
Separation Documents...................................... 8
Relationship with MKE..................................... 9
Treatment of Stock Options and Restricted Stock........... 10
Interests of Certain Persons in the Merger................ 10
Maxtor Board Composition.................................. 11
Relative Percentages of Ownership......................... 11
Fairness Opinions of Financial Advisors................... 11
Recommendations of the Boards of Directors................ 12
Required Stockholder Approvals............................ 12
The Special Meetings...................................... 12
Tax Loss Insurance........................................ 13
Accounting Treatment...................................... 13
Regulatory Approvals...................................... 13
No Appraisal Rights....................................... 13
Maxtor Selected Historical Financial Information.......... 14
Quantum Selected Historical Consolidated Financial
Information............................................ 16
Quantum DSS Selected Historical Combined Financial
Information............................................ 18
Quantum HDD Selected Historical Combined Financial
Information............................................ 20
Comparative Per Share Data................................ 22
Market Price Data and Dividend Policy..................... 23
RISK FACTORS................................................ 25
Special Note Regarding Forward-Looking Statements......... 25
Risks Related to the Merger............................... 25
Tax Risks Related to the Split-off and Merger............. 30
Risks Related to the Quantum DSS Business................. 33
Risks Related to the Combined Company's Business Following
the Merger............................................. 35
THE MAXTOR SPECIAL MEETING.................................. 44
Date, Time, and Place of Meeting.......................... 44
Voting Rights............................................. 44
Purpose of the Maxtor Special Meeting..................... 44
Record Date and Outstanding Shares........................ 44
Share Ownership of Management and Certain Stockholders.... 44
Vote Required............................................. 44
Quorum; Abstentions; Broker Non-Votes..................... 45
Solicitation of Proxies; Expenses......................... 45
Voting of Proxies; Revocation of Proxies.................. 45
No Appraisal Rights....................................... 46
Recommendation of the Maxtor Board........................ 46
THE QUANTUM SPECIAL MEETING................................. 47
Date, Time, and Place of Meeting.......................... 47
Record Date; Outstanding Shares........................... 47
Redemption................................................ 47
Revocability of Proxies................................... 47
</TABLE>
i
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PAGE
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Voting and Solicitation................................... 47
Vote Required............................................. 48
Quorum; Abstentions; Broker Non-Votes..................... 48
No Appraisal Rights....................................... 48
Recommendation of the Quantum Board....................... 48
MAXTOR AND QUANTUM PROPOSAL NO. 1........................... 49
Adoption of the Merger Agreement and Approval of the
Merger Contemplated Thereunder......................... 49
THE MERGER.................................................. 49
Background of the Merger.................................. 49
Reasons for the Merger.................................... 53
Opinion of Maxtor's Financial Advisor..................... 58
Opinion of Quantum's Financial Advisor.................... 65
Interests of Certain Persons in the Merger................ 71
Treatment of Stock Options and Restricted Stock........... 71
Relationship with MKE .................................... 72
Amendments of the Maxtor Restated Certificate of
Incorporation Effected by the Merger................... 73
Maxtor Board Composition.................................. 75
Severance Costs........................................... 76
Structure of the Merger................................... 76
Material Federal Income Tax Consequences of the
Separation, the Redemption and the Merger.............. 76
Tax Loss Insurance........................................ 81
Anticipated Accounting Treatment of the Merger............ 82
Maxtor Unaudited Pro Forma Condensed Combined Financial
Statements............................................. 83
Regulatory Filings and Approvals Required to Complete the
Merger................................................. 90
Delisting of Quantum HDD Common Stock; Registration and
Listing of Maxtor Common Stock......................... 90
Restrictions on Resale of Maxtor Common Stock............. 90
THE MERGER AGREEMENT........................................ 91
Separation and Redemption................................. 91
The Merger................................................ 91
Date of Closing........................................... 91
Certificate of Incorporation and Bylaws................... 91
Management of Maxtor and Surviving Corporation............ 91
Conversion of Securities; Adjustment of Exchange Ratio.... 91
Quantum Convertible Notes................................. 92
Exchange of Certificates.................................. 92
Representations and Warranties............................ 92
Conduct of Business Before Completion of the Merger....... 94
No Solicitation........................................... 95
Meetings of Stockholders.................................. 97
Employee Benefit Plans.................................... 98
Conditions to Closing..................................... 99
Termination............................................... 99
Termination Fees and Expenses............................. 101
Amendment and Waiver...................................... 102
THE SEPARATION DOCUMENTS.................................... 102
Separation and Redemption Agreement....................... 103
General Assignment and Assumption Agreement............... 104
Tax Sharing and Indemnity Agreement....................... 107
Intellectual Property Agreement........................... 108
</TABLE>
ii
<PAGE> 8
<TABLE>
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Indemnification Agreement................................. 109
Transitional Services Agreement........................... 109
VOTING AGREEMENTS........................................... 111
COMPARISON OF RIGHTS OF HOLDERS OF MAXTOR COMMON STOCK AND
QUANTUM HDD COMMON STOCK.................................. 113
Nature of the Security.................................... 113
Size of the Board......................................... 113
Classification............................................ 113
Removal of Directors...................................... 114
Vacancies................................................. 114
Limitation on Director Liability.......................... 114
Indemnification of Directors and Officers................. 114
Amendments to Certificate of Incorporation................ 114
Amendments to Bylaws...................................... 115
Authorized Capital Stock.................................. 115
Dividends................................................. 116
Stock Repurchases, Redemptions, and Conversions........... 116
Election of Directors..................................... 116
Action by Written Consent................................. 116
Annual Meeting............................................ 116
Special Meeting of Stockholders........................... 117
Advance Notice Requirements of Stockholder Nominations.... 117
Advance Notice Requirements for Other Stockholder
Business............................................... 117
Rights of Inspection...................................... 117
Transactions Between the Corporation and Its Directors and
Officers............................................... 117
The Corporate Opportunity Doctrine........................ 118
Stockholders' Rights Plan................................. 119
MAXTOR PROPOSAL NO. 2 (FOR MAXTOR STOCKHOLDERS ONLY):
APPROVAL OF AMENDMENT OF MAXTOR'S 1996 STOCK OPTION PLAN,
AS AMENDED................................................ 120
Summary of the Provisions of the Amended Option Plan...... 120
Certain Federal Tax Consequences.......................... 123
Amended Plan Benefits..................................... 124
Vote Required and Board of Directors' Recommendation...... 124
MAXTOR PROPOSAL NO. 3 (FOR MAXTOR STOCKHOLDERS ONLY):
APPROVAL OF THE AMENDMENT OF MAXTOR'S 1998 EMPLOYEE STOCK
PURCHASE PLAN, AS AMENDED................................. 125
Summary of the Provisions of the Stock Purchase Plan...... 125
Certain Federal Income Tax Consequences................... 127
Amended Plan Benefits..................................... 127
Vote Required and Board of Directors' Recommendation...... 128
QUANTUM PROPOSAL NO. 2 (FOR QUANTUM STOCKHOLDERS ONLY):
APPROVAL OF AMENDMENTS TO QUANTUM'S RESTATED CERTIFICATE
OF INCORPORATION.......................................... 129
General................................................... 129
Antitakeover Effects of Provisions of the Amended and
Restated Certificate of Incorporation, and Bylaws and
of Delaware Law........................................ 129
Vote Required............................................. 130
Recommendation............................................ 130
Indemnification of Directors and Officers................. 130
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS.................................................... 132
Maxtor Stock Ownership.................................... 132
</TABLE>
iii
<PAGE> 9
<TABLE>
<CAPTION>
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Quantum Stock Ownership................................... 134
Maxtor Stockholder Agreement with Hyundai................. 135
LEGAL AND TAX MATTERS....................................... 138
EXPERTS..................................................... 138
STOCKHOLDER PROPOSALS TO BE PRESENTED AT NEXT ANNUAL
MEETING................................................... 138
Maxtor Annual Meeting..................................... 138
Quantum Annual Meeting.................................... 138
WHERE YOU CAN FIND MORE INFORMATION......................... 139
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 139
WHO CAN HELP ANSWER YOUR QUESTIONS.......................... 140
TRANSACTION OF OTHER BUSINESS............................... 141
ANNEXES
Annex A -- Amended and Restated Agreement and Plan of
Merger and Reorganization
Annex B -- Opinion of Salomon Smith Barney
Annex C -- Opinion of Lehman Brothers
Annex D -- Form of Amended and Restated Certificate of
Incorporation of Quantum
</TABLE>
iv
<PAGE> 10
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q1: WHAT IS THE MERGER TRANSACTION?
A: In general terms, the merger transaction involves the splitting-off of
the hard disk drive business of Quantum, Quantum HDD, from Quantum's DLT and
storage systems business, Quantum DSS, and the combination of Quantum HDD and
Maxtor. This business combination will be accomplished by separating the assets
of Quantum HDD into a newly formed, wholly owned subsidiary of Quantum, Spinco,
and merging Spinco into Maxtor, with Maxtor being the surviving corporation.
Quantum DSS will continue operations following the merger under the name Quantum
Corporation as a publicly-traded corporation.
Q2: WHAT WILL I RECEIVE IN THE MERGER?
A: Maxtor stockholders will not receive any consideration in the merger,
nor will they receive any consideration from the proposed split-off by Quantum
of Quantum HDD. After the merger, Maxtor stockholders will own the same number
of Maxtor shares they owned before the merger.
Quantum HDD stockholders will receive 1.52 shares of Maxtor common stock
for each share of Quantum HDD common stock they hold, subject to adjustment as
described in "Prospectus Summary -- The Merger Agreement," beginning on page 8.
Based on the closing price of $ for one share of Maxtor common stock on
December , 2000, 1.52 shares of Maxtor common stock would be valued at
$ . However, the price of Maxtor common stock fluctuates so the closing
price as of any date in the past provides no assurance as to the value of Maxtor
common stock that Quantum HDD stockholders will receive upon completion of the
merger. Immediately following the merger, the holders of Quantum HDD common
stock will own between 50.1% and 51% of Maxtor's common stock.
Quantum DSS stockholders will not receive any consideration for shares of
Quantum DSS common stock they hold. Quantum DSS stock will continue to be traded
on the New York Stock Exchange under the trading symbol "DSS," just as prior to
the transaction, but it will represent all of Quantum.
Q3: WHAT AM I BEING ASKED TO VOTE UPON?
A: Maxtor stockholders: You are being asked to adopt the amended and
restated agreement and plan of merger and reorganization and approve the merger.
Adoption of the merger agreement and approval of the merger will include
approval of all other transactions contemplated under the merger agreement. If
approved, among other things, the merger will result in:
- the issuance of approximately 118,600,000 shares of Maxtor common stock
in the merger; and
- the amendment and restatement of Maxtor's restated certificate of
incorporation:
-- to eliminate until the 2004 annual meeting the requirement that the
three classes into which the board of directors is divided be as
nearly equal in number as reasonably possible; and
-- to increase the number of authorized shares of common stock to
525,000,000 shares.
In addition, Maxtor stockholders are being asked to approve two further
proposals:
- the amendment of Maxtor's 1996 stock option plan to increase the number
of shares reserved for issuance to 39,975,685; and
- the amendment of Maxtor's 1998 employee stock purchase plan to increase
the number of shares reserved for issuance to 8,000,000.
The approval by Maxtor stockholders of these two additional proposals is
not required in order for the merger proposal to be approved. If approved, the
amendments to the stock option plan and stock purchase plan will take effect
only if the merger is completed.
Quantum stockholders: You are being asked to vote to adopt two separate
proposals:
- adoption of the merger agreement and approval of the merger (which if
approved will include approval of all other transactions contemplated
thereby and will neces-
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sarily include the split-off of Quantum HDD); and
- the amendment of Quantum's restated certificate of incorporation to
delete all provisions relating to the class of common stock designated as
"Quantum Corporation -- HDDG Common Stock" and to amend and restate other
provisions to reflect the absence of tracking stock, as applicable.
The approval of Quantum's second proposal stated above is not required in
order for the merger proposal to be approved. If approved, the amendment to the
restated certificate of incorporation will take effect only if the merger is
completed.
Q4: WHY ARE WE PROPOSING THE MERGER?
A: The boards of Maxtor and Quantum each believe that the combination of
Maxtor and Quantum HDD will create a stronger, more competitive hard disk drive
company, by:
- creating significant opportunities for cost reduction through the
integration of the operations of the two hard disk drive businesses and
the elimination of redundant overhead expenses and duplicate sales,
marketing, and administrative functions;
- expanding the combined company's product line to provide a broad
portfolio of products, including products for desktop personal computers,
Intel-based servers, consumer electronics applications, and network
attached storage devices;
- allowing the combined company to take advantage of the complementary
products, channels, partners, technology, logistics, critical skills, and
manufacturing approaches of Maxtor and Quantum HDD;
- providing the combined company with a materially stronger balance sheet
than either Maxtor or Quantum HDD has standing alone; and
- providing the combined company with additional resources through cost
savings to explore emerging and higher-profit storage opportunities, such
as Intel-based server hard disk drives, network attached storage
appliances, sub-3.5-inch hard disk drives, and storage services.
Quantum further believes that the split-off of Quantum HDD will benefit
Quantum DSS by:
- removing any potential balance sheet risk arising from Quantum HDD
obligations; and
- allowing Quantum DSS to participate in a higher growth segment space by
allowing management to focus on emerging markets and technologies.
A discussion of additional reasons for the merger appears on pages 53 to 58
of this joint proxy statement/prospectus under the heading, "Reasons for the
Merger."
Q5: WHY DOES THE MERGER AGREEMENT PROVIDE FOR THE AMENDMENT OF MAXTOR'S
RESTATED CERTIFICATE OF INCORPORATION?
A: Maxtor's restated certificate of incorporation will be amended and
restated as part of the merger to eliminate until the 2004 annual meeting the
requirement that the Maxtor classes of directors be as nearly equal in number as
possible. This amendment is being made in order to make it clear that, although
Quantum HDD stockholders will hold more than 50% of Maxtor's outstanding voting
stock immediately following the merger, these stockholders would not be able to
take control of the Maxtor board of directors at any time earlier than the third
annual meeting after the merger in 2003. This provision confirms and gives
effect to the parties' intent that Maxtor would be the acquiring party in the
merger.
Maxtor's restated certificate of incorporation will also be amended and
restated as part of the merger to increase the authorized number of shares of
its common stock to 525,000,000. Maxtor currently has approximately 105,000,000
shares available for issuance. The increase in the authorized number of shares
by 275,000,000 will assure that sufficient shares are available to be issued in
connection with the merger, and that an adequate number of shares of common
stock will be available for issuance upon the exercise of options for up to
approximately 20,000,000 shares of Maxtor common stock assumed in the merger,
for future issuance under Maxtor's equity compensation plans and for other
purposes that the Maxtor board deems necessary or appropriate.
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These two amendments to Maxtor's restated certificate of incorporation will
take effect only if the merger is completed.
Q6: WHY IS QUANTUM PROPOSING TO AMEND ITS RESTATED CERTIFICATE OF
INCORPORATION?
A: Quantum is proposing to amend and restate its restated certificate of
incorporation because, following the completion of the merger, it will consist
of only Quantum DSS and there will be no further need for separate business
group tracking stocks. Therefore, Quantum intends to delete all provisions in
its restated certificate of incorporation relating to the class of common stock
designated as "Quantum Corporation -- HDDG Common Stock" and to amend and
restate other provisions to reflect the absence of tracking stock, as
applicable. If approved, this amendment will take effect only if the merger is
completed.
Q7: WHEN WILL THE PROPOSED SPLIT-OFF OF QUANTUM HDD OCCUR?
A: If the Maxtor and Quantum stockholders vote to approve the merger and
all of the other conditions to the merger are satisfied or waived, Quantum will
split off Quantum HDD immediately prior to the closing of the merger. The
parties will close as promptly as practicable after the special meeting, subject
to obtaining necessary regulatory approvals and satisfying all closing
conditions. Either party may terminate the merger if the closing has not
occurred prior to June 30, 2001.
If either the Maxtor stockholders or the Quantum stockholders do not vote
to approve the merger, or the merger is otherwise abandoned, then the proposed
split-off will not occur, neither Maxtor's nor Quantum's restated certificate of
incorporation will be amended in any way, and neither Maxtor's 1996 stock option
plan nor its 1998 employee stock purchase plan will be amended.
Q8: IF I AM A HOLDER OF QUANTUM HDD COMMON STOCK, WHEN SHOULD I SEND IN MY
STOCK CERTIFICATES FOR EXCHANGE?
A: Please do not send in your stock certificates with your proxy card. You
must keep your stock certificates until after the merger has been completed,
when you will receive a letter of transmittal describing how you may exchange
your Quantum HDD stock certificates for certificates representing shares of
Maxtor common stock. At that time, you will submit your Quantum HDD stock
certificates to the exchange agent with your completed letter of transmittal.
Q9: HOW DOES MY BOARD OF DIRECTORS RECOMMEND THAT I VOTE ON THE PROPOSALS?
A: Maxtor stockholders: The Maxtor board of directors unanimously
recommends that you vote FOR all three proposals submitted by the Maxtor board.
Quantum stockholders: The Quantum board of directors unanimously recommends
that you vote FOR both of the proposals submitted by the Quantum board.
Q10: WHAT VOTE IS REQUIRED TO APPROVE THE PROPOSALS?
A: Maxtor stockholders: Proposal No. 1, the proposal for the adoption of
the merger agreement and approval of the merger, will require the affirmative
vote of holders of a majority of the outstanding shares of Maxtor common stock
entitled to vote at the Maxtor special meeting. If you abstain or do not
instruct your broker how to vote, your abstention or broker non-vote will have
the same effect as a vote against the merger proposal.
Proposal Nos. 2 and 3, the proposals to amend the stock option plan and
stock purchase plan, will require the affirmative vote of holders of a majority
of the votes present or represented by proxy and entitled to vote at the special
meeting, at which a quorum is present. Abstentions will have the same effect as
a negative vote, whereas broker non-votes will not count as a vote either for or
against either of these proposals.
Quantum stockholders: Both Quantum proposals require:
- the affirmative vote of holders of a majority of the outstanding shares
of Quantum common stock entitled to vote at the Quantum special meeting;
and
- the affirmative vote of holders of a majority of the outstanding shares
of Quantum HDD common stock, voting as a separate class, entitled to vote
at the meeting.
In addition, pursuant to the merger agreement, Proposal No. 1 requires the
affirmative vote
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of holders of a majority of the votes present or represented by proxy and
entitled to vote Quantum DSS common stock at the special meeting, voting as a
separate class.
If you abstain or do not instruct your broker how to vote, your abstention
or broker non-vote will have the same effect as a vote against the merger
proposal and the proposal for the amendment of the amended and restated
certificate of incorporation.
Q11: WHAT DO I NEED TO DO NOW?
A: After you read and consider the information in this document, mail your
signed proxy card in the enclosed return envelope as soon as possible so that
your shares may be represented at the appropriate special stockholders' meeting.
You should return your proxy card whether or not you plan to attend your special
meeting.
Q12: WHAT DO I DO IF I WANT TO CHANGE MY VOTE AFTER I HAVE SENT IN MY PROXY
CARD?
A: You can change your vote at any time before your proxy is voted at the
special meeting. You can do this in one of three ways. First, you can send a
written notice stating that you would like to revoke your proxy. Second, you can
complete and submit a new proxy card at a later date. If you choose either of
these methods, you must submit your notice of revocation or your new proxy card
to Maxtor or Quantum, as the case may be, before your special meeting. Finally,
you can attend your special meeting and vote in person. Simply attending your
special meeting, however, will not revoke your proxy. If you have instructed a
broker to vote your shares, you must follow directions received from your broker
to change your vote.
Q13: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER
VOTE MY SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on
how to vote. If you do not provide your broker with instructions on how to vote,
your broker non-votes will have the same effect as votes against approval of the
merger. You should follow the directions provided by your broker regarding how
to instruct your broker to vote your shares.
Q14: WHAT CONSTITUTES A QUORUM AT THE SPECIAL STOCKHOLDERS' MEETINGS?
A: A quorum is a majority of the outstanding shares entitled to vote which
are present or represented by proxy at the special meetings. A quorum must exist
for the transaction of business at the special meetings. If you submit a
properly executed proxy card, even if you abstain from voting, your shares will
be considered part of the quorum. Broker non-votes, which are shares held by a
broker or nominee that are represented at the special meeting, but with respect
to which the broker or nominee is not empowered to vote on a proposal, are also
included in determining the presence of a quorum.
Q15: WHO CAN I CALL WITH QUESTIONS?
A: If you have any questions about the merger or how to submit your proxy,
or if you need additional copies of this joint proxy statement/prospectus or the
enclosed proxy card or voting instructions, you should contact the individuals
listed below:
Maxtor stockholders:
You should contact:
MAXTOR CORPORATION
510 Cottonwood Drive
Milpitas, California 95035
Attn: Jenifer Kirtland, Investor Relations
(408) 432-4270
E-Mail: [email protected]
If you have additional questions about the solicitation of your proxy by
Maxtor, you should contact:
MACKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (call collect) or
(800) 322-2885
Quantum stockholders:
You should contact:
QUANTUM CORPORATION
500 McCarthy Boulevard
Milpitas, California 95035
Attention: Renee Budig
(408) 324-7044
E-Mail: [email protected]
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If you have additional questions about the solicitation of your proxy by
Quantum, you should contact:
MORROW & CO., INC.
445 Park Avenue
New York, New York 10022-2606
(212) 754-8000 (call collect) or
(800) 654-2468
Maxtor, DiamondMax, and the Maxtor logo are registered trademarks of Maxtor
Corporation. MaxAttach and Reflect-It are trademarks of Maxtor. Quantum,
Fireball, Atlas and the Quantum logo are registered trademarks of Quantum
Corporation. DLTtape is a trademark of Quantum. Other product and brand names
are trademarks or registered trademarks of their respective holders.
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SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS
This summary highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information that is
important to you. Even though we have highlighted what we believe is the most
important information, we encourage you to read the entire joint proxy
statement/prospectus for a complete understanding of the proposed merger with
Maxtor after the proposed split-off of Quantum HDD. You should also review the
other available information referred to in "Where You Can Find More
Information," beginning on page 139.
THE COMPANIES
MAXTOR
Maxtor designs, develops, manufactures, sells, and supports hard disk
drives for desktop computer systems. Maxtor's DiamondMax product family consists
of 3.5-inch hard disk drives for the desktop market segment with storage
capacities of up to 80 gigabytes. These products provide industry leading
benchmark performance and storage capacity to the personal computer marketplace.
Maxtor's customers are desktop computer manufacturers, including Apple, Compaq,
Dell, Fujitsu, Hewlett Packard, IBM, and NEC; distributors, including Bell
Micro, Ingram Micro, and Xander; and retailers, including Best Buy, Comp USA,
and Staples.
Maxtor also designs, develops, manufactures, sells, and supports entry
level and mid-range network attached storage products. Maxtor's MaxAttach
product family consists of the NAS 3000 with storage capacities of up to 160
gigabytes, the NAS 4000 with storage capacities of up to 320 gigabytes, and
Reflect-It backup software.
Maxtor has manufacturing facilities in Singapore, design and development
facilities in Milpitas, California and Longmont, Colorado, and sales and support
offices in the United States, Canada, Europe and Asia Pacific.
The Maxtor common stock that holders of Quantum HDD common stock will
receive as a result of the merger is traded and quoted on The Nasdaq National
Market under the market symbol "MXTR."
Maxtor's principal executive offices are located at 510 Cottonwood Drive,
Milpitas, California 95035. Maxtor's telephone number is (408) 432-1700.
QUANTUM
Quantum operates its business through two separate business groups: Quantum
HDD and Quantum DSS. Since August 3, 1999, Quantum common stock has consisted of
two classes which track separately the performance of the two business groups:
Quantum HDD common stock and Quantum DSS common stock.
Quantum HDD designs, develops, markets, and supports hard disk drives for
the desktop computer systems and for larger computers and servers. Quantum HDD's
Fireball product family consists of 3.5-inch hard disk drives for the desktop
computer systems market with storage capacities which range up to 40 gigabytes.
Quantum HDD's Atlas product family consists of 3.5-inch hard disk drives for the
enterprise server market with storage capacities which range up to 73 gigabytes.
Quantum HDD's customers include original equipment manufacturers Apple, Compaq,
Dell, Fujitsu, Gateway, Hewlett-Packard, IBM, and NEC; and distributors Bell
Micro, Computer 2000, Ingram Micro and Wyle Electronics.
Matsushita-Kotobuki Electronics Industries, Ltd., or MKE, manufactures all
of Quantum HDD's hard disk drives at facilities located in Japan and Singapore.
MKE's state-of-the-art manufacturing process is highly automated, employing
integrated computer networks and advanced control systems.
Quantum HDD maintains design and development facilities in Shrewsbury,
Massachusetts and Milpitas, California and sales and support facilities in the
United States, Canada, Europe, and Asia Pacific.
Quantum DSS designs, develops, manufactures, licenses, services, and
markets DLTtape drives, DLTtape media cartridges, and storage solutions. Quantum
DSS' storage solutions consist of DLTtape libraries, network attached storage
solutions, solid state storage systems, and service. Digital Linear Tape, or
DLTtape, is Quantum
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DSS' half-inch tape technology that is the industry standard for mid-range UNIX
and NT system backup and archive applications. Quantum DSS recently introduced a
new family of tape drive products based on Super DLTtape technology, targeted to
serve workgroup, mid-range and enterprise business needs.
Quantum DSS's tape libraries are part of its Enterprise Solutions business
and serve the entire tape library data storage market from desktop computers to
enterprise class computers. Quantum DSS offers a broad line of automated tape
libraries which are used to manage, store and transfer data in enterprise
networked computing environments. Quantum DSS is a leading provider of network
attached storage, or NAS, solutions for workgroups. Quantum DSS's NAS appliances
offer a combination of interoperability, reliability, ease of use and
cost-effectiveness that it believes to be better suited to the storage needs of
workgroups than other storage alternatives.
Both Quantum HDD common stock and Quantum DSS common stock trade on the New
York Stock Exchange, under the symbols "HDD" and "DSS," respectively. Following
the merger, Quantum DSS common stock will continue to trade on the New York
Stock Exchange under the symbol "DSS".
Quantum's principal executive offices are located at 500 McCarthy
Boulevard, Milpitas, California 95035. Quantum's telephone number is (408)
894-4000.
RISK FACTORS (PAGE 25)
The "Risk Factors" beginning on page 25 should be considered carefully by
both Maxtor and Quantum stockholders in evaluating whether to adopt the merger
agreement and the transactions it contemplates. These risk factors should be
considered along with any additional risk factors in documents incorporated by
reference in this joint proxy statement/prospectus and any other information
included or incorporated by reference herein.
THE STRUCTURE OF THE MERGER (PAGE 76)
SEPARATION. Immediately prior to the merger, Quantum will separate and
transfer the Quantum HDD business to Spinco in exchange for all of Spinco's
common stock. In order to effect the separation, Quantum, Spinco, and Maxtor
will execute the following agreements:
- a separation and redemption agreement;
- a general assignment and assumption agreement;
- a tax sharing and indemnity agreement;
- an intellectual property agreement;
- an indemnification agreement; and
- a transitional services agreement.
The separation of Quantum HDD, followed by the merger of Spinco (which will
then own Quantum HDD) into Maxtor, is intended to allow Quantum to separate
Quantum HDD from Quantum DSS and transfer Quantum HDD's assets to Spinco which
will merge with Maxtor, all without Quantum, Spinco or Maxtor incurring
corporate-level federal income tax or state income or franchise tax.
REDEMPTION. As a part of the separation, each share of Quantum HDD common
stock will be redeemed in return for a share of Spinco common stock. This will
be a book-entry redemption and no Spinco common stock certificates will be
issued.
MERGER. Immediately following the redemption, Spinco will merge into
Maxtor. Each share of Spinco common stock will be converted into the right to
receive 1.52 shares of Maxtor common stock, subject to possible adjustment as
described below.
TAX CONSEQUENCES (PAGE 76)
MAXTOR STOCKHOLDERS AND MAXTOR
Neither Maxtor stockholders nor Maxtor will recognize gain or loss for
United States federal income tax purposes in connection with the merger.
QUANTUM STOCKHOLDERS AND QUANTUM
Neither Quantum stockholders nor Quantum will recognize gain or loss for
United States federal income tax purposes in connection with the merger. Subject
to the qualifications, limitations, and assumptions set forth in the opinion,
Ernst & Young LLP has opined that none of Quantum, Spinco or the holders of
Quantum
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HDD common stock should recognize gain or loss
for United States federal income tax purposes, or for state income or franchise
tax purposes in the three states in which Quantum principally does business, in
connection with the separation or the redemption (either by themselves or in
conjunction with the merger) under Section 355 of the Internal Revenue Code and
the corresponding provisions of those three states' tax laws.
THE MERGER AGREEMENT (PAGE 91)
The merger agreement is attached as Annex A to this joint proxy
statement/prospectus. We encourage you to read the merger agreement as it is the
legal document that governs the merger.
CONVERSION OF SECURITIES; EXCHANGE RATIO ADJUSTMENT (page 91). In the
merger, each share of Spinco common stock (which the holders of Quantum HDD
common stock will receive in the redemption) will be converted into the right to
receive 1.52 shares of Maxtor common stock. However, Maxtor may increase the
exchange ratio above 1.52 to the extent it determines such an increase is
necessary or advisable in order to have reasonable assurance that the shares of
Maxtor common stock to be issued to former Quantum HDD stockholders will, in the
aggregate, represent at least 50.1% and, in the sole discretion of Maxtor's
board of directors, up to not more than 51.0%, of the combined voting power of
all shares of Maxtor common stock immediately after the merger.
CONDITIONS TO THE MERGER (page 99). Completion of the merger depends upon
the satisfaction of a number of conditions, including:
- approval of the merger and the proposed transactions thereunder by the
stockholders of both Maxtor and Quantum;
- expiration or early termination of the waiting period applicable to the
completion of the merger under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, or HSR Act, and the receipt of clearance for
the merger under the applicable laws of any foreign countries or
governing bodies;
- re-issuance by Ernst & Young LLP, without any adverse qualifications or
modifications, of its opinion, originally issued at the time the merger
agreement was entered into, to the effect that (either by itself or in
conjunction with the merger) the split-off should not give rise to
federal income tax, or state income or franchise tax in the three states
in which Quantum principally does business, for Quantum, Spinco or the
holders of Quantum HDD common stock under Section 355 of the Internal
Revenue Code and the corresponding provisions of those three states' tax
laws;
- the continuation in full force and effect of an insurance policy that has
been issued to cover the risk that the transaction will give rise to
federal income tax or state income or franchise tax;
- receipt by each of Maxtor and Quantum of an opinion of its counsel to the
effect that the merger will be treated as a tax-free reorganization under
the Internal Revenue Code; and
- approval for quotation on The Nasdaq National Market of the shares of
Maxtor common stock to be issued in the merger.
NO SOLICITATION (page 95). Subject to certain exceptions, neither Maxtor
nor Quantum may solicit or support any proposal for a merger or similar
transaction involving any third party, participate in negotiations or
discussions concerning any proposed acquisition by a third party, provide any
non-public information to any third party relating to any proposed acquisition
or approve or recommend any proposed acquisition by a third party.
TERMINATION (page 99). Either Maxtor or Quantum can terminate the merger
agreement if the merger is not completed by June 30, 2001, and in various other
circumstances.
EXPENSES (page 101). In general, all fees and expenses incurred in
connection with the merger agreement and the transactions it contemplates shall
be paid by the party incurring such expenses, whether or not the merger is
completed.
TERMINATION FEE (page 101). Maxtor and Quantum each have agreed that if the
merger agreement is terminated under certain circumstances, one party will pay
to the other a termination fee of $35 million.
SEPARATION DOCUMENTS
In order to effect the separation, Quantum, Spinco (whose obligations will
be succeeded to by
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Maxtor in the merger) and Maxtor will execute at the time of the separation the
following agreements (collectively, the "separation documents"):
SEPARATION AND REDEMPTION AGREEMENT (PAGE 103)
The separation agreement will outline the general terms and conditions of
the separation of Spinco from Quantum and the redemption of all outstanding
shares of Quantum HDD common stock in exchange for Spinco common stock. On the
separation date, Quantum will transfer to Spinco substantially all of the assets
and liabilities relating to Quantum HDD. Each share of Quantum HDD common stock
outstanding on the redemption date will be redeemed in return for one share of
Spinco common stock.
GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT (PAGE 104)
The assignment agreement will identify which assets and liabilities
relating to Quantum HDD Quantum will transfer to Spinco and Spinco will accept
from Quantum as part of the separation. This agreement will also describe when
and how the transfer will occur.
TAX SHARING AND INDEMNITY AGREEMENT (PAGE 107)
The tax sharing agreement will provide for the allocation between Quantum
and Maxtor of tax liabilities relating to pre-merger Quantum HDD. This agreement
will also contain provisions requiring Maxtor to indemnify Quantum for any taxes
and related liabilities arising from:
- the conduct of Quantum before its recapitalization creating two classes
of tracking stock and the conduct of Quantum HDD before the redemption,
up to certain limits;
- any transactions undertaken by Quantum in preparation for the redemption;
- the redemption, except for liabilities resulting from acquisitions of
Quantum stock, or actions taken by Quantum, after the redemption, net of
insurance proceeds received by Quantum; and
- the payment by Spinco or Maxtor of the foregoing Quantum liabilities.
INTELLECTUAL PROPERTY AGREEMENT (PAGE 108)
Under the intellectual property agreement, Quantum will grant to Spinco
absolute ownership of certain proprietary and intellectual property rights in
and associated with Quantum HDD, and a non-exclusive, world-wide, irrevocable,
paid-up and royalty-free license to use other proprietary and intellectual
property rights in and associated with Quantum HDD. In addition, Spinco will
grant to Quantum a non-exclusive, world-wide, irrevocable, paid-up and
royalty-free license to other specified proprietary intellectual property rights
in and associated with Quantum HDD for use other than in hard disk drives.
Quantum and Spinco will mutually agree to refrain from asserting against one
another any claims of infringement for a period of ten years following the
separation date. Also, Quantum and Spinco will agree to maintain the
confidentiality of the other party's confidential information.
INDEMNIFICATION AGREEMENT (PAGE 109)
Under the indemnification agreement, Quantum and Spinco will agree to
indemnify each other from specified liabilities.
TRANSITIONAL SERVICES AGREEMENT (PAGE 109)
The transitional services agreement will govern the provision of services
needed by either Quantum or Maxtor as a result of the separation for a period of
up to two years after the merger. The transitional services agreement also
governs the sharing of space and post-closing transfers of interests in real
property.
RELATIONSHIP WITH MKE (PAGE 72)
MKE is the exclusive long-term manufacturer of hard disk drives for Quantum
HDD. Under the separation documents, the manufacturing and purchase agreements
between Quantum and MKE will not be assigned to Spinco and Maxtor will have no
rights or obligations under those agreements. On October 2, 2000, Maxtor and MKE
entered into a memorandum of understanding regarding the future relationship
between the combined company and MKE. The parties have agreed that prior to the
merger they will work together to negotiate and re-assign the manufacturing and
purchase agreements currently in place with Quantum to Maxtor.
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Maxtor's Singapore manufacturing operations and world-wide supplier base
will continue to be an essential part of the combined company's design and
manufacturing strategy.
TREATMENT OF STOCK OPTIONS AND RESTRICTED STOCK
MAXTOR PLANS (PAGE 71)
Maxtor's equity compensation plans include its amended and restated 1996
stock option plan, its 1998 restricted stock plan and its 1998 employee stock
purchase plan. The merger constitutes a "change of control" or "transfer of
control" of Maxtor under its equity compensation plans. Maxtor will continue in
effect all options, restricted stock grants and purchase rights outstanding
under these plans following the merger and accordingly there will be no effect
under these plans resulting from the merger.
QUANTUM PLANS (PAGE 72)
Under the terms of the merger agreement, Maxtor has agreed to assume the
following options and restricted stock:
- all Quantum HDD options and Quantum HDD restricted stock held by Quantum
employees transferred to Spinco, whether or not their options or
restricted stock have vested;
- vested Quantum HDD options and vested Quantum HDD restricted stock held
by individuals who formerly provided services to Quantum; and
- vested Quantum HDD restricted stock held by any other individual.
Outstanding Quantum HDD options assumed by Maxtor will be converted into
options to purchase Maxtor common stock according to the exchange ratio. As of
November 16, 2000, vested Quantum HDD options being assumed in the merger would
represent options for up to 9,914,790 shares of Maxtor common stock and unvested
Quantum HDD options for Quantum HDD common stock being assumed in the merger
would represent options for up to 10,089,747 shares of Maxtor common stock, with
the final number of options assumed depending on the number of shares subject to
options held by transferred employees and Quantum employees terminated prior to
the merger (and excluding vested options in Quantum HDD common stock held by
Quantum DSS employees).
Transferred employees holding vested Quantum DSS options will have a period
of time to exercise those options. Unvested Quantum DSS options held by
transferred employees will be converted into shares of Quantum DSS restricted
stock, which will vest as to 50% of the shares after three months (or earlier
upon an involuntary or constructive termination) and as to the remaining 50% of
the shares, ratably over the succeeding nine-month period, subject to continued
employment by Maxtor.
All outstanding Quantum HDD options, whether vested or unvested, and all
unvested Quantum HDD restricted stock held by individuals other than transferred
employees and former service providers, will be converted into Quantum DSS
options and Quantum DSS restricted stock.
If a transferred employee holding unvested Quantum DSS options refuses to
convert such unvested Quantum DSS options to Quantum DSS restricted stock, the
unvested Quantum DSS options will terminate. If an individual other than a
transferred employee or former service provider holding Quantum HDD options
(whether vested or unvested) or unvested Quantum HDD restricted stock refuses to
convert Quantum HDD options and Quantum HDD restricted stock into Quantum DSS
options and Quantum DSS restricted stock, the Quantum HDD options will terminate
and the Quantum HDD restricted stock shall be forfeited.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
MAXTOR PERSONS (PAGE 71)
Some of Maxtor's executive officers are parties to change of control
agreements pursuant to which the merger constitutes a change of control. If
Maxtor terminates the employment of the chief executive officer without cause
within 12 months after the merger, all of his unvested stock options and
restricted stock shall become 100% vested. If Maxtor terminates the employment
of any such other executive officers without cause within 12 months after the
merger, their option vesting will be accelerated by an additional two years and
their restricted stock will be vested
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50% or prorated based upon the number of months from the restricted stock
amendment date, whichever is greater. In addition, Maxtor will owe severance
payments of 24 months to the chief executive officer and 12 months for other
executives.
QUANTUM PERSONS (PAGE 71)
Some of the directors and officers of Quantum participate in arrangements
and have continuing indemnification against liabilities that provide them with
interests in the merger that are different from, or are in addition to, your
interests.
Some of Quantum's executive officers are entitled to severance payments if
they are terminated primarily because of the merger within nine months following
the merger. Under the merger agreement, Maxtor has agreed to pay a portion of
such severance.
Under the merger agreement, Maxtor has agreed to honor Quantum's
obligations under indemnification agreements between Quantum and its officers
and directors in effect before the merger and any indemnification provisions of
Quantum's restated certificate of incorporation and bylaws. Maxtor has also
agreed to provide for indemnification provisions in the certificate of
incorporation and bylaws of the surviving corporation of the merger that are at
least as favorable as Quantum's provisions and to maintain these provisions for
at least six years after the merger. In addition, Maxtor has agreed to maintain
director and officer liability insurance for any claims in connection with the
merger agreement covering persons covered by Quantum's directors' and officers'
insurance for six years following the merger, provided that Maxtor is not
required to pay more than 150% of the current premium for Quantum's insurance.
MAXTOR BOARD COMPOSITION (PAGE 75)
At the closing of the merger:
- Maxtor's board of directors will be reduced from eight to seven
directors;
- two existing directors, Y.H. Kim and C.S. Chung, will resign; and
- Michael A. Brown, chairman and chief executive officer of Quantum, will
be appointed to the Maxtor board.
At the closing, the Maxtor board will consist of Dr. C.S. Park (chairman),
Michael R. Cannon, Charles Hill, Thomas L. Chun, Roger W. Johnson, Charles F.
Christ and Michael A. Brown. In addition, the classes of the Maxtor board of
directors will be adjusted so that two directors, Dr. C.S. Park and Michael R.
Cannon, will have a term expiring at the annual meeting of stockholders to be
held in 2001; one director, Michael A. Brown, will have a term expiring at the
annual meeting of stockholders to be held in 2002; and the four other directors
will have terms expiring at the annual meeting of stockholders in 2003.
RELATIVE PERCENTAGES OF OWNERSHIP
Immediately after the merger, the former holders of Quantum HDD common
stock will hold at least 50.1%, but not more than 51%, of the outstanding common
stock of Maxtor. The holders of Maxtor common stock will hold the remaining 49%
to 49.9% of the outstanding Maxtor common stock immediately after the merger.
FAIRNESS OPINIONS OF FINANCIAL ADVISORS
OPINION OF MAXTOR'S FINANCIAL ADVISOR (PAGE 58)
In deciding to approve the merger, the Maxtor board of directors considered
the opinion of its financial advisor Salomon Smith Barney that, as of the date
of its opinion and subject to the assumptions, qualifications and limitations
set forth in its opinion, the exchange ratio for the merger was fair, from a
financial point of view, to Maxtor. The full text of this opinion is attached as
Annex B to this joint proxy statement/prospectus. Maxtor urges its stockholders
to read the opinion of Salomon Smith Barney in its entirety.
OPINION OF QUANTUM'S FINANCIAL ADVISOR (PAGE 65)
In deciding to approve the merger, the Quantum board of directors
considered the opinion of its financial advisor Lehman Brothers that, as of the
date of its opinion and based on and subject to the assumptions, considerations,
and limitations stated in its opinion, the exchange ratio to be offered to the
holders of Quantum HDD common stock in the split-off and the
11
<PAGE> 21
merger was fair, from a financial point of view, to the Quantum HDD
stockholders. The full text of this opinion is attached as Annex C to this joint
proxy statement/prospectus. Quantum stockholders may read the opinion of Lehman
Brothers in its entirety.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
MAXTOR BOARD (PAGE 46)
The Maxtor board of directors believes that the proposed merger is fair to,
advisable for, and in the best interest of Maxtor and its stockholders, has
unanimously voted to approve the merger agreement, and unanimously recommends
that Maxtor stockholders vote FOR the adoption of the merger agreement and
approval of the merger, including all transactions contemplated thereby. The
Maxtor board of directors also unanimously recommends that Maxtor stockholders
vote FOR the approval of the amendment to Maxtor's stock option plan to increase
the number of shares reserved for issuance thereunder to 39,975,685 and FOR the
approval of the amendment to Maxtor's stock purchase plan to increase the number
of shares reserved for issuance thereunder to 8,000,000.
QUANTUM BOARD (PAGE 48)
The Quantum board of directors believes that the merger is fair to,
advisable for, and in the best interest of Quantum and its stockholders, has
unanimously voted to approve the merger agreement, and unanimously recommends
that Quantum stockholders vote FOR the adoption of the merger agreement and
approval of the merger and FOR the amendment of Quantum's restated certificate
of incorporation to delete all provisions relating to the class of common stock
designated as "Quantum Corporation -- HDDG Common Stock" and to amend and
restate other provisions to reflect the absence of tracking stock, as
applicable.
REQUIRED STOCKHOLDER APPROVALS
MAXTOR PROPOSALS (PAGE 44)
For Maxtor, the affirmative vote of holders of a majority of the
outstanding shares of Maxtor common stock entitled to vote at the Maxtor special
meeting is required for adoption of the merger agreement and approval of the
merger. If you abstain or do not vote for this proposal, your abstention or
non-vote will have the same effect as a vote against the merger proposal.
Proposal Nos. 2 and 3 to amend the stock option plan and stock purchase
plan, respectively, will require the approval of the holders of a majority of
the votes present or represented by proxy and entitled to vote at the special
meeting, at which a quorum is present. If you abstain from voting on these
proposals, your abstention will have the same effect as a vote against the
proposals. Broker non-votes will not count as a vote either for or against any
of these proposals.
As of the record date, Maxtor directors and officers owned in the aggregate
approximately 2.75% of the outstanding shares, and Hyundai Electronics America
owned approximately 35% of the outstanding shares. Pursuant to voting
agreements, Hyundai Electronics America and each Maxtor officer and director
have agreed to vote all of his, her, or its shares in favor of the merger
proposal.
QUANTUM PROPOSALS (PAGE 47)
For Quantum, both proposals require the affirmative vote of holders of a
majority of the shares of outstanding Quantum common stock entitled to vote at
the Quantum special meeting, and the affirmative vote of holders of a majority
of the shares of outstanding Quantum HDD common stock, voting as a separate
class, entitled to vote at the meeting. In addition, pursuant to the merger
agreement, Proposal No. 1 requires the affirmative vote of holders of a majority
of the votes present or represented by proxy and entitled to vote Quantum DSS
common stock at the special meeting, voting as a separate class.
As of the record date, the directors and executive officers of Quantum
owned in the aggregate approximately 2.0% of the outstanding shares of Quantum
HDD common stock. Pursuant to voting agreements, each Quantum officer and
director has agreed to vote all of his or her shares in favor of the adoption of
the merger agreement and approval of the merger.
THE SPECIAL MEETINGS (PAGES 44 AND 47)
The special meeting of the stockholders of Maxtor will be held on
, February , 2001, at 10:00 a.m., local time, at
12
<PAGE> 22
the Sheraton San Jose Hotel, Palo Alto Room, 1801 Barber Lane, Milpitas,
California 95035.
The special meeting of the stockholders of Quantum will simultaneously be
held on , February , 2001, at 10:00 a.m., local time, at
Quantum Corporation Headquarters, 500 McCarthy Boulevard, Milpitas, California
95035.
TAX LOSS INSURANCE (PAGE 81)
Maxtor and Quantum have obtained a tax loss insurance policy from a
syndicate of major insurance companies. If Quantum sustains an "insured tax
loss" (as such term is defined in the policy, generally meaning federal income
tax, or state income or franchise tax, liability incurred as a result of the
split-off of Quantum HDD as part of the transaction that combines Quantum HDD
and Maxtor), the insurers will be contractually obligated to indemnify Quantum
for such loss (or indemnify Maxtor or Spinco, to the extent Maxtor or Spinco pay
the loss), up to the limits of the policy. The limits of insurance total $300
million, including expenses of a tax contest of up to $2 million. Maxtor has
paid the full insurance premiums in the amount of approximately $15.1 million.
In the event the merger agreement is terminated, Maxtor is entitled to receive
85% of the premium payments back from the insurers.
The policy has customary provisions with respect to procedures for making
claims and resolving disputes. The policy is also subject to a number of
customary conditions, exceptions, and exclusions. Moreover, the insurance will
not pay for a tax loss caused by a change in governing tax law material to the
insurers' liability. See "Material Federal Income Tax Consequences of the
Separation, the Redemption and the Merger," beginning on page 76.
ACCOUNTING TREATMENT (PAGE 82)
Maxtor will account for the merger of Quantum HDD utilizing the purchase
method of accounting. Under purchase accounting, Maxtor will measure the
purchase price at the fair value of the consideration given for the Quantum HDD
common stock and for options to purchase Quantum HDD common stock assumed by
Maxtor, plus the amount of direct transaction and merger restructuring costs.
Maxtor will allocate these costs to the individual assets acquired, including
tangible assets and various identifiable intangible assets such as acquired
technology, acquired trademarks and acquired workforce, and to in-process
research and development, based on their respective fair values, and liabilities
assumed, including estimated restructuring costs. Intangible assets, including
goodwill, will be generally amortized over a three- to seven-year period. The
portion of the purchase cost allocated to in-process research and development
will be charged to expense immediately upon closing of the transaction.
REGULATORY APPROVALS (PAGE 90)
The pre-closing waiting period applicable to the merger under the
Hart-Scott-Rodino Antitrust Improvements Act, or HSR Act, expired on December 9,
2000.
On December 8, 2000, the European Union announced that it has approved the
merger under the Merger Regulation of the Council of the European Union.
NO APPRAISAL RIGHTS (PAGES 46 AND 48)
Delaware law does not afford appraisal rights to holders of Maxtor shares
or Quantum shares in connection with the merger and, in Quantum's case, in
connection with the split-off.
13
<PAGE> 23
MAXTOR SELECTED HISTORICAL FINANCIAL INFORMATION
Maxtor's summary historical consolidated financial data as of and for the
fiscal year ended January 1, 2000, the fiscal year ended December 26, 1998, the
fiscal year ended December 27, 1997, the nine months ended December 28, 1996,
and the fiscal year ended March 30, 1996 has been derived from its consolidated
financial statements and related notes thereto incorporated herein by reference.
Maxtor's historical figures as of and for the nine months ended October 2, 1999
and September 30, 2000 have been derived from, and should be read in conjunction
with, Maxtor's condensed consolidated financial statements and the notes thereto
that are incorporated herein by reference. The results of operations for the
interim periods presented are unaudited and are not necessarily indicative of
the results to be expected for any other interim period or for the fiscal year
as a whole. However, in the opinion of Maxtor's management, the interim
financial data presented reflects all adjustments, consisting only of normal
recurring adjustments, necessary to present a fair statement of the results of
operations for all periods presented.
<TABLE>
<CAPTION>
FISCAL NINE MONTHS FISCAL FISCAL FISCAL NINE MONTHS ENDED
YEAR ENDED ENDED YEAR ENDED YEAR ENDED YEAR ENDED -------------------
MARCH 30, DEC. 28, DEC. 27, DEC. 26, JAN. 1, OCT. 2, SEP. 30,
1996 1996(1)(5) 1997(2)(5) 1998(3) 2000(4) 1999 2000
---------- ----------- ---------- ---------- ---------- -------- --------
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENT OF
OPERATIONS DATA(1)(2)(3)(4)(5):
Revenue.............................. $1,269.0 $ 798.9 $1,424.3 $2,408.5 $ 2,486.1 $1,795.5 $1,977.7
Cost of revenue...................... 1,196.3 888.9 1,352.9 2,108.1 2,287.3 1,678.9 1,706.6
-------- ------- -------- -------- ---------- -------- --------
Gross profit (loss)................ 72.7 (90.0) 71.4 300.4 198.8 116.6 271.1
-------- ------- -------- -------- ---------- -------- --------
Operating expenses:
Research and development............. 94.7 87.8 106.2 152.4 191.5 140.9 171.1
Selling, general and
administrative..................... 82.8 60.7 62.6 75.8 89.3 64.2 74.9
Stock compensation expense........... -- -- -- 12.1 2.5 2.0 0.7
Acquired in-process technology....... -- -- -- -- 7.0 7.0 --
Amortization of goodwill and other
intangible assets.................. -- -- -- -- 3.1 0.6 7.6
Other................................ 4.5 -- -- -- -- -- --
-------- ------- -------- -------- ---------- -------- --------
Total operating expenses....... 182.0 148.5 168.8 240.3 293.4 214.7 254.3
-------- ------- -------- -------- ---------- -------- --------
Income (loss) from operations........ (109.3) (238.5) (97.4) 60.1 (94.6) (98.1) 16.8
Interest expense..................... (11.8) (18.0) (36.5) (28.8) (13.7) (10.0) (10.4)
Interest and other income............ 1.1 1.0 25.0 7.4 15.6 11.5 21.8
Gain on sale of investment........... -- -- -- -- 44.1 44.1 --
-------- ------- -------- -------- ---------- -------- --------
Income (loss) before income taxes.... (120.0) (255.5) (108.9) 38.7 (48.6) (52.5) 28.2
Provision for (benefit from) income
taxes.............................. 2.8 0.8 1.0 7.5 1.5 1.6 1.4
-------- ------- -------- -------- ---------- -------- --------
Net income (loss).................... $ (122.8) $(256.3) $ (109.9) $ 31.2 $ (50.1) $ (54.1) $ 26.8
======== ======= ======== ======== ========== ======== ========
Net income (loss) per
share -- basic..................... $ (5.94) $(17.62) $ (3.62) $ 0.81 $ (0.48) $ (0.53) $ 0.23
Net income (loss) per
share -- diluted................... $ (5.94) $(17.62) $ (3.62) $ 0.47 $ (0.48) (0.53) $ 0.22
Shares used in per share
calculation -- basic (in
thousands)......................... 20,677 14,552 30,350 38,295 105,503 102,891 114,907
Shares used in per share
calculation -- diluted (in
thousands)......................... 20,677 14,552 30,350 65,814 105,503 102,891 119,156
BALANCE SHEET DATA(5):
Total assets......................... $ 442.5 $ 314.5 $ 555.5 $ 863.4 $ 906.3 $ 862.3 $ 965.6
Total current liabilities............ $ 413.1 $ 412.9 $ 552.2 $ 548.9 $ 537.2 $ 498.8 $ 574.2
Long-term debt....................... $ 100.2 $ 229.1 $ 224.3 $ 145.0 $ 113.8 $ 113.2 $ 92.3
Total stockholders' equity
(deficit).......................... $ (71.1) $(327.5) $ (221.0) $ 169.4 $ 255.4 $ 250.3 $ 299.1
</TABLE>
-------------------------
(1) Maxtor changed its fiscal year during the period ended December 28, 1996 to
conform its fiscal year to that of Hyundai Electronics America.
(2) Includes recovery of a $20.0 million fully-reserved note.
(3) Total operating expenses, income from operations, income before income taxes
and net income for the year ended December 26, 1998 reflect a $12.1 million
compensation charge related to certain variable
14
<PAGE> 24
accounting features of our option plan. Without such charge, Maxtor would
have had total operating expenses of $228.2 million, income from operations
of $72.2 million, income before taxes of $50.8 million and net income of
$43.3 million. Maxtor's 1996 stock option plan was amended and restated to
remove the variable features and provide for fixed award options.
(4) The stock compensation charges relate to the removal of the 1996 stock
option plan's variable features. Maxtor will continue to incur such expense
until the year 2001.
(5) Subsequent to Maxtor's acquisition by Hyundai Electronics America in 1996,
all common shares of Maxtor were retired in exchange for Series A Preferred
Stock. As there were no common shares outstanding as of December 28, 1996
and limited common shares outstanding as of December 27, 1997, net loss per
share for the nine months ended December 28, 1996 and fiscal year ended
December 27, 1997 was presented as if all outstanding Series A Preferred
Stock was converted.
15
<PAGE> 25
QUANTUM CORPORATION SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
This summary of consolidated financial information of Quantum for fiscal
years 1996 to 2000 should be read together with Quantum's audited consolidated
financial statements contained in its annual report on Form 10-K. The summarized
financial information, other than the statement of operations data for fiscal
years 1996 and 1997 and the balance sheet data at March 31, 1996, 1997 and 1998,
was taken from these financial statements. Quantum's historical figures as of
and for the six months ended September 26, 1999 and October 1, 2000 have been
derived from, and should be read in conjunction with, Quantum's condensed
consolidated financial statements and the notes thereto that are incorporated
herein by reference. The results of operations for the interim period presented
are unaudited and are not necessarily indicative of the results to be expected
for any other interim period or for the fiscal year as a whole. However, in the
opinion of Quantum's management, the interim financial data presented reflects
all adjustments, consisting only of normal recurring adjustments, necessary to
present a fair statement of the results of operations for all periods presented.
A number of items affect the comparability of this information:
- The results of operations for the six months ended October 1, 2000
include the effect of a $15.9 million special charge reversal, of which
$15.8 million is included in cost of revenue and $0.1 million is included
in operating expenses. This reversal was primarily due to negotiated
lease cancellations and reduced severance and benefits due to attrition
and redeployment of certain employees.
- The results of operations for fiscal year 2000 include the effect of a
$59.4 million special charge, of which $57.1 million is included in cost
of revenue and $2.3 million is included in operating expenses, associated
with Quantum HDD's streamlining of its logistics model, change in
customer service strategy and consolidation of certain product
development programs. The results of operations for fiscal year 2000 also
include the effect of a $40.1 million special charge included in
operating expenses associated with Quantum DSS' strategy to reduce
overhead expenses and product cost including the transfer of volume
manufacturing to Penang, Malaysia.
- The results of operations for fiscal years 1999 and 2000 include charges
of $89 million and $37 million, respectively, for purchased in-process
research and development in connection with the acquisitions of ATL
Products, Inc. and Meridian Data, Inc., respectively.
- Through May 1997, Quantum consolidated the results of a recording heads
business acquired in October 1994. The recording heads business generated
losses from operations of $70 million, $110 million and $9 million in
fiscal years 1996 through 1998. In May 1997, Quantum sold a 51% interest
in these operations to MKE. Subsequent losses of this joint venture using
the equity method of accounting were $66 million in fiscal year 1998 and
$41 million in the first half of fiscal year 1999. In October 1998,
Quantum and MKE agreed to dissolve the joint venture and, as a result,
Quantum recorded a $101 million loss from the investment in the third
quarter of fiscal year 1999.
- The results of operations for fiscal year 1998 include the effect of a
$103 million special charge, primarily for inventory write-offs and
losses on purchase commitments, related to Quantum's high-end hard disk
drive products.
- The results of operations for the fiscal year 1996 include the effect of
a $209 million charge related to the transition of Quantum's high-end
products to MKE.
16
<PAGE> 26
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AT OR FOR THE YEAR ENDED MARCH 31, --------------------------
-------------------------------------------------------------- SEPTEMBER 26, OCTOBER 1,
1996 1997 1998 1999 2000 1999 2000
---------- ---------- ---------- ---------- ---------- ------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Revenue.................. $4,422,726 $5,319,457 $5,805,235 $4,902,056 $4,727,204 $2,208,359 $2,406,064
Gross profit............. 542,417 768,741 875,521 871,338 878,960 315,256 521,353
Research and development
expenses............... 239,116 291,332 321,741 353,223 365,204 182,886 185,890
Sales and marketing,
general and
administrative
expenses............... 207,558 235,878 258,395 284,876 357,768 168,394 197,743
Restructuring/special
charges (benefit)
included in operating
expenses............... 209,122 -- -- -- 42,421 2,338 (90)
Purchased in-process
research and
development expense.... -- -- -- 89,000 37,000 37,000 --
Income (loss) from
operations............. (113,379) 241,531 295,385 144,239 76,567 (75,362) 137,810
Loss from investee....... -- -- (66,060) (142,050) -- -- --
Net income (loss)........ $ (90,456) $ 148,515 $ 170,801 $ (29,535) $ 40,844 $ (54,372) $ 96,034
Net income (loss) per
share:
Basic.................. $ (0.87) $ 1.27 $ 1.25 $ (0.18) $ NM $ NM $ NA
Diluted................ $ (0.87) $ 1.04 $ 1.07 $ (0.18) $ NM $ NM $ NA
DLT & Storage Systems
group
Net income per share:
Basic.................. $ 0.34 $ 0.92 $ 1.64 $ 0.77 $ 0.89 $ 0.44 $ 0.60
Diluted................ $ 0.31 $ 0.75 $ 1.37 $ 0.73 $ 0.86 $ 0.42 $ 0.57
Hard Disk Drive group
Net income (loss) per
share:
Basic.................. $ (2.43) $ 0.70 $ (0.78) $ (0.90) $ (1.26) $ (1.53) $ 0.10
Diluted................ $ (2.43) $ 0.58 $ (0.78) $ (0.90) $ (1.26) $ (1.53) $ 0.09
BALANCE SHEET DATA
Property, plant and
equipment, net......... $ 364,111 $ 407,206 $ 285,159 $ 271,928 $ 236,685 $ 271,630 $ 232,409
Total assets............. 1,975,355 2,158,263 2,438,411 2,483,596 2,533,952 2,457,799 2,457,528
Total long-term debt,
convertible debt and
redeemable preferred
stock.................. 598,158 422,906 327,485 344,461 325,338 335,912 324,737
</TABLE>
-------------------------
NA=Not applicable
NM=Not meaningful
Net income (loss) per share for Quantum common stock for fiscal year 2000
and the six months ended September 26, 1999 is not meaningful because the amount
is for the period April 1, 1999 through August 3, 1999, the date of the tracking
stock recapitalization, and therefore would not be comparable with the preceding
fiscal years. Net loss per share for Quantum common stock for this period, basic
and diluted, is $(0.10).
Net income (loss) per share for Quantum DSS and Quantum HDD for the years
ended March 31, 1996 through 2000 and the six months ended September 26, 1999
are pro forma, assuming the recapitalization occurred at the beginning of the
earliest period presented.
17
<PAGE> 27
QUANTUM DSS SELECTED
HISTORICAL COMBINED FINANCIAL INFORMATION
This summary of combined financial information of Quantum DSS for fiscal
years 1996 to 2000 should be read together with Quantum DSS's audited combined
financial statements contained in Quantum's annual report on Form 10-K. The
summarized financial information, other than the statement of operations data
for fiscal years 1996 and 1997 and the balance sheet data at March 31, 1996,
1997 and 1998, was taken from these financial statements. Quantum DSS's
historical figures as of and for the six months ended September 26, 1999 and
October 1, 2000 have been derived from, and should be read in conjunction with
Quantum DSS's combined financial statements and the notes thereto that are
incorporated herein by reference. The results of operations for the interim
period presented are unaudited and are not necessarily indicative of the results
to be expected for any other interim period or for the fiscal year as a whole.
However, in the opinion of Quantum DSS's management, the interim financial data
presented reflects all adjustments, consisting only of normal recurring
adjustments, necessary to present a fair statement of the results of operations
for all periods presented.
A number of items affect the comparability of this information.
- The results of operations for fiscal year 2000 include the effect of a
$40.1 million special charge associated with Quantum DSS's strategy to
reduce overhead expenses and product costs including the transfer of
volume manufacturing to Penang, Malaysia.
- The results of operations for fiscal years 1999 and 2000 include charges
of $89 million and $37 million, respectively, for purchased in-process
research and development in connection with the acquisitions of ATL
Products, Inc. and Meridian Data, Inc., respectively.
- Prior to fiscal year 1999, almost all DLTtape media cartridges were sold
directly by Quantum DSS. However, beginning in fiscal year 1999,
increased DLTtape media availability allowed licensed third party DLTtape
media cartridge manufacturers to sell DLTtape media cartridges for which
Quantum DSS receives royalties. Royalty receipts by Quantum DSS are
reported as royalty revenue, which is significantly lower than the
equivalent DLTtape media cartridge product revenue for Quantum DSS.
However, this royalty model has generated income from operations
comparable to that generated by DLTtape media cartridge sales made
directly by Quantum DSS.
18
<PAGE> 28
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AT OR FOR THE YEAR ENDED MARCH 31, --------------------------
---------------------------------------------------------- SEPTEMBER 26, OCTOBER 1,
1996 1997 1998 1999 2000 1999 2000
-------- -------- ---------- ---------- ---------- ------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA
Product revenue........... $335,565 $719,925 $1,162,725 $1,181,273 $1,232,442 $ 603,381 $ 625,110
Royalty revenue........... -- 8,088 27,075 121,463 186,429 84,461 102,825
-------- -------- ---------- ---------- ---------- ---------- ----------
Total revenue........... 335,565 728,013 1,189,800 1,302,736 1,418,871 687,842 727,935
Gross profit.............. 126,610 270,339 502,214 579,919 648,890 321,856 317,673
Research and development
expenses................ 24,968 30,039 62,825 99,330 122,821 58,205 67,730
Sales and marketing,
general and
administrative
expenses................ 19,201 35,240 69,607 114,895 181,495 81,626 113,224
Special charge............ -- -- -- -- 40,083 -- --
Purchased in-process
research and development
expense................. -- -- -- 89,000 37,000 37,000 --
Income from operations.... 82,441 205,060 369,782 276,694 267,491 145,025 136,719
Net income................ $ 34,973 $107,460 $ 223,659 $ 122,991 $ 145,614 $ 72,525 $ 88,235
Net income per share:
Basic................... $ 0.34 $ 0.92 $ 1.64 $ 0.77 $ 0.89 $ 0.44 $ 0.60
Diluted................. $ 0.31 $ 0.75 $ 1.37 $ 0.73 $ 0.86 $ 0.42 $ 0.57
BALANCE SHEET DATA
Property, plant and
equipment, net.......... $ 30,135 $ 39,114 $ 57,399 $ 73,122 $ 78,137 $ 82,060 $ 84,763
Total assets.............. 238,337 437,925 792,070 1,013,643 1,086,004 1,102,861 1,119,449
Total long-term debt,
convertible debt and
redeemable preferred
stock................... 310,150 281,937 218,324 229,641 216,892 223,942 216,492
</TABLE>
Net income per share for Quantum DSS for the years ended March 31, 1996
through 2000 and the six months ended September 26, 1999 are pro forma, assuming
the tracking stock recapitalization occurred at the beginning of the earliest
period presented.
19
<PAGE> 29
QUANTUM HDD SELECTED HISTORICAL COMBINED FINANCIAL INFORMATION
This summary of combined financial information of Quantum HDD for fiscal
years 1996 to 2000 should be read together with Quantum HDD's audited combined
financial statements contained in Quantum's annual report on Form 10-K. The
summarized financial information, other than the statement of operations data
for fiscal years 1996 and 1997 and the balance sheet data at March 31, 1996,
1997 and 1998, was taken from these financial statements. Quantum HDD's
historical figures as of and for the six months ended September 26, 1999 and
October 1, 2000 have been derived from, and should be read in conjunction with
Quantum HDD's combined financial statements and the notes thereto that are
incorporated herein by reference. The results of operations for the interim
period presented are unaudited and are not necessarily indicative of the results
to be expected for any other interim period or for the fiscal year as a whole.
However, in the opinion of Quantum HDD's management, the interim financial data
presented reflects all adjustments, consisting only of normal recurring
adjustments, necessary to present a fair statement of the results of operations
for all periods presented.
A number of items affect the comparability of this information:
- The results of operations for the six months ended October 1, 2000
include the effect of a $15.9 million special charge reversal, of which
$15.8 million is included in cost of revenue and $0.1 million is included
in operating expenses. This reversal was primarily due to negotiated
lease cancellations and reduced severance and benefits due to attrition
and redeployment of certain employees.
- The results of operations for fiscal year 2000 include the effect of a
$59.4 million special charge, of which $57.1 million is included in cost
of revenue and $2.3 million is included in operating expenses, associated
with Quantum HDD's streamlining of its logistics model, change in
customer service strategy and consolidation of certain product
development programs.
- Through May 1997, Quantum HDD combined the results of a recording heads
business acquired from Digital Equipment Corporation in October 1994.
These operations generated operating losses of $70 million, $110 million
and $9 million in fiscal years 1996 through 1998. In May 1997, Quantum
sold a 51% interest in these operations to MKE. Subsequent losses of this
joint venture using the equity method of accounting were $66 million in
fiscal year 1998 and $41 million in the first half of fiscal year 1999.
In October 1998, Quantum and MKE agreed to dissolve the joint venture,
and, as a result, Quantum HDD recorded an additional $101 million loss
from the investment in the third quarter of fiscal year 1999.
- The results of operations for fiscal year 1998 include the effect of a
$103 million special charge, primarily for inventory write-offs and
losses on purchase commitments, related to Quantum HDD's high-end hard
disk drive products.
- The results of operations for fiscal year 1996 include the effect of a
$209 million charge related to the transition of Quantum HDD's high-end
products to MKE.
Quantum HDD currently has two primary product lines; desktop hard disk
drives and high-end hard disk drives. Quantum HDD has two separate business
units that support these two product lines. Quantum HDD's recording heads
operation was transferred to MKE and used in the manufacture of hard disk drives
for Quantum HDD. The value at which the recording heads were transferred was
recorded as an offset to cost of sales.
20
<PAGE> 30
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AT OR FOR THE YEAR ENDED MARCH 31, --------------------------
-------------------------------------------------------------- SEPTEMBER 26, OCTOBER 1,
1996 1997 1998 1999 2000 1999 2000
---------- ---------- ---------- ---------- ---------- ------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Business unit:
Desktop
Revenue........................ $3,349,735 $4,004,828 $3,981,614 $3,079,437 $2,784,808 $1,298,245 $1,330,503
Gross profit................... 511,390 565,681 453,278 232,036 129,429 (47,772) 111,388
Unit operating profit (loss)... 290,767 300,287 184,331 (49,132) (154,963) (194,557) (25,085)
High-end
Revenue........................ $ 737,426 $ 586,616 $ 633,821 $ 519,883 $ 526,771 $ 222,460 $ 356,857
Gross profit (loss)............ (73,974) (10,721) (80,790) 59,383 100,641 41,198 92,292
Unit operating profit (loss)... (416,620) (154,184) (250,136) (83,323) (35,961) (25,804) 26,176
Recording heads
Unit operating loss............ (69,967) (109,632) (8,592) -- -- -- --
Loss from investee............. -- -- (66,060) (142,050) -- -- --
Combined group
Revenue.......................... $4,087,161 $4,591,444 $4,615,435 $3,599,320 $3,311,579 $1,520,705 $1,687,360
Gross profit..................... 415,807 498,402 373,307 291,419 230,070 (6,574) 203,680
Research and development
expenses....................... 214,148 261,293 258,916 253,893 242,383 124,681 118,160
Sales and marketing, general and
administrative expenses........ 188,357 200,638 188,788 169,981 176,273 86,768 84,519
Restructuring/special charge
(benefit)...................... 209,122 -- -- -- 2,338 2,338 (90)
Income (loss) from operations.... (195,820) 36,471 (74,397) (132,455) (190,924) (220,361) 1,091
Net income (loss)................ $ (125,429) $ 41,055 $ (52,858) $ (152,526) $ (104,770) $ (126,871) $ 7,799
Net income (loss) per share:
Basic........................ $ (2.43) $ 0.70 $ (0.78) $ (1.90) $ (1.26) $ (1.53) $ 0.10
Diluted...................... $ (2.43) $ 0.58 $ (0.78) $ (1.90) $ (1.26) $ (1.53) $ 0.09
BALANCE SHEET DATA
Property, plant and equipment,
net.............................. $ 333,976 $ 368,092 $ 227,760 $ 198,806 $ 158,548 $ 189,570 $ 147,646
Total assets....................... 1,740,949 1,721,402 1,646,340 1,469,953 1,478,048 1,354,974 1,338,570
Total long-term debt, convertible
debt and redeemable preferred
stock............................ 288,008 140,969 109,161 114,820 108,446 111,970 108,245
</TABLE>
Net income (loss) per share for Quantum HDD for the years ended March 31,
1996 through 2000 and the six months ended September 26, 1999 are pro forma,
assuming the tracking stock recapitalization occurred at the beginning of the
earliest period presented.
21
<PAGE> 31
COMPARATIVE PER SHARE DATA
In the following tables, we provide you with certain historical per share
data and combined per share data on an unaudited pro forma basis after giving
effect to the merger assuming that 1.52 shares of Maxtor common stock are issued
in exchange for each share of Quantum HDD common stock. This data should be read
together with the selected historical financial data set forth herein and the
historical financial statements of Maxtor and Quantum HDD and the notes thereto
that are incorporated herein by reference. The pro forma information is
presented for illustrative purposes only. You should not rely on the pro forma
financial information as an indication of the combined financial position or
results of operations of future periods or the results that actually would have
been realized had the entities been a single entity during the periods
presented.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
---------------------------------- -------------------
DEC. 27, DEC. 26, JAN. 1, OCT. 2, SEP. 30,
1997 1998 2000 1999 2000
----------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
MAXTOR HISTORICAL DATA(D):
Net income (loss) per share -- basic.... $(58,112.64) $0.81 $(0.48) $(0.53) $0.23
Net income (loss) per
share -- diluted..................... $(58,112.64) $0.47 $(0.48) $(0.53) $0.22
Book value per share.................... $(29,227.29) $1.80 $ 2.25 $ 2.21 $2.58
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS ENDED NINE MONTHS ENDED
MARCH 31, --------------------
----------------------------------- SEP. 26, OCT. 1,
1998 1999 2000 1999 2000
------------ -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
QUANTUM HDD PROFORMA AND HISTORICAL
DATA(A)(D):
Net income (loss) per share -- basic... $(0.78) $(1.90) $(1.26) $(1.54) $0.31
Net income (loss) per
share -- diluted.................... $(0.78) $(1.90) $(1.26) $(1.54) $0.29
Book value per share................... $11.27 $ 9.45 $ 8.43 $ 8.93 $8.08
</TABLE>
Basic and diluted net income (loss) per share and weighted average common
shares for the twelve months ended March 31, 1998, 1999 and 2000 and the nine
months ended September 26, 1999 are pro forma and assume the recapitalization
occurred at the earliest period presented.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
----------------- ------------------
JANUARY 1, 2000 SEPTEMBER 30, 2000
----------------- ------------------
<S> <C> <C>
PRO FORMA COMBINED NET LOSS PER SHARE DATA(B)(C):
Per Maxtor common share -- basic......................... $(1.90) $(0.19)
Per Maxtor common share -- diluted....................... $(1.90) $(0.19)
Equivalent per Quantum HDD share -- basic................ $(2.89) $(0.29)
Equivalent per Quantum HDD share -- diluted.............. $(2.89) $(0.29)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------
SEPTEMBER 30, 2000
------------------
<S> <C> <C>
PRO FORMA COMBINED BOOK VALUE PER SHARE(B)(C)(D):
Per Maxtor share......................................... $ 5.86
Equivalent per Quantum HDD share......................... $ 8.91
</TABLE>
-------------------------
(A) The Quantum HDD financial information presented has been derived from its
financial statements; however, the interim periods shown above are presented
to conform more closely with Maxtor's fiscal year-end rather than the
historical presentation of Quantum HDD's fiscal year-end at March 31 and
nine months ended December 31. The net income of Quantum HDD of $17.0
million for the fiscal quarter ended March 31, 2000 has been included in
both periods presented.
(B) The pro forma combined per share information combines financial information
of Maxtor for the fiscal year ended January 1, 2000 and the nine months
ended September 30, 2000, with the financial information of Quantum HDD for
the fiscal year ended March 31, 2000 and the nine months ended
22
<PAGE> 32
October 1, 2000, respectively. This information also assumes the merger
occurred as of the beginning of the earliest period presented and was
accounted for using the purchase method.
(C) The unaudited equivalent Quantum HDD pro forma per share amounts are
calculated by multiplying the Maxtor combined pro forma per share amounts by
the exchange ratio of 1.52 per share.
(D) Historical book value per share is computed by dividing stockholders' equity
(deficit) by the number of shares of common stock outstanding at the end of
each period. Pro forma book value per share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of common stock
outstanding at the end of the period.
MARKET PRICE DATA AND DIVIDEND POLICY
Maxtor common stock has been trading on The Nasdaq National Market under
the symbol "MXTR" since July 31, 1998. From January 1996 until July 31, 1998,
Maxtor was a wholly owned subsidiary of Hyundai Electronics America, and its
common stock was not available on the open market. Quantum common stock was
traded in the over-the-counter market under the Nasdaq symbol "QNTM" from
December 3, 1982 through August 3, 1999. On August 4, 1999, Quantum common stock
was divided into two tracking stocks, with each representing a distinct line of
business. Quantum DSS common stock currently trades on the New York Stock
Exchange under the symbol "DSS." Quantum HDD common stock currently trades on
the New York Stock Exchange under the symbol "HDD." This table sets forth, for
the calendar quarters indicated, the range of high and low per share closing
prices for Maxtor common stock and Quantum HDD common stock as reported by The
Nasdaq National Market and the New York Stock Exchange, respectively.
<TABLE>
<CAPTION>
MXTR HDD
--------------- ---------------
HIGH LOW HIGH LOW
------ ----- ------ -----
<S> <C> <C> <C> <C>
2000
Fourth Quarter*........................................... $ -- $ -- $ -- $ --
Third Quarter............................................. 11.25 5.50 12.19 7.88
Second Quarter............................................ 13.75 9.81 12.69 9.31
First Quarter............................................. 14.69 6.25 11.69 6.31
------ ----- ------ -----
1999
Fourth Quarter............................................ $ 7.25 $4.94 $ 7.50 $5.63
Third Quarter............................................. 7.31 4.69 8.88 6.00
Second Quarter............................................ 8.25 4.53 NA NA
First Quarter............................................. 19.56 7.78 NA NA
------ ----- ------ -----
</TABLE>
-------------------------
* Through December , 2000
The following table sets forth the closing per share sales price of Maxtor
common stock and Quantum HDD common stock, as reported by The Nasdaq National
Market and the New York Stock Exchange, respectively, and the estimated
equivalent per share price, as explained below, of Maxtor common stock on
October 3, 2000, the last trading day before the public announcement of the
proposed merger, and on December , 2000:
<TABLE>
<CAPTION>
HDD ESTIMATED
EQUIVALENT PER
MXTR HDD SHARE PRICE
----- ----- --------------
<S> <C> <C> <C>
October 3, 2000...................................... $9.78 $9.56 $14.86
December , 2000....................................
</TABLE>
The estimated equivalent per share price of a share of Quantum HDD common
stock equals the exchange ratio of 1.52 multiplied by the price of a share of
Maxtor common stock. We urge you to obtain current market quotations for Maxtor
common stock and Quantum HDD common stock. We cannot assure you as to the market
prices of Maxtor common stock or Quantum HDD common stock at any time
23
<PAGE> 33
prior to the completion of merger or as to the market price of Maxtor common
stock at any time thereafter.
Following the merger, Maxtor common stock will continue to be quoted on The
Nasdaq National Market, and there will be no further market for Quantum HDD
common stock.
Neither Maxtor nor Quantum has paid cash dividends on its common stock.
24
<PAGE> 34
RISK FACTORS
You should carefully consider the risks described below regarding the
merger and Maxtor's business as combined with Quantum HDD following the merger,
together with all of the other information included in this joint proxy
statement/prospectus, before making a decision about voting on the proposals
submitted for your consideration.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this joint proxy statement/prospectus and in the
documents that are incorporated herein by reference, including the risk factors
in this section, contains forward-looking statements that involve risks and
uncertainties. These statements relate to, among other things, consummation of
the merger, future financial and operating results of the combined company and
benefits of the pending merger. In many cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue,"
or the negative of these terms and other comparable terminology. These
statements are only predictions. Actual results could differ materially from
those anticipated in these forward-looking statements as a result of a number of
factors, including the risk factors described below, elsewhere in this joint
proxy statement/prospectus and in the respective companies' periodic filings
with the Securities and Exchange Commission incorporated herein by reference.
Neither Maxtor nor Quantum is under any obligation (and each expressly disclaims
any such obligation) to update or alter its forward-looking statements, whether
as a result of new information, future events or otherwise. Before making a
decision regarding the merger, you should take into account that the occurrence
of the events described in these risk factors could harm Maxtor's or Quantum
DSS' business, operating results, and financial condition.
RISKS RELATED TO THE MERGER
FAILURE TO INTEGRATE SUCCESSFULLY THE BUSINESS OF QUANTUM HDD WITH MAXTOR COULD
HARM MAXTOR'S BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS.
After the merger, Maxtor and Quantum HDD, each of which had previously
operated independently of the other, will need to integrate their respective
operations. The integration will require significant efforts from each company,
including the coordination of their product plans, research and development, and
sales and marketing efforts. The combined company will have a large number of
employees in widely dispersed operations in California, Colorado, Massachusetts,
Singapore, Ireland, and other locations, which will increase the difficulty of
integrating operations. Quantum HDD and Maxtor personnel may leave because of
the merger. Quantum HDD or Maxtor customers, distributors, or suppliers may
terminate their arrangements with Quantum HDD or Maxtor, or demand amended terms
to these arrangements. The challenges involved in integrating the two businesses
include, but are not limited to, the following:
- retaining existing customers of each business;
- retaining and integrating management and other key employees of each of
Maxtor and Quantum HDD;
- coordinating research and development activities to permit efficient
time-to-market introductions and time-to-volume production for new
products and technologies;
- coordinating manufacturing operations in an optimum manner;
- integrating purchasing and procurement operations in multiple locations;
- combining product offerings and product lines in a common platform and
incorporating acquired technology into new products effectively and
quickly;
- integrating sales efforts so that customers can do business easily with
the combined company;
- transitioning all world-wide facilities to common accounting and
information technology systems;
25
<PAGE> 35
- developing and maintaining uniform standards, controls, procedures and
policies; and
- controlling the costs associated with integration.
It is not certain that Maxtor and Quantum HDD will be successfully
integrated in a timely manner or at all or that any of the anticipated benefits
will be realized. The risks of unsuccessful integration of the companies
include:
- impairment and/or loss of relationships with employees, customers and/or
suppliers;
- disruption of the combined company's business;
- distraction of management; and
- adverse financial results related to unanticipated expenses associated
with integration of the two businesses.
The combined company may not succeed in addressing these risks. Further,
neither Maxtor nor Quantum can assure you that the growth rate of the combined
company will equal the historical growth rates experienced by Maxtor or Quantum
HDD considered separately.
FAILURE OF THE MERGER TO ACHIEVE BENEFICIAL SYNERGIES COULD HARM THE BUSINESS
AND OPERATING RESULTS OF THE COMBINED COMPANY.
Maxtor and Quantum expect that the combination of Maxtor and Quantum HDD
will result in beneficial synergies for the combined company. Achieving these
anticipated synergies and the potential benefits underlying their reasons for
entering into the merger will depend on a number of factors, some of which
include:
- the ability of the combined company to reduce costs through elimination
of redundancies in sales, marketing and administrative services and
overhead expenses;
- the ability of the combined company to take advantage of complementary
products, channels, partners, technology, logistics, critical skills and
manufacturing approaches;
- the ability of the combined company to explore and pursue emerging and
higher-profit storage opportunities;
- the ability of the combined company to migrate to a common product
platform in the future;
- the ability of the combined company to manufacture in both MKE and
Maxtor's facilities; and
- the combined company's ability to execute successfully in time-to-market
introduction and time-to-volume production of high quality products at
competitive prices.
Even if Maxtor is able to integrate the operations of Quantum HDD, neither
Maxtor nor Quantum can assure you that the anticipated beneficial synergies will
be achieved. The failure to achieve anticipated synergies could harm the
business, financial condition and operating results of the combined company.
THE MERGER WILL RESULT IN SUBSTANTIAL DILUTION OF THE OWNERSHIP INTEREST OF
CURRENT MAXTOR STOCKHOLDERS.
Immediately following the merger, the current stockholders of Maxtor will
own between 49% and 49.9% of the outstanding common stock of Maxtor. This
represents substantial dilution of the ownership interest of the current Maxtor
stockholders. In addition, as a result of the merger, Maxtor will assume options
for up to approximately 20,000,000 shares of Maxtor common stock based on the
exchange ratio, of which as of November 16, 2000, options for up to
approximately 9,900,000 shares would be vested.
26
<PAGE> 36
THE RATIO FOR THE EXCHANGE OF QUANTUM SHARES FOR MAXTOR SHARES IS FIXED WITHIN A
NARROW RANGE AND WILL NOT BE ADJUSTED FOR CHANGES IN THE MARKET PRICE OF EITHER
COMPANY, WHICH COULD RESULT IN THE AGGREGATE VALUE OF THE MAXTOR COMMON STOCK TO
BE EXCHANGED FOR QUANTUM HDD COMMON STOCK AT THE TIME OF THE MERGER BEING
SUBSTANTIALLY GREATER THAN OR LESS THAN THE AGGREGATE VALUE OF MAXTOR COMMON
STOCK AT THE TIME THE MERGER AGREEMENT WAS EXECUTED.
The ratio of the number of shares of Maxtor common stock to be exchanged
for shares of Quantum HDD common stock is fixed within a narrow range and will
not be adjusted for fluctuations in the market prices of either company. Upon
completion of the merger, each share of Quantum HDD common stock will be
exchanged for approximately 1.52 shares of Maxtor common stock. Maxtor may,
prior to the closing, increase the exchange ratio to the extent that Maxtor
determines such increase to be necessary or advisable in order for the shares of
Maxtor common stock to be issued in the merger to represent at least 50.1%, but
not more than 51%, of the combined voting power of all shares of Maxtor common
stock that will be outstanding immediately following the merger. However, there
will be no adjustment to the exchange ratio for changes in the market price of
either Maxtor common stock or Quantum HDD common stock. In addition, neither
Maxtor nor Quantum may terminate the merger agreement solely because of changes
in the market price of either company's common stock.
The market prices of Maxtor common stock and Quantum HDD common stock are
by nature subject to the general price fluctuations in the market for publicly
traded equity securities, and in particular fluctuations in the market prices of
equity securities of hard disk drive equipment companies, and have experienced
significant volatility. Accordingly, you should obtain recent market quotations
for Maxtor common stock and Quantum HDD common stock in order to accurately
assess the market value of the Maxtor shares that will be issued in exchange for
the Quantum HDD shares.
THE COMBINED COMPANY'S REPORTED FINANCIAL RESULTS WILL SUFFER AS A RESULT OF
PURCHASE ACCOUNTING TREATMENT AND THE IMPACT OF AMORTIZATION OF GOODWILL AND
OTHER INTANGIBLES RELATING TO THE MERGER.
Maxtor will account for the merger of Quantum HDD utilizing the purchase
method of accounting. Under purchase accounting, Maxtor will measure the
purchase price at the fair value of the consideration given for Quantum HDD
common stock and options to purchase Quantum HDD common stock assumed by Maxtor,
plus the amount of direct transaction costs. Maxtor will allocate these costs to
the individual assets acquired, including tangible assets and various
identifiable intangible assets such as acquired technology, acquired trademarks
and acquired workforce, and to in-process research and development, based on
their respective fair values, and liabilities assumed including estimated
restructuring costs. Intangible assets, including goodwill, will be generally
amortized over a three- to seven-year period. The portion of the purchase price
allocated to in-process research and development will be charged to expense
immediately upon closing of the merger.
As described in the "Maxtor Unaudited Pro Forma Condensed Combined
Financial Statements," beginning on page 83, the amount of purchase
consideration allocated to goodwill and other intangibles is estimated to be
approximately $603.4 million. If goodwill and other intangible assets were
amortized in equal quarterly amounts over five years following completion of the
merger, the accounting charge attributable to these items would be approximately
$30.2 million per fiscal quarter or $120.7 million per fiscal year. As a result,
purchase accounting treatment of the merger will result in reduction in earnings
and earnings per share in the foreseeable future. This change could cause the
market price of Maxtor common stock to decline following the merger.
THE FINANCIAL RESULTS OF THE COMBINED COMPANY COULD SUFFER AS A RESULT OF THE
COSTS OF THE MERGER AND LIABILITIES ASSUMED BY MAXTOR IN THE MERGER.
Maxtor and Quantum expect to incur costs, including direct transaction and
restructuring expenses, of between $100 million and $180 million in connection
with the merger. If the benefits of the merger do not exceed the costs
associated with the merger, including any dilution to Maxtor stockholders
resulting from the issuance of shares of Maxtor common stock in the merger, the
combined company's financial results,
27
<PAGE> 37
could suffer, and the market price of Maxtor common stock could decline. In
addition, the merger of Quantum HDD into Maxtor, with Maxtor as the surviving
entity, will result in Maxtor assuming substantially all of the liabilities of
Quantum HDD at the time of the merger, except for certain excluded liabilities.
Claims asserted against Quantum HDD after the merger could negatively impact
Maxtor's operating results.
THE RIGHTS OF HOLDERS OF QUANTUM HDD COMMON STOCK WILL CHANGE AS A RESULT OF THE
MERGER.
Following the merger, holders of Quantum HDD common stock outstanding
immediately prior to the merger will become holders of Maxtor common stock.
There are differences between the rights of Maxtor stockholders under Maxtor's
restated certificate of incorporation and bylaws and the rights of Quantum HDD
stockholders under Quantum's restated certificate of incorporation and bylaws.
As a result of these differences, the holders of Quantum HDD common stock may
have less control over corporate actions proposed to be taken by Maxtor than
those holders had over corporate actions proposed to be taken by Quantum. The
following is a description of some of these differences:
- Maxtor's certificate of incorporation provides for a classified board of
directors of which only a portion of all of the members of the board of
directors are elected at each annual meeting of stockholders and
directors are removable only for cause;
- Maxtor's certificate of incorporation provides that the holders of at
least two-thirds of the shares of Maxtor common stock must approve
changes to some of the provisions contained in Maxtor's certificate of
incorporation;
- Maxtor's bylaws may only be amended by its stockholders if the amendment
is approved by the holders of at least two-thirds of the shares of Maxtor
common stock;
- Maxtor's certificate of incorporation does not permit holders of Maxtor
common stock to cumulate their votes in electing members of Maxtor's
board of directors;
- The holders of Maxtor common stock may not approve any action by written
consent; all actions must be approved at a stockholder meeting; and
- The holders of Maxtor common stock may not call a special meeting of
Maxtor stockholders; stockholder meetings may only be called by Maxtor's
board of directors, chairman of the board or chief executive officer.
For more information, see "Comparison of Rights of Holders of Maxtor Common
Stock and Quantum HDD Common Stock," beginning on page 113.
IF MAXTOR IS UNSUCCESSFUL IN ENTERING INTO MANUFACTURING AND PURCHASE AGREEMENTS
WITH MKE, THE COMBINED COMPANY'S OPERATING RESULTS COULD SUFFER.
As discussed in "Relationship with MKE," beginning on page 72, Maxtor and
MKE have entered into a memorandum of understanding regarding the future
relationship between Maxtor and MKE following the merger and have agreed to work
together to negotiate and re-assign the manufacturing agreement and supply
agreement currently in place between Quantum and MKE prior to closing. If Maxtor
is unsuccessful in negotiating a manufacturing and supply agreement with MKE
with terms acceptable to Maxtor, or in working out some arrangement for ordering
Quantum HDD hard disk drive products, the combined company may not have a source
of supply for adequate volume of those products, or it may be forced to accept
an agreement with terms disadvantageous to the combined company. In these cases,
the revenue of the combined company may be lower than projected, may not be
sufficient to cover the costs associated with the Quantum HDD business and the
combined company's operating results would suffer.
28
<PAGE> 38
THE COMBINED COMPANY'S BUSINESS, FINANCIAL CONDITION, AND OPERATING RESULTS MAY
SUFFER IF MATERIAL CONTRACTS OF QUANTUM HDD CANNOT BE ASSIGNED TO SPINCO OR
MATERIAL CONTRACTS OF MAXTOR ARE NOT CONTINUED FOLLOWING THE MERGER WITHOUT
ADVERSE CHANGES TO THEIR EXISTING TERMS AND CONDITIONS.
The existing material contracts under which Quantum HDD operates must be
either assigned from Quantum to Spinco or Maxtor must enter into new contracts
with these parties. In many cases, consent is required for the assignment or as
a result of the merger of Spinco into Maxtor. The parties to these contracts may
not be willing to assign them to Spinco at all or only on terms less favorable
than those currently in effect with Quantum. In addition, certain of Maxtor's
material contracts require the consent of the other party in connection with the
merger and without such consent or assignment the contract may be terminated. If
any of the parties to these contracts are unwilling to consent to the merger,
the combined company's business, financial condition and operating results could
suffer.
OFFICERS AND DIRECTORS OF QUANTUM WILL RECEIVE BENEFITS THAT MAY HAVE INFLUENCED
THEM TO SUPPORT OR APPROVE THE MERGER.
Some of the directors and officers of Quantum participate in arrangements
and have continuing indemnification against liabilities that give them interests
in the merger that are different from the interests of the stockholders of
Quantum, including the following:
- Some senior executive officers of Quantum will be entitled to severance
payments if they are terminated primarily because of the merger within 30
days prior to the closing or within nine months after the merger;
- Maxtor has agreed to honor Quantum's obligations under indemnification
agreements between Quantum and its officers and directors; and
- Maxtor and Quantum have agreed that Michael A. Brown, the current chief
executive officer of Quantum, will be designated by Quantum to serve on
Maxtor's board of directors following the merger.
For the above reasons, the directors and officers of Quantum may have been
more likely to approve the terms of the merger than if they did not have these
interests. In addition, Quantum's directors and officers hold both Quantum HDD
common stock and Quantum DSS common stock. Quantum HDD stockholders should
consider whether these interests may have influenced these directors and
officers to support or recommend the merger. See "Interests of Certain Persons
in the Merger -- Quantum Persons," beginning on page 71.
OFFICERS OF MAXTOR WILL RECEIVE BENEFITS THAT MAY HAVE INFLUENCED THEM TO
SUPPORT OR APPROVE THE MERGER.
Some officers of Maxtor participate in arrangements that give them
interests in the merger that are different from the interests of the
stockholders of Maxtor. Some officers of Maxtor are entitled to severance
benefits and accelerated vesting of options and/or restricted stock if they are
terminated by Maxtor within 12 months after the merger. For the foregoing
reasons, some of the officers of Maxtor may have been more likely to approve the
terms of the merger than if they did not have these interests. Maxtor
stockholders should consider whether these interests may have influenced these
officers to support or recommend the merger. See "Interests of Certain Persons
in the Merger -- Maxtor Persons," beginning on page 71.
IF THE MERGER IS CHALLENGED BY GOVERNMENTAL AUTHORITIES, THE MERGER MAY NOT
OCCUR OR MAY OCCUR ON LESS FAVORABLE TERMS IMPOSED BY THE GOVERNMENTAL
AUTHORITIES.
Before the merger may be completed, various approvals must be obtained from
or notifications submitted to governmental authorities in the United States and
abroad. These governmental entities may attempt to prevent the merger from
occurring or attempt to condition their approval of the merger, or of the
transfer to Maxtor of certain intellectual property, on the imposition of
certain regulatory conditions that may have the effect of imposing additional
costs on Maxtor or of limiting the combined company's
29
<PAGE> 39
revenues. In addition, it is possible that one or more individual states could
investigate and challenge the merger under federal or state law and attempt to
impose conditions. A third party also could challenge the merger on antitrust
grounds and neither Maxtor nor Quantum knows what the result of a third party
challenge might be. Any of these challenges or the imposition of regulatory
conditions could delay the merger and may make it more difficult for the
combined company to achieve some of the anticipated beneficial synergies of the
merger.
THE PENDENCY OF THE MERGER, OR FAILURE TO COMPLETE IT, COULD CAUSE MAXTOR'S
AND/OR QUANTUM HDD'S STOCK PRICE TO DECLINE AND COULD HARM EACH COMPANY'S
BUSINESS AND OPERATING RESULTS.
The merger agreement contains conditions which Maxtor and Quantum must meet
in order to complete the merger. In addition, the merger agreement may be
terminated by either Maxtor or Quantum under certain circumstances. If the
merger is not completed for any reason, Maxtor and Quantum may be subject to a
number of risks, including the following:
- depending on the reasons for termination, Maxtor may be required to pay
Quantum, or Quantum may be required to pay Maxtor, a termination fee of
$35 million;
- the market price of Maxtor common stock or Quantum HDD common stock may
decline due to the fact that the market may have assumed that the merger
would be completed;
- many costs related to the merger, such as legal, accounting, financial
advisor and financial printing fees, must be paid regardless of whether
the merger is completed; and
- there may be substantial disruption to the businesses of Maxtor and
Quantum and distraction of their respective workforces and management
teams.
In addition, in response to the announcement of the merger, customers or
suppliers of Maxtor or Quantum HDD may delay or defer product purchase or other
decisions. Any delay or deferral in product purchase or other decisions by
customers or suppliers could harm the business of the relevant company,
regardless of whether the merger is completed. Similarly, current and
prospective Maxtor or Quantum HDD employees may experience uncertainty about
their future roles with Maxtor until the merger is completed and Maxtor's
strategies with regard to the integration of operations of Maxtor and Quantum
HDD are announced or executed. Accordingly, the ability of Maxtor and Quantum
HDD to attract and retain key management, sales, marketing and technical
personnel could suffer.
TAX RISKS RELATED TO THE SPLIT-OFF AND MERGER
IF THE SPLIT-OFF AND MERGER OF QUANTUM HDD ARE NOT TAX-FREE, QUANTUM WILL INCUR
A SUBSTANTIAL TAX LIABILITY.
The structure of the combination of Maxtor with Quantum HDD -- namely, the
split-off of Quantum HDD from Quantum and the subsequent merger of Spinco (which
will then own Quantum HDD) into Maxtor -- is being used with the goal of
enabling Quantum to separate Quantum HDD from its other businesses and combine
Quantum HDD with Maxtor without incurring corporate-level federal income tax, or
state income or franchise tax, on the disposition of Quantum HDD. Maxtor and
Quantum have agreed not to request a ruling from the Internal Revenue Service,
or IRS, or any state tax authority confirming that this structure will not
result in any corporate-level federal income tax or state income or franchise
tax, to Quantum, Spinco or the holders of Quantum HDD common stock. Instead,
Maxtor and Quantum agreed to effect the split-off and the merger on the basis
of:
- an opinion from Ernst & Young, Quantum's tax advisors, to the effect
that, either by themselves or in conjunction with the merger, the
contribution and transfer of the assets and liabilities of Quantum HDD to
a newly formed subsidiary of Quantum and the redemption by Quantum of the
outstanding shares of Quantum HDD common stock in exchange for common
stock of the newly formed subsidiary should not result in any federal
income tax, or state income or franchise tax in the three states in which
Quantum principally does business, for Quantum, Spinco or the holders of
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Quantum HDD common stock under the relevant provisions of the Internal
Revenue Code and the corresponding provisions of those three states' tax
laws; and
- an insurance policy issued by a syndicate of major insurance companies
covering up to $300 million of the total federal income tax, or state
income or franchise tax, payable if Quantum sustains an "insured tax
loss" (as such term is defined in the policy) as a result of the
split-off of Quantum HDD as part of the transaction that combines Quantum
HDD and Maxtor.
An IRS ruling is not being obtained, and there are no IRS rulings or court
decisions that directly apply the relevant provisions of the Internal Revenue
Code to the proposed transactions. Further, there are no final Internal Revenue
Code regulations in effect under the section of the Internal Revenue Code that
specifically addresses the taxability of a split-off followed within two years
by a merger of the split-off business with a third party. Accordingly, neither
Maxtor nor Quantum can assure you as to the tax consequences of the split-off
and merger to Quantum. In an audit of Quantum after the merger, the IRS or a
state tax authority might assert that the redemption was a taxable disposition
of Quantum HDD by Quantum. If that position prevails, Quantum would incur a
substantial tax liability.
Although Quantum and Maxtor have obtained the Ernst & Young opinion and the
insurance policy described above, neither is a guaranty of the tax treatment of
the split-off and merger. The Ernst & Young opinion is the professional judgment
of Ernst & Young as to what the applicable federal income, and state income and
franchise, tax treatment should be and is not binding on the IRS or any other
tax authority. The IRS could take a position contrary to that expressed in Ernst
& Young's opinion. As noted above, the IRS has not adopted final regulations
under one of the key sections of the Internal Revenue Code that is related to
the tax treatment to Quantum of the split-off. Accordingly, adoption of the
proposed regulations in final form could affect the conclusions reached in Ernst
& Young's opinion. Although the merger agreement allows Maxtor or Quantum to
decline to complete the merger if Ernst & Young is unable to re-issue its
opinion at the time of the merger, it is possible that a change in the relevant
tax law could occur after the merger and be retroactive to the merger. See
"Material Federal Income Tax Consequences of the Separation, the Redemption and
the Merger," beginning on page 76.
IF THE SPLIT-OFF AND MERGER RESULT IN TAX BEING PAYABLE BY QUANTUM AND THE
INSURANCE POLICY DOES NOT COVER THE TAXES PAYABLE BY QUANTUM, MAXTOR'S AND/OR
QUANTUM'S BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS COULD SUFFER.
If the split-off and merger are taxable to Quantum, the insurance policy
may not cover the tax. In addition to customary exclusions from its coverage,
the insurance policy does not cover any federal or state tax payable by Quantum
if the split-off and merger become taxable to Quantum as a result of:
- a change in relevant tax law;
- an acquisition representing a 50% or greater interest in Quantum during
the two-year period following the merger, whether or not approved by
Quantum's board of directors;
- an acquisition representing a 50% or greater interest in Maxtor during
the two-year period following the merger, whether or not approved by
Maxtor's board of directors; or
- the number of shares of Maxtor common stock issued to holders of Quantum
HDD common stock not resulting in the holders of Quantum HDD common stock
collectively owning at least a majority of the outstanding shares of
Maxtor common stock immediately after the merger.
In addition, even if the insurance policy covers the circumstances giving
rise to the tax, the insurance proceeds (net of tax) may not be sufficient to
cover the entire amount of tax owed by Quantum. The amount of tax that would be
payable would be the amount by which the aggregate market value of Quantum HDD
(determined by reference to the trading value of Quantum HDD common stock on the
closing date) exceeds Quantum's tax basis in the assets comprising Quantum HDD,
and depending on what that amount is, the amount of tax for which insurance
proceeds net of taxes are not available may be substantial. If the split-off and
merger results in tax being payable by Quantum and the insurance policy
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does not cover the amount of the tax, or if the amount of the tax is
substantially greater than the proceeds of the insurance policy, Maxtor's and/or
Quantum's business, financial condition and operating results would suffer.
MAXTOR'S AGREEMENT TO INDEMNIFY QUANTUM FOR TAXES PAYABLE BY QUANTUM AS A RESULT
OF THE SPLIT-OFF AND MERGER COULD NEGATIVELY IMPACT THE OPERATIONS OF EITHER
COMPANY.
If Quantum is required to pay any federal or state income tax or state
franchise tax as a result of the split-off and merger, Maxtor has agreed to
indemnify Quantum for the amount of the tax not covered by insurance unless
imposition of the tax is the result of Quantum's actions, or acquisitions of
Quantum stock, after the merger. The amount of the tax not covered by insurance
could be substantial. Payment of the tax by Maxtor could cause Maxtor's
business, financial condition and operating results to suffer.
In addition, if it is ultimately determined that Quantum owes federal or
state tax as a result of the split-off and merger, Quantum will be obligated, as
the taxpayer, to pay the tax, whether or not the related claim under the
insurance policy is still pending. If the circumstances giving rise to the tax
are covered by Maxtor's indemnification obligations arise, Maxtor will be
required to pay Quantum the amount of the tax at the same time. Although a claim
may be made on the insurance policy, there may be a substantial period after
Maxtor pays Quantum for the tax before the outcome of the insurance claim is
finally known, particularly if the claim is denied by the insurance company and
the denial is disputed by Maxtor and/or Quantum. Moreover, the insurance company
could prevail in a coverage dispute. In any of these circumstances, Maxtor would
have to either use its existing cash resources or borrow money to cover its
obligations to Quantum. In either case, Maxtor's payment of the tax, whether
covered by insurance or not, could harm Maxtor's business, financial condition
and operating results.
If Maxtor is not able to make the payment to Quantum at the time that
Quantum is required to pay the tax or the circumstances giving rise to the tax
not covered by Maxtor's indemnification obligations, Quantum would nevertheless
be obligated, as the taxpayer, to make the tax payment, which could be
substantial. In order to pay the tax, Quantum would have to either deplete its
existing cash resources or borrow money to cover its tax obligation. Quantum's
payment of the tax prior to Maxtor's payment to it under Maxtor's
indemnification obligations, or in circumstances where those obligations do not
apply, could harm Quantum's business, financial condition and operating results.
TO AVOID POSSIBLY TRIGGERING A TAX OBLIGATION OF QUANTUM AS A RESULT OF THE
SPLIT-OFF AND MERGER, MAXTOR WILL HAVE TO ABIDE BY POTENTIALLY SIGNIFICANT
RESTRICTIONS WITH RESPECT TO ITS EQUITY SECURITIES FOR TWO YEARS AFTER THE
MERGER WHICH COULD HARM MAXTOR'S BUSINESS.
Under the federal tax rules applicable to the split-off/merger structure
being used for the combination of Maxtor and Quantum HDD, if Maxtor does not
wish to risk causing the merger to become taxable to Quantum under circumstances
in which the insurance policy will not cover the tax, Maxtor will have to
refrain from doing any of the following during the two-year period after the
merger because if it does any of the following during that period, Quantum will
have the burden, in any dispute with a tax authority, of rebutting the
presumption that it did so as part of the split-off plan:
- issue its voting securities to acquire other companies or businesses or
to raise financing for its operations or other business purposes; or
- issue its voting securities as equity compensation, such as the grant of
options or restricted stock, other than in the ordinary course of
business consistent with past practices.
Because of the foregoing restrictions, Maxtor may have to forego significant
growth and other opportunities and may be at a competitive disadvantage in
attracting and retaining key personnel which could harm its business. If Maxtor
does not comply with any of the foregoing restrictions and is unable to rebut
the presumption that it took any of these actions as part of the split-off plan,
the split-off will become taxable to Quantum and Maxtor will be required to pay
the amount of the tax to Quantum under its
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indemnification obligations but the insurance policy will not cover the tax.
Maxtor's payment of the tax could harm its business, financial condition and
operating results.
IF EITHER MAXTOR OR QUANTUM UNDERGOES A CHANGE OF CONTROL DURING THE TWO-YEAR
PERIOD AFTER THE MERGER, THE SPLIT-OFF COULD BECOME TAXABLE TO QUANTUM AND,
CONSEQUENTLY, BOTH MAXTOR AND QUANTUM MAY BE LESS ATTRACTIVE ACQUISITION
CANDIDATES FOR TWO YEARS.
Under the federal tax rules applicable to the split-off/merger structure
being used for the combination of Maxtor and Quantum HDD, if a 50% or greater
interest in either Maxtor or Quantum is acquired within two years after the
merger, the split-off will become taxable to Quantum under circumstances not
covered by the insurance policy unless Quantum can meet the burden, in any
dispute with a tax authority, of rebutting the presumption that the acquisition
was part of the split-off plan. If an acquisition of Maxtor triggered the tax,
then Maxtor would be required to pay Quantum for the amount of the tax under its
indemnification obligations to Quantum. If an acquisition of Quantum triggered
the tax, then Quantum would not be indemnified by Maxtor and would be required
to pay the tax. Neither Maxtor nor Quantum will have control over all the
circumstances under which an acquisition could occur.
Because of the restriction on acquisitions, each of Maxtor and Quantum:
- may have to forego significant growth and other opportunities;
- may not be deemed an attractive acquisition target reducing opportunities
for its stockholders to sell or exchange their shares in attractive
transactions which might otherwise be proposed; and
- will be restricted in its ability to initiate a business combination that
its board of directors might wish to pursue because it will not be able
to structure the transaction as an acquisition, even if that would
otherwise be the most attractive structure.
The foregoing effects of the restriction on acquisitions of Maxtor and
Quantum could have a negative impact on their respective businesses and
stockholder value.
RISKS RELATED TO THE QUANTUM DSS BUSINESS
QUANTUM MAY INCUR INCREASED COSTS AS A RESULT OF OPERATING SOLELY AS A DLTTAPE
AND STORAGE SOLUTIONS BUSINESS.
Quantum's operations have consisted of the DLTtape and storage solutions
business and the hard disk drive business. Quantum cannot assure holders of
Quantum DSS common stock that the operating results of the Quantum DSS business
alone will not be adversely affected by the loss of one or more of the following
attributes that Quantum HDD has given Quantum:
- the ability to leverage the expertise of Quantum HDD in areas related to
Quantum HDD's core competency in hard disk drives;
- the opportunity to jointly develop various products, such as online
storage solutions;
- the ability to more effectively enable and cost reduce data storage
solutions;
- use of the goodwill and brand recognition associated with Quantum HDD;
- the benefit of Quantum as a whole having a larger market capitalization
related to the two tracking stocks; and
- diversification associated with a single company serving the DLT tape,
storage solutions and hard disk drive markets.
It is possible that, because Quantum as a whole will not be able to provide
a data storage solution that includes Quantum HDD products, customers will seek
to find a more complete solution elsewhere. Any loss of the benefits provided by
the combination with the Quantum HDD business could seriously harm the operating
results of Quantum's DSS business and cause the price of Quantum DSS common
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stock to decline. Although Maxtor has agreed to hire, or pay the severance
associated with, 535 individuals employed by Quantum in its corporate division,
the Quantum DSS business may determine that the Quantum infrastructure,
including employees and assets, that will remain after the merger of Maxtor and
Quantum HDD is not in alignment with the requirements of the Quantum DSS
business and any such determination could result in significant charges
adversely impacting the operating results of Quantum DSS before or after the
merger.
QUANTUM'S DSS BUSINESS MAY EXPERIENCE DIFFICULTY ATTRACTING AND RETAINING
QUALITY EMPLOYEES WHICH MAY HURT ITS ABILITY TO OPERATE ITS BUSINESS
EFFECTIVELY.
The ability of Quantum DSS to maintain its competitive technological
position will depend, in large part, on its ability to attract and retain highly
qualified technical and managerial personnel. The combination of Quantum DSS and
Quantum HDD has resulted in faster growth and greater scale for Quantum. After
the split-off and merger, without the benefits of a combined business, Quantum
DSS may not experience the same success in attracting quality employees.
Competition for qualified personnel is intense. There is a risk that some key
employees will depart as a result of the split-off and merger. In addition, the
announcement of the proposed split-off of Quantum HDD may impede Quantum DSS'
ability to attract new employees. Lack of success in attracting qualified
employees could lead to lower than expected operating results and delays in the
introduction of new products and could have a negative effect on the ability of
Quantum DSS to support customers.
THE HISTORICAL FINANCIAL INFORMATION OF QUANTUM DSS MAY NOT BE REPRESENTATIVE OF
ITS FUTURE RESULTS AS A SEPARATE COMPANY.
The historical financial information of Quantum DSS does not necessarily
reflect what its financial position, operating results, and cash flows would
have been had it been a separate, stand-alone entity during the periods
presented. In addition, the historical information is not necessarily indicative
of what its operating results, financial position and cash flows will be in the
future. Quantum DSS has not made adjustments to reflect many significant changes
that may occur in its cost structure, funding and operations as a result of its
separation from Quantum HDD, including changes in its employee base, legal
structure, costs associated with reduced economies of scale, marketing expenses
related to establishing a new brand identity, and costs associated with being a
public, stand-alone company.
THE COMBINATION OF MAXTOR AND QUANTUM HDD WILL RESULT IN SIGNIFICANT DILUTION
AND SPECIAL COMPENSATION CHARGES RECORDED IN THE RESULTS FOR QUANTUM WHICH COULD
RESULT IN A DECLINE IN THE PRICE OF QUANTUM DSS COMMON STOCK.
All outstanding Quantum HDD options, whether vested or unvested, and all
unvested Quantum HDD restricted stock held by individuals other than employees
transferred to the combined company, Maxtor, and former service providers, will
be converted into Quantum DSS options and Quantum DSS restricted stock,
respectively. The intrinsic value of the Quantum DSS options granted and shares
of Quantum DSS restricted stock issued in the conversion will be equivalent to
the intrinsic value of the Quantum HDD options and restricted stock being
converted. Many of the Quantum DSS options issued in the conversion will have an
exercise price below the then current fair value of the Quantum DSS common
stock. The excess of the market value of the Quantum DSS common stock over the
exercise price of the Quantum DSS options will result in a special compensation
charge. The Quantum DSS restricted stock issued in the conversion will also
result in a special compensation charge for the market value of the stock. In
addition, the new shares of Quantum DSS restricted stock issued and certain of
the Quantum DSS stock options issued are expected to result in additional
dilution for Quantum DSS.
In conjunction with terminating unvested Quantum DSS options held by
employees who transfer to the combined company, Maxtor, or are terminated as
part of the merger, these options will be converted into shares of Quantum DSS
restricted stock. The fair value of the Quantum DSS restricted stock issued to
non-employees will result in a special compensation charge and additional
dilution for Quantum DSS.
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Unvested Quantum DSS restricted stock held by employees who transfer to the
combined company, Maxtor, will remain restricted stock held by those employees.
As these individuals will no longer be employees of Quantum, a special
compensation charge will be incurred.
Estimated dilution of approximately 6 million shares would result from
these transactions involving Quantum DDS stock options and restricted stock,
based on current stock and option values and estimates of Quantum employees who
will transfer to the combined company, Maxtor, or be terminated. The actual
dilution may vary significantly based on actual employee transfers and
terminations and the actual values of stock and options that are converted.
The special compensation charges and dilution that will result from these
transactions involving Quantum DSS stock options and restricted stock are
expected to be significant to Quantum's results and could therefore result in a
decline in the price of Quantum DSS common stock.
RISKS RELATED TO THE COMBINED COMPANY'S BUSINESS FOLLOWING THE MERGER
In addition to the risk factors related to the merger set forth above,
after the merger, the combined company will be subject to the following risks:
MAXTOR AND QUANTUM HDD HAVE A HISTORY OF LOSSES AND THE COMBINED COMPANY MAY NOT
ACHIEVE OR MAINTAIN PROFITABILITY.
Maxtor and Quantum HDD each has a history of significant losses. With the
exception of fiscal 1998 for Maxtor and fiscal 1997 for Quantum HDD, Maxtor and
Quantum HDD have incurred losses in each of the last five fiscal years. For the
nine months ended September 30, 2000, Maxtor had net income of $26.8 million and
an accumulated deficit of $765.1 million. For the three months ended October 1,
2000, Quantum HDD had a net loss of $8.7 million. Quantum HDD has no deficit.
Although Maxtor achieved profitability for the nine months ended September 30,
2000, neither Maxtor nor Quantum can assure you that the combined company will
either achieve or maintain profitability.
THE DECLINE OF AVERAGE SELLING PRICES IN THE HARD DISK DRIVE INDUSTRY COULD
CAUSE THE COMBINED COMPANY'S OPERATING RESULTS TO SUFFER AND MAKE IT DIFFICULT
FOR THE COMBINED COMPANY TO ACHIEVE PROFITABILITY.
It is very difficult to achieve and maintain profitability and revenue
growth in the hard disk drive industry because the average selling price of a
hard disk drive rapidly declines over its commercial life as a result of
technological enhancement, productivity improvement and increase in the industry
supply. End-user demand for the computer systems that contain Maxtor and Quantum
HDD hard disk drives has historically been subject to rapid and unpredictable
fluctuations. As a result, the hard disk drive market tends to experience
periods of excess capacity and intense price competition. When competitors lower
prices to liquidate excess inventories, restructure or attempt to gain market
share, average selling prices also decline. This intense price competition could
force the combined company to lower prices, which would reduce margins, cause
operating results to suffer and make it difficult for the combined company to
achieve profitability. In addition, the growth of the lower priced personal
computer market has forced the cost of desktop hard disk drives to decline. If
the combined company is unable to lower the cost of its hard disk drives for the
lower-priced personal computer market, it will not be able to compete
effectively and its operating results would suffer.
THE MARKET PRICE OF MAXTOR COMMON STOCK HAS BEEN HIGHLY VOLATILE.
The market price of Maxtor's common stock and the number of shares traded
each day has varied greatly. Such fluctuations may continue after the merger due
to factors including:
- quarterly fluctuations in operating results;
- announcements of new products by the combined company or its competitors;
- gains or losses of significant customers;
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- changes in stock market analysts' estimates;
- the presence or absence of short-selling of its common stock; and
- events affecting other companies that the market deems comparable to
Maxtor.
Maxtor's stock price also may be affected by events relating to Hyundai
Electronics America and its affiliates, including sales of Maxtor's common stock
by Hyundai Electronics America or the perception that such sales may occur due
to the financial condition of Hyundai Electronics America affiliates or
otherwise. Hyundai Electronics America has informed Maxtor that it may consider
selling additional Maxtor shares at a time it deems appropriate. Maxtor's stock
price also may be subject to extreme fluctuations in response to general
economic conditions in the United States, Korea, Southeast Asia and elsewhere,
such as interest rates, inflation rates, exchange rates, unemployment rates, and
trade surpluses and deficits. It is likely that in some future quarter or
quarters Maxtor's operating results will be below the expectations of stock
market analysts or investors. In that event, Maxtor's stock price will probably
decline.
In February 1999, DECS Trust IV, a newly formed trust, sold 12,500,000
DECS. The terms of the DECS provide that DECS Trust IV may distribute shares of
Maxtor common stock owned by Hyundai Electronics America on or about February
15, 2002, or upon earlier liquidation of DECS Trust IV under certain
circumstances. Maxtor does not know how or whether investors in the DECS
offering will resell the DECS. Any market that develops for the DECS could
reduce the demand for Maxtor's common stock or otherwise negatively impact the
market for Maxtor's common stock.
IF THE COMBINED COMPANY FAILS TO CONSISTENTLY EXECUTE ON ITS PRODUCT DEVELOPMENT
AND MANUFACTURING PROCESS, IT COULD LOSE MARKET SHARE.
Most Maxtor and Quantum HDD products are sold to desktop computer
manufacturers. These manufacturers select or qualify their hard disk drive
supplies based on quality, storage capacity, performance and price.
Manufacturers typically seek to qualify three or four suppliers for each hard
disk drive product generation. To qualify consistently with these manufacturers,
and thus succeed in the desktop hard disk drive industry, the combined company
must consistently be among the first-to-market introduction and first-to-volume
production at leading storage capacity per disk, offering competitive prices and
high quality. Once a manufacturer has chosen its hard disk drive suppliers for a
given desktop computer product, it often will purchase hard disk drives from
those suppliers for the commercial lifetime of that product line. If the
combined company misses a qualification opportunity, it may not have another
opportunity to do business with that manufacturer until it introduces its next
generation of products. The effect of missing a product qualification
opportunity is magnified by the limited number of high volume manufacturers of
personal computers. If the combined company does not reach the market or deliver
volume production in a timely manner, it may lose opportunities to qualify its
products. In such case, its gross margins would decline due to rapidly declining
average selling prices, and it would lose market share. Loss of market share
would have a negative impact on the combined company's business, financial
condition and operating results.
BECAUSE THE COMBINED COMPANY WILL BE SUBSTANTIALLY DEPENDENT ON DESKTOP COMPUTER
DRIVE SALES, A DECREASE IN THE DEMAND FOR DESKTOP COMPUTERS WOULD HARM ITS
BUSINESS.
Although there has been significant growth in the demand for desktop
computers over the past several years, according to International Data
Corporation, the growth rate in desktop computer sales has slowed in recent
fiscal quarters. Because the combined company will rely substantially on the
desktop segment of the personal computer industry, it will be affected more by
changes in market conditions for desktop computers than a company with a broader
range of products. Any decrease in the demand for desktop computers could reduce
the demand for the combined company's products, harming its business.
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IF THE COMBINED COMPANY'S NEW PRODUCT INTRODUCTIONS ARE NOT SUCCESSFUL, ITS
OPERATING RESULTS WILL SUFFER.
To remain a significant supplier of hard disk drives to major manufacturers
of personal computers, the combined company will need to offer a broad range of
hard disk drive products to its customers. Although the current products of
Maxtor and Quantum HDD are designed for the largest segment of the hard disk
drive industry, the desktop computer area, demand may shift to other segments
over time. Neither Maxtor nor Quantum products yet serve the laptop personal
computer segment. Accordingly, the combined company will need to develop and
manufacture new products that address additional hard disk drive segments and
emerging technologies to remain competitive in the hard disk drive industry.
Neither Maxtor nor Quantum can assure you that the combined company will:
- successfully or timely develop or market any new hard disk drives in
response to technological changes or evolving industry standards;
- avoid technical or other difficulties that could delay or prevent the
successful development, introduction or marketing of new hard disk
drives;
- successfully qualify new hard disk drives, particularly high-end hard
disk drives, with customers by meeting their performance and quality
specifications;
- quickly achieve high volume production of new hard disk drives; or
- achieve market acceptance of its new products.
Any failure of the combined company to successfully develop and introduce
new products for its existing customers or to address specifically additional
market segments could harm its business, financial condition and operating
results.
THE LOSS OF ONE OR MORE OF THE COMBINED COMPANY'S SIGNIFICANT CUSTOMERS WOULD
HARM THE COMBINED COMPANY'S BUSINESS AND OPERATING RESULTS.
Maxtor and Quantum HDD sell most of their respective products to a limited
number of customers. For the nine months ended September 30, 2000, two
customers, Dell and Xander, accounted for approximately 19% and 11%,
respectively, of Maxtor's revenue, and its top five customers accounted for
approximately 50% of its revenue. During the three month period ended October 1,
2000, two customers, Dell and Compaq, accounted for approximately 13% and 11%,
respectively, of Quantum HDD's revenue, and its top five customers accounted for
approximately 50% of its revenue. It is expected that a relatively small number
of customers will account for a significant portion of the combined company's
revenue after the merger, and the proportion of its revenue from these customers
could continue to increase in the future. These customers have a wide variety of
suppliers to choose from and therefore can make substantial demands on the
combined company. Even if the combined company successfully qualifies a product
for a given customer, the customer generally will not be obligated to purchase
any minimum volume of products from it and generally will be able to terminate
its relationship with the combined company at any time. The combined company's
ability to maintain strong relationships with its principal customers is
essential to its future performance. If it loses a key customer or if any of its
key customers reduce their orders of the combined company's products or require
it to reduce its prices before it is able to reduce costs, the combined
company's business, financial condition and operating results would suffer.
IF MAXTOR'S QUARTERLY RESULTS FLUCTUATE SIGNIFICANTLY MAXTOR'S STOCK PRICE COULD
DECLINE.
Maxtor's and Quantum HDD's quarterly operating results have fluctuated
significantly in the past and the combined company's quarterly operating results
may fluctuate significantly in the future. The combined company's future
performance will depend on many factors, including:
- the average selling price of its products;
- fluctuations in the demand for its products as a result of the cyclical
and seasonal nature of the desktop computer industry;
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- the availability, and efficient use, of manufacturing capacity;
- competitors introducing better products at competitive prices before it
does;
- new competitors entering its market;
- its ability to successfully qualify its products with its customers;
- its customers canceling, rescheduling or deferring orders;
- the combined company's ability to purchase components at competitive
prices;
- the availability of adequate capital resources; and
- other general economic and competitive factors.
Many Maxtor and Quantum HDD expenses are relatively fixed and difficult to
reduce or modify. As a result, the fixed nature of the combined company's
operating expenses will magnify any adverse effect of a decrease in revenue on
its operating results. As a result of these and other factors, Maxtor believes
that period to period comparisons of its and Quantum HDD's combined historical
results of operations are not a good predictor of the combined company's future
performance. If the combined company's future operating results are below the
expectations of stock market analysts, Maxtor's stock price may decline.
COSTLY NEW DEMANDS BY MAXTOR AND QUANTUM HDD CUSTOMERS ARE INCREASING THE RISK
OF INVENTORY OBSOLESCENCE AND DECLINING AVERAGE SELLING PRICES.
Maxtor and Quantum HDD customers are adopting more sophisticated business
models that place additional strains on their respective businesses. For
example, many personal computer manufacturers, including some of the largest
personal computer manufacturing customers, may adopt build-to-order
manufacturing models that reduce their component inventories and related costs
and enable them to tailor their products more specifically to the needs of
consumers.
Some Maxtor and Quantum HDD personal computer manufacturing customers also
are considering or have implemented a "channel assembly" model in which the
manufacturer ships a minimal computer system to the dealer or other assembler,
and component suppliers (including hard disk drive manufacturers) ship parts
directly to the dealer or other assembler for installation at its location.
Finally, some Maxtor and Quantum HDD manufacturing customers have adopted
just-in-time inventory management processes that require component suppliers to
maintain inventory at or near the customer's production facility. These new
business models require Maxtor and Quantum HDD to hold products in inventory
longer. These changing policies also increase Maxtor's and Quantum HDD's capital
requirements and costs, complicate inventory management strategies and make it
difficult to match manufacturing plans with projected customer demand. As a
result, there is an increased risk that inventory will become obsolete or
average selling price could decline either of which could cause the combined
company's operating results to suffer.
INTENSE COMPETITION IN THE HARD DISK DRIVE SEGMENT COULD HARM THE COMBINED
COMPANY'S BUSINESS.
The desktop computer market segment and the overall hard disk drive market
are intensely competitive even during periods when demand is stable. Maxtor and
Quantum HDD compete primarily with manufacturers of 3.5-inch hard disk drives
for the personal computer industry, including Fujitsu, IBM, Samsung, Seagate
Technology and Western Digital.
Quantum HDD also competes with manufacturers of high-capacity 3.5-inch hard
disk drives for high performance storage intensive applications, including
Fujitsu, Hitachi, IBM and Seagate Technology. Many competitors of Maxtor and
Quantum HDD historically have had a number of significant advantages, including
larger market shares, a broader array of product lines, preferred vendor status
with customers, extensive name recognition and marketing power, and
significantly greater financial, technical and manufacturing resources.
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Although the combined company is expected to be one of the largest hard
disk drive manufacturer, its size alone will not eliminate all of the advantages
of its competitors. Unlike Maxtor and Quantum HDD, some of their competitors
make many of their own components which may provide them with benefits including
lower costs. The competitors of the combined company also may:
- consolidate or establish strategic relationships among themselves to
lower their product costs or to otherwise compete more effectively
against it;
- lower their product prices to gain market share; or
- bundle their products with other products to increase demand for their
products.
In addition, new competitors could emerge and rapidly capture market share.
If the combined company fails to compete successfully against current or future
competitors, its business, financial condition and operating results will
suffer.
THE DEPENDENCY OF THE COMBINED COMPANY ON MKE TO MANUFACTURE A PORTION OF ITS
HARD DISK DRIVES AND ADVERSE DEVELOPMENTS IN THE RELATIONSHIP WITH MKE COULD
HARM THE COMBINED COMPANY'S OPERATING RESULTS.
Because Quantum HDD's hard disk drives are manufactured by MKE, the
combined company will depend on MKE to manufacture a significant portion of
Quantum HDD's existing products. As a result, the combined company will rely on
MKE to quickly achieve volume production of new hard disk drives at competitive
costs, to meet the combined company's quality requirements and to respond
quickly to product delivery schedules. If MKE fails to meet these requirements
the combined company's operating results could suffer. In addition, MKE's
production schedule is based on forecasts of purchase requirements. The combined
company may have limited rights to modify short-term purchase orders. The
failure of the combined company to accurately forecast its requirements or
successfully adjust MKE's production schedule could lead to inventory shortages
or surpluses. The combined company will have to negotiate pricing arrangements
with MKE on a quarterly basis. Any failure to reach competitive pricing
arrangements would also negatively impact the combined company's operating
results.
IF THE COMBINED COMPANY DOES NOT HAVE ADEQUATE MANUFACTURING CAPACITY IN THE
FUTURE, ITS BUSINESS COULD SUFFER.
Maxtor's volume manufacturing operations are based primarily in Singapore,
and MKE's volume manufacturing operations are based primarily in both Singapore
and Japan. A flood, earthquake, political instability or other disaster or
condition after the merger affecting either's facilities or ability to
manufacture could harm the combined company's business, financial condition and
operating results. In addition, the combined company will need to acquire
additional manufacturing capacity in the future. Maxtor's inability to add
capacity to allow it to meet customers' demands in a timely manner may limit the
combined company's future growth and could harm its business, financial
condition and operating results. The combined company's future growth will also
require that MKE continue to devote substantial financial resources to property,
plant and equipment to support the manufacture of a significant portion of the
combined company's products. If MKE is unable or unwilling to meet the combined
company's manufacturing requirements, an alternative manufacturing source may
not be available in the near term and the combined company's business, financial
condition and operating results would suffer.
BECAUSE MAXTOR AND MKE ARE DEPENDENT ON A LIMITED NUMBER OF SUPPLIERS, COMPONENT
SHORTAGES COULD DAMAGE THE BUSINESS AND OPERATING RESULTS OF THE COMBINED
COMPANY.
A number of the components used in Maxtor and Quantum HDD products are
available from a limited number of suppliers. Currently, Maxtor purchases
digital signal processor/controller and spin/servo integrated circuits only from
Texas Instruments, Inc. and purchases channel integrated circuits only from
Lucent Technologies Inc. MKE depends on a limited number of qualified suppliers
for components and subassemblies, including recording heads, media and
integrated circuits. MKE may qualify only a single
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source for some parts, magnifying the risk of component shortages. As in the
past, some required parts may be periodically in short supply. As a result, the
combined company will have to allow for significant ordering lead times for some
components. In addition, Maxtor may have to pay significant cancellation charges
to suppliers if it cancels orders for components because it reduces production
due to market oversupply, reduced demand, transition to new products or
technologies or for other reasons. Maxtor orders the majority of its components
on a purchase order basis and only has limited long-term volume purchase
agreements with some of its existing suppliers. If Maxtor and MKE cannot obtain
sufficient quantities of high quality parts when needed, the business, financial
condition and operating results of the combined company could suffer. In
addition, Maxtor's historical relationship with its suppliers may suffer as a
result of its new relationship with MKE.
IF MAXTOR IS UNABLE TO EFFECTIVELY INTEGRATE PARTS FROM THIRD PARTY SUPPLIERS
THE COMBINED COMPANY'S BUSINESS WOULD SUFFER.
Unlike some of Maxtor's competitors, Maxtor does not manufacture any of the
parts used in its products. Instead, its products incorporate parts designed by
and purchased from third party suppliers. Consequently, the success of its
products depends on Maxtor's ability to gain access to and integrate parts that
use leading-edge technology. To successfully manage the integration of parts,
Maxtor must:
- obtain high quality parts;
- hire skilled personnel;
- effectively integrate different parts from a variety of suppliers;
- manage difficult scheduling and delivery problems; and
- develop and maintain relationships with key suppliers.
If Maxtor is unable to successfully integrate parts obtained from third
party suppliers, the combined company's business would suffer.
THE LOSS OF KEY PERSONNEL COULD HARM THE COMBINED COMPANY'S BUSINESS.
The combined company's success depends upon the continued contributions of
key employees, many of whom would be extremely difficult to replace. Neither
Maxtor nor Quantum HDD has key person life insurance on any of its personnel.
Worldwide competition for skilled employees in the hard disk drive industry is
extremely intense. If the combined company is unable to retain existing
employees of Maxtor and Quantum HDD or to hire and integrate new employees, the
combined company's business, financial condition and operating results could
suffer. In addition, companies in the hard disk drive industry whose employees
accept positions with competitors often claim that the competitors have engaged
in unfair hiring practices. The combined company may be the subject of such
claims in the future as it seeks to hire qualified personnel and it could incur
substantial costs defending itself against those claims.
IF THE COMBINED COMPANY IS UNABLE TO RAISE MORE CAPITAL IN THE FUTURE ITS
BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS MAY SUFFER.
Maxtor's and Quantum HDD's respective businesses are capital intensive and
the combined company may need more capital in the future. The combined company's
future capital requirements will depend on many factors, including:
- the rate of its sales growth;
- the level of its profits or losses;
- the timing and extent of its spending to expand manufacturing capacity,
support facilities upgrades and product development efforts;
- the timing and size of business or technology acquisitions; and
- the timing of introductions of new products and enhancements to its
existing products.
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The combined company's ability to raise capital will be affected as a
result of the merger. To avoid triggering a tax obligation of Quantum as a
result of the split-off and merger, the combined company will be restricted in
its ability to issue additional equity to raise capital for two years after the
split-off and merger. (See the discussion of these restrictions in "Material
Federal Income Tax Consequences of the Separation, the Redemption and the
Merger -- Consequences to Quantum," beginning on page 79.) Any future equity
financing will decrease the percentage equity ownership of the stockholders of
the combined company and may, depending on the price at which the equity is
sold, result in significant economic dilution to them. The combined company's
board of directors will be authorized under its charter documents to issue
preferred stock with rights, preferences or privileges senior to those of the
common stock without stockholder approval.
As a result of the restrictions on its ability to raise money through
equity financings after the merger, the combined company may be required to
borrow money to meet its capital requirements. Although Maxtor currently does
not have a revolving credit facility, it may need such a facility in the future.
Maxtor 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 has decreased recently, and that the
terms on which the remaining potential lenders are willing to offer such
facilities, in many cases, are restrictive and costly. Consequently, the terms
and conditions under which the combined company might obtain such a facility are
uncertain. Any failure to obtain adequate credit facilities on acceptable terms
could harm the combined company's business, financial condition and operating
results.
PROTECTION OF THE COMBINED COMPANY'S INTELLECTUAL PROPERTY IS LIMITED AND WE
RISK THIRD PARTY CLAIMS OF INFRINGEMENT.
Maxtor and Quantum HDD have patent protection on some of their respective
technologies. After the merger, the combined company may not receive patents for
its pending or future patent applications, and any patents that it owns or that
are issued to it may be invalidated, circumvented or challenged. Moreover, the
rights granted under any such patents may not provide the combined company with
any competitive advantages. Finally, the combined company's competitors may
develop or otherwise acquire equivalent or superior technology.
Maxtor and Quantum HDD also rely on trade secret, copyright and trademark
laws, as well as the terms of their respective contracts to protect their
proprietary rights. The combined company may have to litigate to enforce patents
issued or licensed to it, to protect trade secrets or know-how owned by it or to
determine the enforceability, scope and validity of its proprietary rights and
the proprietary rights of others. Enforcing or defending the combined company's
proprietary rights could be expensive and might not bring it timely and
effective relief.
The combined company may have to obtain licenses of other parties'
intellectual property and pay royalties. If the combined company is unable to
obtain such licenses, it may have to stop production of its products or alter
its products. In addition, the laws of certain countries in which it sells and
manufactures its products, including various countries in Asia, may not protect
the combined company's products and intellectual property rights to the same
extent as the laws of the United States. The combined company's remedies in
these countries may be inadequate to protect its proprietary rights. Any failure
to enforce and protect the combined company's intellectual property rights could
harm its business, financial condition and operating results.
INFRINGEMENT CLAIMS COULD HARM THE COMBINED COMPANY'S BUSINESS.
Maxtor, on the one hand, and Quantum and MKE, on the other hand, each were
sued by Papst Licensing, GmbH, a German corporation, for infringement of patents
that relate to hard disk drives. Papst has asserted that Maxtor infringes 13
patents, and that Quantum and MKE infringe 24 patents. Both lawsuits had been
pending in the United States District Court for the Northern District of
California, but were transferred with other litigation involving Papst patents
to the United States District Court for the
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Eastern District of Louisiana by the Judicial Panel on Multidistrict Litigation
for consolidated or coordinated proceedings. Papst's infringement allegations
are based on spindle motors that Maxtor and Quantum purchase from third party
motor vendors, including MKE in the case of Quantum, and the use of such spindle
motors in hard disk drives. Maxtor purchased the overwhelming majority of the
spindle motors used in its hard disk drives from vendors that were licensed
under Papst's patents. Quantum purchased many spindle motors used in its hard
disk drives from vendors that were not licensed under Papst patents, including
MKE.
Maxtor is in litigation with Magnetic Media Development, LLC, or MMD, for
infringement of patents that relate to hard disk drives. MMD has asserted that
Maxtor infringes five such patents. Although Quantum is not in litigation with
MMD, MMD has asserted its patents against Quantum. MMD's infringement claims are
based on magnetic media that Maxtor and MKE, Quantum's manufacturer, purchase
from third party media vendors. Maxtor purchased a majority of the media used in
its hard disk drives from vendors that were not licensed under MMD's patents.
MKE purchased only a limited portion of the media used in Quantum's hard disk
drives from vendors that were not licensed under MMD's patents.
While Maxtor and Quantum believe that the combined company and MKE have
valid defenses to Papst's and MMD's claims, the results of any litigation are
inherently uncertain and neither Maxtor nor Quantum can assure you that either
Papst or MMD will not assert other infringement claims relating to current
patents, pending patent applications, and/or future patent applications or
issued patents. Additionally, neither Maxtor nor Quantum can assure you that the
combined company or MKE will be able to successfully defend itself against this
or any other Papst or MMD lawsuit. A favorable outcome for Papst or MMD in these
lawsuits could result in the issuance of an injunction against the combined
company or MKE and the combined company's products and/or the payment of
monetary damages equal to a reasonable royalty. In the case of a finding of a
willful infringement, the combined company also could be required to pay treble
damages and Papst's or MMD's attorney's fees. Accordingly, a litigation outcome
favorable to Papst or MMD could harm the combined company's business, financial
condition, and operating results.
In addition to the Papst and MMD lawsuits, other claims of infringement
have been made against Maxtor and Quantum HDD which have not been fully assessed
and which could be material. The combined company may have to obtain licenses of
other parties' intellectual property and pay royalties. If the combined company
is unable to obtain such licenses, it may have to alter or stop production of
its products. There can be no assurance that such licenses can be obtained on
favorable terms and conditions and failure to obtain such licenses or
unfavorable terms and conditions for such licenses could harm the combined
company's business, financial condition, and operating results.
THE COMBINED COMPANY WILL FACE RISKS FROM ITS SUBSTANTIAL INTERNATIONAL
OPERATIONS AND SALES.
The combined company will conduct most of its manufacturing and testing
operations and purchases a substantial portion of its key parts outside the
United States. In addition, Maxtor and Quantum HDD also sell a significant
portion of their respective products to foreign distributors and retailers. As a
result, the combined company will be dependent on revenue from international
sales and will need to manage international operations. Inherent risks relating
to overseas operations include:
- economic slowdown and/or downturn in the computer industry in foreign
markets;
- international currency fluctuations;
- general strikes or other disruptions in working conditions;
- political instability;
- trade restrictions;
- changes in tariffs;
- difficulties associated with staffing and managing international
operations;
- generally longer periods to collect receivables;
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- unexpected changes in or impositions of legislative or regulatory
requirements;
- reduced protection for intellectual property rights in some countries;
- potentially adverse taxes; and
- delays resulting from difficulty in obtaining export licenses for certain
technology and other trade barriers.
The specific economic conditions in each country impact international sales
of Maxtor and Quantum HDD. For example, both Maxtor's and Quantum HDD's
international contracts are denominated primarily in U.S. dollars. Significant
downward fluctuations in currency exchange rates against the U.S. dollar could
result in higher product prices and/or declining margins and increased
manufacturing costs. In addition, Maxtor attempts to manage the impact of
foreign currency exchange rate changes by entering into short-term, foreign
exchange contracts. If the combined company does not effectively manage the
risks associated with international operations and sales, its business,
financial condition and operating results could suffer.
THE COMBINED COMPANY WILL BE SUBJECT TO RISKS RELATED TO PRODUCT DEFECTS WHICH
COULD SUBJECT IT TO WARRANTY CLAIMS.
Maxtor and Quantum HDD products may contain defects. Maxtor generally
warrants its products for one to three years whereas Quantum HDD generally
warrants its products for one to five years. The standard warranties used by
Maxtor and Quantum HDD contain limits on damages and exclusions of liability for
consequential damages and for negligent or improper use of the products. Maxtor
and Quantum HDD each establish a provision, at the time of product shipment, in
an amount equal to its estimated warranty expenses. Although Maxtor and Quantum
believe that the warranty provision of the combined company will be sufficient,
the failure to maintain a sufficient warranty provision or the unenforceability
of any liability limitations could harm the combined company's business,
financial condition and operating results.
THE COMBINED COMPANY COULD BE SUBJECT TO ENVIRONMENTAL LIABILITIES WHICH COULD
CAUSE ITS BUSINESS, FINANCIAL CONDITION AND OPERATING RESULTS TO SUFFER.
Although Maxtor uses a limited variety of chemicals in its manufacturing
and research operations, it is subject to a wide range of environmental
protection regulations in the United States and Singapore. While Maxtor does not
believe its operations to date have been harmed as a result of such laws, future
regulations may harm the combined company's business, financial condition and
results of operations. Even if the combined company is in compliance in all
material respects with all present environmental regulations, in the United
States, environment 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. If the
combined company has to make significant capital expenditures or pay significant
expense in connection with future remedial actions or to continue to comply with
applicable environmental laws, its business, financial condition and operating
results could suffer.
ANTITAKEOVER PROVISIONS IN MAXTOR'S CERTIFICATE OF INCORPORATION COULD
DISCOURAGE POTENTIAL ACQUISITION PROPOSALS OR DELAY OR PREVENT A CHANGE OF
CONTROL OF MAXTOR.
Maxtor has a number of protective provisions in place designed to provide
its board of directors with time to consider whether a hostile takeover is in
the best interests of Maxtor and its stockholders. These provisions, however,
could discourage potential acquisition proposals and could delay or prevent a
change in control of Maxtor and also could diminish the opportunities for a
holder of Maxtor's common stock to participate in tender offers, including
offers at a price above the then-current market price for Maxtor common stock.
These provisions also may inhibit fluctuations in Maxtor's stock price that
could result from takeover attempts.
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THE MAXTOR SPECIAL MEETING
DATE, TIME AND PLACE OF MEETING
The accompanying proxy is solicited by the board of directors of Maxtor for
use at the special meeting of stockholders to be held on February , 2001, at
10:00 a.m., local time, or at any adjournment thereof. The meeting will be held
in the Palo Alto Room of the Sheraton San Jose Hotel, located at 1801 Barber
Lane, Milpitas, California 95305. Maxtor's principal executive offices are
located at 510 Cottonwood Drive, Milpitas, California 95035. Maxtor's telephone
number is (408) 432-1700.
These proxy solicitation materials were mailed on or about December ,
2000 to all stockholders entitled to vote at the meeting.
VOTING RIGHTS
On December , 2000, Maxtor had outstanding shares of
common stock, all of which are entitled to vote as a single class with respect
to the proposals presented in this joint proxy statement/ prospectus. Each
stockholder of record at the close of business on December , 2000, is entitled
to one vote for each share held. Maxtor's bylaws provide that a majority of all
shares entitled to vote, whether present in person or by proxy, will constitute
a quorum for the transaction of business at the meeting.
PURPOSE OF THE MAXTOR SPECIAL MEETING
The purpose of the Maxtor special meeting is to vote upon a proposal to
adopt the Amended and Restated Agreement and Plan of Merger and Reorganization,
dated as of October 3, 2000, by and among Maxtor, Quantum, Hawaii Acquisition
Corporation and Insula Corporation, and to approve the merger contemplated
thereunder. The adoption of the merger agreement will also constitute approval
of the other transactions contemplated thereunder.
In addition, as two separate proposals, Maxtor is requesting that its
stockholders approve an amendment to its stock option plan to increase the
number of shares reserved for issuance from 22,975,685 to 39,975,685 shares and
an amendment to its employee stock purchase plan to increase the shares reserved
for issuance from 4,500,000 to 8,000,000 shares. The approval by Maxtor
stockholders of these two additional proposals is not required in order for the
merger proposal described above to be approved. If approved, these proposals
will take effect only if the merger is completed.
RECORD DATE AND OUTSTANDING SHARES
The close of business on December , 2000 has been fixed by the Maxtor
board of directors as the record date for determination of the stockholders of
Maxtor entitled to notice of, and to vote at, the Maxtor special meeting or any
postponement or adjournment of the Maxtor special meeting. Holders of record of
Maxtor common stock at the close of business on the record date are entitled to
notice of, and to vote at, the Maxtor special meeting. As of the record date,
there were approximately stockholders of record holding an
aggregate of approximately shares of Maxtor common stock. See "Stock
Ownership of Management and Certain Beneficial Owners -- Maxtor Stock
Ownership," beginning on page 132.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
As of the record date, the directors and executive officers of Maxtor
collectively owned approximately 2.75% of the outstanding shares, and Hyundai
Electronics America owned approximately 35% of the outstanding shares.
VOTE REQUIRED
Approval of Proposal No. 1 for adoption of the merger agreement and
approval of the merger requires the affirmative vote of holders of at least a
majority of the outstanding shares of Maxtor common stock
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entitled to vote at the special meeting of stockholders. Approval of Proposal
Nos. 2 and 3 seeking approval of the amendment of Maxtor's stock option plan and
stock purchase plan, respectively, each require the affirmative vote of the
holders of a majority of the outstanding shares present or represented by proxy
and entitled to vote at the special meeting, at which a quorum is present and
voting. Each stockholder of record of Maxtor common stock on the record date is
entitled to cast one vote per share, exercisable in person or by properly
executed proxy, on each matter properly submitted for the vote of the
stockholders of Maxtor at the Maxtor special meeting. Pursuant to voting
agreements, Hyundai and each officer and director have agreed to vote all of
his, her, or its shares in favor of Maxtor's merger proposal.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The presence, in person or by proxy duly authorized, of the holders of a
majority of the outstanding voting shares of Maxtor common stock will constitute
a quorum for the transaction of business at the special meeting and any
continuation or adjournment thereof. Broker non-votes (i.e. shares held by
brokers or nominees which are represented at the meeting, but with respect to
which such broker or nominee is not empowered to vote on a particular purpose)
and abstentions will be counted in determining whether a quorum is present at
the special meeting. Broker non-votes will not be counted in determining the
number of votes necessary for approval of Proposal Nos. 2 and 3 and thus will
have no effect on those proposals. However, abstentions and broker non-votes
will have the same effect as a negative vote on Proposal No. 1 to adopt the
merger agreement and approve the merger, and abstentions will have the same
effect as a negative vote on Proposal Nos. 2 and 3.
SOLICITATION OF PROXIES; EXPENSES
Maxtor will bear the cost of the solicitation of proxies from its
stockholders and all related costs. Maxtor has retained the services of
MacKenzie Partners, Inc. to aid in the solicitation of proxies. Maxtor estimates
that it will pay MacKenzie Partners a fee not to exceed $8,000 for its services
and will reimburse MacKenzie Partners for reasonable out-of-pocket expenses. In
addition, Maxtor may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Certain directors, officers, or other
employees of Maxtor may supplement the original solicitation of proxies by mail
with telephone, facsimile, or personal solicitation, without payment of
additional compensation.
VOTING OF PROXIES; REVOCATION OF PROXIES
The proxy accompanying this joint proxy statement/prospectus is solicited
on behalf of the Maxtor board of directors for use at the meeting. Maxtor
stockholders are requested to complete, date, and sign the accompanying proxy
and promptly return it in the enclosed envelope or otherwise mail it to Maxtor
or its solicitor. All properly signed proxies that Maxtor receives prior to the
vote at the meeting and that are not revoked will be voted at the meeting
according to the instructions indicated on the proxies or, if no direction is
indicated, will be voted FOR adoption of the merger agreement and the approval
of the merger and FOR approval of the amendments of the stock option plan and
stock purchase plan to increase the number of shares reserved for grant
thereunder.
You may revoke your proxy at any time before it is exercised at the meeting
by taking any of the following actions:
- delivering a written notice to the secretary of Maxtor by any means,
including facsimile, bearing a date later than the date of the proxy,
stating that the proxy is revoked;
- signing and delivering a proxy relating to the same shares and bearing a
later date prior to the vote at the meeting; or
- attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a proxy.
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Please note, however, that if your shares are held of record by a broker,
bank, or other nominee and you wish to vote at the meeting, you must bring to
the meeting a letter from the broker, bank, or other nominee confirming your
beneficial ownership of the shares.
Maxtor's board of directors does not know of any matter that is not
referred to in this joint proxy statement/prospectus to be presented for action
at the meeting. If any other matters are properly brought before the meeting,
the persons named in the proxies will have discretion to vote on such matters in
accordance with their best judgment.
NO APPRAISAL RIGHTS
Delaware law does not afford appraisal rights to holders of shares that are
either listed on a national securities exchange, quoted on the New York Stock
Exchange or Nasdaq, or held of record by more than 2,000 stockholders, provided
that the holders of such shares will not be required to accept in the merger
anything other than cash in lieu of fractional shares, or stock of the surviving
corporation or another corporation, which corporation in either case must also
be listed on a national securities exchange, quoted on the New York Stock
Exchange or Nasdaq or held of record by more than 2,000 stockholders.
Because Maxtor common stock is listed on Nasdaq and Maxtor stockholders
will retain their shares in the merger and not receive any consideration,
appraisal rights are unavailable to Maxtor stockholders in connection with the
merger proposal.
RECOMMENDATION OF THE MAXTOR BOARD
The Maxtor board of directors has unanimously determined that the merger
agreement and the merger are fair to, advisable for, and in the best interests
of Maxtor and the Maxtor stockholders. Accordingly, the Maxtor board of
directors recommends that Maxtor stockholders vote FOR the proposal to adopt the
merger agreement and approve the merger. Approval of the proposal to adopt the
merger agreement will constitute approval of all transactions contemplated by
the merger agreement, including, without limitation, the issuance of shares in
the merger and the amendment and restatement of Maxtor's restated certificate of
incorporation to eliminate until the annual meeting in 2004, the requirement
that classes of Maxtor's board of directors be as nearly equal in number as
possible, and to increase the authorized common stock to 525,000,000 shares. In
addition, the Maxtor board of directors also recommends that Maxtor stockholders
vote FOR the proposal to increase the number of shares reserved for issuance
under Maxtor's stock option plan by 17,000,000 shares and FOR the proposal to
increase the number of shares reserved for issuance under Maxtor's stock
purchase plan by 3,500,000 shares.
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THE QUANTUM SPECIAL MEETING
DATE, TIME AND PLACE OF MEETING
The enclosed proxy is solicited on behalf of Quantum for use at the special
meeting of stockholders to be held , February , 2001, at 10:00
a.m., local time, or at any adjournment thereof, for the purposes set forth
herein and in the accompanying Notice of Special Meeting of Stockholders. The
Special Meeting will be held at Quantum's headquarters located at 500 McCarthy
Boulevard, Milpitas, California 95035. Quantum's telephone number is (408)
894-4000.
These proxy solicitation materials were mailed on or about December ,
2000 to all stockholders entitled to vote at the meeting.
RECORD DATE; OUTSTANDING SHARES
Stockholders of record at the close of business on December , 2000, the
record date, are entitled to notice of and to vote at the special meeting. At
the record date, shares of Quantum DSS common stock, and
shares of Quantum HDD common stock, were issued and outstanding.
The closing price of the Quantum DSS common stock on the record date, as
reported by the New York Stock Exchange, was $ per share. The closing price
of the Quantum HDD common stock on the record date, as reported by the New York
Stock Exchange, was $ per share.
REDEMPTION
Quantum's restated certificate of incorporation requires that Quantum give
notice setting forth specified information about the redemption to the holders
of Quantum HDD common stock not earlier than the 45th trading day and not later
than the 35th trading day prior to the date of the redemption. Notice of the
proposed redemption is included in a separate document that was mailed to all
Quantum stockholders along with this joint proxy statement/prospectus. The
redemption is contingent on the consummation of the merger and will not be
effected if the merger is not consummated.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to Quantum or its transfer
agent a written notice of revocation or a duly executed proxy bearing a later
date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each share of Quantum DSS common stock has one vote. Each share of Quantum
HDD common stock will have votes per share (this number has been calculated
in accordance with Quantum's restated certificate of incorporation, which
provides that each share of Quantum HDD common stock has a number of votes
(including a fraction of one vote) equal to the quotient of the average trading
price of Quantum HDD common stock during the 20 trading days prior to the tenth
trading day before the record date for the applicable stockholders' meeting,
divided by the average trading price of one share of Quantum DSS common stock
during the same 20-day trading period). Accordingly, a total of
votes may be cast at the special meeting.
The cost of soliciting proxies will be borne by Quantum. Quantum has
retained the services of Morrow & Company to aid in the solicitation of proxies.
Quantum estimates that it will pay Morrow & Company a fee not to exceed $17,500
for its services and will reimburse Morrow & Company for reasonable
out-of-pocket expenses. In addition, Quantum may reimburse brokerage firms and
other persons representing beneficial owners of shares for their expenses in
forwarding solicitation material to such beneficial owners. Proxies may also be
solicited by certain of Quantum's directors, officers and regular employees,
without additional compensation, personally or by telephone, telegram, telefax,
email or otherwise.
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VOTE REQUIRED
Approval of Proposal No. 1 seeking to adopt the merger agreement and
approve the merger, and approval of Proposal No. 2 seeking authorization to
amend Quantum's restated certificate of incorporation, both require the
affirmative vote of holders of a majority of the outstanding shares of Quantum
common stock entitled to vote at the Quantum meeting, and the affirmative vote
of holders of a majority of the shares of Quantum HDD common stock, voting as a
separate class, entitled to vote at the meeting. In addition, pursuant to the
merger agreement, Proposal No. 1 requires the affirmative vote of holders of a
majority of the votes present or represented by proxy and entitled to vote
Quantum DSS common stock at the special meeting, voting as a separate class.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the special meeting
is a majority of the votes eligible to be cast by holders of shares of common
stock issued and outstanding on the record date. Shares that are voted FOR,
AGAINST or ABSTAIN on a matter are treated as being present at the meeting for
purposes of establishing a quorum and are also treated as shares entitled to
vote, the votes cast, at the special meeting with respect to such matter.
Both abstentions and broker non-votes will have the same effect as a
negative vote on both Quantum proposals.
NO APPRAISAL RIGHTS
Because Quantum is not a "constituent corporation" in the proposed merger,
which involved the merger of Spinco into Maxtor, and because the stockholder
approval requirement applicable to Spinco, as a constituent corporation, has
been satisfied by Quantum as the current sole stockholder of Spinco, under
Delaware law appraisal rights are unavailable to Quantum stockholders in
connection with the merger proposal.
RECOMMENDATION OF THE QUANTUM BOARD
The Quantum board of directors has unanimously determined that the merger
agreement and the merger are fair to, advisable for, and in the best interests
of Quantum and the Quantum stockholders. Accordingly, the Quantum board of
directors recommends that Quantum's stockholders vote FOR the proposal to adopt
the merger agreement and approve the merger, and FOR the proposal to amend
Quantum's restated certificate of incorporation to delete all provisions
relating to the class of common stock designated as "Quantum Corporation -- HDDG
Common Stock" and to amend and restate other provisions to reflect the absence
of tracking stock, as applicable.
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MAXTOR AND QUANTUM
PROPOSAL NO. 1
ADOPTION OF THE MERGER AGREEMENT
AND APPROVAL OF THE MERGER CONTEMPLATED THEREUNDER
THE MERGER
This section of the joint proxy statement/prospectus describes the proposed
merger. While Maxtor and Quantum believe that the description in this section
covers the material terms of the merger and the related transactions, this
summary may not contain all of the information that is important to you. You
should carefully read this entire document and the other documents Maxtor and
Quantum have referred to in this joint proxy statement/prospectus for a more
complete understanding of the merger.
BACKGROUND OF THE MERGER
On May 3, 2000, Michael A. Brown, Quantum's chief executive officer,
contacted Michael R. Cannon, Maxtor's president and chief executive officer, to
discuss in general terms a possible combination of Maxtor and Quantum HDD. The
two executives knew each other as a result of meetings they had held in the past
(one in March 1998 and another in August 1999) to discuss business matters of
common interest not involving possible transactions between the two companies.
On May 19, 2000, at Mr. Brown's invitation, the two chief executives met to
discuss further the potential benefits of a possible combination of Maxtor and
Quantum HDD. Mr. Brown reviewed with Mr. Cannon a proposed structure for the
transaction pursuant to which Quantum would split off the Quantum HDD business
into a new Quantum subsidiary, Quantum would redeem all of the outstanding
shares of Quantum HDD common stock in exchange for shares of the subsidiary and
the new subsidiary would merge with Maxtor. Mr. Brown explained that Quantum
preferred this split-off/merger structure because it would enable Quantum to
separate Quantum HDD from the rest of Quantum's businesses, keep those other
businesses, and combine Quantum HDD with Maxtor in a tax-efficient manner.
Following this meeting, the senior managements of the two companies
separately analyzed the possible combination of Maxtor and Quantum HDD. During
this time, Quantum consulted with Lehman Brothers, who had been providing
financial advisory services to Quantum regarding strategic alternatives. On June
22, July 13, and July 24, 2000, Messrs. Brown and Cannon met and further
discussed the possible business combination.
As a result of these discussions, Maxtor's senior management concluded that
the possible combination had the potential for enhancing Maxtor's stockholder
value. At a meeting of Maxtor's board of directors on July 31, 2000, Mr. Cannon
reported on these discussions and received authority from the board of directors
of Maxtor to engage financial advisors to assist Maxtor's senior management in
an in-depth evaluation of the possible combination. After this meeting, Maxtor
retained Salomon Smith Barney to assist in this evaluation and that firm began
studying the matter and conferring with Maxtor's senior management.
On August 8, 2000, a further meeting took place between Messrs. Brown and
Cannon, also attended by Richard L. Clemmer, Quantum's chief financial officer
and John Gannon, representing the Quantum HDD division, Paul J. Tufano, Maxtor's
chief financial officer, and Phil Duncan, Maxtor's vice president for human
resources, at which the parties discussed the proposed combination.
On August 17, 2000, another meeting was held to discuss the possible
combination. In addition to Messrs. Brown, Clemmer, Cannon and Tufano, this
meeting was attended by representatives of Salomon Smith Barney and Lehman
Brothers. At this meeting, the companies signed a mutual non-disclosure
agreement to facilitate the exchange of confidential information as part of a
mutual due diligence process. The discussions continued in further meetings and
telephone conversations over the next two weeks. Both senior management teams
were, by this time, conferring on a regular basis with their companies'
respective
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financial and legal advisors, and discussions were continuing between the
parties regarding a mutually acceptable schedule for business, financial, tax,
accounting and legal due diligence.
On August 24, 2000, a meeting took place among the financial, legal, tax
and accounting advisors of the two companies to discuss the implications of the
proposed structure, as well as the material terms and likely timing of a
possible combination of Maxtor and Quantum HDD. On the same day, separate
discussions took place between the two companies' financial and legal advisors
concerning the principal terms on which the possible combination might be based.
Also on August 24, 2000, Quantum's board of directors met to review with
senior management and Lehman Brothers the rationale and status of the potential
transaction. At that meeting, Quantum's counsel discussed the Board's fiduciary
duties with respect to the potential transaction as well as possible material
terms and the impact of Quantum's "tracking stock" capital structure. After
discussion, the Quantum board authorized senior management to continue
discussions with Maxtor.
On August 25, 2000, Maxtor's board of directors met to review the rationale
and status of the possible transaction. At that meeting, Maxtor's counsel
discussed the board's fiduciary duties with respect to the potential
transaction; Mr. Cannon reviewed the benefits it could produce for Maxtor; and
Maxtor's chief financial officer discussed the tax considerations affecting the
choice of an appropriate structure and the consequences of that structure for
the combined company. After discussion, the Maxtor board authorized senior
management to continue discussions with Quantum.
On August 28, 2000, a meeting took place to initiate in-depth mutual due
diligence between the companies. This meeting was attended by Messrs. Brown,
Clemmer, Cannon and Tufano, other members of the two companies' management and
due diligence teams, and representatives of their respective financial and legal
advisors. Thereafter, continuing through October 3, 2000, the parties conducted
mutual business, financial, tax, accounting and legal due diligence and engaged
in negotiations regarding the structure and material terms of the possible
combination of Maxtor and Quantum HDD, as well as the detailed provisions of a
definitive merger agreement and related documents. During the same period,
representatives of Maxtor and Quantum separately held negotiations with
representatives of Hyundai Electronics America concerning the terms on which it
would be willing to commit to voting its approximately 35% holding of Maxtor
common stock in favor of the potential transaction, as well as proposed
modifications to its existing stockholder agreement with Maxtor if the
transaction was completed.
On August 31, 2000 Messrs. Brown, Gannon and Cannon met with MKE
representatives to advise MKE of the possible transaction and had preliminary
discussions regarding the relationships among the companies in the event the
transaction was completed.
On September 7, 2000, Maxtor's board of directors met to review the status
of the negotiations. At that meeting, Maxtor's counsel again reviewed the
board's fiduciary duties with respect to the potential transaction as well as
certain restrictions that would affect Maxtor's activities if it merged with
Quantum HDD on the basis of the split-off/merger structure proposed by Quantum;
Mr. Cannon reviewed the strategic rationale for combining Maxtor and Quantum HDD
and the potential risks of the transaction; Mr. Tufano reviewed the implications
of the restrictions that would result from the contemplated tax structure, the
risks to Maxtor of indemnifying Quantum against a corporate tax resulting from
the structure Quantum had requested and the indications that insurance could be
obtained to mitigate that risk; and representatives of Salomon Smith Barney
reviewed various financial, structural and pricing considerations. The board
discussed the benefits and risks of such a transaction and alternative
structures. After discussing these matters, the board authorized senior
management to continue to negotiate on the basis of the structure proposed by
Quantum.
On September 8, 2000, Quantum's board of directors met to review the status
of the negotiations. Quantum's outside legal and financial advisors reviewed the
transaction terms being discussed, the status of the due diligence process and
additional open issues. In addition, Quantum's counsel again reviewed the
board's fiduciary duties with respect to the transaction, including the impact
of Quantum's "tracking stock" capital structure.
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On September 15, 2000, Maxtor's board of directors again met to review the
status of the negotiations. Mr. Tufano reviewed the proposed principal terms of
the transaction, the status of discussions to obtain tax insurance and a tax
opinion, the status of due diligence, and the contemplated timing of a
definitive merger agreement. Mr. Cannon discussed the potential risks and
benefits of the transaction. He also discussed issues related to the exclusive
manufacturing agreement between Quantum and MKE. After discussing these matters,
the board authorized senior management to continue to negotiate the terms of the
transaction with Quantum. The board also requested that Messrs. Cannon and
Tufano seek satisfactory assurance that MKE would support a combination of
Maxtor and Quantum HDD.
On September 21, 2000 and September 26, 2000, Maxtor's board of directors
again met to review the status of the negotiations regarding the proposed
transaction. At these meetings, Messrs. Cannon and Tufano reviewed the
significant terms of the transaction, the status of efforts to obtain tax loss
insurance, issues relating to the proposed tax structure for the transaction,
the status of due diligence, integration issues and contemplated timing for the
transaction.
On September 29, 2000, Quantum's board of directors again met to review the
status of the negotiations. The board further discussed the proposed transaction
and the status of open issues. It also received an update on the due diligence
process. Representatives of Lehman Brothers reviewed certain financial aspects
of the possible transaction. After discussing these matters, the board concluded
that Quantum should continue negotiating the terms of the proposed transaction
with Maxtor.
On September 30 and October 1, 2000, Messrs. Cannon, Tufano, Brown, and
Gannon met in Japan with representatives of MKE. This meeting resulted in a
memorandum of understanding that if Maxtor were combined with Quantum HDD, the
combined company and MKE would work together to negotiate and re-assign the
manufacturing and purchase agreements then in place with Quantum. MKE also
indicated its willingness to publicly announce its support of the combination.
By October 3, 2000, the due diligence process had been completed and the
terms of the merger agreement, the separation documents and the voting
agreements had been substantially finalized, subject to review by the boards of
directors of Quantum and Maxtor. In addition, Ernst & Young had completed the
work necessary to render a tax opinion regarding the split-off/merger structure
and commitments had been received for approximately $225 million of tax loss
insurance.
On October 3, 2000, Quantum's board of directors met to consider the
proposed transaction. At this meeting, Quantum's board received presentations
including, but not limited to, the following:
- the structure of the transaction and the merger agreement;
- the board's fiduciary duties in contemplating the proposed transaction;
- the results of the due diligence investigations;
- potential regulatory, tax, and accounting issues;
- the financial analysis relating to the proposed transaction reviewed by
Lehman Brothers and Lehman Brothers' oral opinion, subsequently confirmed
by delivery of a written opinion dated October 3, 2000, that as of such
date, and based on and subject to the assumptions, considerations, and
limitations stated in its written opinion, the exchange ratio to be
offered to the holders of Quantum HDD common stock in the split-off and
the merger was fair, from a financial point of view, to Quantum HDD
stockholders;
- the terms of the merger agreement and the principal terms and conditions
of the ancillary agreements to the merger, the separation documents, and
the voting agreements; and
- the impact on outstanding stock options.
Quantum's board of directors then discussed the transaction generally,
including the status of the negotiations with respect to the proposed
transaction, the impact of the transaction on both the Quantum HDD and Quantum
DSS common stock and potential benefits and risks associated with a combination
of
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the two hard disk drive businesses. The board then unanimously approved the
merger agreement and unanimously resolved to recommend adoption of the merger
agreement and approval of the merger to Quantum's stockholders.
Later that same day, Maxtor's board of directors met to consider the
merger. At the meeting, Maxtor's board received the following presentations:
- Mr. Cannon provided a general update and advised the board that Quantum's
board of directors had earlier that day considered this merger agreement;
- Maxtor's counsel reviewed the board's fiduciary duties in considering the
merger;
- Mr. Cannon briefed the board on the results of management's recent
discussions with MKE;
- Salomon Smith Barney reviewed its financial analysis of the merger and
delivered its oral opinion, subsequently confirmed by delivery of a
written opinion dated October 3, 2000, that as of such date, and based on
and subject to the assumptions, qualifications and limitations stated in
its written opinion, the exchange ratio was fair to Maxtor from a
financial point of view;
- Maxtor's counsel reviewed the terms of the merger agreement and the
separation documents;
- Maxtor's counsel advised the board regarding the tax loss insurance that
had been obtained to date and also reviewed with the board Ernst &
Young's opinion to Quantum and a letter permitting Maxtor to rely on the
opinion;
- Maxtor's counsel reviewed the terms of the voting agreement that Quantum
required Hyundai and Maxtor's directors and executive officers to sign as
a condition to Quantum entering into the merger agreement, and the
relationship between those agreements and certain provisions of the
merger agreement, as well as a proposed amendment to Hyundai Electronics
America's stockholder agreement with Maxtor; and
- Maxtor's counsel reviewed the resolutions that the board would need to
adopt if it decided to approve the merger agreement, including amendments
to the restated certificate of incorporation to remove the requirement
that the classes of Maxtor's board be as nearly equal in number as
reasonably possible and to increase the number of authorized shares of
common stock.
Maxtor's board of directors then discussed the proposed transaction
generally, including the strategic rationale and potential risks of the
transaction. During this discussion, Dr. C.S. Park, Maxtor's chairman and the
chairman and chief executive officer of Hyundai Electronics Industries Co.,
Ltd., the parent company of Hyundai Electronics America, advised the other
directors that Hyundai Electronics America was willing to sign the voting
agreement requested by Quantum, as well as the amendment to its stockholder
agreement with Maxtor. The board of directors of Maxtor (with Y.H. Kim absent)
then unanimously approved the merger agreement and unanimously resolved to
recommend adoption of the merger agreement and approval of the merger, including
the share issuance required by the merger and the amendments to the certificate
of incorporation to Maxtor's stockholders, as well as the share reserve
increases to the Maxtor stock option and stock purchase plans.
Immediately following the meeting of Maxtor's board of directors, the
board's affiliated transactions committee, consisting of directors who are not
employed by Maxtor or Hyundai Electronics America, unanimously approved the
amendment to Hyundai Electronics America's stockholder agreement with Maxtor and
the voting agreement between Hyundai Electronics America and Quantum.
Following these meetings, Quantum and Maxtor finalized and entered into the
merger agreement. At the same time, the directors and executive officers of the
two companies entered into the voting agreements provided for in the merger
agreement and Hyundai Electronics America entered into its voting agreement with
Quantum and the amendment of its stockholder agreement with Maxtor. Quantum and
Maxtor issued a joint press release announcing the signing of the merger
agreement before the opening of the United States stock markets on October 4,
2000.
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In early December 2000, the parties, with the approvals of their respective
boards of directors, amended and restated the merger agreement to provide for a
merger of Spinco directly into Maxtor rather than a merger of a specially
created merger subsidiary of Maxtor into Spinco. All references to the merger
agreement herein are referenced to the merger agreement as so amended and
restated. In connection with this amendment and restatement, the parties who had
previously entered into voting agreements, confirmed in writing that their
agreements applied to the amended and restated merger agreement, and Ernst &
Young confirmed in writing that its tax opinion applied to the revised structure
of the merger.
REASONS FOR THE MERGER
GENERAL
The boards of directors of Quantum and Maxtor, at separate meetings held on
October 3, 2000, each unanimously approved the merger agreement, unanimously
found the merger (and, in the case of Quantum's board, the separation and
redemption) to be fair to, advisable, and in the best interests of, the
applicable company and its stockholders, and unanimously resolved to recommend
that the stockholders of the applicable company adopt and approve the merger
agreement and the merger.
In reaching its separate decision, each board consulted with its senior
management, and financial and legal advisors, and considered a number of
factors. In view of the complexity and wide variety of information and factors,
both positive and negative, considered by each board, neither board found it
practical to qualify, rank or otherwise assign any relative or specific weights
to the factors it considered. In addition, neither board reached any specific
conclusion with respect to each of the factors it considered, or any aspect of
any particular factor. Instead, each board conducted an overall analysis of the
factors it considered. In considering those factors, individual members of each
board may have given weight to different factors. Each board considered all of
those factors as a whole and believed that those factors supported its decision.
The factors considered by each board were not identical to the factors
considered by the other board. However, both boards identified certain material
benefits, common to both companies and their respective stockholders, that both
boards expect will result from the merger, as well as certain risks affecting
both companies in connection with the merger and certain other considerations
common to both companies. These benefits, risks and other considerations are
described immediately below. Following the discussion of those matters, the
separate factors, both positive and negative, that each board separately
considered are described. This section, read as a whole, includes the material
factors considered by each board in approving the merger.
JOINT REASONS FOR THE MERGER
Both boards recognize that the hard disk drive industry, despite (and, in
part, because of) consolidations in the past few years, remains highly
competitive. They also recognize that demand for products is highly volatile,
that average selling prices are expected to continue to decline with resulting
intense pressure on profit margins, and that leadership in time-to-market
introduction and time-to-volume production are critical factors for success.
Both boards believe that the combination of Maxtor and Quantum HDD will
create a stronger, more competitive industry participant, with enhanced
prospects for continued viability, by:
- creating significant opportunities for cost reduction through the
integration of the operations of the two hard disk drive businesses and
the elimination of redundant overhead expenses and duplicate sales,
marketing and administrative functions;
- expanding the combined company's product line to provide a broad
portfolio of products, including products for desktop personal computers,
Intel-based servers, sub-3.5-inch hard disk drives, and consumer
electronics applications, and network attached storage devices;
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- allowing the combined company to leverage the complementary products,
channels, partners, technology, logistics, critical skills, and
manufacturing approaches of each company;
- providing the combined company with a materially stronger balance sheet
than either Maxtor or Quantum HDD has standing alone; and
- providing the combined company with additional resources through cost
savings to explore emerging and higher profit storage opportunities, such
as Intel-based server hard disk drives, network attached storage
appliances, sub-3.5-inch hard disk drives, and storage services.
Both boards also recognize the risks inherent in the transaction,
including:
- the challenges of integrating the two hard disk drive businesses, despite
the complementary nature of their products and the physical proximity of
their headquarters offices, including the challenges posed by the
difference in the manufacturing approach of Maxtor, which utilizes its
own cell-based, high volume, flexible manufacturing process, and the
manufacturing approach of Quantum, which has a long-term exclusive
manufacturing relationship with MKE, and the difficulties inherent in
moving to a common product platform;
- the risk that the combined company may not be able to realize, fully or
at all, the potential benefits of the combination;
- the possibility that even if the merger is approved by the stockholders
of both companies, it may not be completed;
- the possibility that potential disruption to existing and prospective
relationships could result from the announcement or completion of the
merger;
- the risk of market confusion and potential delay or loss of orders;
- the risk of potential management and employee disruption, including the
departure of key management, technical and sales personnel of Maxtor or
Quantum HDD after the merger;
- the significant adverse impact to the net income of the combined
companies that will arise due to the non-cash charges for the
amortization of goodwill and other intangibles resulting from the impact
of purchase accounting on the merger;
- the substantial charges to be incurred in connection with the merger,
including transaction expenses, the costs of integrating the two
businesses, and employee retention and severance costs; and
- the other risks described under "Risks Related to the Merger" beginning
on page 25.
Both boards determined that the potential benefits of the merger outweighed
the potential risks.
In the course of their separate deliberations, each board also considered
the following factors:
- historical information concerning the businesses, operations, financial
condition, results of operations, technology, management, competitive
positions, and prospects of Maxtor and Quantum HDD as stand-alone
businesses, including result of operations during their most recent
fiscal periods;
- the current and historical economic and market condition and industry
environment in the hard disk drive business, including market prices,
volatility and trading data for Maxtor common stock and Quantum HDD
common stock;
- the analyses presented by their respective financial advisors;
- the expected accounting treatment of the merger and related transactions;
- the impact of the merger on customers; and
- the results of the mutual due diligence process.
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Each board also determined that the provisions of the merger agreement and
the separation documents, including the exchange ratio, the parties'
representations, warranties and covenants, and the conditions to their
respective obligations, were the reasonable product of vigorous arms-length
negotiation. Each board also considered the provisions of the merger agreement
that prohibit solicitation of third-party bids and the acceptance, approval or
recommendation of any unsolicited third-party bid, and the provisions which
require the payment of a termination fee by one or other of the two companies
upon certain termination events. Each board concluded that the provisions of the
relevant documents reasonably protected the interests of the applicable
company's stockholders and did not present any significant impediments to
proceeding with the merger considering all of the circumstances.
REASONS OF THE MAXTOR BOARD
In the course of its deliberations, Maxtor's board of directors considered
the following additional factors listed below:
- The board noted that, as a result of the meeting recently held among
representatives of MKE, Maxtor, and Quantum, Maxtor had obtained MKE's
support for the merger and that MKE, pursuant to a memorandum of
understanding, had agreed that prior to the merger they would work
together to negotiate and re-assign the agreements governing
manufacturing and supply currently in place with Quantum.
- The board took into account that, as a result of the exchange ratio, the
former holders of Quantum HDD common stock would, immediately following
the completion of the merger, collectively own a majority of Maxtor's
outstanding shares and that this was necessary in order to satisfy one of
the conditions to the transaction not resulting in a corporate tax to
Quantum. However, the board of directors considered that this was
acceptable because:
- the merger would provide Maxtor's existing stockholders with a
significant potential for increased share value;
- a taxable transaction was not acceptable to Quantum unless Maxtor was
prepared to indemnify Quantum for the resulting tax, and the Maxtor
board was not willing to approve such an indemnity in a structure that
was certain to result in a tax on Quantum, in light of the very
significant tax liability which would be required to be paid by Maxtor
and the resulting adverse impact on the combined company's cash
position;
- once the merger was completed, all Maxtor shares would be freely
tradable (except for securities law restrictions on affiliates) and the
shares would be widely held; and
- the board received the written opinion of Salomon Smith Barney that, as
of October 3, 2000, and based upon and subject to the assumptions,
qualifications and limitations stated in that opinion, the exchange
ratio was fair to Maxtor from a financial point of view (see "Opinion
of Maxtor's Financial Advisor," beginning on page 58).
- The board considered, as an alternative to the split-off/merger structure
proposed by Quantum in which Maxtor would be the acquiring party, the
possible acquisition of Maxtor by Quantum in an exchange of Maxtor common
stock for Quantum HDD common stock. The board recognized that, in such a
transaction, based on the relative market values of Maxtor common stock
and Quantum HDD common stock, the exchange ratio was likely to result in
the existing Maxtor stockholders collectively holding, immediately
following the effective time of the merger, a larger percentage of the
outstanding shares of the resulting combined disk drive company than they
would own under the split-off/merger structure. However, the board
concluded that the expected benefits and synergies of the merger were
more likely to be achieved if the combined business was under the
management of Mr. Cannon and his team, reporting (through Mr. Cannon) to
a board comprised predominantly of directors designated by Maxtor, as
provided in the split-off/merger structure.
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- The board also noted that Quantum had specified from the inception of its
discussions with Maxtor that it was not interested in a transaction in
which Maxtor acquired Quantum in its entirety.
- The board took into consideration Quantum's insistence that Maxtor
indemnify Quantum for any corporate-level tax resulting from the
split-off/merger structure. The board also recognized that, in the
absence of a favorable ruling from the IRS, neither Maxtor nor Quantum
could be sure that the transaction would be viewed by the IRS as meeting
all the requirements to qualify as non-taxable to Quantum. However, the
board decided that it was preferable to proceed without conditioning the
transaction on a favorable IRS ruling because it would likely take
several months to determine whether such a ruling would be issued and
that it was possible the IRS would decide not to rule on some of the
relevant issues. In reaching this decision, the board also noted the
following:
- Ernst & Young had issued its opinion to Quantum dated October 3, 2000
(and a related letter of the same date permitting Maxtor to rely on its
opinion) to the effect that, as of such date and subject to the
assumptions, qualifications and limitations stated in that opinion
(including its reliance on certain certifications from both companies),
the separation and the redemption (either by themselves or in
conjunction with the merger) should not result in any federal income
tax, or state income or franchise tax in the three states in which
Quantum principally does business, to Quantum, Spinco or the holders of
Quantum HDD common stock under Section 355 of the Internal Revenue Code
and the corresponding provisions of those three states' tax laws (see
"Material Federal Income Tax Consequences of the Separation, the
Redemption and the Merger," beginning on page 76);
- the merger agreement provided that neither company would be obligated
to complete the merger unless, at the closing of the merger, Ernst &
Young re-issued and re-dated its opinion, which meant that if any
change in tax law occurred before the closing of the merger that
adversely affected the opinion of Ernst & Young, Maxtor would not be
required to close;
- based on the opinion of Ernst & Young, and subject to certain customary
exceptions and a change-in-law exclusion that was addressed by the
requirement that Ernst & Young confirm its opinion at the closing of
the merger, a syndicate of major insurance companies had committed to
issue to Quantum, Spinco and Maxtor insurance in the total amount of
approximately $225 million (which Maxtor management expected to, and
which did in fact, subsequently, increase to $300 million) against the
risk that Quantum would incur federal or state income or franchise tax
as a result of the separation, the redemption and the merger;
- the fact that, under the merger agreement, neither company would be
obligated to complete the merger unless this insurance was still in
effect at the closing of the merger (the board also concluded that it
was reasonable, given the benefits to Maxtor, for Maxtor to bear the
cost of purchasing this insurance as an expense of the transaction);
and
- depending on the market price of Quantum HDD common stock on the date
of closing of the merger and if, contrary to the opinion of Ernst &
Young, the IRS asserted on audit, and ultimately prevailed in
litigation challenging its assertion, that federal income tax was due
from Quantum as a result of the transaction, the insurance proceeds
(net of tax payable on those proceeds) might not be sufficient to
defray the tax, or the insurers might contest coverage and prevail in
such contest, in which event Maxtor would be obligated to pay the
uninsured amount. However, the board concluded that this combination of
eventualities was sufficiently contingent and remote that it was
outweighed by the potential benefits of proceeding with the transaction
on the basis of the opinion of Ernst & Young and the insurance without
requiring a favorable IRS ruling.
- The board took into account that, under the split-off/merger structure
and in light of Maxtor's indemnification obligations to Quantum, Maxtor
would be at risk of triggering potentially significant tax for Quantum
unless Maxtor abided by potentially significant restrictions on its use
of equity as
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an acquisition, financing or compensation tool for two years following
the closing of the merger and that, if Maxtor underwent a change in
control during that period, Quantum would incur corporate-level tax as a
result of the merger which would not be covered by the insurance and
would have to be paid by Maxtor. However, the board considered that these
restrictions were acceptable because, having conferred with Maxtor's
senior management and advisors, it determined that:
- it would likely take at least two years for Maxtor to realize the full
potential benefits of the merger;
- accordingly, the unattractiveness of Maxtor as a merger or acquisition
candidate (because of its indemnification obligation to Quantum) during
that period should not be a significant counterweight to the long-term
value of Maxtor common stock following the merger;
- during that period, it could likely finance its operations with cash
from operations and debt financing;
- the restrictions on equity-based compensation during that period were
sufficiently flexible as to permit Maxtor to continue to use options
and restricted stock as employee incentives in the ordinary course and
consistent with sound compensation practices;
- while Maxtor was focused on integrating the two businesses, it was
unlikely to become interested in pursuing any significant acquisition
of another company and it would, in any event, retain the alternative
of financing an acquisition with cash; and
- if these restrictions threatened to deprive Maxtor of a significant
business opportunity, the benefits of which outweighed the cost of
indemnifying Quantum for the tax resulting from not complying with any
of them, Maxtor retained the option of pursuing the opportunity and
triggering the tax.
For the foregoing reasons, the board concluded that the potential benefits
of the merger to Maxtor's stockholders outweighed those factors.
REASONS OF THE QUANTUM BOARD
In the course of its deliberations, Quantum's board of directors considered
the following additional factors, among others:
- the expectation that the separation and the redemption would be tax-free
to Quantum and that the merger would be tax-free to the holders of
Quantum HDD common stock;
- the expectation that the merger would be accretive to Quantum's cash flow
and earnings;
- the board's belief that the merger would create more value to the holders
of Quantum HDD common stock by providing the holders of Quantum HDD
common stock the opportunity to hold an investment in a larger
enterprise;
- the increased value to holders of Quantum HDD common stock that was
likely to result from allowing the combined hard disk drive businesses to
leverage economies of scale, accelerate the introduction of new products
and compete more effectively in their industry, and the increased value
to holders of Quantum DSS common stock that may result from the removal
of any potential balance sheet risk arising from Quantum HDD obligations;
- the expectation that the merger would allow Quantum DSS the opportunity
to participate in a higher growth segment space by allowing management to
focus on emerging markets and technologies;
- the fact that Maxtor would indemnify Quantum for any corporate-level tax
resulting from the structure; and
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- the Lehman Brothers opinion that as of October 3, 2000, and based on and
subject to the assumptions, considerations and limitations stated in the
Lehman Brothers opinion (see "Opinion of Quantum's Financial Advisor,"
beginning on page 65), the exchange ratio to be offered to the holders of
Quantum HDD common stock in the split-off and the merger was fair, from a
financial point of view, to the Quantum HDD stockholders.
The board also considered the following potentially negative factors in its
deliberations concerning the merger:
- the risk that the merger might not be consummated and the effect of the
public announcement of the merger on Quantum's sales, operating results
and stock price and ability to attract and retain key management, sales
and marketing and technical personnel;
- the risk associated with fluctuations in Quantum and Maxtor stock price
prior to the closing of the merger that the per share value of the
consideration to be received by holders of the HDD common stock might be
significantly less than the price per share implied by the exchange ratio
immediately prior to the announcement of the merger because the exchange
ratio will not be adjusted for changes in the market price of either HDD
common stock or Maxtor common stock;
- the risk that the transaction would not be viewed by the IRS as meeting
all requirements to qualify as non-taxable to Quantum;
- the loss of control over future operations of Quantum HDD following the
merger; and
- other applicable risks described in this joint proxy statement/prospectus
statement under "Risk Factors," beginning on page 25.
The board concluded that the potential benefits of the merger to Quantum's
stockholders outweighed these factors.
OPINION OF MAXTOR'S FINANCIAL ADVISOR
Salomon Smith Barney was retained to act as financial advisor to Maxtor in
connection with the merger. Pursuant to Salomon Smith Barney's engagement letter
with Maxtor, dated September 26, 2000, Salomon Smith Barney rendered an opinion
to the Maxtor board of directors on October 3, 2000, to the effect that, based
upon and subject to the considerations and limitations set forth in the opinion,
its work described below and other factors it deemed relevant, as of that date,
the exchange ratio was fair, from a financial point of view, to Maxtor.
The full text of Salomon Smith Barney's opinion, which sets forth the
assumptions made, general procedures followed, matters considered and limits on
the review undertaken, is included as Annex B to this document. The summary of
Salomon Smith Barney's opinion set forth below is qualified in its entirety by
reference to the full text of the opinion. STOCKHOLDERS ARE URGED TO READ
SALOMON SMITH BARNEY'S OPINION CAREFULLY AND IN ITS ENTIRETY.
In arriving at its opinion, Salomon Smith Barney reviewed a draft of the
merger agreement dated as of October 3, 2000, and drafts of the separation and
redemption agreement, the general assignment and assumption agreement, the tax
sharing and indemnity agreement, the transitional services agreement, the
intellectual property agreement, and the indemnification agreement in the forms
to be attached to the merger agreement and held discussions with certain senior
officers, directors and other representatives and advisors of Maxtor and Quantum
concerning the businesses, operations and prospects of Maxtor and Quantum HDD.
Salomon Smith Barney examined publicly available business and financial
information relating to Maxtor and Quantum HDD. In addition, Salomon Smith
Barney reviewed financial forecasts and other information and data for Maxtor,
Quantum HDD and Spinco which were provided to or otherwise discussed with
Salomon Smith Barney by the managements of Maxtor and Quantum, including certain
strategic implications and operational benefits anticipated to result from the
merger. Salomon
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Smith Barney reviewed the financial terms of the merger as set forth in the
merger agreement in relation to, among other things:
- current and historical market prices and trading volumes of Maxtor common
stock and Quantum HDD common stock;
- the historical and projected earnings and other operating data of Maxtor
and Quantum HDD; and
- the historical and projected capitalization and financial condition of
Maxtor and Quantum HDD.
Salomon Smith Barney also considered, to the extent publicly available, the
financial terms of other similar transactions recently completed that Salomon
Smith Barney considered relevant in evaluating the exchange ratio and analyzed
other publicly available information relating to the businesses of other
companies whose operations Salomon Smith Barney considered relevant in
evaluating those of Maxtor and Quantum HDD. Salomon Smith Barney also evaluated
the pro forma financial impact of the merger on Maxtor. In addition, Salomon
Smith Barney conducted other analyses and examinations and considered other
information and financial, economic and market criteria as it deemed appropriate
in arriving at its opinion.
In rendering its opinion, Salomon Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Salomon Smith Barney and further relied on the
assurances of the managements of Maxtor and Quantum that they were not aware of
any facts that would make any of such information inaccurate or misleading. With
respect to financial forecasts and other information and data provided to or
otherwise reviewed by or discussed with it, Salomon Smith Barney was advised by
the managements of Maxtor and Quantum that such forecasts and other information
and data had been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the managements of Maxtor and Quantum as to
the future financial performance of Maxtor, Quantum HDD and Spinco and the
strategic implications and operational benefits anticipated to result from the
merger. Salomon Smith Barney expressed no view with respect to such forecasts
and other information and data or the assumptions on which they were based.
Salomon Smith Barney assumed, with the consent of Maxtor's board of
directors, that the merger will be treated as a tax-free reorganization for
United States federal income tax purposes under section 368 of the Internal
Revenue Code. Salomon Smith Barney further assumed, with the consent of Maxtor's
board of directors, that the split-off will be treated as a tax-free
reorganization for United States federal income tax purposes under Section 355
of the Internal Revenue Code. Salomon Smith Barney did not independently verify
that this tax treatment will be available in respect of the merger and/or the
split-off, and Salomon Smith Barney expressed no view with respect to the tax
treatment that will be required to be applied to the merger and the split-off.
Salomon Smith Barney further assumed, with the consent of Maxtor's board of
directors, that no indemnification payments in respect of any taxes in
connection with the merger or the split-off will be required to be made by
Maxtor in excess of any insurance proceeds actually received in respect of those
payments. Salomon Smith Barney assumed, with the consent of Maxtor's board of
directors, that no adjustments will be made to the exchange ratio. Salomon Smith
Barney did not make and was not provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Maxtor or
Quantum HDD nor did Salomon Smith Barney make any physical inspection of the
properties or assets of Maxtor or Quantum HDD. Salomon Smith Barney assumed that
the final terms of the agreements with respect to the split-off and the merger
would not vary materially from those set forth in the drafts reviewed by Salomon
Smith Barney. Salomon Smith Barney further assumed that the split-off and the
merger would be consummated in a timely fashion in accordance with the terms of
the relevant agreements, without waiver of any of the conditions to the
split-off or the merger contained in the relevant agreements.
Salomon Smith Barney noted that its opinion related to the relative values
of Maxtor and Spinco. Salomon Smith Barney did not express any opinion as to
what the value of Maxtor common stock actually
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will be when issued in the merger or the price at which Maxtor common stock will
trade subsequent to the merger. Salomon Smith Barney was not asked to consider,
and its opinion did not address, the relative merits of the merger as compared
to any alternative business strategies that might exist for Maxtor or the effect
of any other transaction in which Maxtor might engage. Salomon Smith Barney was
not requested to consider, and its opinion did not address, any term of the
split-off or the merger or any of the related transactions or agreements, other
than the exchange ratio. Salomon Smith Barney's opinion necessarily was based on
information available to it, and financial, stock market and other conditions
and circumstances existing and disclosed to Salomon Smith Barney as of the date
of the opinion.
SALOMON SMITH BARNEY'S ADVISORY SERVICES AND OPINION WERE PROVIDED FOR THE
INFORMATION OF MAXTOR'S BOARD OF DIRECTORS IN ITS EVALUATION OF THE PROPOSED
MERGER AND DID NOT CONSTITUTE A RECOMMENDATION OF THE MERGER TO MAXTOR OR A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW THAT STOCKHOLDER SHOULD VOTE ON ANY
MATTERS RELATING TO THE PROPOSED MERGER.
In connection with rendering its opinion, Salomon Smith Barney made a
presentation to Maxtor's board of directors on October 3, 2000, with respect to
the material analyses performed by Salomon Smith Barney in evaluating the
fairness of the exchange ratio. The following is a summary of that presentation.
The summary includes information presented in tabular format. IN ORDER TO
UNDERSTAND FULLY THE FINANCIAL ANALYSES USED BY SALOMON SMITH BARNEY, THESE
TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH SUMMARY. THE TABLES ALONE DO
NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE FINANCIAL ANALYSES. The following
quantitative information, to the extent it is based on market data, is, except
as otherwise indicated, based on market data as it existed at or prior to
October 2, 2000, and is not necessarily indicative of current or future market
conditions.
* * *
COMPARABLE COMPANIES ANALYSIS
Salomon Smith Barney compared financial, operating and stock market
information, and forecasted financial information, for each of Maxtor and
Quantum HDD, with the same information for selected publicly traded companies
that operate in the disk drive manufacturing business. The forecasted financial
information used by Salomon Smith Barney for the selected comparable companies
(other than Maxtor and Quantum HDD) in the course of these analyses was based on
information published by certain investment banking firms and First Call
Corporation. First Call Corporation compiles summaries of financial forecasts
published by various investment banking firms. With respect to Maxtor and
Quantum HDD, the forecasted financial information used by Salomon Smith Barney
was based on information provided by the managements of Maxtor and of Quantum
HDD, respectively, as well as information published by certain investment
banking firms. Calculations were made based on the closing price per share of
each company's common stock on October 2, 2000, which was $9.88 for Maxtor and
$9.75 for Quantum HDD.
The selected comparable companies considered by Salomon Smith Barney were
Iomega Corp., Seagate Technology, and Western Digital Corp.
For Maxtor, Quantum HDD and the selected comparable companies, Salomon
Smith Barney derived and compared, among other things:
- the ratio of each entity's firm value to (a) its revenue for the last
twelve-month period ending prior to June 30, 2000 for which results were
available, (b) its estimated revenue for 2000 and (c) its estimated
revenue for 2001;
- the ratio of each entity's firm value to (a) its earnings before interest
expense, taxes, depreciation and amortization, or EBITDA, for the last
twelve-month period ending prior to June 30, 2000 for which results were
available, (b) its estimated EBITDA for 2000 and (c) its estimated EBITDA
for 2001; and
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- the ratio of the closing price per common share of each company on
October 2, 2000 to (a) its estimated earnings per share, or EPS, for 2000
and (b) its estimated EPS for 2001.
In deriving ratios for the selected comparable companies, Salomon Smith
Barney made certain adjustments to the relevant data to take into account
certain operational and financial characteristics of, and risks faced by, Maxtor
and Quantum HDD.
Firm value was calculated as the sum of the value of:
- all common shares assuming the exercise of all in-the-money options,
warrants and convertible securities, less the proceeds from such
exercise; plus
- non-convertible indebtedness; plus
- non-convertible preferred stock; plus
- minority interests; plus
- out-of-the-money convertible securities; minus
- investments in unconsolidated affiliates and cash.
The following table sets forth the results of these analyses.
<TABLE>
<CAPTION>
COMPARABLE
COMPANIES HDD BUSINESS MAXTOR
------------- ----------------------- -----------------------
INVESTMENT INVESTMENT
BANK MANAGEMENT BANK MANAGEMENT
RANGE FORECASTS FORECASTS FORECASTS FORECASTS
------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
RATIO OF FIRM VALUE TO:
(a) Revenue for last
twelve-month period........... 0.25x - 0.40x 0.1x 0.1x 0.33x 0.33x
(b) Estimated revenue for 2000..... 0.22x - 0.37x 0.1x 0.1x 0.32x 0.33x
(c) Estimated revenue for 2001..... 0.20x - 0.35x 0.1x 0.09x 0.32x 0.30x
RATIO OF FIRM VALUE TO:
(a) EBITDA for last
twelve-month period........... 3.0x - 5.0x 10.7x 10.7x 11.1x 11.1x
(b) Estimated EBITDA for 2000...... 3.5x - 4.5x 5.2x 5.2x 9.9x 9.1x
(c) Estimated EBITDA for 2001...... 3.0x - 4.5x 2.3x 5.0x 4.8x 8.1x
RATIO OF CLOSING COMMON
SHARE PRICE TO:
(a) Estimated EPS for 2000......... 13.0x - 17.0x 105.7x NM 54.2x No EPS
Forecast
(b) Estimated EPS for 2001......... 12.0x - 20.0x 13.5x 43.1x 19.6x No EPS
Forecast
</TABLE>
Based on the ratios derived for the comparable companies and management
estimates, Salomon Smith Barney derived a range of $8.00 to $12.00 for the
implied per share value of Quantum HDD and $6.00 to $10.00 for the implied per
share value of Maxtor. Based on these ranges, Salomon Smith Barney derived a
range of 1.26x to 1.54x for the implied exchange ratio. Salomon Smith Barney
noted that the exchange ratio in the merger of 1.52x was within this derived
range.
PRECEDENT TRANSACTION ANALYSIS
Salomon Smith Barney reviewed publicly available information for two
acquisition transactions in the disk drive manufacturing sector. The precedent
transactions considered by Salomon Smith Barney were: (i) the sale of Seagate
Technology's disk drive division to an investor group announced on March 29,
2000; and (ii) the acquisition of Conner Peripherals Inc. by Seagate Technology
announced on September 20, 1995.
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For each precedent transaction, Salomon Smith Barney derived the ratio of
the firm value of the acquired business based on the consideration paid or
proposed to be paid in the transaction to:
(a) revenue of the acquired business for the last twelve-month period
ending prior to the announcement of the transaction for which results were
available;
(b) estimated revenue for the acquired business for the twelve-month
period following the announcement of the transaction;
(c) EBITDA of the acquired business for the last twelve-month period
ending prior to the announcement of the transaction for which results were
available; and
(d) estimated EBITDA for the acquired business for the twelve-month
period following the announcement of the transaction.
With respect to the financial information for the companies and businesses
involved in the precedent transactions, Salomon Smith Barney relied on
information available in public documents and its own equity research reports.
In deriving ratios for the acquired businesses in the precedent transactions,
Salomon Smith Barney made certain adjustments to the relevant data to take into
account certain operational and financial characteristics of, and risks faced
by, Maxtor and Quantum HDD.
The following table sets forth the results of these analyses:
<TABLE>
<CAPTION>
RANGE
-------------
<S> <C>
RATIO OF FIRM VALUE OF ACQUIRED BUSINESS TO:
(a) Revenue for last twelve-month period.................... 0.35x - 0.45x
(b) Estimated revenue for following twelve-month period..... 0.25x - .035x
(c) EBITDA for last twelve-month period..................... 4.0x - 5.0x
(d) Estimated EBITDA for following twelve-month period...... 2.0x - 3.0x
</TABLE>
Based on the ratios derived for the precedent transactions and management
estimates, Salomon Smith Barney derived a range of $9.50 to $12.50 for the
implied per share value of Quantum HDD and $6.00 for $10.50 for the implied per
share value of Maxtor. Based on these ranges, Salomon Smith Barney derived a
range of 1.34x to 1.64x for the implied exchange ratio. Salomon Smith Barney
noted that the exchange ratio in the merger of 1.52x was within this derived
range.
For the acquisition of Conner Peripherals by Seagate Technology for which
such information was available, Salomon Smith Barney also derived the premium
paid per common share based on the closing price per common share of Conner
Peripherals one day and one month prior to the announcement of the transaction.
These premiums were 23.7% and 56.1%, respectively. Based on the exchange ratio,
Salomon Smith Barney noted that the implied premium in the merger was 29.5% of
the average closing price per share of Quantum HDD common stock over the 30-day
period prior to announcement of the merger and 50.1% of the closing price per
share of Quantum HDD common stock one day prior to announcement of the merger.
DISCOUNTED CASH FLOW VALUATION
Using a discounted cash flow, or DCF, methodology, Salomon Smith Barney
derived the per share equity value of each of Maxtor and Quantum HDD as of
December 31, 2000 based on the present value of estimated future free cash flows
of Maxtor and Quantum HDD assuming each were to remain independent and perform
in accordance with management forecasts through the year ended December 31,
2002.
Free cash flow represents the amount of cash generated and available for
principal, interest and dividend payments after providing for ongoing business
operations. Equity value was calculated as:
- firm value, less
- non-convertible and convertible indebtedness, less
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- non-convertible and convertible preferred stock and minority interest;
plus
- cash and investments in consolidated subsidiaries.
Equity value per share represents equity value divided by fully diluted
shares outstanding.
Salomon Smith Barney derived present values utilizing a weighted average
cost of capital, or WACC, ranging from 10.0% to 16.0%. The range of terminal
values for each entity was calculated by applying multiples ranging from 3.0x to
5.0x to that entity's estimated EBITDA through December 31, 2002. Salomon Smith
Barney's DCF analysis resulted in a range of implied equity values of $6.50 to
$8.00 per share for Quantum HDD and $4.50 to $7.00 per share for Maxtor. Based
on these ranges, Salomon Smith Barney derived a range of 1.22x to 1.49x for the
implied exchange ratio. Salomon Smith Barney noted that the upper limit of the
derived range was lower than the exchange ratio of 1.52x in the merger.
Salomon Smith Barney also used a DCF methodology to derive a value per
share as of December 31, 2000 of the aggregate synergies forecasted by
management to result from the merger through the year ended December 31, 2005.
In performing this analysis, Salomon Smith Barney used the same WACC range and
range of terminal value multiples as used in the DCF analyses for each of Maxtor
and Quantum HDD as an independent entity.
Based on this analysis, Salomon Smith Barney derived a range for the total
value of the forecasted cost savings as of December 31, 2000 of $607 million to
$999 million. Salomon Smith Barney then derived a range of $296 million to $487
million for the value of those cost savings to Maxtor based on the pro forma
fully-diluted ownership of the combined entity by Maxtor stockholders
immediately following the merger. Based on this information, Salomon Smith
Barney derived a range of $11.50 to $13.50 for the equity value per share for
Quantum HDD by adjusting the DCF equity value per share derived for Quantum HDD
as an independent entity by the value of those cost savings to Maxtor per share
of Quantum HDD common stock. Based on this range and the equity value per share
derived for Maxtor as an independent entity, Salomon Smith Barney derived a
range of 2.09x to 2.55x for the implied exchange ratio. Salomon Smith Barney
noted that the lower limit of the derived range was higher than the exchange
ratio of 1.52x in the merger.
IMPLIED HISTORICAL EXCHANGE RATIO AND PREMIUM ANALYSIS
Salomon Smith Barney derived implied historical exchange ratios by dividing
the closing price per share of Maxtor common stock by the closing price per
share of Quantum HDD common stock for each trading day in the period from
September 29, 1999 through September 29, 2000. Salomon Smith Barney calculated
that the implied exchange ratio as of September 29, 2000 was 0.95x, the highest
implied exchange ratio during the period was 1.53x and the lowest implied
exchange ratio during the period was 0.76x. Salomon Smith Barney also calculated
the average implied exchange ratio for each of the following periods ending
September 29, 2000:
<TABLE>
<S> <C>
Last Month.................................................. 1.16x
Last Three Months........................................... 1.20x
Last Six Months............................................. 1.10x
Last Nine Months............................................ 1.07x
Last 1 Year................................................. 1.07x
</TABLE>
Salomon Smith Barney noted that if the derived range of implied exchange
ratios for the one-year period ending September 29, 2000 is adjusted to reflect
the median premium of 24% derived from the precedent transactions analysis, then
the range for that one-year period would be 1.20x to 1.90x. Salomon Smith Barney
noted that the exchange ratio in the merger of 1.52x is within that range.
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RELATIVE CONTRIBUTION ANALYSIS
Salomon Smith Barney analyzed the relative contribution of each of Maxtor
and Quantum HDD to the pro forma merged entity with respect to certain market
and financial data, including:
- revenue for the last twelve-month period ending prior to October 2, 2000
for which results were available;
- estimated revenue for 2000, 2001 and 2002;
- gross profit for the last twelve-month period ending prior to October 2,
2000 for which results were available; and
- estimated gross profit for 2000, 2001 and 2002.
In performing this analysis, Salomon Smith Barney did not take into account
any anticipated cost savings, revenue enhancements or other similar potential
effects of the merger. Estimated financial data for Maxtor and Quantum HDD were
based on management estimates. The following table sets forth the results of
Salomon Smith Barney's relative contribution analysis.
<TABLE>
<CAPTION>
MAXTOR HDD BUSINESS
------ ------------
<S> <C> <C>
Revenue for last 12 months.................................. 43.5% 56.5%
Estimated revenue for 2000.................................. 43.5% 56.5%
Estimated revenue for 2001.................................. 43.3% 56.7%
Estimated revenue for 2002.................................. 44.5% 55.5%
Gross profit for last 12 months............................. 41.1% 58.9%
Estimated gross profit for 2000............................. 46.3% 53.7%
Estimated gross profit for 2001............................. 45.1% 54.9%
Estimated gross profit for 2002............................. 47.5% 52.5%
</TABLE>
Salomon Smith Barney compared the results set forth above to the implied
48.8% pro forma fully diluted ownership interest in the merged entity that the
shareholders of Maxtor will have immediately following the completion of the
merger. In addition, based on the contribution analysis, Salomon Smith Barney
derived a range of 1.75x to 2.10x for the implied exchange ratio. Salomon Smith
Barney noted that the exchange ratio in the merger of 1.52x was below this
derived range.
* * *
The preceding discussion is a summary of the material financial analyses
furnished by Salomon Smith Barney to the board of directors of Maxtor, but it
does not purport to be a complete description of the analyses performed by
Salomon Smith Barney or of its presentation to the board of directors of Maxtor.
The preparation of financial analyses and fairness opinions is a complex process
involving subjective judgments and is not necessarily susceptible to partial
analysis or summary description. Salomon Smith Barney made no attempt to assign
specific weights to particular analyses or factors considered, but rather made
qualitative judgments as to the significance and relevance of all the analyses
and factors considered and determined to give its fairness opinion as described
above. Accordingly, Salomon Smith Barney believes that its analyses, and the
summary set forth above, must be considered as a whole, and that selecting
portions of the analyses and of the factors considered by Salomon Smith Barney,
without considering all of the analyses and factors, could create a misleading
or incomplete view of the processes underlying the analyses conducted by Salomon
Smith Barney and its opinion. With regard to the comparable companies and
precedent transaction analyses summarized above, Salomon Smith Barney selected
comparable public companies and precedent transactions on the basis of various
factors, including size and similarity of the line of business; however, no
company utilized in these analyses is identical to Maxtor or Quantum HDD and no
precedent transaction is identical to the merger. As a result, these analyses
are not purely mathematical, but also take into account differences in financial
and operating characteristics of the subject companies and other factors that
could affect the transaction or public trading value of the subject companies to
which Maxtor and Quantum HDD are being compared. In its analyses,
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Salomon Smith Barney made numerous assumptions with respect to Maxtor, Quantum
HDD, industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Maxtor and
Quantum.
Any estimates contained in Salomon Smith Barney's analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than those suggested
by these analyses. Estimates of values of companies do not purport to be
appraisals or necessarily to reflect the prices at which companies may actually
be sold. Because these estimates are inherently subject to uncertainty, none of
Maxtor, Quantum, the board of directors of Maxtor, the board of directors of
Quantum, Salomon Smith Barney or any other person assumes responsibility if
future results or actual values differ materially from the estimates. Salomon
Smith Barney's analyses were prepared solely as part of Salomon Smith Barney's
analysis of the fairness of the exchange ratio in the merger and were provided
to the board of directors of Maxtor in that context.
The opinion of Salomon Smith Barney was only one of the factors taken into
consideration by the board of directors of Maxtor in making its determination to
approve the merger agreement and the merger. See "Reasons for the Merger,"
beginning on page 53.
Salomon Smith Barney is an internationally recognized investment banking
firm engaged in, among other things, the valuation of businesses and their
securities in connection with mergers and acquisitions, restructurings,
leveraged buyouts, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes. Maxtor selected Salomon
Smith Barney to act as its financial advisor on the basis of Salomon Smith
Barney's international reputation and Salomon Smith Barney's familiarity with
Maxtor. Salomon Smith Barney and its predecessors and affiliates have previously
provided and currently are providing investment banking services to Maxtor and
Quantum unrelated to the merger, for which Salomon Smith Barney has received and
will receive compensation. In the ordinary course of its business, Salomon Smith
Barney and its affiliates may actively trade or hold the securities of both
Maxtor, Spinco and Quantum for its own account and for the account of customers
and, accordingly, may at any time hold a long or short position in those
securities. Salomon Smith Barney and its affiliates, including Citigroup Inc.
and its affiliates, may maintain relationships with Maxtor, Spinco and Quantum
and their respective affiliates.
Pursuant to Salomon Smith Barney's engagement letter, Maxtor agreed to pay
Salomon Smith Barney the following fees for its services rendered in connection
with the merger: (i) $9,000,000 that will become payable promptly upon the
completion of the merger, and (ii) if the merger is terminated or abandoned
during the term of Salomon Smith Barney's engagement or within 12 months
thereafter, 10% of any termination, break-up or similar fee received by Maxtor
in connection with such termination or abandonment, or of any profit from any
shares (or option to acquire shares or assets) of Quantum or any of its
affiliates acquired in connection with the merger, in each case payable in cash
promptly upon receipt of such fee or profit by Maxtor. Maxtor has also agreed to
reimburse Salomon Smith Barney for its reasonable travel and other out-of-pocket
expenses incurred in connection with its engagement, including the reasonable
fees and expenses of its counsel, and to indemnify Salomon Smith Barney against
specific liabilities and expenses relating to or arising out of its engagement,
including liabilities under the federal securities laws.
OPINION OF QUANTUM'S FINANCIAL ADVISOR
Lehman Brothers has acted as financial advisor to Quantum in connection
with the split-off and merger. As part of its role as financial advisor to
Quantum, Lehman Brothers rendered an oral opinion (subsequently confirmed in
writing) to the Quantum board of directors as of October 3, 2000 as to the
fairness, from a financial point of view, of the exchange ratio to be offered to
the holders of Quantum HDD common stock in the split-off and the merger.
The full text of the Lehman Brothers written opinion, dated as of October
3, 2000, is attached as Annex C to this joint proxy statement/prospectus and is
incorporated herein by reference. Quantum HDD stockholders may read the opinion
for a discussion of the assumptions made, procedures followed, factors
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considered and limitations on the review undertaken by Lehman Brothers in
rendering its opinion. This summary of the Lehman Brothers opinion is qualified
by reference to the full text of the opinion.
Except as described below, no limitations were imposed by Quantum on the
scope of Lehman Brothers' investigation or the procedures to be followed by
Lehman Brothers in rendering its opinion. In arriving at its opinion, Lehman
Brothers did not ascribe a specific range of value to Quantum HDD, but made its
determination as to the fairness, from a financial point of view, to the holders
of Quantum HDD common stock of the exchange ratio to be offered to such
stockholders on the basis of financial and comparative analyses described below.
The Lehman Brothers opinion was provided for the information and assistance of
Quantum's board of directors and was rendered in connection with Quantum's board
of directors' consideration of the split-off and merger. The Lehman Brothers
opinion is not intended to be, and does not constitute, a recommendation to any
Quantum stockholder as to how such stockholder should vote with respect to the
split-off and merger. Lehman Brothers was not requested to opine as to, and its
opinion does not in any manner address, Quantum's underlying business decision
to proceed with or effect the split-off and the merger.
In arriving at its opinion, Lehman Brothers reviewed and analyzed:
- the merger agreement, together with the exhibits thereto, including the
separation agreement, the general assignment and assumption agreement,
the tax sharing agreement, the transitional services agreement, the
intellectual property agreement, the indemnification agreement, and the
specific terms of the split-off and the merger;
- publicly available information concerning Quantum, Quantum HDD and Maxtor
that it believed to be relevant to its analysis, including the annual
report for Quantum on Form 10-K for the fiscal year ended March 31, 2000,
the quarterly report for Quantum on Form 10-Q for the quarter ended July
2, 2000, the annual report for Maxtor on Form 10-K for the fiscal year
ended January 1, 2000, and the quarterly report for Maxtor on Form 10-Q
for the quarter ended July 1, 2000;
- financial and operating information with respect to the business,
operations, and prospects of Quantum, Quantum HDD and Spinco furnished to
it by Quantum;
- financial and operating information with respect to the business,
operations, and prospects of Maxtor furnished to it by Maxtor;
- a trading history of Quantum HDD common stock from July 26, 1999 to
September 29, 2000 and a comparison of that trading history with those of
other companies that Lehman Brothers deemed relevant;
- a trading history of Maxtor common stock from July 26, 1999 to September
29, 2000 and a comparison of that trading history with those of other
companies that Lehman Brothers deemed relevant;
- a comparison of the historical financial results and present financial
condition of Quantum HDD and Maxtor with those of other companies that
Lehman Brothers deemed relevant;
- a comparison of the financial terms of the split-off and the merger with
the financial terms of certain other transactions that Lehman Brothers
deemed relevant;
- the potential pro forma impact of the split-off and the merger on Maxtor
including the cost savings, operating synergies and strategic benefits
expected by the respective managements of Quantum and Maxtor to result
from a combination of the businesses of Quantum HDD and Maxtor; and
- the relative contributions of Quantum HDD and Maxtor to the historical
and future financial performance of the combined company on a pro forma
basis.
In addition, Lehman Brothers has had discussions with the respective
managements of Quantum and Maxtor concerning the respective businesses,
operations, assets, financial conditions, and prospects of
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Quantum HDD and Maxtor and have undertaken such other studies, analyses and
investigations as it deemed appropriate.
In arriving at its opinion, Lehman Brothers has assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and has further relied upon the assurances of the respective
managements of Quantum and Maxtor that they are not aware of any facts or
circumstances that would make such information inaccurate or misleading. With
respect to the financial projections of Quantum HDD and Maxtor on a stand-alone
basis and the financial projections of Maxtor on a pro forma basis following
consummation of the split-off and the merger, upon advice of Quantum and Maxtor,
Lehman Brothers has assumed that such projections have been reasonably prepared
on a basis reflecting, as of October 3, 2000, the best available estimates and
judgments of the respective managements of Quantum and Maxtor as to the future
financial performance of Quantum HDD and Maxtor, as the case may be, and that on
a stand alone basis Quantum HDD and Maxtor would perform, and on a pro forma
basis Maxtor will perform, substantially in accordance with such projections.
Lehman Brothers has relied upon such management projections in performing its
analyses. In arriving at its opinion, Lehman Brothers did not conduct a physical
inspection of the properties and facilities of Quantum or Quantum HDD and has
not made or obtained any evaluations or appraisals of the assets or liabilities
of Quantum or Quantum HDD.
Upon the advice of Quantum and its legal advisors and with Quantum's
consent, Lehman Brothers has assumed that the split-off will qualify as a
tax-free distribution within the meaning of Section 355 of the Internal Revenue
Code, and the merger will qualify as a tax-free reorganization within the
meaning of Section 355(e) of the Internal Revenue Code, and therefore that the
entire proposed split-off and merger will be a tax-free transaction for Quantum
and the holders of Quantum HDD common stock. The Lehman Brothers opinion
necessarily is based upon market, economic and other conditions as they existed
on, and could be evaluated as of October 3, 2000, the date of the opinion.
Lehman Brothers did not express any opinion as to the prices at which
shares of common stock of Maxtor will actually trade following the consummation
of the split-off and the merger and the Lehman Brothers opinion should not be
viewed as providing any assurance that the market value of the shares of Maxtor
common stock to be received by holders of Quantum HDD common stock pursuant to
the split-off and the merger will be in excess of the market value of the shares
of Quantum HDD common stock owned by such stockholder at any time prior to
announcement or consummation of the split-off and the merger.
In connection with its opinion dated October 3, 2000, Lehman Brothers
performed a variety of financial and comparative analyses as summarized below.
The preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant method of financial and comparative analysis and
the application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Certain of
the analyses include information presented in tabular format as set forth below.
In order to fully understand the financial analyses used by Lehman Brothers, the
tables must be read together with the text of each summary. The tables alone do
not constitute a complete description of the financial analyses. Furthermore, in
arriving at its opinion, Lehman Brothers did not attribute any particular weight
to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, Lehman Brothers believes that its analyses listed in the tables and
described below must be considered as a whole and that considering any portions
of such analyses and factors without considering all analyses and factors could
create a misleading or incomplete view of the process underlying its opinion. In
its analysis, Lehman Brothers made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of Quantum, Quantum HDD and Maxtor. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be more or less favorable than
as set forth therein. In addition, analyses relating to the value of businesses
do not purport to be appraisals or to reflect the prices at which businesses
actually may be sold.
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EXCHANGE RATIO ANALYSIS
Lehman Brothers compared the fixed exchange ratio of 1.52 to be offered to
the holders of Quantum HDD common stock with the average ratios of the closing
prices of Quantum HDD common stock to the closing prices of Maxtor common stock.
The following table shows the fixed exchange ratio to be offered in the proposed
split-off and the merger, as well as the average exchange ratios for the 30 days
prior to September 29, 2000, the 60 days prior to September 29, 2000 and the six
months prior to September 29, 2000:
<TABLE>
<CAPTION>
MERGER (FIXED 30-DAY AVERAGE 60-DAY AVERAGE 6-MONTH AVERAGE
EXCHANGE EXCHANGE EXCHANGE EXCHANGE
RATIO) RATIO RATIO RATIO
------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
Exchange Ratio................... 1.52 1.16 1.26 1.10
</TABLE>
COMPARABLE COMPANY ANALYSIS
The comparable company analysis provides a market valuation benchmark based
on the common stock trading multiples of selected comparable companies. Lehman
Brothers compared selected financial data of Quantum HDD with similar data of
selected companies engaged in businesses considered by Lehman Brothers to be
comparable to that of Quantum HDD. Lehman Brothers included in its selected
comparable companies Maxtor, Western Digital Corporation and Iomega Corporation.
For the comparable companies, Lehman Brothers calculated the enterprise value,
defined as the market value of the respective company's common equity plus total
debt less cash and cash equivalents, as a multiple of the latest twelve months,
or LTM, EBITDA, the estimated calendar year, or CY, 2000 EBITDA and the
estimated CY 2001 EBITDA. Lehman Brothers also calculated the equity value,
defined as the market value of the respective company's common equity, as a
multiple of the CY 2000 and CY 2001 net income. For the comparable companies,
projected financial information was based on third party research analyst
reports. For Quantum HDD, Lehman Brothers calculated multiples for EBITDA and
net income based on projections provided by Quantum's management. While Western
Digital was included in the comparable companies group, no meaningful estimates
were available for EBITDA and net income.
Enterprise values were calculated as of September 29, 2000 with the
exception of Maxtor which was calculated as of September 27, 2000 to exclude the
effect of a share increase just prior to announcement of the transaction.
Maxtor's share price experienced an increase from $7.94 to $10.50 from September
27 to September 29 following publication of a BusinessWeek article stating that
Maxtor would be acquired for $20 a share by an unnamed computer data-storage
company.
Lehman Brothers also calculated the implied offer price per share for
Quantum HDD common stock of $12.07 based on the exchange ratio of 1.52 times
Maxtor's share price of $7.94 as of September 27, 2000 and derived enterprise
value and equity value multiples for Quantum HDD based on this premium price.
The following table presents the aforementioned multiples for LTM, CY 2000 and
CY 2001 for Quantum HDD based on stand-alone management estimates at the merger
premium price, Quantum HDD based on stand-alone management estimates at the
market price as of September 29, 2000 and the median of the comparable
companies:
<TABLE>
<CAPTION>
HDD AT HDD AT MEDIAN COMPARABLE
PREMIUM PRICE MARKET PRICE COMPANIES
------------- ------------ -----------------
<S> <C> <C> <C>
LTM EBITDA.............................. 15.8x 10.1x 6.4x
CY 2000 EBITDA.......................... 7.6x 4.9x 5.6x
CY 2001 EBITDA.......................... 7.3x 4.7x 5.8x
CY 2000 Net Income...................... NM NM 23.1x
CY 2001 Net Income...................... 59.3x 48.8x 15.6x
</TABLE>
Because of the inherent differences between the business, operations and
prospects of Quantum HDD and the business, operations and prospects of the
companies included in the comparable companies Lehman Brothers believed that it
was inappropriate to, and therefore did not, rely solely on the
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quantitative results of the comparable company analysis, and accordingly also
made qualitative judgments concerning differences between the financial and
operating characteristics and prospects of Quantum HDD and the comparable
companies that would affect the public market valuations of such companies.
COMPARABLE TRANSACTION ANALYSIS
The comparable transaction analysis provides a market benchmark based on
the consideration paid in selected transactions. Using publicly available
information, Lehman Brothers compared selected financial data for Quantum HDD in
the proposed split-off and merger to similar data for selected transactions in
the storage sector during the time period from August 1993 through September
2000 which Lehman Brothers deemed relevant. These comparable transactions
included: Silver Lake Partner's acquisition of Seagate Technology's operating
assets; Compaq Computer Corporation's acquisition of Digital Equipment
Corporation; Fujitsu Limited's acquisition of the remaining 58% public ownership
of Amdahl Corporation; Compaq Computer Corporation's acquisition of Tandem
Computers Inc.; Hyundai Electronics America's acquisition of the remaining 60%
public ownership of Maxtor; Seagate Technology's acquisition of Connor
Peripherals, Inc.; Quantum's purchase of Digital Equipment Corporation's disk
drive business; and Hyundai Electronics America's acquisition of a 40% stake in
Maxtor. Lehman Brothers reviewed the prices paid in the comparable transactions
in terms of the transaction enterprise value, defined as the total consideration
paid including total debt assumed less cash and cash equivalents transferred to
the acquiror, as a multiple of the LTM EBITDA. Lehman Brothers also calculated
the transaction enterprise value for Quantum HDD based on the implied offer
price as a multiple of LTM EBITDA and the CY 2000 EBITDA. The following table
sets forth the LTM EBITDA multiple for Quantum HDD based on the implied offer
price, the CY 2000 EBITDA multiple for Quantum HDD based on the implied offer
price and the median LTM EBITDA multiple of the comparable transactions:
<TABLE>
<CAPTION>
HDD (BASED ON HDD (BASED ON MEDIAN OF
IMPLIED OFFER PRICE) IMPLIED OFFER PRICE) COMPARABLE
LTM CY 2000 TRANSACTIONS LTM
-------------------- -------------------- ----------------
<S> <C> <C> <C>
EBITDA Multiple................. 15.8x 7.6x 7.1x
</TABLE>
Because the reasons and the circumstances surrounding each of the
comparable transactions were specific to such transactions, and because of the
inherent differences among the businesses, operations and prospects of Quantum
HDD and the selected acquired companies analyzed, Lehman Brothers believed that
it was inappropriate to, and therefore did not, rely solely on the quantitative
results of the comparable transactions analysis and, accordingly, also made
qualitative judgments concerning differences between the terms and
characteristics of the split-off and the merger and the comparable transactions
that would affect the transaction values of Quantum HDD and such acquired
companies.
TRANSACTION PREMIUM ANALYSIS
Lehman Brothers compared the premium received by Quantum HDD in the merger
to premiums paid in selected transactions. Lehman Brothers reviewed the one-day
premium paid in the aforementioned comparable transaction analysis. In addition,
Lehman Brothers calculated one-day premiums paid in selected announced
transactions in the technology sector valued between $500 million and $2.0
billion during the time period from April 2000 through September 2000. The
following table compares the merger premium for Quantum HDD based on Maxtor's
September 27, 2000 price to the range of one-day premiums for the comparable
transaction premiums and the median one-day premium for recent technology
transactions:
<TABLE>
<CAPTION>
RANGE OF COMPARABLE MEDIAN OF RECENT
MERGER TRANSACTION TECHNOLOGY
PREMIUM PREMIUMS PREMIUMS
------- ------------------- ----------------
<S> <C> <C> <C>
Premium................................. 21% 11% - 46% 31%
</TABLE>
Because the reasons and the circumstances surrounding each of the
comparable transactions were specific to such transactions, and because of the
inherent differences among the businesses, operations and
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prospects of Quantum HDD and the selected acquired companies analyzed, Lehman
Brothers believed that it was inappropriate to, and therefore did not, rely
solely on the quantitative results of the transaction premium analysis and,
accordingly, also made qualitative judgments concerning differences between the
terms and characteristics of the proposed split-off and merger and the
comparable transactions that would affect the transaction premiums of Quantum
HDD and such acquired companies.
DISCOUNTED CASH FLOW ANALYSIS
The discounted cash flow, or DCF, analysis provides a net present valuation
of management's stand-alone projections of the after-tax unlevered free cash
flows (defined as operating cash flow available after working capital, capital
expenditures, tax and other operating requirements). Lehman Brothers performed a
DCF analysis for Quantum HDD using projections provided by the management of
Quantum for 2000 through 2003 and management's assumptions as to revenue growth
and operating margins for 2004 and 2005. The DCF was calculated assuming
discount rates ranging from 14% to 16% for Quantum HDD, and was comprised of the
sum of the net present value of the free cash flow for the period January 1,
2001 through December 31, 2005 and a terminal value for 2005 based on a range of
multiples of 6.0x to 8.0x projected EBITDA. Using this method, Lehman Brothers
calculated estimated valuations for Quantum HDD common stock ranging from $13.62
to $15.17 per share.
RELATIVE CONTRIBUTION ANALYSIS
The relative contribution analysis measures the relative contribution of
Quantum HDD to the combined company for various measures such as revenues and
EBITDA as well as the fully-diluted pro forma ownership attained in the combined
company. Lehman Brothers performed the relative contribution analysis using
projections from the respective managements of both Quantum and Maxtor for the
CY 2000 and CY 2001. The following table presents the contribution of Quantum
HDD to the combined company based on those financial projections:
<TABLE>
<CAPTION>
PRO FORMA COMBINED
CONTRIBUTION
------------------
HDD MAXTOR
---- ------
<S> <C> <C>
REVENUES
2000 Estimated............................................ 56.5% 43.5%
2001 Estimated............................................ 56.7% 43.3%
EBITDA
2000 Estimated............................................ 40.2% 59.8%
2001 Estimated............................................ 38.3% 61.7%
Fully Diluted Ownership of Combined Company................. 52.7% 47.3%
</TABLE>
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. Quantum's board of directors
selected Lehman Brothers because of its expertise, reputation and familiarity
with Quantum and the storage industry generally and because its investment
banking professionals have substantial expertise in transactions similar to the
split-off and the merger.
The engagement of Lehman Brothers in connection with the proposed split-off
and merger was formalized by an engagement letter dated August 17, 2000 between
Quantum and Lehman Brothers pursuant to which Quantum has agreed to pay Lehman
Brothers customary fees, a substantial portion of which is contingent upon
consummation of the proposed split-off and merger. In addition, Quantum has
agreed to reimburse Lehman Brothers for reasonable expenses incurred by Lehman
Brothers and to indemnify Lehman Brothers and certain related persons for
certain liabilities that may arise out of its engagement and the rendering of
this opinion.
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Lehman Brothers has performed investment banking services for Quantum in
the past including the creation of the tracking stocks for Quantum HDD and
Quantum DSS in July 1999, and has received customary fees for its services. In
the ordinary course of Lehman Brothers' business, Lehman Brothers may actively
trade in the equity and debt securities of Quantum HDD, Quantum DSS and Maxtor
for its own account and for the accounts of its customers and, accordingly, may
at any time hold a long or short position in such securities.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
MAXTOR PERSONS
Certain Maxtor executive officers are parties to change of control
agreements pursuant to which the merger constitutes a change of control.
Accordingly, if Maxtor terminates the employment of any of these executive
officers without cause within 12 months following the closing of the merger, for
the chief executive officer, all unvested stock options and restricted stock
shall become 100% vested and any other such executives will have their option
vesting accelerated by an additional two years and their restricted stock shall
be vested 50% or prorated based upon the number of months from the restricted
stock amendment date, whichever is greater. Maxtor will owe severance payments
of 24 months to the chief executive officer and 12 months for other executives.
QUANTUM PERSONS
Some Quantum executive officers are entitled to severance payments if they
are terminated primarily because of the merger within 30 days prior to or within
9 months following the merger. Under the merger agreement, Maxtor has agreed to
pay a portion of such severance. Some of the directors and officers of Quantum
participate in arrangements and have continuing indemnification against
liabilities that provide them with interests in the merger that are different
from, or are in addition to, your interests.
Under the merger agreement, Maxtor has agreed to honor Quantum's
obligations under indemnification agreements between Quantum and its officers
and directors in effect before the completion of the merger and any
indemnification provisions of Quantum's restated certificate of incorporation
and bylaws. Maxtor has also agreed to provide for indemnification provisions in
the certificate of incorporation and bylaws of the surviving corporation of the
merger that are at least as favorable as Quantum's provisions and to maintain
these provisions for at least six years from the completion of the merger. In
addition, Maxtor has agreed to provide director and officer liability insurance
for claims arising under the merger agreement for six years following the
completion of the merger, provided that Maxtor is not required to pay more than
150% of the current premium for Quantum's insurance for persons currently
covered under Quantum's directors' and officers' liability insurance.
TREATMENT OF STOCK OPTIONS AND RESTRICTED STOCK
MAXTOR PLANS
Maxtor's equity plans include its amended and restated 1996 stock option
plan, its 1998 restricted stock plan, and its 1998 employee stock purchase plan.
The merger qualifies as a "change of control" or "transfer of control" of Maxtor
under certain of its employee stock plans. The following is a description of the
potential effect of the merger on those plans:
- The Maxtor stock option plan provides that unless the acquiring or
surviving corporation assumes Maxtor's rights and obligations under
outstanding options or substitutes equivalent options, all unvested
options will be accelerated in full effective ten days prior to
consummation of the merger. However, the Maxtor board of directors has
adopted resolutions providing that Maxtor, as the surviving corporation,
will continue in effect under their existing terms all options and
restricted stock grants outstanding under the stock option plan.
Accordingly, options held by employees, directors or consultants under
the stock option plan will remain outstanding and their vesting will not
accelerate as a result of the transfer of control.
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- The restricted stock plan is unaffected by the merger.
- The amended purchase plan provides that if the surviving corporation
elects not to assume rights and obligations under the amended purchase
plan, the purchase date of the current offering period is accelerated to
a date before the date of the merger, without any adjustment to the
number of shares subject to the purchase rights. Purchase rights which
are not assumed or exercised prior to the merger would terminate as of
the effective time of the merger. However, the Maxtor board of directors
has adopted resolutions providing that employees who are participants in
the amended purchase plan will remain participants on the same terms
following the merger.
See "Interests of Certain Persons in the Merger -- Maxtor Persons," beginning on
page 71.
QUANTUM PLANS
Under the terms of the merger agreement, Maxtor has agreed to assume the
following options and restricted stock:
- all Quantum HDD options and Quantum HDD restricted stock held by
employees who accept offers of employment with Spinco and Maxtor, or
"transferred employees," whether or not the options or restricted stock
have vested; and
- vested Quantum HDD options and vested Quantum HDD restricted stock held
by individuals who formerly provided services to Quantum, or former
service providers; and
- vested Quantum HDD restricted stock held by any other individual.
The outstanding options to purchase Quantum HDD common stock held by
transferred employees and vested options to purchase Quantum HDD common stock
held by former Quantum employees and consultants will be assumed by Maxtor and
converted into options to purchase Maxtor common stock according to the exchange
ratio of 1.52 shares of Maxtor common stock for each share of Quantum HDD common
stock, subject to any change in the exchange ratio as described above. As of
November 16, 2000, vested options for Quantum HDD common stock being assumed in
the merger would represent options for up to 9,914,790 shares of Maxtor common
stock and unvested options for Quantum HDD common stock being assumed in the
merger would represent options for up to 10,089,747 shares of Maxtor common
stock, with the exact number of options being assumed depending on the number of
shares subject to options held by transferred employees and Quantum employees
terminated prior to the merger; these figures do not include vested options for
Quantum HDD common stock held by Quantum DSS employees who will not become
transferred employees and are not likely to be terminated prior to the merger.
Outstanding shares of Quantum HDD common stock issued under Quantum's restricted
stock plan and held by transferred employees, and vested shares of Quantum HDD
restricted stock held by other individuals, and not subject to repurchase, will
be assumed by Maxtor and converted according to the exchange ratio into shares
of Maxtor common stock, subject to repurchase as provided under Quantum's
restricted stock plan to the extent such shares were subject to repurchase prior
to the merger.
Transferred employees holding vested DSS options will have a period of time
to exercise those options. Unvested DSS options held by transferred employees
will be converted into shares of DSS restricted stock, which will vest as to 50%
of the shares after three months (or earlier upon an involuntary termination)
and as to the remaining 50% of the shares ratably over the succeeding nine-month
period, assuming continued employment with Maxtor.
All outstanding Quantum HDD options held by individuals other than
transferred employees and former service providers, whether vested or unvested,
and all unvested Quantum HDD restricted stock held by individuals other than
transferred employees and former service providers will be converted into DSS
options and DSS restricted stock.
RELATIONSHIP WITH MKE
MKE manufactures all of Quantum HDD hard disk drives at facilities located
in Japan and Singapore. Quantum HDD's relationship with MKE, which has been
continuous since 1984, is governed
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by manufacturing and purchase agreements which continue through 2007, unless
terminated sooner as a result of certain specified events including a
change-in-control of either Quantum or MKE. The agreements give MKE the
exclusive worldwide right to manufacture and Quantum HDD the exclusive worldwide
right to design and market hard disk drives. Quantum HDD works closely with MKE
to regularly adjust its purchase orders as market requirements change. Quantum
HDD and MKE also work together to develop strategic relationships with leading
suppliers of many of the key components for Quantum HDD's hard disk drives.
Under the separation documents, the agreements between Quantum and MKE will
not be assigned to Spinco. As a result, after the merger Maxtor will have no
rights or obligations under these agreements. On October 2, 2000, Maxtor and MKE
entered into a memorandum of understanding regarding the future relationship
between the combined company and MKE. The parties have agreed to operate under
the following principles:
- Maxtor and MKE agree to work on a common design, which will be
manufacturable in both Maxtor Singapore facilities and MKE facilities. It
is anticipated that this will be achieved in early 2002 or sooner if
practical. This common design should not adversely impact the capital
tooling requirements of either company.
- Until a common design is achieved, both Maxtor and Quantum platforms will
be maintained and manufactured in each respective factory, until 7200 rpm
volumes are sufficient to utilize most of MKE's capacity.
- Upon implementation of the common design platforms in early 2002, it is
agreed that MKE will be the beneficiary of anticipated volume growth, so
long as product cost, quality, flexibility and time to volume is equal to
or more competitive than Maxtor's own manufacturing capability.
- Maxtor will evaluate leveraging MKE's vertical integration capabilities
in the areas of components and sub-assemblies, provided they are
competitive in the areas of quality, flexibility, price and terms.
- Maxtor and MKE will work together to improve flexibility in supply chain
management and logistics.
The parties also agreed that prior to the completion of the merger, Maxtor
and MKE will work together to negotiate and re-assign the various manufacturing
and purchase agreements currently in place with Quantum. Negotiations between
Maxtor and MKE are currently continuing.
Maxtor's Singapore manufacturing operations and world-wide supplier base
will continue to be an essential part of the combined company's design and
manufacturing strategy.
AMENDMENTS OF THE MAXTOR RESTATED CERTIFICATE OF INCORPORATION EFFECTED BY THE
MERGER
AMENDMENT TO ELIMINATE UNTIL 2004 THE REQUIREMENT THAT THE NUMBER OF DIRECTORS
IN EACH MAXTOR BOARD CLASS BE REASONABLY EQUAL
Article Sixth, A. of Maxtor's restated certificate of incorporation
currently provides, among other things, that Maxtor's directors shall be divided
into three classes, as nearly equal in number as reasonably possible. The merger
agreement provides for the amendment of Maxtor's restated certificate of
incorporation to eliminate until the annual meeting of stockholders to be held
in 2004 the requirement that its three classes of directors be reasonably equal
in number. The Maxtor board proposes to reconstitute the board at the closing of
the merger so that Class III of the board, whose term expires at the annual
meeting of stockholders in 2001, will consist of two directors, Michael R.
Cannon and Chong Sup Park; Class I of the board, whose term expires at the
annual meeting of stockholders in 2002, will consist of one director, Michael A.
Brown; and Class II of the board, whose term expires at the annual meeting of
stockholders in 2003, will consist of four directors, Thomas L. Chun, Roger W.
Johnson, Charles Hill, and
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Charles F. Christ. From and after the annual meeting of the board to be held in
2004, the board classes would again be reconstituted so that they were as nearly
equal in number as possible.
Under Maxtor's current classified board provision, a person could not take
control of the board for at least two annual meetings. Under the provision as
proposed to be amended, a person could not take control of the board until the
third annual meeting after the closing of merger, since a majority of the
directors would not stand for election until that third annual meeting. From and
after the fourth annual meeting in 2004, however, the classes would again be
required to be as nearly equal in numbers as practicable.
This change is being made pursuant to the merger agreement in order to make
it clear that, although Quantum HDD stockholders will hold more than 50% of
Maxtor's outstanding voting stock immediately following the merger, these
stockholders would not be able to take control of the Maxtor board of directors
any earlier than the third annual meeting after the merger in 2003, since a
majority of the board will not stand for election until 2003, and since a
classified board of directors can only be removed for cause. This provision
confirms and gives effect to the parties' intent in entering into the
transaction that Maxtor would be the acquiring party in the merger. As a result,
under the accounting rules, the historical financial statements of the combined
entity will be those of Maxtor, not Quantum HDD, and the allocation of the
purchase price for the transaction to intangible assets such as goodwill will be
based upon the fair value of Quantum HDD's assets, rather than Maxtor's assets.
On the effective date of the merger, Article Sixth, A. of Maxtor's restated
certificate of incorporation will be amended and restated to read in its
entirety as follows:
The number of directors shall be fixed from time to time exclusively by the
Board of Directors. Prior to the annual meeting of stockholders held in
2004, the directors shall be divided into three classes, which need not be
equal in number, the size to be fixed exclusively by the Board of
Directors. From and after the annual meeting of stockholders to be held in
2004, the classes shall be as nearly equal in number as reasonably possible
as determined exclusively by Board of Directors. All determinations by the
Board of Directors under this Article Sixth, A. shall be pursuant to a
resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously
authorized directorship at the time any such resolution is presented to the
Board for adoption). Each director shall be elected to a three-year term.
AMENDMENT TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
Under Delaware law, Maxtor may only issue shares of common stock to the
extent such shares have been authorized for issuance under Maxtor's restated
certificate of incorporation. The restated certificate of incorporation
currently authorizes the issuance by Maxtor up to 250,000,000 shares of common
stock. As of November 9, 2000, 116,169,646 shares of Maxtor common stock were
issued and outstanding, 22,975,685 shares of common stock were reserved for
issuance under Maxtor's stock option plan (proposed to be increased to
39,975,685 under Proposal No. 2, 4,500,000 shares of common stock were reserved
for issuance under Maxtor's stock purchase plan (proposed to be increased to
8,000,000 under Proposal No. 3), 390,000 shares of common stock were reserved
for issuance under Maxtor's restricted stock plan, and 154,153 shares were
reserved for issuance upon the exercise of stock options assumed in Maxtor's
acquisition of Creative Design Solutions, Inc. Approximately 118,600,000 shares
of common stock are proposed to be issued to holders of Quantum HDD common stock
pursuant to the merger, and, in addition, up to approximately 20,000,000 shares
of Maxtor common stock must be reserved effective as of the closing of the
merger for options exercisable for Quantum HDD common stock assumed by Maxtor
pursuant to the merger agreement, and 4,716,676 shares of Maxtor common stock
must be reserved for the possible conversion of Quantum's convertible
subordinate notes for which Maxtor is obligated to reimburse Quantum under the
merger agreement. As a result, even if Proposal Nos. 2 and 3 are not approved by
Maxtor stockholders, without an increase in authorized shares Maxtor would not
have sufficient shares available in order to issue the required number of shares
in the merger. The merger agreement provides for
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the amendment of Maxtor's restated certificate of incorporation to increase the
number of shares of common stock authorized for issuance to 525,000,000 shares.
The purpose of the proposed amendment to the certificate of incorporation
pursuant to the merger agreement is to authorize additional shares of common
stock which will be available for issuance in the merger, for a reserve for
issuance upon exercise of stock options assumed in the merger, and also in the
event the board of directors determines that it is necessary or appropriate to
issue additional shares in connection with a stock dividend, additional equity
incentives to employees and officers, or for other corporate purposes. The
availability of additional shares of common stock is particularly important in
the event that Maxtor needs to undertake any of the foregoing actions on an
expedited basis and wishes to avoid the time and expense of seeking stockholder
approval in connection with the contemplated issuance of common stock. Maxtor
has no present agreement or arrangement to issue any of the additional
authorized shares other than in connection with the merger and the exercise of
options assumed in the merger.
The increase in authorized common stock will not have any immediate effect
on the rights of existing stockholders except the effects of the merger
described in this joint proxy statement/prospectus. However, the board will have
the authority to issue common stock without requiring future stockholder
approval of such issuances, except as may be required by applicable law. To the
extent that additional shares are issued in the future, they may decrease the
existing stockholders' percentage equity ownership and, depending on the price
at which they are issued, could be dilutive to the existing stockholders.
The increase in the authorized number of shares of common stock and the
subsequent issuance of shares could have the effect of delaying or preventing a
change in control of Maxtor without further action by the stockholders. Shares
of authorized and unissued common stock could, within the limits imposed by
applicable law, be issued in one or more transactions which make a change in
control of Maxtor more difficult, and therefore less likely. Any such issuance
of additional stock could have the effect of diluting the earnings per share and
book value per share of outstanding shares of common stock, and such additional
shares could be used to dilute the stock ownership or voting rights of a person
seeking to obtain control of Maxtor. The board of directors is not currently
aware of any attempt to acquire Maxtor. While it may be deemed to have potential
anti-takeover effects, the proposed amendment to increase the authorized common
stock is not prompted by any specific effort or takeover threat currently
perceived by management.
MAXTOR BOARD COMPOSITION
Upon the closing of the merger:
- Maxtor's board of directors will be reduced from eight to seven
directors;
- two existing directors, Y.H. Kim and C.S. Chung, will resign; and
- Michael A. Brown, chairman and chief executive officer of Quantum
corporation, will be appointed to the Maxtor board.
At the closing, the Maxtor board will be comprised of Dr. C.S. Park
(chairman), Michael R. Cannon, Charles Hill, Thomas L. Chun, Roger W. Johnson,
Charles F. Christ, and Michael A. Brown. In addition, the classes of the Maxtor
board of directors will be adjusted so that two directors, Dr. C.S. Park and
Michael R. Cannon, will have a term expiring at the annual meeting of
stockholders to be held in 2001, one director, Michael A. Brown, will have a
term expiring at the annual meeting of stockholders to be held in 2002, and the
four other directors will have terms expiring at the annual meeting of
stockholders in 2003. See "Amendments of the Maxtor Restated Certificate of
Incorporation Effected by the Merger -- Amendment to Eliminate Until 2004 the
Requirement that the Number of Directors in Each Maxtor Board Class be
Reasonably Equal," beginning on page 73.
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SEVERANCE COSTS
Pursuant to the merger agreement, Maxtor has agreed to hire, or in the
event Maxtor does not hire, pay the severance costs associated with the
termination of up to 2,600 individuals employed by Quantum in Quantum HDD and
535 individuals employed by Quantum in its corporate division, provided such
individuals are terminated within 30 days prior to the completion of the merger
or within nine months thereafter. The projected aggregate cost of such severance
is estimated to be approximately $71 million. In addition, Maxtor has agreed to
pay for a portion of the severance costs associated with the termination of
seven identified members of Quantum's senior management, in the event such
individuals are terminated primarily because of the merger within nine months
following the completion of the merger. Maxtor's maximum obligation with regard
to the potential severance costs associated with these seven individuals is
$7,646,600.
STRUCTURE OF THE MERGER
SEPARATION. Immediately prior to the closing of the merger, Quantum will
transfer to Spinco Quantum HDD in exchange for all of Spinco's common stock in a
tax-free transaction. In order to effect the separation, Quantum, Spinco and
Maxtor will execute the following agreements:
- a general assignment and assumption agreement;
- a separation and redemption agreement;
- a tax sharing and indemnity agreement;
- an intellectual property agreement;
- an indemnification agreement; and
- a transitional services agreement.
The split-off of Quantum HDD from the rest of Quantum, followed by the
merger of Spinco (which will then own Quantum HDD) into Maxtor, is intended to
enable Quantum to separate Quantum HDD from its other businesses, to keep those
other businesses, and combine Quantum HDD with Maxtor, all without incurring
corporate-level federal income, or state income or franchise tax. See "Tax Risks
Related to the Split-Off and Merger," beginning on page 30; and "Material
Federal Income Tax Consequences of the Separation, Redemption and the Merger,"
beginning on page 76.
REDEMPTION. As a part of this transaction, Quantum HDD common stock will be
redeemed in return for an equal number of shares of Spinco common stock. This
redemption will be handled by book-entry only and no Spinco common stock
certificates will be issued.
MERGER. Immediately after the split-off, Spinco will merge with Maxtor and
Maxtor will be the surviving corporation. Each share of Spinco common stock will
be converted into the right to receive 1.52 shares of Maxtor common stock,
subject to possible adjustment as described below.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SEPARATION, THE REDEMPTION AND
THE MERGER
The following discussion does not deal with all United States federal
income tax consequences that may result from the separation, the redemption and
the merger and does not deal with all United States federal income tax
considerations that may be relevant to particular stockholders in light of their
particular circumstances, such as stockholders, if any, who are dealers in
securities, banks, insurance companies, tax-exempt organizations, or foreign
persons, stockholders who acquired their stock through stock option or stock
purchase programs or in other compensatory transactions, or who hold their stock
as part of an integrated investment (including a "straddle") comprised of shares
of stock and one or more other positions, or stockholders who have entered into
a constructive sale of their stock under the recently enacted constructive sale
provisions of the Internal Revenue Code, or the Code.
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The following discussion does not address the tax consequences of
transactions effectuated prior to, at the time of, or after the redemption and
merger (whether or not such transactions are in connection with the redemption
or merger), including, without limitation, the exercise of options, warrants or
similar rights to purchase stock, or the exchange, assumption or substitution of
options, warrants or similar rights to purchase Quantum stock for rights to
purchase Maxtor common stock. The discussion below assumes that the amount
received in the merger with respect to each share of Quantum HDD common stock is
approximately equal to the fair market value thereof. No foreign, state or local
tax considerations are addressed herein. This discussion is based on legal
authorities in existence as of the date hereof. No assurances can be given that
future legislation, regulations, administrative pronouncements or court
decisions will not significantly change the law and materially affect the
conclusions expressed herein. Any such change, even though made after
consummation of the merger, could be applied retroactively. No ruling from the
IRS will be requested concerning the federal income tax consequences of the
redemption or the merger.
Quantum and Maxtor have received an opinion from Ernst & Young to the
effect that (either by themselves or in conjunction with the merger) the
separation and the redemption should qualify as tax-free transactions to
Quantum, Spinco and holders of Quantum HDD common stock under section 355 and
related sections of the Code. The following discussion of section 355 is based
upon the opinion of Ernst & Young. The obligations of the parties to the merger
agreement are conditioned on the receipt by Quantum and Maxtor of a re-issued
opinion from Ernst & Young to the same effect as its previous opinion without
any adverse qualifications or modifications.
The obligations of the parties to the merger agreement are also conditioned
on the receipt by Quantum and Maxtor of an opinion from their respective
counsel, Wilson Sonsini Goodrich & Rosati, a Professional Corporation, and Gray
Cary Ware & Freidenrich LLP, respectively, to the effect that the merger will
constitute a reorganization within the meaning of section 368(a) of the Code.
The opinion of Ernst & Young issued prior to the execution of the merger
agreement was, and the re-issued opinion of Ernst & Young, as well as the
separate opinions of Wilson Sonsini Goodrich & Rosati and Gray Cary Ware &
Freidenrich, will all be, subject to limitations and qualifications and based on
various representations. None of the opinions, nor the description of the
material federal income tax consequences set forth in the following discussion,
is binding on the IRS or the courts and no assurance can be given that contrary
positions will not be successfully asserted by the IRS or adopted by a court.
The tax discussion set forth below is included for general information
only. It is not intended to be, nor should it be construed to be, legal or tax
advice to any particular stockholder.
STOCKHOLDERS ARE ADVISED AND ARE EXPECTED TO CONSULT WITH THEIR OWN LEGAL
AND TAX ADVISORS REGARDING THE FEDERAL INCOME TAX CONSEQUENCES OF THE REDEMPTION
AND THE MERGER IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES, AND ANY OTHER
CONSEQUENCES TO THEM OF THE REDEMPTION AND THE MERGER UNDER STATE, LOCAL AND
FOREIGN TAX LAWS.
CONSEQUENCES TO HOLDERS OF QUANTUM HDD COMMON STOCK
The following discussion summarizes certain of the material federal income
tax considerations of the redemption and merger that are generally applicable to
holders of Quantum HDD common stock. The discussion assumes that the holders of
Quantum HDD common stock hold their stock for investment.
HOLDERS OF QUANTUM HDD COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS
REGARDING THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR
PARTICULAR SITUATIONS AND THE CONSEQUENCES OF FOREIGN, STATE, OR LOCAL LAWS, AND
TAX TREATIES.
If the redemption qualifies as a tax-free transaction under section 355(a)
of the Code:
- Holders of Quantum HDD common stock would not recognize gain, loss, or
income on their receipt of Spinco common stock in exchange for their
Quantum HDD common stock.
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- The aggregate tax basis of the Spinco common stock received by each
holder of Quantum HDD common stock in the redemption would be the same as
the aggregate tax basis of Quantum HDD common stock surrendered in the
exchange.
- The holding period of the Spinco common stock received by each holder of
Quantum HDD common stock in the redemption would include the period
during which the holder held his Quantum HDD common stock.
If the redemption does not qualify as a tax-free transaction, the federal
income tax consequences of the redemption to a particular holder of Quantum HDD
common stock would depend on the extent to which the holder also owns Quantum
DSS common stock. If a holder of Quantum HDD common stock does not own any
Quantum DSS common stock, the holder would recognize capital gain or loss on the
redemption measured by the difference between the value of the Spinco common
stock received in the redemption and the holder's tax basis in his Quantum HDD
common stock. If a holder of Quantum HDD common stock also owns Quantum DSS
common stock, and the redemption does not meaningfully reduce the holder's
overall interest in Quantum, the distribution of Spinco common stock would be
treated as a dividend, to the extent that the value of the stock does not exceed
Quantum's earnings and profits. The holder would be subject to tax on the
dividend at ordinary income rates. If the value of the Spinco common stock
distributed as a dividend exceeds Quantum's earnings and profits, the excess
would be treated first as a tax-free return of the holder's investment, up to
the holder's basis in his Quantum stock and any remaining excess would be
treated as a capital gain. If the holder is a United States corporation, it
would generally be able to claim a deduction equal to a portion of any dividends
received. Regardless of whether the redemption is treated as a dividend, if the
redemption is treated as a taxable transaction, a holder's tax basis in the
Spinco common stock received by the holder would equal the fair market value of
that stock, and the holder's holding period for the stock would begin on the day
following the redemption.
If the merger qualifies as a reorganization within the meaning of section
368(a) of the Code:
(a) No gain or loss would be recognized by the holders of Quantum HDD
common stock upon the receipt of Maxtor common stock in exchange for their
Spinco common stock in the merger.
(b) A holder of Quantum HDD common stock who receives cash in lieu of
a fractional share of Maxtor common stock would be treated as if he had
received the fractional share and then had that share redeemed for the
cash. The holder would recognize gain or loss equal to the difference
between the cash received and that portion of his basis in the Maxtor
common stock attributable to the fractional share.
(c) The aggregate tax basis of the Maxtor common stock received by
each holder of Quantum HDD common stock in the merger (including any
fractional share that the holder would be treated as having received and
then had immediately redeemed for cash) would be the same as the aggregate
tax basis of the Spinco common stock surrendered in the exchange.
(d) The holding period of the Maxtor common stock received by each
holder of Quantum HDD common stock in the merger would include the period
during which the holder held his Quantum HDD common stock.
If the merger does not qualify as a reorganization, each holder of Quantum
HDD common stock would recognize capital gain or loss on the holder's exchange
of Spinco common stock for Maxtor common stock. This gain or loss would be
measured by the difference between (i) the sum of the value of the Maxtor common
stock received by the holder and the amount of any cash received by the holder
in lieu of a fractional share of Maxtor common stock, and (ii) the holder's tax
basis in his Spinco common stock. If the redemption is treated as a taxable
transaction, a holder of Quantum HDD common stock would recognize no further
income or gain as a result of the merger, because the holder's basis in the
Spinco common stock received in the redemption would equal the fair market value
of that stock. If the merger does not qualify as a reorganization, a holder's
tax basis in the Maxtor common stock received in the merger would equal the fair
market value of that stock, and the holder's holding period for the stock would
begin on the day following the merger.
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THE PRECEDING DISCUSSION IS NOT A COMPLETE ANALYSIS OR DISCUSSION OF ALL
POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. HOLDERS OF QUANTUM HDD COMMON
STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC
CONSEQUENCES OF THE REDEMPTION AND THE MERGER TO THEM, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL,
AND OTHER TAX LAWS AND THE EFFECTS OF ANY PROPOSED CHANGES IN THE TAX LAWS.
CONSEQUENCES TO HOLDERS OF QUANTUM DSS COMMON STOCK
Holders of Quantum DSS common stock should not recognize any gain or loss
as a result of the redemption or the merger.
CONSEQUENCES TO MAXTOR STOCKHOLDERS
Maxtor stockholders should not recognize any gain or loss as a result of
the redemption or the merger.
CONSEQUENCES TO QUANTUM
When a parent corporation distributes to its stockholders the stock of a
subsidiary, the distribution can qualify for tax-free treatment to both the
parent corporation and its stockholders if it meets certain conditions described
in section 355 of the Code. The separation and the redemption have been
structured to comply with these conditions. Moreover, Ernst & Young has
delivered an opinion to Quantum that the separation and the redemption, as well
as the merger, if carried out as planned, should meet the conditions prescribed
by section 355 and thus should qualify for tax-free treatment to Quantum, Spinco
and the holders of Quantum HDD common stock. The following discussion is based
upon the opinion of Ernst & Young. The parties' obligations to carry out the
merger are conditioned on their receipt of a re-issued opinion from Ernst &
Young confirming its prior opinion.
Even if a parent corporation's distribution of its subsidiary's stock meets
the general section 355 conditions, if either the parent corporation or the
subsidiary is acquired pursuant to a plan of which the distribution is a part,
special rules provided in section 355(e) generally require the parent
corporation to recognize gain on the distribution. Specifically, section 355(e)
applies if, pursuant to a plan (or series of related transactions) of which the
distribution is a part, one or more persons acquire, directly or indirectly, a
50% or greater interest in either the parent or the subsidiary. For this
purpose, any acquisitions of stock of either corporation within two years before
or after the distribution are presumed to be part of the plan unless the parent
corporation establishes otherwise.
The merger will not itself cause Quantum to recognize gain on the
separation and redemption under section 355(e) as long as the holders of Quantum
HDD common stock own more than 50% of the Maxtor common stock outstanding
immediately after the merger. The exchange ratio in the merger has been set so
that the holders of Quantum HDD common stock will own at least 50.1%, and in the
sole discretion of Maxtor's board of directors, up to not more than 51.0% of the
Maxtor common stock outstanding immediately after the merger. Ernst & Young has
specifically opined that, assuming the exchange ratio has been so set, the
merger should not result in recognition of gain to Quantum by reason of section
355(e).
Even if the merger does not by itself result in the application of section
355(e) to the redemption, that section could apply as a result of the combined
effect of the merger and other transactions that are, or are treated as, part of
the redemption plan. The merger will result in an acquisition of interest in
Quantum HDD of up to 49.9% -- just below the 50% threshold of section 355(e).
Therefore, if other transactions in stock of Quantum, Spinco, or Maxtor are
considered as part of a plan that includes the redemption and the merger, those
transactions, together with the merger, could result in an acquisition of a 50%
or greater interest in Quantum HDD.
In rendering its opinion, Ernst & Young considered certain prior and
expected future transactions and specifically opined that these transactions
should not be treated as acquisitions of shares pursuant to a plan (or series of
related transactions) for purposes of section 355(e). In particular, Ernst &
Young considered and specifically opined on the following transactions in
Quantum stock that occurred during the past two
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years of which it was advised by Quantum and the following transactions in
Maxtor stock that could be expected to occur during the two years following the
redemption:
(a) The issuance of shares of Quantum HDD common stock to the historic
shareholders of Snap Division Corporation (previously known as Meridian
Data, Inc.), a company acquired by Quantum in October 1999.
(b) The issuance of shares of Quantum common stock to the historic
shareholders of ATL Products, Inc., a company acquired by Quantum in
October 1998.
(c) The issuance of shares of Quantum HDD common stock prior to the
merger under existing Quantum equity compensation plans pursuant to (i) the
exercise of options or (ii) the grant of restricted stock.
(d) The issuance of Maxtor shares after the merger under existing
Maxtor equity compensation plans pursuant to (i) the exercise of options or
(ii) the grant of restricted stock in the ordinary course consistent with
past practices.
(e) The issuance of Maxtor shares after the merger pursuant to the
exercise of employee options to purchase Quantum HDD common stock that will
be assumed by Maxtor.
(f) The issuance of Maxtor restricted shares pursuant to the exchange
by employees of restricted Quantum HDD common stock for restricted Maxtor
shares.
(g) The issuance of shares of Quantum HDD common stock prior to the
merger, and the issuance of Maxtor shares after the merger, if any, which
are issued to holders of Quantum convertible debentures which were issued
in August 1997.
(h) Public trading in Quantum HDD common stock and in Maxtor shares.
(i) Quantum's issuance of Quantum HDD common stock and of Quantum DSS
common stock to Quantum stockholders in Quantum's reclassification of its
stock into tracking stocks in August 1999.
(j) The issuance of Quantum DSS common stock pursuant to employee
options exercisable into Quantum DSS common stock or the issuance of
restricted Quantum DSS common stock pursuant to the merger.
(k) The redemption of Quantum shares pursuant to Quantum's open market
stock repurchase programs.
Ernst & Young has advised that Section 355(e) is a relatively new provision
of law. Accordingly, little authoritative guidance exists regarding its
interpretation. In particular, there is uncertainty over the analysis to be used
to determine whether transactions are part of a plan (or series of related
transactions). In addition, such a determination is inherently factual and
subject to the interpretation of the facts and circumstances of a particular
case. Ernst & Young's opinion particularly notes that the regulations regarding
the definition of "plan (or series of related transactions)" under section
355(e) are proposed, and have not become final and that such regulations, when
finalized, could affect the conclusions reached in its opinion. In addition, the
current proposed regulations have been heavily criticized, and the IRS has
announced its intention to withdraw them and issue new proposed regulations.
Some of the analysis underlying Ernst & Young's opinion may be inconsistent with
the positions reflected in the current proposed regulations or with the
positions to be reflected in the as yet unissued new proposed regulations.
Consequently, withdrawal of the current proposed regulations and issuance of new
proposed regulations could affect the conclusions reached in Ernst & Young's
opinion.
In addition, Ernst & Young's opinion specifically states that its opinions
and conclusions are based upon an analysis of the Code as in effect on the date
of the opinion, Treasury regulations, current case law, and published IRS
authority and that the foregoing are subject to change, which may be
retroactively
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effective. In its opinion, Ernst & Young also expressly disclaims any obligation
to update its opinion for changes in facts or law occurring subsequent to the
date of its opinion.
If the redemption was taxable to Quantum under section 355(e), Quantum
would recognize taxable gain on the redemption as if it had sold for its fair
market value the Spinco common stock distributed in the redemption. The amount
of any such tax liability would depend on the value of the Spinco stock when the
redemption occurs. Such tax liability could be many hundred million dollars. See
"Tax Risks Related to the Split-off and Merger" beginning on page 30.
CONSEQUENCES TO MAXTOR
Maxtor should not recognize any gain or loss as a result of the redemption
or the merger. However, certain of Maxtor's tax attributes, such as its net
operating losses, will likely be subject to limitation as a result of the change
in ownership of Maxtor occurring as a result of the merger. Under the tax
sharing agreement, Maxtor has agreed to indemnify Quantum for certain of
Quantum's taxes, penalties and interest. See "The Separation Documents -- Tax
Sharing and Indemnity Agreement," beginning on page 107, and "Tax Risks Related
to the Split-off and Merger," beginning on page 30.
TAX LOSS INSURANCE
Maxtor and Quantum have obtained a tax loss insurance policy from a
syndicate of major insurance companies. It is a condition to the closing of the
merger that this insurance policy be in full force and effect. If an insured tax
loss is sustained by Quantum, the insurers will be contractually obligated to
indemnify Quantum for such loss (or Maxtor, to the extent Maxtor pays the loss),
up to the limits of the policy. The limits of insurance total $300 million,
including expenses of a tax contest, up to $2 million. The insurance applies to
federal income tax, or state income or franchise tax, liability that Quantum may
be determined to have incurred as a result of the split-off of Quantum HDD as
part of the transaction that combines Quantum HDD and Maxtor. Maxtor has paid
the full insurance premiums in the amount of approximately $15.1 million. In the
event the merger agreement is terminated, Maxtor is entitled to receive 85% of
the premium payments back from the insurers.
The policy has customary provisions with respect to procedures for making
claims and resolving disputes. The policy is also subject to a number of
customary conditions, exceptions and exclusions, including:
- Quantum, Maxtor and Spinco must give notice of certain communications
from tax authorities;
- Quantum, Maxtor and Spinco must have prepared and filed tax returns and
taken reasonable steps to mitigate any insured tax loss;
- the insurance will not pay for an insured tax loss caused by changes in
the operative documents relating to the merger without prior written
notification to and consent of the insurers;
- the insurance will not pay for an insured tax loss caused by failure of
Maxtor, Quantum or Spinco to follow conditions stated in the opinion
issued by Ernst & Young, the Maxtor officer's tax certificate and certain
other documents relating to the merger, provided such failure is material
to the insurers' liability; and
- the insurance will not pay for an insured tax loss caused by a breach in
the representations made in the Maxtor officer's tax certificate and
certain other documents relating to the merger, provided such failure is
material to the insurers' liability.
In addition, the policy will not pay for a tax loss caused by a change in
governing tax law material to the insurer's liability. However, if such a change
occurs, Maxtor and Quantum believe it is unlikely that Ernst & Young will be
able to re-issue its October 3, 2000 tax opinion, in which the event either of
them could decline to complete the merger. See "Material Federal Income Tax
Consequence of the Separation, the Redemption and the Merger," beginning on page
76, and "The Merger Agreement -- Conditions to Closing," beginning on page 99.
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The insurance syndicate includes affiliates of Salomon Smith Barney, which
is serving as financial advisor to Maxtor in connection with the merger.
ANTICIPATED ACCOUNTING TREATMENT OF THE MERGER
Maxtor will account for the merger as a purchase of Quantum HDD utilizing
the purchase method of accounting. Under purchase accounting, Maxtor will
measure the purchase price at the fair value of the consideration given for the
Quantum HDD common stock and for options to purchase Quantum HDD common stock
assumed by Maxtor, plus the amount of direct transaction and merger
restructuring costs. Maxtor will allocate these costs to the individual assets
acquired, including tangible assets and various identifiable intangible assets
such as acquired technology, acquired trademarks and acquired workforce, and to
in-process research and development, based on their respective fair values, and
liabilities assumed, including estimated restructuring costs. Intangible assets,
including goodwill, will be generally amortized over a three- to seven-year
period. The portion of the purchase cost allocated to in-process research and
development will be charged to expense immediately upon closing of the
transaction.
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MAXTOR UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Maxtor Unaudited Pro Forma Condensed Combined Financial
Statements are presented to illustrate the effects of the merger on the
historical financial position and operating results of Maxtor and Quantum HDD.
The pro forma condensed combined statements were prepared as if the acquisition
had been completed as of December 27, 1998 for statement of operations purposes
and as of September 30, 2000 for balance sheet purposes. The pro forma condensed
combined statements have been derived from, and should be read in conjunction
with, the historical financial statements, including the notes thereto, of each
of Maxtor, Quantum and Quantum HDD. For Maxtor, those financial statements are
included in Maxtor's quarterly report on Form 10-Q for the quarter ended
September 30, 2000, and its annual report on Form 10-K for the fiscal year ended
January 1, 2000, which are incorporated into this joint proxy
statement-prospectus by reference. For Quantum and Quantum HDD, those financial
statements are included in Quantum's quarterly report on Form 10-Q for the
period ended October 1, 2000 and annual report on Form 10-K for the fiscal year
ended March 31, 2000, which are incorporated into this joint proxy
statement-prospectus by reference. See "Where You Can Find More Information,"
beginning on page 139. In addition, the income statement for the quarter ended
March 31, 2000 for Quantum HDD has been used to conform its financial reporting
period for the nine month period ended September 30, 2000 to approximate that of
Maxtor's.
The pro forma condensed combined statements include adjustments, which are
based upon preliminary estimates, to reflect the allocation of the purchase
consideration, including estimated merger related costs, to the acquired assets
and assumed liabilities of Quantum HDD. The final allocation of the purchase
consideration will be determined after the completion of the merger and will be
based on comprehensive appraisals of the fair value of Quantum HDD's tangible
assets acquired, liabilities assumed, identifiable intangible assets and
goodwill at the time of the merger. The final determination of tangible and
intangible assets may result in depreciation and amortization expense that is
different than the preliminary estimates of these amounts. To the extent that a
portion of the purchase price is allocated to in-process research and
development as is anticipated, a charge will be recognized for the period in
which the merger occurs. That charge may be material to Maxtor's results of
operations.
The pro forma condensed combined statements are provided for illustrative
purposes only and do not purport to represent what the actual consolidated
results of operations or the consolidated financial position of Maxtor would
have been had the merger occurred on the date assumed, nor are they necessarily
indicative of future consolidated results of operations or financial position.
83
<PAGE> 93
MAXTOR UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AT SEPTEMBER 30, 2000
(IN MILLIONS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------
QUANTUM
MAXTOR HDD
SEPTEMBER 30, OCTOBER 1, PRO FORMA PRO FORMA
2000 2000 ADJUSTMENTS COMBINED
------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and marketable securities.......... $351.0 $ 491.9 $ -- $ 842.9
Accounts receivable, net................ 268.5 380.4 -- 648.9
Inventories, net........................ 107.3 140.2 13.8(A) 261.3
Deferred taxes.......................... -- 84.0 (84.0)(D) --
Prepaid expenses and other.............. 18.2 58.0 -- 76.2
------ -------- ------ --------
Total current assets.................. 745.0 1,154.5 (70.2) 1,829.3
Property, plant and equipment, net......... 159.2 147.6 7.6(A) 314.4
Goodwill and other intangible assets,
net..................................... 47.5 0.3 598.9(B) 646.7
Other assets............................... 13.9 36.1 -- 50.0
------ -------- ------ --------
Total assets.......................... $965.6 $1,338.5 $536.3 $2,840.4
====== ======== ====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings, including current
portion of long-term debt............. $ 15.3 $ 0.4 $ -- $ 15.7
Accounts payable........................ 408.3 307.8 -- 716.1
Accrued and other liabilities........... 150.6 259.4 150.0(C) 560.0
------ -------- ------ --------
Total current liabilities............. 574.2 567.6 150.0 1,291.8
Deferred taxes............................. -- 40.5 (40.5)(D) --
Long-term debt............................. 92.3 108.2 (18.8)(E) 181.7
------ -------- ------ --------
Total liabilities..................... 666.5 716.3 90.7 1,473.5
Total stockholders' equity................. 299.1 622.2 445.6(F) 1,366.9
------ -------- ------ --------
Total liabilities and stockholders'
equity............................. $965.6 $1,338.5 $536.3 $2,840.4
====== ======== ====== ========
</TABLE>
See accompanying Notes to Maxtor Unaudited Pro Forma Condensed Combined
Financial Statements.
84
<PAGE> 94
MAXTOR UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 1, 2000
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
MAXTOR QUANTUM HDD
YEAR ENDED YEAR ENDED PRO FORMA PRO FORMA
JANUARY 1, 2000 MARCH 31, 2000 ADJUSTMENTS COMBINED
--------------- -------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues................................. $2,486.1 $3,311.6 $ -- $5,797.7
Cost of revenues......................... 2,287.3 3,081.5 1.5(G) 5,370.3
-------- -------- ------- --------
Gross profit............................. 198.8 230.1 (1.5) 427.4
-------- -------- ------- --------
Operating expenses:
Research and development............... 191.5 242.4 -- 433.9
Selling, general and administrative.... 89.3 176.3 -- 265.6
Stock-based compensation............... 2.5 -- 22.0(H) 24.5
Acquired in-process technology......... 7.0 -- -- 7.0
Amortization of goodwill and other
intangible assets................... 3.1 -- 148.1(I) 151.2
Special charges........................ -- 2.3 -- 2.3
-------- -------- ------- --------
Total operating expenses............ 293.4 421.0 170.1 884.5
-------- -------- ------- --------
Loss from operations..................... (94.6) (190.9) (171.6) (457.1)
Interest and other income, net........... 46.0 12.7 (4.9)(J) 53.8
-------- -------- ------- --------
Loss before income taxes................. (48.6) (178.2) (176.5) (403.3)
Provision for (benefit from) income
taxes.................................. 1.5 (73.4) 103.4(K) 31.5
-------- -------- ------- --------
Net loss................................. $ (50.1) $ (104.8) $(279.9) $ (434.8)
======== ======== ======= ========
Net loss per share -- basic.............. $ (0.48) $ (1.26) $ (1.96)
Net loss per share -- diluted............ $ (0.48) $ (1.26) $ (1.96)
Shares used in per share
calculation -- basic................... 105.5 83.1 (L) 221.3
Shares used in per share
calculation -- diluted................. 105.5 83.1 (L) 221.3
</TABLE>
See accompanying notes to Maxtor Unaudited Pro Forma Condensed Combined
Financial Statements.
85
<PAGE> 95
MAXTOR UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
----------------------------
MAXTOR QUANTUM HDD
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, OCTOBER 1, PRO FORMA PRO FORMA
2000 2000 ADJUSTMENTS COMBINED
------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues................................. $1,977.7 $2,589.3 $ -- $4,567.0
Cost of revenues......................... 1,706.6 2,253.3 1.1(G) 3,961.0
-------- -------- ------- --------
Gross profit............................. 271.1 336.0 (1.1) 606.0
-------- -------- ------- --------
Operating expenses
Research and development............... 171.4 180.9 -- 352.3
Selling, general and administrative.... 75.3 129.6 -- 204.9
Stock-based compensation............... -- -- 5.1(H) 5.1
Amortization of goodwill and other
intangible assets................... 7.6 -- 111.0(I) 118.6
Special charges........................ -- (0.1) -- (0.1)
-------- -------- ------- --------
Total operating expenses............ 254.3 310.4 116.1 680.8
-------- -------- ------- --------
Income (loss) from operations............ 16.8 25.6 (117.2) (74.8)
Interest and other income, net........... 11.4 14.7 (3.7)(J) 22.4
-------- -------- ------- --------
Income (loss) before income taxes........ 28.2 40.3 (120.9) (52.4)
-------- -------- ------- --------
Provision for income taxes............... 1.4 15.6 (15.6)(K) (1.4)
-------- -------- ------- --------
Net income (loss)........................ $ 26.8 $ 24.7 (103.3) $ (53.8)
======== ======== ======= ========
Net income (loss) per share -- basic..... $ 0.23 $ 0.31 $ (0.23)
Net income (loss) per share -- diluted... $ 0.22 $ 0.29 $ (0.23)
Shares used in per share
calculation -- basic................... 114.9 80.7 (L) 232.4
Shares used in per share
calculation -- diluted................. 119.2 85.8 (L) 232.4
</TABLE>
See accompanying notes to Maxtor Unaudited Pro Forma Condensed Combined
Financial Statements.
86
<PAGE> 96
NOTES TO MAXTOR UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRO FORMA PRESENTATION
On October 4, 2000, Maxtor and Quantum HDD announced their agreement to
merge in a transaction to be accounted for as a purchase, with Maxtor treated as
the acquiror. Under the terms of the merger, 1.52 shares of Maxtor common stock
will be exchanged for each outstanding share of Quantum HDD common stock at the
closing date of the merger. In addition, Maxtor will assume certain outstanding
Quantum HDD common stock options as provided in the merger agreement. The
estimated purchase price was based on shares outstanding at October 3, 2000 of
Quantum HDD common stock and of Quantum HDD options and restricted stock held by
Quantum HDD and corporate employees. The actual shares of common stock and
options to be issued by Maxtor will depend on the actual number of shares of
Quantum HDD common stock and Quantum HDD options outstanding on the closing date
of the merger and, with respect to the options, will depend on the options held
by transferred employees and Quantum employees terminated prior to the merger.
The average market price per share of Maxtor common stock of $9.40 is based on
the average closing market price as of October 4, 2000, the date the proposed
merger was announced, and for the two trading days prior to and two trading days
subsequent to October 4, 2000. The 20,000,000 options, at an adjusted
weighted-average exercise price of $5.00, were valued by applying the
Black-Scholes valuation model.
The purchase consideration is estimated as follows (in millions):
<TABLE>
<S> <C>
Common stock................................................ $1,110.0
Assumption of Quantum HDD options........................... 135.8
Estimated transaction expenses.............................. 40.0
--------
Total consideration....................................... $1,285.8
========
</TABLE>
The preliminary purchase price allocation, which is subject to change based
on Maxtor's final analysis, is as follows (in millions):
Purchase Price Allocation:
<TABLE>
<S> <C>
Tangible assets acquired.................................. $1,275.6
Intangible assets acquired:
Core and other existing technology..................... 195.0
Trademarks............................................. 42.0
Assembled workforce.................................... 96.0
Goodwill............................................... 266.2
Deferred compensation..................................... 30.0
In-process research and development....................... 188.0
Liabilities assumed....................................... (697.0)
Merger and restructuring costs............................ (110.0)
--------
Total consideration.................................. $1,285.8
========
</TABLE>
Due to their non-recurring nature, the effects of recording acquired
in-process research and development and the adjustment to inventory value have
been excluded from the pro forma statements of operations. However, they are
reflected in the pro forma balance sheet.
2. PRO FORMA ADJUSTMENTS
The pro forma statements give effect to the allocation of the total
purchase consideration to the assets and liabilities of Quantum HDD based on
their respective fair values and to the amortization of the fair
87
<PAGE> 97
NOTES TO MAXTOR UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
value over the respective useful lives. The following pro forma adjustments have
been made to the Maxtor Unaudited Pro Forma Condensed Combined Financial
Statements:
(A) To adjust inventories and fixed assets to their estimated fair
values. The book values of all other tangible assets acquired are estimated
to approximate their fair values.
(B) To adjust intangible assets to the estimated fair value,
comprising core and other existing technology of $195.0 million, trademarks
of $42.0 million, assembled workforce of $96.0 million, goodwill of $266.2
million, and eliminates Quantum HDD's intangible asset of $0.3 million.
(C) To record estimated employee related and other restructuring costs
of $110.0 million and merger related fees of $40.0 million. Merger related
fees include tax loss insurance policy premiums payable and fees for
financial advisors, legal advisors and accountants, printing costs,
registration and transfer fees and other nominal charges.
(D) To record the tax effect of pro forma adjustments at a tax rate of
40% and the adjustment to the valuation allowance, which reduces deferred
tax assets to the amount expected to be realizable. The pro forma combined
provision (benefit) for income taxes does not represent the amounts that
would have resulted had Maxtor and Quantum HDD filed consolidated income
tax returns during the periods presented.
(E) To record the portion of Quantum's convertible subordinated note
that Maxtor is obligated to reimburse to Quantum at September 30, 2000. The
fair value of all other debts and liabilities are assumed to approximate
their book values.
(F) To eliminate Quantum HDD's historical stockholders' equity, record
the purchase consideration of $1,285.8 million and reduce stockholders'
equity for in-process research and development costs of $186.2 million and
deferred compensation of $30.0 million. The pro forma combined
stockholders' equity, after appropriate reclassifications, comprises the
following (in millions):
<TABLE>
<S> <C>
Common stock, $0.01 par value............................... $ 2.3
Additional paid-in capital.................................. 2,343.3
Deferred compensation....................................... (30.0)
Accumulated deficit......................................... (953.1)
Cumulative other comprehensive income:
Unrealized gain on investment in equity securities........ 4.4
--------
Total stockholders' equity............................. $1,366.9
========
</TABLE>
(G) To record depreciation of the fixed asset valuation adjustment
related to the merger as if the transaction occurred on December 27, 1998.
Depreciation was calculated using estimated fixed asset useful lives of
three to ten years.
(H) To record deferred compensation charges related to the unvested
options and restricted stock assumed in the merger.
(I) To record the amortization of goodwill and other identifiable
intangible assets related to the merger as if the transaction occurred on
December 27, 1998. Goodwill is amortized over five years and other
intangible assets are generally amortized over three to five years.
(J) To record interest accretion on the portion of Quantum's
convertible subordinated notes that, under the merger agreement, Maxtor is
obligated to reimburse to Quantum.
(K) To eliminate the income tax benefit recorded by Quantum which
arises from the pre-tax loss generated in the United States. The pro forma
presentation assumes that the combined company will incur income taxes for
income generated in foreign jurisdictions.
88
<PAGE> 98
NOTES TO MAXTOR UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)
(L) Shares used to calculate pro forma basic and diluted earnings
(loss) per share were determined by adding the unrestricted shares assumed
to be issued in exchange for the outstanding Quantum HDD shares to Maxtor's
weighted average shares outstanding. Shares used to calculate pro forma
diluted earnings per share exclude the anti-dilutive effects of Maxtor's
stock options. The shares so determined also do not include any equivalent
shares for the portion of Quantum's convertible subordinated notes that
Maxtor is obligated to reimburse to Quantum under the merger agreement. The
notes are convertible into a maximum of 4,716,676 shares of Maxtor common
stock based on the exchange ratio. Following the merger, each $1,000 note
is convertible into 21.587 shares of Quantum DSS common stock and 16.405
shares of Maxtor common stock.
89
<PAGE> 99
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
Maxtor and Quantum have made the required filings concerning the merger
with the Antitrust Division of the Department of Justice and the Federal Trade
Commission under the HSR Act, which prevents specified transactions such as the
merger from being completed until required information and materials are
furnished to those federal agencies and specified waiting periods are terminated
or expire. The waiting period applicable to the merger under the HSR Act expired
on December 9, 2000.
Either agency may challenge the merger on antitrust grounds notwithstanding
expiration of the HSR Act waiting period. Additionally, at any time before or
after the completion of the merger, any state could take action under the
antitrust laws as it deems necessary or desirable in the public interest, or
other persons could take action under the antitrust laws, including seeking to
enjoin the merger. We cannot assure you that a challenge to the merger will not
be made or that, if a challenge is made, we will prevail.
Maxtor and Quantum have made the requested filings concerning the merger
under the Merger Regulation of the Council of the European Union. On December 8,
2000, the European Commission announced that it has approved the merger.
Maxtor and Quantum conduct operations in a number of foreign countries,
some of which have voluntary or mandatory pre-merger or post-merger notification
systems for transactions that satisfy certain thresholds. Maxtor and Quantum
intend to provide the requisite notification in all foreign jurisdictions in
which a failure to do so would likely have a material adverse effect on the
merger or on Maxtor following the merger, or where the filing would otherwise be
in the best interests of Maxtor following the merger.
DELISTING OF QUANTUM HDD COMMON STOCK; REGISTRATION AND LISTING OF MAXTOR COMMON
STOCK
Quantum HDD common stock is currently listed on the New York Stock Exchange
under the symbol "HDD." Upon completion of the merger, Quantum HDD common stock
will be delisted from the New York Stock Exchange and deregistered under the
Securities Exchange Act of 1934, as amended.
Maxtor common stock is currently listed on The Nasdaq National Market under
the symbol "MXTR." This joint proxy statement/prospectus is part of a Maxtor
registration statement on Form S-4 to register the shares of Maxtor common stock
to be issued as consideration in the merger under the Securities Act of 1933, as
amended, or the Securities Act. Maxtor has agreed to list the shares of Maxtor
common stock to be issued in connection with the merger on The Nasdaq National
Market prior to the closing date of the merger.
RESTRICTIONS ON RESALE OF MAXTOR COMMON STOCK
The shares of Maxtor common stock to be issued to Quantum stockholders in
the merger will be registered under the Securities Act. These shares will be
freely transferable under the Securities Act, except for shares of Maxtor common
stock issued to any person who is an affiliate of Maxtor. Persons who may be
deemed to be affiliates include individuals or entities that control, are
controlled by, or are under common control with Maxtor and may include some of
their respective officers and directors, as well as their respective principal
stockholders. Affiliates may not sell their shares of Maxtor common stock
acquired in the merger except pursuant to an effective registration statement
under the Securities Act covering the resale of those shares, an exemption under
paragraph (d) of Rule 145 under the Securities Act or any other applicable
exemption under the Securities Act.
90
<PAGE> 100
THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement between Maxtor and Quantum dated as of October 3, 2000. This summary
may not contain all of the information that is important to the stockholders of
Maxtor and Quantum and thus this description is qualified in its entirety by
reference to the merger agreement attached as Annex A hereto, which you are
urged to carefully and in its entirety. This summary is qualified in its
entirety by reference to the full text of the merger agreement.
SEPARATION AND REDEMPTION
Immediately prior to the closing of the merger, Quantum will transfer
Quantum HDD to Spinco in exchange for all of Spinco's common stock in a tax-free
transaction. As a part of this transaction, the holders of Quantum HDD common
stock will receive, in redemption of their Quantum HDD common stock, the number
of shares of Spinco common stock equal to the number of shares of Quantum HDD
common stock they hold prior to this redemption. This redemption will be handled
by book-entry only and no Spinco common stock certificates will be issued.
THE MERGER
At the closing of the merger, Spinco, which will hold Quantum HDD as a
result of the separation and redemption, will merge with and into Maxtor and
Maxtor will be the surviving corporation. As a result, Maxtor will succeed to
rights and obligations of Spinco.
DATE OF CLOSING
The merger agreement provides that the merger will close no later than the
fifth business day following the satisfaction or waiver of each of the
conditions to the merger, including the adoption of the merger agreement and the
approval of the merger by the stockholders of each of Maxtor and Quantum.
CERTIFICATE OF INCORPORATION AND BYLAWS
Upon the closing of the merger:
- the restated certificate of incorporation of Maxtor will be amended and
restated in two respects, described earlier, and as such, will become the
certificate of incorporation of the surviving corporation; and
- the amended and restated bylaws of Maxtor will become the bylaws of the
surviving corporation.
See "Amendments of the Maxtor Restated Certificate of Incorporation
Effected by the Merger," beginning on page 73.
MANAGEMENT OF MAXTOR AND SURVIVING CORPORATION
The merger agreement provides that, upon the closing of the merger,
Maxtor's board of directors shall consist of six directors to be designated by
Maxtor and one director to be designated by Quantum, who has been designated as
Michael A. Brown, the current chairman and chief executive officer of Quantum.
The chief executive officer of Maxtor, currently Michael R. Cannon, will be the
chief executive officer of the surviving corporation.
CONVERSION OF SECURITIES; ADJUSTMENT OF EXCHANGE RATIO
Upon completion of the merger, each share of Spinco common stock will be
converted into the right to receive 1.52 shares of Maxtor common stock. However,
Maxtor may increase the exchange ratio above 1.52 to the extent it determines
such an increase is necessary or advisable to in order to have reasonable
assurance that the shares of Maxtor common stock issued to Quantum HDD
stockholders will, represent at least 50.1%, and in the sole Maxtor's board of
directors, up to not more than 51.0%, of the combined voting power of all shares
of Maxtor common stock immediately after the merger.
91
<PAGE> 101
Maxtor will not issue any fractional shares. Instead of receiving a
fractional share, a Spinco common stockholder will receive cash equal to the
same fraction of the average closing price of Maxtor common stock on the five
days prior to the closing date of the merger.
QUANTUM CONVERTIBLE NOTES
The merger agreement requires Maxtor and Quantum to execute, at the closing
of the merger, a supplemental indenture relating to the $287 million outstanding
principal amount of Quantum's 7% convertible notes. Under the supplement, Maxtor
will be obligated, upon conversion of any of these notes after the effective
time of the merger, to issue to the noteholder a number of Maxtor shares
(calculated in accordance with 1.52 exchange ratio of Maxtor shares for Quantum
HDD shares) to reflect the number of Quantum HDD shares that would have been
issued to the noteholder if the noteholder had converted the note immediately
before the closing. A maximum of 4,716,676 shares of Maxtor common stock are
issuable upon conversion of such notes. Also see the discussion of Quantum's
convertible notes in "The Separation Documents -- General Assignment and
Assumption Agreement -- Payment of Convertible Debt," on page 107.
EXCHANGE OF CERTIFICATES
Promptly after the completion of the merger, the exchange agent will mail
transmittal forms and exchange instructions to each holder of record of Spinco
common stock to be used to surrender and exchange certificates evidencing shares
of Quantum HDD/Spinco common stock for certificates evidencing the shares of
Maxtor common stock (and cash in lieu of any fractional share) to which such
holder has become entitled. After receipt of such transmittal forms, each holder
of certificates formerly representing Quantum HDD common stock will be able to
surrender such certificates to the exchange agent, and each such holder will
receive in exchange therefor:
- a certificate or certificates evidencing the number of whole shares of
Maxtor common stock to which such holder is entitled; and
- any cash which may be payable in lieu of a fractional share of Maxtor
common stock.
Such transmittal forms will be accompanied by instructions specifying other
details of the exchange.
QUANTUM HDD/SPINCO STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE A LETTER OF TRANSMITTAL AND OTHER TRANSMITTAL FORMS.
After the completion of the merger, each certificate evidencing Quantum
HDD/Spinco common stock, until so surrendered and exchanged, will be deemed, for
all purposes, to evidence only the right to receive:
- the number of whole shares of Maxtor common stock which the holder of
such certificate is entitled to receive; and
- any cash payment in lieu of a fractional share of Maxtor common stock.
The holder of such unexchanged certificate will not be entitled to receive
any dividends or other distributions payable by Maxtor until the certificate has
been exchanged. Subject to applicable laws, such dividends and distributions,
together with any cash payment in lieu of a fractional share of Maxtor common
stock, will be paid without interest.
REPRESENTATIONS AND WARRANTIES
Maxtor and Quantum (together with Spinco) made a number of mutual,
customary representations and warranties in the merger agreement regarding
aspects of their respective businesses, financial condition, structure and other
facts pertinent to the merger. Quantum's representations relating to business or
commercial matters generally concern only Quantum HDD. The representations of
Maxtor to Quantum
92
<PAGE> 102
and Spinco and of Quantum and Spinco to Maxtor cover the following topics, among
others, as they relate to each company and its subsidiaries:
- corporate organization and its qualification to do business;
- certificate of incorporation and bylaws;
- capitalization;
- subsidiaries;
- authority to enter into the merger agreement;
- the absence of conflicts under charter documents, applicable laws or
material obligations to third parties;
- required consents or approvals and violations of any instruments or law;
- financial statements and filings and reports with the Securities and
Exchange Commission;
- the absence of material changes or events in business between July 1,
2000 and October 3, 2000;
- taxes and tax returns;
- intellectual property owned or used;
- compliance with laws and governmental permit requirements, and the
absence of any restrictions impairing any business practice;
- the absence of material litigation;
- brokers' and finders' fees;
- employee benefit plans and employment agreements;
- the absence of liens;
- environmental laws, claims and other obligations that apply to the
company;
- labor matters;
- material contracts and commitments;
- information supplied by this joint proxy statement/prospectus and the
related registration statement filed by Maxtor;
- board of directors approval;
- the inapplicability of state takeover statutes; and
- the opinion of the company's financial advisor.
In addition to these mutual representations, Quantum and Spinco also made
representations to Maxtor that cover the following topics:
- facilities owned or used in connection with Quantum HDD; and
- the fact that the intellectual property and other assets to be
transferred from Quantum to Spinco in the separation includes all of the
intellectual property and other assets used in Quantum HDD, or necessary
for the conduct of Quantum HDD, as presently conducted.
93
<PAGE> 103
CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
The parties agreed that until the earlier of the completion of the merger
or the termination of the merger agreement or unless the other party consents in
writing, each party and its subsidiaries will:
- carry on its business diligently in the ordinary course in compliance
with applicable laws;
- pay its debts and taxes when due;
- pay or perform other material obligations when due;
- in Quantum's case, keep in force all insurance policies relating to
Quantum HDD; and
- use commercially reasonable efforts to preserve intact its present
business organization, keep available the services of present officers
and employees and preserve its customer, supplier and other business
relationships.
The parties also agreed that until the earlier of the completion of the
merger or the termination of the merger agreement or unless the other party
consents in writing, neither party nor its subsidiaries would take any of the
following actions, except that these restrictions would apply to Quantum only
with respect to Quantum HDD and its employees and Spinco:
- waive any stock repurchase rights, or accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice
options, granted under any stock plan or authorize cash payments in
exchange for any options granted under any stock plan except as required
pursuant to such plans or applicable law;
- adopt any new severance plan or modify any existing severance plan, or
grant any severance pay to a director, officer or employee except
pursuant to any existing agreement or policy;
- declare or pay any dividends on or make other distributions in respect of
any of its capital stock, or effect certain other changes in its
capitalization;
- purchase, redeem or otherwise acquire, directly or indirectly, any shares
of its capital stock except for the repurchase of unvested shares in
connection with the termination of service;
- issue, or authorize or propose the issuance of, any shares of its capital
stock or securities convertible into shares of its capital stock, or any
subscriptions, rights, warrants, or options to acquire, or other
agreements obligating it to issue any such shares or other convertible
securities, subject to various exceptions including the grant of options
granted in the ordinary course of business, consistent with past practice
and shares issuable under the parties' employee stock purchase plan;
- engage in material acquisitions or enter into any joint ventures or
strategic alliances, other than in the ordinary course of business
consistent with past practice;
- adopt a plan of liquidation, dissolution, re-capitalization or other
reorganization;
- incur or guarantee any indebtedness, issue or sell any debt securities or
enter into any keep well or other agreement to maintain any financial
statement condition, other than in connection with ordinary course
payable consistent with past practice or pursuant to existing credit
facilities in the ordinary course of business; or
- adopt or amend any employee benefit, stock purchase or stock option plan
other than routine amendments in the ordinary course and consistent with
past practices or enter into any employment contract or collective
bargaining agreement or pay any special remuneration other than in the
ordinary course of business consistent with past practices.
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In addition, the parties agreed that until the earlier of the completion of
the merger or the termination of the merger agreement or unless the other party
consents in writing, neither party nor its subsidiaries will:
- transfer or license or otherwise extend, amend or modify in any material
respect, any rights to its intellectual property, other than in the
ordinary course of business;
- revalue any material of its assets or, except as required by generally
accepted accounting principles, make any change in accounting methods,
principles or practices;
- engage in any action that could reasonably be expected to cause the
merger to fail to qualify as a reorganization under the Code;
- sell, license, mortgage or otherwise encumber, any of the assets of its
business except for the sale of inventory in the ordinary course of
business;
- change accounting methods relating to its business or the assets or
liabilities of that business;
- amend, terminate or waive any rights under any Maxtor contract relating
to its business, except in the ordinary course of business consistent
with past practices; or
- agree to take any of the actions listed in this paragraph or the
preceding paragraph.
NO SOLICITATION
The merger agreement provides that Maxtor will not, directly or indirectly,
through any officer, director, employee, representative or agent:
- solicit, initiate, encourage or induce any offer or proposal (a "Maxtor
acquisition proposal") relating to:
- an acquisition of or tender offer for 15% or more of the voting
securities of Maxtor;
- any merger, consolidation or similar transaction involving Maxtor
pursuant to which the stockholders of Maxtor immediately prior to the
transaction would hold less than 50% of the equity interest in the
surviving entity;
- any sale, lease, acquisition or disposition of 15% or more of the assets
of Maxtor; or
- any liquidation or dissolution of Maxtor;
- participate or engage in negotiations or discussions regarding, furnish
any nonpublic information relating to, or take any other action to
facilitate, the making of any Maxtor acquisition proposal;
- approve, endorse or recommend any Maxtor acquisition proposal; or
- enter into any letter of intent or other commitment contemplating or
relating to any alternative acquisition transaction that would satisfy
one the thresholds set forth above.
However, nothing contained in the merger agreement prevents Maxtor or its
board of directors from providing non-public information to, or entering into
discussions or negotiations with, any person or entity in connection with an
unsolicited bona fide written offer to consummate any of the following
transactions:
- a merger, consolidation or similar transaction pursuant to which the
stockholders of Maxtor immediately prior to the transaction would hold
less than 50% of the equity interest in the surviving entity;
- a sale of Maxtor's assets representing in excess of 50% of the fair
market value of Maxtor's assets immediately prior to that sale; or
- the acquisition by any person or group of beneficial ownership of in
excess of 50% of the voting power of the then outstanding shares of
Maxtor capital stock;
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that Maxtor's board of directors reasonably determines (after consultation with
its financial advisor) to be more financially favorable to Maxtor's stockholders
than the merger (a "Maxtor superior offer"), if and only to the extent that:
- neither Maxtor nor any of its representatives has violated the
non-solicitation provisions of the merger agreement;
- Maxtor's board of directors concludes in good faith, after consultation
with its legal counsel, that such action is necessary in order for the
board to comply with its fiduciary duties to Maxtor's stockholders;
- Maxtor gives at least 48 hours notice to Quantum prior to providing any
nonpublic information to, or entering into discussions or negotiations
with, such person or entity, and Maxtor receives a customary
confidentiality and nondisclosure agreement from such person or entity;
and
- at the same time Maxtor provides any nonpublic information to such person
or entity, Maxtor provides such nonpublic information Quantum.
The merger agreement provides that Quantum will not, directly or
indirectly, through any officer, director, employee, representative or agent:
- solicit, initiate, encourage or induce any offer or proposal (an "HDD
acquisition proposal") relating to:
- an acquisition of or tender offer for 15% or more in interest of the
total outstanding shares of Quantum HDD common stock;
- any merger, consolidation or similar transaction involving Quantum
pursuant to which the aggregate percentage interest in the surviving
entity held by the former holders of Quantum HDD common stock represents
50% or less of the aggregate interest in Quantum represented by their
shares of Quantum HDD common stock immediately prior to such
transaction; or
- any sale, lease, acquisition or disposition of 15% or more of the assets
of Quantum HDD;
- participate or engage in negotiations or discussions regarding, furnish
any nonpublic information relating to, or take any other action to
facilitate the making of any HDD acquisition proposal;
- approve, endorse or recommend any HDD acquisition proposal; or
- enter into any letter of intent or other commitment contemplating or
relating to any alternative acquisition transaction that would satisfy
one of the thresholds set forth above.
However, nothing contained in the merger agreement prevents Quantum or its
board of directors from providing non-public information to, or entering into
discussions or negotiations with, any person or entity in connection with an
unsolicited bona fide written offer by a third party to consummate any of the
following transactions:
- a merger, consolidation or similar transaction pursuant to which the
holders of Quantum HDD common stock immediately prior to the transaction
would hold less than 50% of the equity interest in the surviving entity;
- a sale of assets by Quantum representing in excess of 50% of the fair
market value of the assets that would have been part of Quantum HDD
transferred to Spinco if the separation had taken place; or
- the acquisition by any person or group of beneficial ownership of in
excess of 50% of the voting power of the then outstanding shares of
Quantum HDD common stock;
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that Quantum's board of directors reasonably determines (after consultation with
its financial advisor) to be more financially favorable to Quantum's
stockholders than the merger (a "Quantum superior offer"), if and only to the
extent that:
- neither Quantum nor any of its representatives has violated the
non-solicitation provisions of the merger agreement;
- Quantum's board of directors concludes in good faith, after consultation
with its legal counsel, that such action is necessary in order for the
board to comply with its fiduciary duties to Quantum's stockholders;
- Quantum gives at least 48 hours notice to Maxtor prior to providing any
nonpublic information to, or entering into discussions or negotiations
with, such person or entity, and Quantum receives a customary
confidentiality and nondisclosure agreement from such person or entity;
and
- at the same time Quantum provides any nonpublic information to such
person or entity, Quantum provides such nonpublic information to Maxtor.
In addition, Quantum and Maxtor must provide each other at least 48 hours
notice of any board of director's meeting to consider any unsolicited bona fide
written acquisition proposal that its board of directors reasonably determines
to be more financially favorable to the company's stockholders than the merger
(unless a shorter notice is given the directors) and at lest 48 hours written
notice of any board of director's meeting at which the board is reasonably
expected to recommend such an offer, together with definitive documentation
relating to such offer.
Quantum and Maxtor are required to notify each other orally and in writing,
within 24 hours after receipt of any acquisition proposal or request for
non-public information which the recipient company reasonably believes could
lead to an acquisition proposal, and the identity of the person or group making
any such request or proposal.
MEETINGS OF STOCKHOLDERS
Maxtor and Quantum agreed to take all action necessary in accordance with
Delaware law and their respective charter documents to convene meetings of their
respective stockholders, to be held as promptly as practicable after the
registration statement of which this joint prospectus/proxy statement is a part
is declared effective, for the purpose of voting on a proposal to adopt the
merger agreement and approve the merger, and to approve other specified matters
relating to the consummation of the merger. Subject to the limitations set forth
below, Maxtor and Quantum agreed to use commercially reasonable efforts to
solicit from their respective stockholders proxies in favor of their respective
merger proposals and to take all other action necessary or advisable to secure
the vote required to approve such proposals.
Subject to the exception set forth below, Maxtor's board of directors must
recommend that Maxtor stockholders vote in favor of the merger proposal, Maxtor
must include a statement to this effect in this proxy statement and Maxtor's
board of directors must not withdraw or modify its recommendation. However,
nothing in the merger agreement prevents Maxtor's board of directors from
withholding, withdrawing or modifying its recommendation in favor of the merger
proposals if:
- Maxtor receives a Maxtor superior offer and such offer is not withdrawn;
- neither Maxtor nor any of its representatives has violated the
non-solicitation provisions of the merger agreement; and
- Maxtor's board of directors concludes in good faith, after consultation
with its legal counsel, that such action is necessary in order for the
board of directors to comply with its fiduciary duties to Maxtor's
stockholders.
This exception does not limit Maxtor's obligation to convene and hold the
meeting of Maxtor stockholders for the purpose of voting on the merger proposal,
regardless of whether the recommendation of Maxtor's board of directors has been
withdrawn or modified.
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Subject to the exception set forth below, Quantum's board of directors must
recommend that Quantum stockholders vote in favor of the merger proposals,
Quantum must include a statement to this effect in this proxy statement and
Quantum's board of directors must not withdraw or modify its recommendation.
However, nothing in the merger agreement prevents Quantum's board of directors
from withholding, withdrawing or modifying its recommendation in favor of the
merger proposal if:
- Quantum receives a Quantum superior offer and such offer is not
withdrawn;
- neither Quantum nor any of its representatives has violated the
non-solicitation provisions of the merger agreement; and
- Quantum's board of directors concludes in good faith, after consultation
with its legal counsel, that such action is necessary in order for the
board of directors to comply with its fiduciary duties to Quantum's
stockholders.
This exception does not limit Quantum's obligation to convene and hold the
meeting of Quantum stockholders for the purpose of voting on the merger
proposal, regardless of whether the recommendation of Quantum's board of
directors has been withdrawn or modified.
EMPLOYEE BENEFIT PLANS
At the effective time of the merger, all outstanding options to purchase
Quantum HDD common stock and all Quantum HDD restricted stock held by employees
who accept offers of employment with Spinco and Maxtor, or transferred
employees, will be assumed by Maxtor and converted into options to purchase
Maxtor common stock based on the exchange ratio of 1.52 shares of Maxtor common
stock for each share of Quantum HDD common stock, subject to any change in the
exchange ratio as described above. All vested Quantum HDD options and vested
Quantum HDD restricted stock held by former Quantum HDD service providers will
be assumed by Maxtor. All vested HDD restricted stock held by any individual
will be assumed by Maxtor and converted according to the exchange ratio into
shares of Maxtor common stock. Following the effective time of the merger,
transferred employees holding vested Quantum DSS options will have a period of
time to exercise those options.
Pursuant to the merger agreement, Maxtor has agreed to hire, or in the
event Maxtor does not hire, pay the severance costs associated with the
termination of up to, 2,600 individuals employed by Quantum in Quantum HDD and
535 individuals employed by Quantum in its corporate division, provided such
individuals are terminated within 30 days prior to the completion of the merger
or within nine months thereafter. The maximum aggregate cost of such severance
is estimated at $60,000,000. In addition, Maxtor has agreed to pay for a portion
of the severance costs associated with the termination of seven identified
members of Quantum's senior management, in the event such individuals are
terminated primarily because of the merger within nine months following the
completion of the merger. Maxtor's maximum obligation with regard to the
potential severance costs associated with these seven individuals is $7,646,600.
Unvested DSS options held by transferred employees will convert into shares of
Quantum DSS restricted stock, which will vest as to 50% of the shares after
three months (or earlier) upon termination and as to the remaining 50% of the
shares ratably over the succeeding nine-month period, provided the employee
stays with Maxtor.
All options to purchase Quantum HDD common stock and shares of Quantum HDD
common stock subject to repurchase which are held by individuals other than
transferred employees or former Quantum HDD service providers will be converted
into options to purchase Quantum DSS common stock or shares of Quantum DSS
common stock subject to repurchase by Quantum.
As of the date of the separation and redemption, all Quantum employees that
will become employees of Spinco and/or Maxtor will cease to participate in
Quantum's employee stock purchase plan.
Maxtor will file a registration statement on Form S-8 to register the
shares of Maxtor common stock issuable upon exercise of the options assumed in
the merger.
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CONDITIONS TO CLOSING
The respective obligations of Maxtor and Quantum to effect the merger are
subject to a number of conditions including the following:
- the merger agreement and the transactions it contemplates shall have been
adopted and approved by the stockholders of each of Maxtor and Quantum;
- the registration statement filed with the Securities and Exchange
Commission for the shares to be issued in the merger by Maxtor shall have
become effective and neither the registration statement nor the joint
proxy statement shall be the subject of a stop order or proceedings
seeking a stop order;
- all waiting periods under the HSR Act shall have expired or been
terminated and clearance shall have been obtained under any applicable
comparable laws of foreign countries;
- Ernst & Young shall have reissued, without any adverse qualifications or
modifications, its opinion, originally issued at the time the merger
agreement was entered into, to the effect that (either by themselves or
in conjunction with the merger) the separation and the redemption should
not give rise to federal income tax, or state income or franchise tax in
the three states in which Quantum principally does business, for Quantum,
Spinco or holders of Quantum HDD common stock under Section 355 of the
Code and the corresponding provisions of those three states' tax laws;
- the insurance policy that has been issued to cover the risk that the
transaction will give rise to federal income tax or state income or
franchise tax shall continue in full force and effect;
- Maxtor shall have received a written opinion from Gray Cary Ware &
Freidenrich, counsel to Maxtor, and Quantum shall have received an
opinion of Wilson, Sonsini, Goodrich & Rosati, special counsel to
Quantum, both to the effect that the merger will be treated for United
States federal income tax purposes as tax-free reorganization within the
meaning of section 368(a) of the Code;
- the shares of Maxtor common stock to be issued in them merger shall have
been approved for quotation on The Nasdaq National Market;
- the separation and redemption shall have been completed;
- no person or group shall have acquired beneficial ownership of in excess
of 50% of the voting power of the then outstanding shares of Quantum HDD
common stock;
- no decree, judgment or other order issued by any governmental authority
which has the effect of preventing or restricting the completion of any
transaction contemplated by the merger shall be in effect, nor shall any
person have initiated an action seeking such a decree, judgment or other
order;
- subject to certain exceptions, the accuracy of the representations and
warranties of the other party set forth in the merger agreement; and
- subject to certain exceptions, the performance of all obligations of the
other party required to be performed under the merger agreement.
Any of the conditions in the merger agreement may be waived by the party
benefited thereby, except those conditions imposed by law.
TERMINATION
The merger agreement may be terminated at any time prior to the completion
of the merger, whether before or after approval of the matters presented in
connection with the merger by the stockholders of Maxtor or Quantum:
- by the mutual written consent of Maxtor and Quantum duly authorized by
the boards of directors of each company;
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- by either Maxtor or Quantum if the merger shall not have been consummated
by June 30, 2001, provided that the right to terminate the merger
agreement under this clause is not available to any party whose failure
to fulfill any obligation under the merger agreement has resulted in the
failure of the merger to occur on or before such date;
- by either Maxtor or Quantum if a court of competent jurisdiction or other
governmental entity, shall have issued a nonappealable final order,
decree or ruling or taken any other action having the effect of
permanently restraining, enjoining or otherwise prohibiting the merger,
which order, decree or ruling is final and nonappealable;
- by Maxtor if, at the Quantum stockholders' meeting, the requisite vote of
Quantum's stockholders in favor of the merger agreement and the merger is
not obtained, or by Quantum if, at the Maxtor stockholders' meeting, the
requisite vote of Maxtor's stockholders in favor of the merger agreement
and the merger is not obtained, provided in each case that the right to
terminate the merger is not available to any party where the failure to
obtain stockholder approval of such party was caused by such party's
action;
- by either Maxtor or Quantum if the other party's breach of a
representation, warranty, covenant or agreement is not cured within 30
days notice of such breach;
- by Maxtor if:
- Quantum's board of directors has withdrawn or modified its
recommendation of the merger agreement or the merger in a manner adverse
to Maxtor or has resolved or publicly announced its intention to do so;
- an alternative transaction is completed or Quantum's board of directors
has recommended to Quantum's stockholders an alternative transaction or
has resolved or publicly announced its intention to recommend or engage
in such an alternative transaction;
- a tender offer or exchange offer for more than 50% of the outstanding
shares of Quantum common stock is commenced, other than by Maxtor or an
alternative of Maxtor, and Quantum's board of directors has:
- recommended that Quantum's stockholders tender their shares in such
tender or exchange offer; or
- resolved or publicly announced its intention to take no position with
respect to such tender or exchange offer;
- by Quantum if:
- Maxtor's board of directors has withdrawn or modified its recommendation
of the merger agreement or the merger in a manner adverse to Maxtor or
has resolved or publicly announced its intention to do so;
- an alternative transaction is completed or Maxtor's board of directors
has recommended to Maxtor's stockholders an alternative transaction or
has resolved or publicly announced its intention to recommend or engage
in such an alternative transaction;
- a tender offer or exchange offer for more than 50% of the outstanding
shares of Maxtor common stock is commenced, other than by Quantum or an
affiliate of Quantum, and Maxtor's board of directors has:
- recommended that Maxtor's stockholders tender their shares in such
tender or exchange offer; or
- resolved or publicly announced its intention to take no position with
respect to such tender or exchange offer.
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The merger agreement does not include any provision for termination based
on fluctuations in the price of Maxtor common stock or either Quantum HDD common
stock or Quantum DSS common stock.
TERMINATION FEES AND EXPENSES
Except as described below, whether or not the merger is consummated, all
fees, costs and expenses incurred in connection with the merger agreement and
the transactions contemplated thereby shall be paid by the party incurring such
expenses, except that all fees and expenses, other than attorneys' fees,
incurred in connection with the printing and filing of this joint proxy
statement/prospectus or the filing of the merger notification and report form
under the HSR Act.
If the merger agreement is terminated by Quantum because:
- Maxtor's board of directors has withdrawn or modified its recommendation
in favor of the merger;
- Maxtor's board of directors has approved or recommended an alternative
acquisition proposal, or has failed to reaffirm its recommendation in
favor of the merger within ten days after Quantum requests in writing
that this recommendation be reaffirmed at any time after the announcement
of an alternative acquisition proposal;
- Maxtor has entered into any letter of intent or other agreement relating
to an alternative acquisition proposal;
- a tender or exchange offer relating to securities of Maxtor is commenced
by a party unaffiliated with Quantum, and Maxtor does not send its
stockholders a statement that Maxtor recommends rejection of the offer;
or
- Maxtor has breached the non-solicitation provisions of the merger
agreement;
then Maxtor would be required to pay Quantum a termination fee of $35 million
within one business day after notice of termination is delivered.
In the event the merger agreement is terminated as a result of Maxtor's
stockholders not approving the merger proposal at the Maxtor stockholders'
meeting, and if:
- prior to the taking of such vote, a third party has publicly announced,
and not publicly withdrawn, a Maxtor acquisition proposal; and
- within 12 months of termination of the merger agreement, any of the
following transactions is consummated or a letter of intent is entered
into with Maxtor providing for any of them:
- a merger, consolidation or similar transaction pursuant to which the
stockholders of Maxtor immediately prior to the transaction hold less
than 50% of the equity interest in the surviving entity;
- a sale of Maxtor's assets representing in excess of 50% of the fair
market value of Maxtor's assets immediately prior to that sale; or
- the acquisition by any person or group of beneficial ownership of in
excess of 50% of the voting power of the then outstanding shares of
Maxtor capital stock;
then Maxtor would be required to pay Quantum a termination fee of $35 million
within two business days after demand by Quantum.
If the merger agreement is terminated by Maxtor because:
- Quantum's board of directors has withdrawn or modified its recommendation
in favor of the merger;
- Quantum failed to include in its proxy statement the recommendation of
its board of directors in favor of the merger proposal;
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- Quantum's board of directors has approved or recommended an alternative
acquisition proposal, or has failed to reaffirm its recommendation in
favor of the merger within ten days after Maxtor requests in writing that
this recommendation be reaffirmed at any time after the announcement of
an alternative acquisition proposal;
- Quantum has entered into any letter of intent or other agreement relating
to an alternative acquisition proposal;
- a tender or exchange offer relating to securities of Quantum is commenced
by a party unaffiliated with Maxtor, and Quantum does not send its
stockholders a statement that Quantum recommends rejection of the offer;
or
- Quantum has breached the non-solicitation provisions of the merger
agreement;
then Quantum would be required to pay Maxtor a termination fee of $35 million
within one business day after notice of termination is delivered.
In the event the merger agreement is terminated as a result of Quantum's
stockholders not approving the merger proposal at the Quantum stockholders'
meeting, and if:
- prior to the taking of such vote, a third party has publicly announced,
and not publicly withdrawn, an HDD acquisition proposal, and
- any of the following transactions is consummated in a letter or a letter
of intent is entered into with Quantum providing for any of them:
- a merger, consolidation or similar transaction pursuant to which the
aggregate percentage interest in the surviving entity held by the former
holders of Quantum HDD common stock represents 50% or less of the
aggregate interest in Quantum represented by their shares of Quantum HDD
common stock immediately prior to such transaction;
- a sale of assets by Quantum representing in excess of 50% of the fair
market value of the assets that would have been part of Quantum HDD
transferred to Spinco if the separation had taken place; or
- the acquisition by any person or group of beneficial ownership of in
excess of 50% of the voting power of the then outstanding shares of
Quantum HDD common stock;
then Quantum would be required to pay Maxtor a termination fee of $35 million
within two business days after demand by Maxtor.
AMENDMENT AND WAIVER
The merger agreement may be amended at any time by action taken or
authorized by the respective boards of directors of Maxtor and Quantum, but
after approval by the stockholders of Quantum of the matters presented in
connection with the merger to them, no amendment shall be made which by law
requires further approval by such stockholders, without such further approval.
Maxtor and Quantum by action taken or authorized by their respective boards of
directors, may extend the time for performance of the obligations or other acts
of the other parties to the merger agreement, may waive inaccuracies in the
representations or warranties contained in the merger agreement or may waive
compliance with any agreements or conditions for the benefit of each party
contained in the merger agreement.
THE SEPARATION DOCUMENTS
In order to effect the separation, Maxtor, Quantum and Spinco will enter
into the following agreements at the time of the separation in substantially the
forms attached to the merger agreement. After the separation, as a result of the
merger, Maxtor will succeed to the rights and obligations of Spinco set forth in
the separation documents.
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SEPARATION AND REDEMPTION AGREEMENT
The separation and redemption agreement, called the separation agreement
below, will outline the general terms and conditions of the separation of Spinco
from Quantum and the redemption of all outstanding shares of Quantum HDD common
stock in exchange for Spinco common stock.
THE SEPARATION
The separation is scheduled to occur immediately prior to the effective
time of the merger of Spinco with Maxtor. On the date of the separation, Quantum
and Spinco will execute agreements that govern the transfer of assets and
liabilities from Quantum to Spinco and the various relationships between
Quantum, Spinco, and Maxtor following the date of the separation. These
ancillary agreements include:
- the general assignment and assumption agreement;
- the tax sharing and indemnity agreement;
- the intellectual property agreement;
- the indemnification agreement; and
- the transitional services agreement.
In addition, on the date of the separation, each officer or director of
Quantum HDD who will be an employee of Quantum or one of its subsidiaries from
and after the date of the separation will resign from his or her position with
Quantum HDD, and each officer or director of Quantum or one of its subsidiaries
who will be an employee of Spinco or one of its subsidiaries from and after the
date of the separation will resign from his or her position with Quantum.
THE REDEMPTION
The separation agreement will specify that the redemption of Quantum HDD
common stock will occur immediately prior to the effective time of the merger of
Spinco with Maxtor. Each holder of Quantum HDD common stock on the date of the
redemption will be entitled to receive one share of Spinco common stock for each
share of Quantum HDD common stock held. The completion of the redemption is
conditioned upon determination by Quantum and Maxtor that all of the conditions
to the merger have been satisfied, so that the merger can be effected
immediately following the redemption.
NONEXCLUSIVE SUPPLY AGREEMENT
The separation agreement will provide that Quantum will negotiate in good
faith and enter into a nonexclusive agreement with Maxtor to supply Maxtor and
Spinco with selected hard disk drive products on Maxtor's specifications and
otherwise on terms and conditions reasonably requested by Maxtor.
FURTHER INSTRUMENTS
The separation agreement will provide that Quantum and Spinco will each
execute and deliver all instruments of transfer and take such actions necessary
to effect the transfer of all assets and the assumption of all liabilities
contemplated to be transferred to and assumed by Spinco under the separation
agreement and the ancillary agreements.
INFORMATION EXCHANGE
Under the separation agreement, Quantum and Spinco will agree to provide
each other with any information that the requesting party reasonably needs to
comply with governmental reporting or filing requirements, administrative
proceedings, its obligations under the separation agreement or any of the
ancillary agreements or in connection with the ongoing business of Quantum, on
the one hand, or of Spinco or Maxtor, on the other. Information provided
pursuant to the separation agreement cannot be used as a basis for a claim
against the other party.
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NO REPRESENTATION OR WARRANTY
Under the separation agreement, Quantum will not make any representation or
warranty to Spinco regarding:
- the absence of defenses or freedom from counterclaims with respect to any
claim to be transferred to Spinco; or
- the legal sufficiency of any conveyance of title to any asset to be
transferred to Spinco.
EMPLOYEE CONFIDENTIALITY AND PROPRIETARY DEVELOPMENTS AGREEMENTS
Under the separation agreement, the confidentiality and proprietary
developments agreements between Quantum and each Quantum employee that as of the
date of the separation becomes an employee of Spinco will remain in full force
and effect, except that none of the following acts will be deemed to be a breach
of such agreements:
- the use or disclosure of confidential information on behalf of Spinco or
its subsidiaries, if such use or disclosure is consistent with the rights
granted to and restrictions imposed upon Spinco in the agreements
executed in connection with the separation;
- the disclosure and assignment to Spinco or its subsidiaries of any
proprietary developments authored or reduced to practice by a former
employee of Quantum or its subsidiaries;
- the rendering of any services to Spinco or its subsidiaries to the extent
that such services are consistent with the rights granted to and
restrictions imposed upon Spinco in the separation agreements executed in
connection with the separation; or
- solicitation of the employees of one party by the other party prior to
the date of the separation.
Although Quantum will retain all rights under these agreements that Quantum
needs to protect its rights and interests, Quantum will assign to Spinco rights
to permit Spinco to enforce them. Under the separation agreement, Quantum and
Spinco generally agreed to advise one another of a violation of a
confidentiality and proprietary developments agreement.
COOPERATION IN OBTAINING NEW AGREEMENTS
Also in the separation agreement, Quantum will acknowledge that, prior to
the date of the separation, Quantum HDD derived benefits from agreements between
Quantum and third parties that are not being assigned to Spinco. Quantum will
agree to make introductions to appropriate Maxtor personnel of Quantum's
contacts and to provide reasonable assistance so that Maxtor may obtain
agreements from those third parties under terms and conditions acceptable to
Maxtor.
TERMINATION OF THE AGREEMENT
The separation agreement may be terminated and the redemption may be
abandoned at any time prior to the effective time of the merger by mutual
consent of Quantum and Maxtor.
GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT
The general assignment and assumption agreement, called the assignment
agreement below, will identify which assets and liabilities relating to Quantum
HDD that Quantum will transfer to Spinco and Spinco will accept from Quantum as
part of the separation. The assignment agreement also describes when and how the
transfer will occur.
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ASSETS TRANSFERRED
The assignment agreement will provide that, on the date of the separation,
Quantum will transfer the following assets to Spinco:
- all assets reflected on the balance sheet of Quantum HDD as of June 30,
2000, other than any assets disposed of in the ordinary course of
business after the date of the balance sheet;
- all written off, expensed or fully depreciated assets that would have
appeared on the balance sheet of Quantum HDD as of June 30, 2000, had
they not been written off, expensed or fully depreciated;
- all assets that are used primarily by Quantum HDD as of the date of the
separation but are mistakenly or unintentionally omitted from the balance
sheet of Quantum HDD as of June 30, 2000;
- all assets that Quantum or its subsidiaries acquired after June 30, 2000,
that would have appeared in the balance sheet of Quantum HDD as of the
date of the separation if that balance sheet had been prepared using the
same principles used to prepare the balance sheet of Quantum HDD dated
June 30, 2000;
- all contingent gains related primarily to Quantum HDD, other than
insurance proceeds, specified excluded assets and tax gains covered in
the tax sharing agreements;
- all contracts that relate primarily to Quantum HDD, except as otherwise
specified as an excluded asset or provided in another ancillary
agreement;
- all licenses, permits and authorizations issued by any governmental
authority that relate solely to Quantum HDD, to the extent transferable
with Quantum HDD;
- all books, records, correspondence and other data relating to past
conduct of Quantum HDD;
- all real estate interests which neither Quantum HDD nor Quantum employees
are occupying as of the date of the merger agreement and which are
included in the balance sheet of Quantum HDD dated June 30, 2000; and
- other assets that Maxtor and Quantum expressly agree upon.
EXCLUDED ASSETS
The assignment agreement will also specify that certain assets, including
the following, will not be transferred to Spinco:
- cash in the amount necessary to satisfy all of Quantum's expenses
incurred in connection with the merger, the separation and the
transactions contemplated thereby;
- all intellectual property of Quantum except that specified for transfer
to Spinco in the intellectual property agreement;
- Quantum's rights under specified credit agreements and Quantum's
exclusive long-term manufacturing and purchase agreements with MKE;
- real property interests specified in the assignment agreement; and
- other assets that Maxtor and Quantum expressly agree will not be
transferred.
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ASSUMPTION OF LIABILITIES
The assignment agreement will provide that, on the date of the separation,
Spinco will assume the following liabilities from Quantum:
- all liabilities reflected as liabilities on the balance sheet of Quantum
HDD as of June 30, 2000 that have not been discharged after the date of
the balance sheet, including up to $98 million of Quantum's obligations
under certain subordinated convertible notes;
- all liabilities of Quantum or its subsidiaries that arise after June 30,
2000, that would have appeared in the balance sheet of Quantum HDD as of
the date of the separation if that balance sheet had been prepared using
the same principles used to prepare the balance sheet of Quantum HDD as
of June 30, 2000;
- all liabilities that are related primarily to Quantum HDD at the date of
the separation but are improperly excluded from the balance sheet of
Quantum HDD as of June 30, 2000;
- the payment obligations for real estate transferred with Quantum HDD
except as otherwise provided in the transitional services agreement will
be paid by Maxtor to Quantum;
- taxes for which Spinco and Maxtor indemnify Quantum under the tax sharing
agreement;
- all liabilities primarily resulting from the operation of Quantum HDD or
any business it conducts or resulting from any asset that Quantum
transferred to Spinco;
- contingent liabilities primarily related to the conduct of Quantum HDD
before the separation other than liabilities relating to employee benefit
plans;
- all accounts payable outstanding as of the separation date relating to
Quantum HDD;
- payroll, bonus, pension, severance and other liabilities for employees as
specified in the merger agreement; and
- other liabilities as expressly agreed by Maxtor and Quantum to belong to
the Quantum HDD business.
EXCLUDED LIABILITIES
The assignment agreement will also specify that the following specific
liabilities will remain with Quantum and will not be transferred to Spinco.
- all liabilities associated with the excluded assets;
- all contingent liabilities relating to securities law compliance by
Quantum relating to Quantum HDD common stock or breach of fiduciary
duties by Quantum's board of directors relating to Quantum HDD;
- all liabilities for taxes, except any tax for which Spinco or Maxtor
indemnify Quantum for under the tax sharing agreement;
- all agreements and obligations of Quantum under the merger agreement and
the agreements executed in connection with the separation; and
- other liabilities that Maxtor and Quantum expressly agree will not be
transferred.
ASSETS AND LIABILITIES NOT TRANSFERRED
The assignment agreement will provide that, if Quantum, Spinco or Maxtor
discover that specific assets or liabilities that are primarily related to
Quantum HDD were not transferred or assumed pursuant to the assignment
agreement, Quantum, Spinco and Maxtor have agreed to cooperate in good faith to
effect the transfer or assumption of those assets or liabilities.
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DELAYED TRANSFERS
If it is impracticable to transfer specific assets and liabilities on the
date of the separation, the assignment agreement provides that these assets and
liabilities will be transferred after the date of the separation.
TERMS OF OTHER SEPARATION AGREEMENTS GOVERN
To the extent that another separation agreement expressly provides for the
transfer of an asset or an assumption of liability, the terms of such other
ancillary agreement will determine the manner of the transfer and assumption of
liability.
OBTAINING APPROVALS AND CONSENTS
Under the assignment agreement, Quantum, Spinco and Maxtor will agree to
use all reasonable commercial efforts to obtain any required consents,
substitutions or amendments required to novate or assign all rights and
obligations under any contracts that will be transferred in the separation.
PAYMENT OF CONVERTIBLE DEBT
Quantum has obligations under certain subordinated convertible notes, which
had an aggregate principal amount of approximately $287 million as of the date
of the separation. The assignment agreement will provide that, on each date upon
which Quantum makes a payment in respect of such convertible notes, Maxtor will
pay to Quantum or the trustee the Quantum HDD pro rata portion of that payment.
Also under the assignment agreement, at Quantum's request, Maxtor will cooperate
in seeking to effectuate a split or similar change to the indentures relating to
such convertible notes, such that Maxtor will be the sole obligor with respect
to Quantum HDD pro rata portion of such indentures, provided that such split or
similar change will not result in any increase in interest rate or other change
in terms adverse to Maxtor. See "Maxtor Unaudited Pro Forma Condensed Combined
Financial Statements," beginning on page 83.
SPECIFIC CLAIMS AND LITIGATION
The assignment agreement will also provide that Spinco will assume and
manage most pending litigation, that Quantum will defend other agreed-upon
pending litigation relating to Quantum HDD at Maxtor's expense and that all
other pending litigation involving Quantum will remain with Quantum, and Spinco
will have no liability in connection with or responsibility for defending such
litigation.
TAX SHARING AND INDEMNITY AGREEMENT
Under the tax sharing agreement, Spinco and Maxtor will be required to
reimburse Quantum for Quantum's taxes, penalties and interest resulting from:
(1) the conduct of Quantum's business before the issuance of the
Quantum DSS common stock in the recapitalization of Quantum common stock
into Quantum HDD and Quantum DSS common stock and the conduct of Quantum
HDD before the separation and redemption, limited in the aggregate to $142
million plus 50% of any excess over $142 million, excluding the effect of
any required gross-up payment, as described in category (4) below;
(2) any transactions undertaken by Quantum in preparation for the
separation and redemption;
(3) the redemption, except to the extent such liabilities result from
one or more acquisitions of Quantum stock after the redemption or actions
taken by Quantum after the redemption and except to the extent Quantum
receives insurance proceeds related to liabilities resulting from the
redemption; and
(4) the payment by Spinco or Maxtor of the foregoing Quantum
liabilities.
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Allocations of liabilities in category (1) above between Quantum HDD and
Quantum DSS will be made in a manner consistent with past practices as if
Quantum HDD and Quantum DSS were separate taxpayers. Taxes attributable to
Quantum DSS before the issuance of the Quantum DSS common stock are subject to
indemnification by Spinco and Maxtor because such liabilities were treated as
liabilities of Quantum HDD on Quantum HDD's financial statements after the
recapitalization. Taxes of Quantum DSS with respect to tax years that include
the date of the recapitalization will be allocated between the
pre-recapitalization and post-recapitalization period based on the period to
which the tax relates, if the taxes can be specifically related to either
period, or on a pro-rata basis, if the taxes cannot be specifically related to
either period.
Although the separation, redemption and the merger are intended to be
tax-free and some of the potential tax liability relating to the separation and
redemption has been insured against, there are limits applicable to the
insurance related to taxes, penalties and interest of Quantum resulting from the
separation, the redemption and the merger. The tax sharing agreement provides
that Maxtor and Spinco are liable to Quantum for any such liabilities regardless
of whether such liabilities exceed the limitations applicable to the insurance
policy or policies or if, for any reason, a policy exclusion applies so that no
insurance proceeds are received, as well as claims under the tax loss insurance
policy.
The tax sharing agreement will require Quantum, Maxtor, and Spinco to
cooperate with each other with respect to retention and access to records and
preparation and filing of tax returns and other tax related documents. Maxtor
will generally be allowed to control Quantum's controversies with taxing
authorities to the extent that the resulting tax liability would be subject to
indemnity by Maxtor or Spinco, such as claims under the tax loss insurance
policy.
INTELLECTUAL PROPERTY AGREEMENT
ASSIGNMENT AND RIGHTS
Under the terms of the intellectual property agreement:
- Quantum will grant to Spinco absolute ownership of certain proprietary
and intellectual property rights in and associated with Quantum HDD, and
a non-exclusive, worldwide, irrevocable, paid-up and royalty free license
under other proprietary and intellectual property rights in and
associated Quantum HDD to make, use and sell hard disk drives and other
products, including but not limited to, network attached storage, storage
area networks and magneto-optic devices.
- Spinco will grant to Quantum a non-exclusive, worldwide, irrevocable,
paid-up and royalty-free license to certain proprietary and intellectual
property rights in and associated with Quantum HDD to make, use and sell
products, including, tape drives, media and libraries, network attached
storage and storage area networks, provided however that Quantum was not
granted a license to make, use or sell hard disk drives.
- The preceding licenses will be transferable and sublicensable, in whole
or in part, to Maxtor and subsidiaries of Maxtor or to any successor to
any part of the business of Maxtor or any of its subsidiaries, or to
subsidiaries of Quantum or to any successor to any part of the business
of Quantum or any of its subsidiaries.
- Neither party may assign its rights under the agreement without the prior
written consent of the other except in connection with a merger or
acquisition, or in connection with the transfer of a business. The
agreement will be binding upon and inures to the benefit of any permitted
successors and assigns.
NONASSERTION OF INFRINGEMENT CLAIMS
Under the terms of the intellectual property agreement:
- For a period of ten years, neither Spinco nor its affiliates will be
permitted to assert against Quantum or its subsidiaries or successors any
claims of patent infringement with respect to any
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patents owned or licensable by Spinco or its affiliates based on products
that Quantum is licensed to make, use or sell under this agreement.
- For a period of ten years, neither Quantum nor its affiliates will be
permitted to assert against Maxtor or its subsidiaries or successors any
claims of infringement with respect to any patents owned or licensable by
Quantum or its affiliates based on products that Spinco is licensed to
make, use or sell under this agreement.
INDEMNIFICATION AGREEMENT
In the indemnification agreement, Quantum and Spinco will agree to
indemnify each other from certain liabilities. Spinco will agree to indemnify
Quantum and its affiliates from any and all liabilities resulting from or
relating to:
- Quantum HDD;
- any Quantum HDD liability assumed by Spinco;
- any claim by an employee of Quantum that will be employed by Spinco after
the separation; and
- any breach by Spinco of the separation agreement or any of the ancillary
agreements executed in connection with the merger.
Quantum will agree to indemnify Spinco and its affiliates from any and all
liabilities resulting from or relating to:
- Quantum's businesses other than Quantum HDD;
- any liabilities of Quantum not assumed by Spinco;
- any claim by an employee of Quantum that will not be employed by Spinco
after the separation; and
- any breach by Quantum of the separation agreement or any of the ancillary
agreements executed in connection with the merger.
The indemnification agreement will not apply to taxes or tax-related
liabilities or the employment matters, covered by the merger agreement. The
indemnification agreement also contains provisions governing notice of claims
and indemnification procedures.
TRANSITIONAL SERVICES AGREEMENT
SERVICES
The transitional services agreement will govern the provision of certain
services needed by either of the parties for an interim period due to the
separation of Quantum and Spinco, if the services were provided for a party's
business as it was conducted or proposed to be conducted before the separation,
in the case of Quantum and its subsidiaries, by the personnel or with assets
transferred to Spinco, and in the case of Spinco, by the personnel or with
assets retained by Quantum. Such services will include but will not be limited
to: real estate, equipment, accounting, payroll, sales and marketing, product
support, inventory maintenance, procurement, costing, warehouse management,
information systems, communications, insurance and risk management services,
human resources, and any specific services set forth in the schedules to the
agreement.
Each party will be required to set forth in each schedule the time period
during which the service will be provided if different from the two-year term of
the transitional services agreement, a summary and description of the services
to be provided, the estimated charge, if any, for such services and other terms
applicable thereto. If no charge is specified, the charge for such services will
be direct costs plus 5%.
Except as the parties agree, no party will be obligated to provide any
requested services other than to the extent and at such locations as such
services was provided or contemplated to be provided prior to the
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date of the separation or to the extent that the provision of such services
requires assets that will be owned by such party following the date of the
separation. The requested services will be available only for the limited
purpose of conducting the business of the party requesting such services in the
manner it was or was proposed to be conducted prior to the date of the
separation.
The only exceptions to the obligations of the parties to provide any
service outlined in the transitional services agreement will be if:
- causes outside of the reasonable control of a party who is to provide the
service prevent such party from doing so;
- providing such services would be prohibited by law, regulation or court
order;
- providing the services would require the party to continue to employ
existing employees who would otherwise be terminated for cause; or
- the party has provided the requesting party 60 days notice that it plans
to terminate the employees providing such service other than for cause
and has provided the requesting party an opportunity to offer employment
to such employees simultaneous with their termination by the party
providing or to provide the services.
HARD DISK DRIVE PRODUCTS
For a period of two years following the closing date of the merger, Maxtor
will be required to use commercially reasonable efforts, to the extent available
sources of supply exist, to continue to make hard disk drive products available
to Quantum on terms and in volumes reasonably agreed to by the parties. The
right to receive from Maxtor hard disk drive products will extend to any entity
that is a subsidiary of Quantum as of the date of the closing of the merger,
even if that entity ceases to be a subsidiary thereafter, and to any successor
to any part of the business of Quantum. Quantum currently contemplates spinning
off its SNAP division after the separation and redemption. Quantum has a
separate agreement with its SNAP division for the supply of hard disk drives,
limited to Quantum's Fireball and Atlas lines of products (and their direct
lineal descendants incorporating a majority of the current technology of such
products). Quantum, SNAP and Maxtor have agreed that their supply obligations
under the agreement between SNAP and Quantum will govern the supply of such
products to SNAP notwithstanding the provisions in the Transitional Services
Agreement.
REAL ESTATE
Except for ownership interests in real property that are transferred to
Spinco under the assignment agreement, no real estate interests will be
transferred to Spinco. Until the parties agree otherwise, the use and occupancy
of the real estate interests transferred to Spinco will be shared in a manner
consistent with the use and allocation of the space related to such real estate
interests immediately prior to the effective time.
The costs and expenses (including all rents and other expenses associated
with the site) of the use and occupancy of the space subject to the real estate
interests shall initially be shared by the parties on the basis of their
respective user as of the effective time of the merger based on the number of
Quantum HDD employees working at the site at the effective time of the merger
compared to non-Quantum HDD employees.
Quantum will use its best efforts, as promptly as practicable after the
effective time of the merger, to convey in a manner acceptable to both Quantum
and Maxtor any owned site where less than a majority of Quantum's workers are
utilized, subject to a leaseback at cost for the six months, and cost plus 5%
thereafter, of the amount of space utilized by Quantum as of the effective time
of the merger.
INTELLECTUAL PROPERTY
The transitional services agreements govern the manner of delivery of
software and hardware, and related matters. However, the transitional services
agreement will not in any way affect the ownership of any intellectual property
rights allocated in the other separation agreements, or grant to any party any
rights of
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ownership of copyrights, patents, trade secrets, trademarks or any other
intellectual property rights owned by the other.
TERM AND TERMINATION
Either party may elect to terminate the agreement upon 60 days prior
written notice. A party may also terminate the agreement with respect to a
specific service if the other party materially breaches a material provision
with regard to the particular service and does not cure or take reasonable steps
necessary to cure such breach within 30 days of receiving written notice of
breach.
The agreement will expire two years following closing of the merger.
VOTING AGREEMENTS
The following describes the material terms of the voting agreements between
Quantum and Maxtor, on the one hand, and each of the officers and directors of
Quantum and Maxtor, respectively, on the other hand, and also, in the case of
Maxtor, its voting agreement with Hyundai Electronics America. The voting
agreements were entered into to induce Quantum and Maxtor to enter into the
merger agreement. In connection with the amendment and restatement of the merger
agreement, the parties confirmed that their agreements applied to the amended
and restated merger agreement.
VOTING OF SHARES
From the date of the voting agreements through the earlier of the date when
the merger agreement is terminated or the merger becomes effective, the
stockholders who are parties to the agreement each agree that, at the special
meeting of stockholders and for any other actions requiring stockholder consent:
- they will cause all securities owned by them to be voted in favor of the
adoption of the merger agreement and the other transactions contemplated
by the merger agreement;
- they will cause all securities owned by them to be voted against any
proposal for any merger, consolidation, sale of assets, recapitalization,
or other business combination involving the other party or any other
action or agreement that would result in a breach of any covenant,
representation, or warranty or any other obligation or agreement of the
other party under the merger agreement or that would result in any of the
conditions to the other party's obligations under the merger agreement
not being fulfilled; and
- they will cause all securities owned by them to be voted in favor of any
other matter relating to the consummation of the transactions
contemplated in the merger agreement.
PROXY AND WAIVER
The stockholder parties also agree to deliver to Maxtor or Quantum, as the
case may be, an irrevocable proxy with respect to the securities owned by it.
Furthermore, each stockholder party agrees to give any consent or waiver that is
reasonably required for the consummation of the merger under the terms of any
agreements to which the affiliate is a party.
RESTRICTIONS ON TRANSFER OF SECURITIES AND VOTING RIGHTS
The stockholder parties also agree that during the same period, no
stockholder party will:
- tender, sell, or otherwise dispose of any of the securities owned by it
or enter into any agreement to tender, sell, or otherwise dispose of any
of the securities owned by it;
- enter into any swap or other derivative transaction that transfers to
another any of the economic benefit or risk or ownership of any of the
securities;
- enforce or permit the execution of provisions of any redemption, share
purchase or sale, recapitalization, or other agreement with Maxtor or
Quantum, as the case may be;
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- deposit any of the securities owned by it into a voting trust or
depository facility or enter into a voting agreement or arrangement with
respect to the securities or grant any proxy with respect thereto.
However, the stockholder party is allowed to take any of the above actions
if Maxtor or Quantum, as the case may be, approves such action or if the
proposed transferee executes a counterpart of the voting agreement and agrees to
hold the securities subject to all of the terms of the voting agreement.
NO SOLICITATION
Each stockholder party agrees that from the date of the voting agreement
through the earlier of the date on which the merger agreement is terminated or
the merger becomes effective, that party will not, directly or indirectly,
solicit, initiate, or encourage any inquiry, proposal, or offer from any third
person or negotiate with any third party regarding:
- any acquisition or purchase from Maxtor or Quantum, as the case may be,
by a third person or group of 50% or more of the outstanding voting
securities of Maxtor or its affiliates;
- any tender offer or exchange offer that would result in any person or
group beneficially owning 50% or more of the outstanding voting
securities of Maxtor or Quantum, as the case may be, or its affiliates;
- any merger or consolidation of Maxtor or Quantum, as the case may be,
which results in these stockholders owning less than 50% of the surviving
corporation;
- any sale, lease or other disposition of 50% or more of Maxtor or
Quantum's assets; or
- any liquidation or dissolution of Maxtor or Quantum, as the case may be.
Notwithstanding any of the foregoing, none of the stockholder parties is
precluded from withholding, withdrawing, amending, or modifying its
recommendation in favor of approval of the merger to its stockholders if either
a superior offer to that contemplated in the merger agreement is made to its
constituent company and is not withdrawn, or the party concludes in good faith,
after consultation with its legal counsel, that, in light of such superior
offer, the withholding, withdrawal, amendment, or modification of its
recommendation for approval is necessary for it to comply with its fiduciary
obligations to its stockholders under applicable law.
TERMINATION
The voting agreements and the accompanying proxies, and all obligations of
the stockholder parties thereunder, shall terminate immediately, without any
further action being required, upon the earlier of the date which the merger
agreement is terminated or the merger becomes effective.
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COMPARISON OF RIGHTS OF HOLDERS OF
MAXTOR COMMON STOCK AND
QUANTUM HDD COMMON STOCK
This section of the joint proxy statement/prospectus describes material
differences between the rights of stockholders of Maxtor and the rights of
holders of Quantum HDD common stock. The rights compared are those found in the
respective companies' charter documents and corporate law provisions of
Delaware, which is the state in which both companies are incorporated. While
Maxtor believes that these descriptions address the material differences, this
summary may not contain all of the information that is important to stockholders
of Maxtor and Quantum HDD. Maxtor and Quantum HDD stockholders should consult
the respective companies' corporate charters and bylaws as previously filed with
the SEC for a more complete understanding of the differences between the rights
of Maxtor stockholders, on the one hand, and Quantum HDD stockholders, on the
other, at the time of the split-off/merger transaction. If Proposals No. 1 of
both Maxtor and Quantum are approved and the merger is completed, the rights of
Maxtor stockholders will be altered as set forth in such proposals. If Proposal
No. 2 of Quantum is also approved and the merger is completed, the rights of
Quantum stockholders will be altered as set forth in such proposal and the
amended and restated certificate of incorporation of Quantum that is included as
Annex D to this joint proxy statement/prospectus.
NATURE OF THE SECURITY
Quantum HDD common stock is a tracking stock. Quantum also has a tracking
stock which trades under the symbol "DSS," which tracks the other most
significant business of Quantum, its digital tape storage business. Quantum's
restated certificate of incorporation gives its board of directors discretion to
determine the business, assets, properties and liabilities attributable to each
of the two businesses. The intention behind a number of the provisions in
Quantum's restated certificate of incorporation is to tie the rights of the
holders of the Quantum HDD common stock to the hard drive business and the
rights of the holders of the Quantum DSS common stock to the digital tape
storage business. In contrast, Maxtor common stock is not a tracking stock.
Thus, the value of a share of Maxtor common stock depends on the performance of
the entire corporation, rather than one business group within the corporation.
Maxtor's common stock is traded on The Nasdaq National Market, whereas
Quantum HDD common stock is traded on the New York Stock Exchange.
SIZE OF THE BOARD
The size of the Maxtor board is fixed from time to time by resolution of
the board of directors. Currently, there are eight directors. There will be
seven directors at the time of closing. See "Maxtor Board Composition,"
beginning on page 75.
The size of the Quantum board is fixed from time to time by resolution of
the board of directors. Currently, there are seven directors.
CLASSIFICATION
The Maxtor board is divided into three classes, with each class serving a
staggered three year term. The Maxtor restated certificate of incorporation
currently requires that the directors in each class be as nearly equal in number
as reasonably possible.
In the merger, the Maxtor restated certificate of incorporation will be
amended to eliminate the requirement that classes be as nearly equal in number
as reasonably possible until the annual meeting of stockholders in 2004. Upon
the closing of the merger, the class of directors to be elected at the annual
meeting of stockholders to be held in 2001 will consist of two directors and
Michael R. Cannon and C.S. Park shall be in that class. The class of directors
to be elected at the annual meeting of stockholders to be held in 2002 will
consist of Michael A. Brown and the class of directors to be elected at the
annual meeting of the stockholders to be held in 2003 will consist of four
directors, Charles Christ, Charles Hill, Roger Johnson, and Thomas Chun.
The Quantum board of directors is not classified. Each director stands for
election every year.
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REMOVAL OF DIRECTORS
The Maxtor restated certificate of incorporation provides that directors
may be removed only for cause by the majority vote of all the outstanding shares
entitled to vote at an election of directors.
Any Quantum director or the entire board may be removed, with or without
cause, by holders of the majority of the capital stock entitled to vote in any
election of directors; except that if less than the entire board were removed,
no director could be removed if the votes cast against his or her removal would
be enough to elect him or her if cumulatively voted at an election of the entire
board.
VACANCIES
Both the Maxtor and Quantum bylaws provide that vacancies may only be
filled by a majority of the remaining directors.
LIMITATION ON DIRECTOR LIABILITY
The Maxtor restated certificate of incorporation precludes a director's
liability for monetary damages unless the director: (1) breaches the duty of
loyalty to the corporation or its stockholders; (2) commits acts that are not in
good faith or which involve intentional misconduct or a knowing violation of the
law; (3) pays an illegal dividend or makes an illegal stock purchase; or (4)
receives an improper personal benefit from a transaction. Maxtor's restated
certificate of incorporation also provides that if Delaware law is amended in
the future to authorize the elimination or limitation of a director's liability
beyond the circumstances described in the previous sentence, then a director's
liability shall be further eliminated or limited to the fullest extent permitted
by the amendment of Delaware law. Any repeal or modification of this provision
of Maxtor's restated certificate of incorporation is expressly precluded from
adversely affecting a director's protection existing at the time of such repeal
or modification.
The Quantum restated certificate of incorporation eliminates a director's
personal liability for breach of fiduciary duty as a director to the fullest
extent allowed under Delaware law. Currently Delaware law permits the
elimination of personal liability to the extent provided in Maxtor's restated
certificate of incorporation, as described above.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Both Maxtor and Quantum indemnify their directors and officers to the
fullest extent allowed under Delaware law.
AMENDMENTS TO CERTIFICATE OF INCORPORATION
The Maxtor restated certificate of incorporation requires the affirmative
vote of at least two-thirds of the then-outstanding shares in order to amend or
repeal certain provisions of the certificate of incorporation, including those
relating to:
- the classified board and the right of stockholders to remove directors
for cause;
- the elimination of the stockholders' right to act by written consent;
- the exclusive right of the board to set the number of directors and to
fill vacancies and newly created directorships;
- the authority to call special meetings of the stockholders;
- the limitations on personal liability for the directors;
- the amendment process for the company's bylaws and certificate of
incorporation;
- the elimination of the requirement that directors be elected by written
ballot;
- the powers and authority of the board of directors;
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- the limitation of transactions between Maxtor and Hyundai Electronics
America and its affiliates; and
- the authority of Hyundai Electronics America and its affiliates to engage
in corporate opportunities of Maxtor.
All other amendments only need be approved by a majority of the outstanding
shares of each class of stock entitled to vote.
Quantum's restated certificate of incorporation requires only approval from
a majority of the outstanding shares of each class of stock entitled to vote to
amend any provision of the certificate of incorporation.
AMENDMENTS TO BYLAWS
The Maxtor board of directors has authority to amend the bylaws. Maxtor
stockholders may also amend the bylaws, but only by a two-thirds vote of the
then-outstanding shares voting together as a single class.
The Quantum board of directors has authority to amend the bylaws.
Stockholders may also amend the bylaws if a majority of stockholders entitled to
vote elect to do so.
AUTHORIZED CAPITAL STOCK
The Maxtor restated certificate of incorporation authorizes the issuance of
up to 250,000,000 shares of common stock, par value $.01 per share, and
95,000,000 shares of preferred stock, par value $.01 per share. The Maxtor board
of directors is authorized, without further action by the stockholders, and
subject to any limitations prescribed by law, to designate and issue the
preferred stock in one or more series, and can fix the rights, preferences, and
privileges of the shares of each series and any qualifications, limitations, or
restrictions on these shares. The board of directors may authorize the issuance
of preferred stock with voting or conversion rights that could adversely affect
the voting power or other rights of the holders of Maxtor's common stock. The
issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, under certain
circumstances, have the effect of delaying, deferring, or preventing a change in
control of Maxtor. The Maxtor board has no current plans to issue any shares of
its preferred stock.
As of November 9, 2000, 116,169,646 shares of Maxtor common stock, and no
shares of Maxtor preferred stock, were issued and outstanding.
If the merger is approved, the Maxtor restated certificate of incorporation
will be amended to authorize the issuance of an additional 275,000,000 shares of
common stock. The total number of shares of Maxtor common stock that would be
authorized after the merger would be 525,000,000.
The Quantum restated certificate of incorporation authorizes the issuance
of up to 1,000,000,000 shares of common stock designated the "Quantum
Corporation -- DSSG Common Stock," or Quantum DSS common stock, having a par
value of $.01 per share. Quantum may also issue up to 600,000,000 shares of
common stock designated as "Quantum Corporation -- Hard Disk Drive Group Common
Stock," or Quantum HDD common stock, having a par value of $.01 per share, as
well as up to 20,000,000 shares of preferred stock. The Quantum board of
directors is authorized, without further action by the stockholders, and subject
to any limitations prescribed by law, to designate and issue the preferred stock
in one or more series, and can fix the rights, preferences, and privileges of
the shares of each series and any qualifications, limitations, or restrictions
on these shares. The Quantum board of directors may authorize the issuance of
preferred stock with voting or conversion rights that could adversely affect the
voting power or other rights of the holders of Quantum's common stock.
As of November 9, 2000, 149,440,717 shares of Quantum DSS common stock and
77,855,234 shares of Quantum HDD common stock, were issued and outstanding.
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DIVIDENDS
Delaware law provides that the directors of a corporation may declare and
pay dividends on capital stock. Dividends may only be paid out of surplus, which
is the excess of net assets of the corporation over capital, or, if the
corporation does not have adequate surplus, out of net profits for the current
or immediately preceding fiscal year, unless the net assets are less than the
capital of any outstanding preferred stock.
The Maxtor restated certificate of incorporation places no additional
restrictions on the board's ability to declare dividends.
The Quantum restated certificate of incorporation, however, places an
additional limitation on the board's ability to declare dividends for holders of
the shares of Quantum HDD. Dividends for the shares of Quantum HDD may only be
declared and paid for out of the surplus attributable to Quantum HDD. As a
result, if Quantum on the whole is profitable, but Quantum HDD is not, the
directors may not declare a dividend for the holders of Quantum HDD common
stock.
STOCK REPURCHASES, REDEMPTIONS, AND CONVERSIONS
In general, a corporation may not purchase or redeem its own shares if its
capital is impaired or if the purchase or redemption would cause its capital to
be impaired. A company may, however, purchase or redeem shares out of capital if
the shares will then be retired, thereby reducing the capital of the
corporation.
The Maxtor restated certificate of incorporation does not place any
additional limitations on the corporation's ability to repurchase or redeem
stock.
Subject to the above restrictions, the Quantum restated certificate of
incorporation gives the board of directors authority to purchase, redeem, or
convert the stock of Quantum HDD in a number of situations. The board may at any
time convert the stock of Quantum HDD into stock of Quantum DSS. If Quantum
elects to sell or otherwise transfer all or substantially all (generally defined
as 80% or more) of the value of its Quantum HDD, the board has the option to pay
a dividend on Quantum HDD common stock, redeem some or all of Quantum HDD common
stock, or convert Quantum HDD common stock into Quantum DSS common stock.
ELECTION OF DIRECTORS
Maxtor stockholders do not have cumulative voting rights.
Quantum stockholders may cumulate their votes if they give timely notice of
their intention to do so, and may either cast them for one candidate or
distribute such votes among two or more candidates.
ACTION BY WRITTEN CONSENT
The Maxtor restated certificate of incorporation prohibits the stockholders
from acting by written consent. All stockholder actions must be effected at a
duly called annual or special meeting.
Quantum stockholders may act by written consent, provided the written
consent is signed by holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
ANNUAL MEETING
The annual meetings for both Maxtor and Quantum are held on the date and at
the place fixed by their respective boards of directors.
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SPECIAL MEETING OF STOCKHOLDERS
The Maxtor bylaws provide that special meetings of the stockholders may
only be called by the board of directors, the chairman of the board, or the
chief executive officer of the corporation. The meeting shall be held at the
time and place designated by the persons calling the meeting and the business
transacted at the special meeting shall be confined to the purpose or purposes
stated in the notice of the meeting.
Special meetings of Quantum stockholders may only be called by the board of
directors, the chairman of the board, the president of the corporation, or by
one or more stockholders entitled to cast 10% or more of the votes at the
special meeting. The place of the special meeting shall be fixed by the board of
directors, and the business transacted shall be confined to the purpose or
purposes stated in the notice of the meeting.
ADVANCE NOTICE REQUIREMENTS OF STOCKHOLDER NOMINATIONS
In order to nominate an individual for election to the board of directors,
Maxtor bylaws require a stockholder to provide written notice of the nomination
to the corporation secretary at least 120 days before the first anniversary of
the date written notice of the previous year's meeting was given.
Under the Quantum bylaws, a stockholder may nominate an individual for
election to the board if the stockholder provides timely notice of the
nomination to the corporation secretary. Timely notice by a nominating
stockholder is at least 20, but no more than 60, days prior to a scheduled
stockholder's meeting, unless less than 30 days notice of the meeting is given
to stockholders, in which case notice must be received by the secretary no later
than the tenth day following the date notice was given to stockholders. The
nominating stockholder must also provide additional information about himself as
well as the person the stockholder is nominating for election.
ADVANCE NOTICE REQUIREMENTS FOR OTHER STOCKHOLDER BUSINESS
In order to raise other business before the annual meeting, a Maxtor
stockholder must provide written notice of such intent and a brief description
of the issue and why it is to be brought before the meeting, the number of
shares of the corporation the stockholder owns, and any material interest the
stockholder may have in the matter. The information must be delivered to the
corporation secretary at least 120 days before the first anniversary of the day
written notice of the previous year's meeting was given.
A Quantum stockholder wishing to raise other business before the annual
meeting must give timely notice in writing to the secretary of the corporation.
Timely notice is at least 60 but no more than 90 days prior to the meeting,
unless less than 70 days notice of the meeting is given to stockholders, in
which case notice must be received by the secretary no later than the tenth day
following the date notice was given to stockholders. The notice must include a
brief description of the issue and why it is to be brought before the meeting,
the number of shares of the corporation the stockholder owns, and any material
interest the stockholder may have in the matter.
RIGHTS OF INSPECTION
Stockholders of both Maxtor and Quantum may inspect their respective
corporation's books and records during normal business hours as long as such
inspection is for a proper purpose, and as long as the stockholder has made
proper written demand stating the purpose of the inspection. A proper purpose is
any purpose reasonably related to the interests of the inspecting person as a
stockholder.
TRANSACTIONS BETWEEN THE CORPORATION AND ITS DIRECTORS AND OFFICERS
Delaware law provides that a transaction between a corporation and one of
its directors or officers or between the corporation and an entity with which a
director or officer is affiliated shall be valid if:
- the director/officer discloses the material facts to the board of
directors and the transaction is approved by a majority of disinterested
directors;
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- the director/officer discloses the material facts to the stockholders and
the stockholders approve the transaction; or
- the transaction is fundamentally fair to the corporation as of the time
it is authorized, approved, or ratified by the directors or the
stockholders.
The Maxtor restated certificate of incorporation generally tracks Delaware
law, but includes additional protections for directors, officers, and Maxtor's
former parent company, Hyundai Electronics America and any Hyundai Affiliate.
"Hyundai Affiliate" includes Hyundai Electronics America and Hyundai Electronics
Industries and any successors or entities controlled, directly or indirectly,
other than Maxtor, by Hyundai Electronics America or Hyundai Electronics
Industries. In a transaction between Maxtor and a Hyundai Affiliate or Maxtor
and a director/officer (or entity with which the director/officer is
affiliated), the Hyundai Affiliate, the director, officer, or the affiliated
entity shall be deemed to have acted in good faith and to have satisfied all
fiduciary duties and loyalty if:
- the material facts of the transaction are disclosed to the board of
directors and the transaction is approved by a majority of disinterested
directors;
- the material facts of the transaction are disclosed to the stockholders
and a majority of disinterested stockholders approve the transaction; or
- the transaction is fundamentally fair to the corporation as of the time
it is authorized, approved, or ratified by the directors or the
stockholders.
The Quantum restated certificate of incorporation contains no similar
provisions relating to transactions among directors.
THE CORPORATE OPPORTUNITY DOCTRINE
In general, a director, officer, or major stockholder in a corporation may
not compete against the corporation or usurp a corporate opportunity for
personal benefit or the benefit of an entity with which the director, officer,
or major stockholder is affiliated. The Maxtor restated certificate of
incorporation, however, provides certain exceptions to this doctrine for Hyundai
Electronics America and Hyundai Affiliates.
Any Hyundai Affiliate may:
- engage in the same or similar lines of business as Maxtor;
- do business with any potential client or supplier of Maxtor; and/or
- employ or otherwise engage any Maxtor employee.
If Hyundai Electronics America acquires knowledge of a potential
transaction that may be a corporate opportunity for both Maxtor and Hyundai
Electronics America, Hyundai Electronics America is under no obligation to
communicate or present such opportunity to Maxtor. Hyundai Electronics America
will not be held liable to Maxtor or its stockholders for breach of any
fiduciary duty as a stockholder of Maxtor by reason of the fact that Hyundai
Electronics America pursues or acquires such corporate opportunity for itself,
directs such opportunity to another person, or does not communicate such
opportunity to Maxtor.
If an individual who is either a director or officer of both Maxtor and a
Hyundai Affiliate acquires knowledge of a transaction that may be a potential
corporate opportunity for either Maxtor or Hyundai Affiliate, the individual
will be deemed to have met all fiduciary duties and loyalty to Maxtor if the
individual acts in a manner consistent with the following policies:
- if the individual is a director (but not an officer) of Maxtor and an
officer (whether or not a director) of a Hyundai Affiliate, the corporate
opportunity shall belong to the Hyundai Affiliate unless it is expressly
offered in writing to the individual in his capacity as a Maxtor
representative;
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- if the individual is an officer (whether or not a director) of Maxtor and
a director (but not an officer) of a Hyundai Affiliate, the corporate
opportunity shall belong to Maxtor unless it is expressly offered in
writing to the individual in his capacity as a representative of the
Hyundai Affiliate; and
- if the individual is either an officer of both Maxtor and a Hyundai
Affiliate or a director of both Maxtor and a Hyundai Affiliate, the
corporate opportunity shall belong to Maxtor unless it is expressly
offered in writing to the individual in his capacity as a representative
of the Hyundai Affiliate.
Any corporate opportunity that belongs to Maxtor or any Hyundai Affiliate
under the foregoing policy shall not be pursued by the other corporation unless
and until Maxtor or the Hyundai Affiliate, as the case may be, decides not to
pursue the opportunity.
The Quantum charter documents do not contain comparable exceptions to the
corporate opportunity doctrine.
STOCKHOLDERS' RIGHTS PLAN
Quantum has a stockholders' rights plan that allows the Quantum board to
resist hostile takeover attempts. The rights plan allows stockholders to
purchase a fraction of a share of preferred stock for each common share held in
the event of certain changes in Quantum's ownership. In addition, if an
individual or entity acquires 20% or more of the outstanding shares of Quantum
common stock, the plan entitles stockholders to purchase shares of common stock
of either Quantum or, in certain instances, the acquiring company, for a greatly
reduced price. The board has the authority to waive or amend the plan.
Maxtor does not currently have a stockholders' rights plan.
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MAXTOR PROPOSAL NO. 2
(FOR MAXTOR STOCKHOLDERS ONLY)
APPROVAL OF AMENDMENT OF MAXTOR'S 1996 STOCK OPTION PLAN, AS AMENDED
At the special meeting, the stockholders will be asked to approve an
increase by 17,000,000 in the aggregate number of shares of common stock
authorized for issuance under Maxtor's 1996 stock option plan.
As previously approved by the stockholders, the 1996 stock option plan
currently authorizes the issuance of a maximum 22,975,685 shares of common
stock. The board of directors believes that long-term equity incentives are
important factors in attracting and retaining qualified employees, consultants
and directors, and on October 3, 2000, it amended the 1996 stock option plan,
subject to stockholder approval, to increase the maximum number of shares
issuable thereunder by 17,000,000 shares, to a total of 39,975,685 shares.
Because of the large increase in the number of employees resulting from the
Merger and the competition for highly qualified individuals in Maxtor's industry
is intense, the board of directors believes that to successfully attract and
retain the best candidates, Maxtor must continue to offer a competitive equity
incentive program. It expects that the stock option plan will continue to be an
important factor in meeting these aims and in motivating its participants to
contribute to Maxtor's success. Accordingly, the board believes that approval of
this proposal is in the best interests of Maxtor and its stockholders.
Even if approved by stockholders, this proposal will only take effect if
the merger is completed.
SUMMARY OF THE PROVISIONS OF THE AMENDED OPTION PLAN
The following summary of the amended option plan is qualified in its
entirety by the specific language of the amended option plan, a copy of which is
available to any stockholder upon request.
General
The amended option plan currently provides for the grant of incentive stock
options, or ISOs, as defined in Section 422 of the Code, nonstatutory stock
options and shares of restricted stock. As of November 9, 2000, there were
outstanding under the 1996 stock option plan options to purchase an aggregate of
16,037,436 shares of common stock, and grants of 1,930,000 shares of restricted
stock with a weighted average exercise price of $7.28 per share.
Shares Subject to the Amended Option Plan
A maximum of 22,975,685 shares of Maxtor's authorized but unissued or
reacquired common stock may be issued pursuant to the amended option plan. Of
these, no more than 10,000,000 shares may be issued pursuant to ISOs, the "ISO
limit". Further, in order to qualify compensation recognized by certain
executive officers in connection with options granted under the amended option
plan as "performance-based compensation" under Section 162(m)of the Code, the
amended option plan includes the grant limit, under which the maximum number of
shares for which options may be granted to any employee in any fiscal year of
Maxtor is limited to 1,200,000. The grant limit does not apply to restricted
stock awards.
In the event of any stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or similar change in the
capital structure of Maxtor, appropriate adjustments will be made to the shares
subject to the amended option plan, the grant limit, the ISO limit, the outside
director options discussed below, and to outstanding awards. To the extent any
outstanding option under the amended option plan expires or terminates prior to
exercise in full or if Maxtor reacquires shares issued pursuant to the amended
option plan, the shares for which that option is not exercised or the reacquired
shares are returned to the amended option plan and will again be available for
issuance under the plan.
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Administration
The amended option plan is administered by the board of directors or a duly
appointed committee of the board, which, in the case of options intended to
qualify for the performance-based compensation exemption under Section 162(m)of
the Code, must consist solely of two or more "outside directors" within the
meaning of Section 162(m). (For purposes of this summary, the term "board"
refers to either the board of directors or any such committee.) Subject to the
provisions of the amended option plan, the board determines the persons to whom
options or shares of restricted stock (collectively, "awards") are to be
granted, the number of shares to be covered by each award, whether an option is
to be an ISO or a nonstatutory stock option, the terms of vesting and
exercisability of each award, including the effect thereon of an individual's
termination of service, the type of consideration to be paid to Maxtor upon
exercise of an option, the duration of each option, and all other terms and
conditions of the options. The amended option plan also provides that, except
where prohibited by applicable law, Maxtor will indemnify any director, officer
or employee against all reasonable expenses, including attorneys' fees, incurred
in connection with any legal action arising from that person's action or failure
to act in administering the amended option plan. The board will interpret the
amended option plan, and all determinations of the board will be final and
binding on all persons having an interest in the amended option plan or any
award under the plan.
Eligibility
Generally, all employees, directors and consultants of Maxtor or of any
present or future parent or subsidiary corporations of Maxtor are eligible to
participate in the amended option plan. In addition, the amended option plan
permits the grant of awards to prospective employees and consultants in
connection with written offers of employment or engagement. As of October 30,
2000, Maxtor had approximately 8,435 employees, including 11 executive officers,
one of whom is also a member of the board of directors. Any person eligible
under the option plan may be granted a nonstatutory stock option or restricted
stock award. However, only employees may be granted ISOs.
The amended option plan also provides for the automatic grant of
nonstatutory stock options to members of the board who are not employees of
Maxtor, or outside directors. Each outside director (other than a director who
became an outside director as a result of his or her termination of employment)
first elected or appointed to the board on or after December 1, 1998 will
receive on the date he or she becomes an outside director an option to purchase
30,000 shares of common stock. On November 11, 1998, each outside director who
previously received an initial grant of 20,000 shares under the 1996 stock
option plan received a special one-time grant of an option to purchase 10,000
shares. In addition, for so long as an outside director remains a member of the
board, he or she will receive on each third anniversary of the date of his or
her initial grant an option to purchase 10,000 shares of common stock.
Terms and Conditions of Options
Each option granted under the amended option plan is evidenced by a written
agreement between Maxtor and the optionee specifying the number of shares
subject to the option and the other terms and conditions of the option,
consistent with the requirements of the amended option plan. The exercise price
per share under an ISO must be no less than the fair market value of a share of
Maxtor's common stock on the date of grant and under a nonstatutory stock option
must be no less than 85% of the fair market value of a share of the common stock
on the date of grant. The exercise price per share under each outside director
option is the closing price of a share of Maxtor's common stock as quoted on The
Nasdaq National Market on the date of grant. The exercise price of any ISO
granted to a person who at the time of grant owns stock possessing more than 10%
of the total combined voting power of all classes of stock of Maxtor or any
parent or subsidiary corporation of Maxtor must be at least 110% of the fair
market value of a share of Maxtor's common stock on the date of grant. The fair
market value of Maxtor's common stock is based on the trading price of its
shares on The Nasdaq National Market. On December , 2000, the closing price of
a share of common stock as quoted on The Nasdaq National Market was $ .
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Generally, the exercise price may be paid in cash, by check, or in cash
equivalent, by tender of shares of Maxtor's common stock owned by the optionee
having a fair market value not less than the exercise price, by the assignment
of the proceeds of a sale or a loan with respect to some or all of the shares of
common stock being acquired upon the exercise of the option, by means of a
promissory note, by any lawful method approved by the board or by any
combination of these. The board may nevertheless restrict the forms of payment
permitted in connection with any option grant.
The board will specify when options granted under the amended option plan
will become exercisable and vested. Shares subject to options generally vest and
become exercisable in installments, subject to the optionee's continued
employment or service. The maximum term for ISOs granted under the amended
option plan is ten years, except that an ISO granted to a 10% stockholder may
not have a term longer than five years. The amended option plan authorizes the
board to grant nonstatutory stock options having a term in excess of ten years.
Outside director options vest and become exercisable in installments of 25% on
the first anniversary of the date of grant and 6.25% for each additional full
calendar quarter of service and have a term of ten years. Options are
nontransferable by the optionee other than by will or by the laws of descent and
distribution and are exercisable during the optionee's lifetime only by the
optionee.
Terms and Conditions of Restricted Stock Awards
The board may also grant to eligible persons shares of common stock without
requiring monetary payment. Each restricted stock award will be evidenced by a
written restricted stock grant agreement between Maxtor and the recipient
specifying the number of shares awarded and the other terms and conditions of
the grant. The agreement will generally provide for the forfeiture of shares in
the event the participant's employment or service with Maxtor is terminated for
any reason prior to the vesting of such shares. Typically, shares of restricted
stock will become vested and nonforfeitable in one or more installments over a
number of years. A participant may not transfer shares of restricted stock until
they have become vested.
Transfer of Control
The amended option plan defines a "transfer of control" as any of the
following events where the stockholders of Maxtor immediately before the event
do not retain immediately after the event, in substantially the same proportions
as their ownership of shares of Maxtor's voting stock immediately before the
event, direct or indirect beneficial ownership of more than 50% of the total
combined voting power of the stock of Maxtor, its successor or the corporation
to which the assets of Maxtor were transferred: (i) a sale or exchange by the
stockholders in a single or series of related transactions of more than 50% of
Maxtor's voting stock; (ii) a merger or consolidation in which Maxtor is a
party; (iii) the sale, exchange or transfer of all or substantially all of the
assets of Maxtor; or (iv) a liquidation or dissolution of Maxtor. If a transfer
of control occurs, the surviving, continuing, successor or purchasing
corporation or parent corporation thereof may either assume Maxtor's rights and
obligations under the outstanding options or substitute substantially equivalent
options for such corporation's stock. If the options outstanding under the
amended option plan are not assumed or substituted for, then the outstanding
options will become immediately exercisable and vested in full as of the date
ten days prior to the transfer of control. To the extent that the options
outstanding under the amended option plan are not assumed, substituted for, or
exercised prior to the transfer of control, they will terminate.
Termination or Amendment
The amended option plan will continue in effect until the earlier of its
termination by the board or the date on which all shares available for issuance
under the plan have been issued and all restrictions on such shares under the
terms of the plan and the agreements evidencing awards granted under the plan
have lapsed. However, unless the amended option plan is sooner terminated, no
ISOs may be granted under the plan after May 1, 2006. The board may terminate or
amend the amended option plan at any time, but, without stockholder approval,
the board may not adopt an amendment to the amended option plan which would
increase the maximum aggregate number of shares of common stock that may be
issued under the
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plan, change the class of persons eligible to receive ISOs, or effect any other
change that would require stockholder approval under any applicable law,
regulation or rule. No termination or amendment may adversely affect an
outstanding option without the consent of the optionee, unless required to
preserve the option's status as an ISO or necessary to comply with any
applicable law.
CERTAIN FEDERAL TAX CONSEQUENCES
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law with respect to options
granted under the amended option plan and does not attempt to describe all
possible federal or other tax consequences of such participation or tax
consequences based on particular circumstances.
ISOs
An optionee recognizes no taxable income for regular income tax purposes as
the result of the grant or exercise of an ISO qualifying under Section 422 of
the Code. Optionees who do not dispose of their shares for two years following
the date the option was granted or within one year following the exercise of the
option will normally recognize a long-term capital gain or loss equal to the
difference, if any, between the sale price and the purchase price of the shares.
If an optionee satisfies such holding periods upon a sale of the shares, Maxtor
will not be entitled to any deduction for federal income tax purposes. If an
optionee disposes of shares within two years after the date of grant or within
one year after the date of exercise, referred to as a disqualifying disposition,
the difference between the fair market value of the shares on the exercise date
and the option exercise price, not to exceed the gain realized on the sale if
the disposition is a transaction with respect to which a loss, if sustained,
would be recognized, will be taxed as ordinary income at the time of
disposition. Any gain in excess of that amount will be a capital gain. If a loss
is recognized, there will be no ordinary income, and such loss will be a capital
loss. A capital gain or loss will be long-term if the optionee's holding period
is more than one year. Generally, for federal income tax purposes, Maxtor should
be able to deduct any ordinary income recognized by the optionee upon the
disqualifying disposition of the shares, except to the extent the deduction is
limited by applicable provisions of the Code or the regulations thereunder.
The difference between the option exercise price and the fair market value
of the shares on the exercise date of an ISO is an adjustment in computing the
optionee's alternative minimum taxable income and may be subject to an
alternative minimum tax which is paid if the tax exceeds the regular tax for the
year. Special rules may apply with respect to certain subsequent sales of the
shares in a disqualifying disposition, certain basis adjustments for purposes of
computing the alternative minimum taxable income on a subsequent sale of the
shares and certain tax credits which may arise with respect to optionees subject
to the alternative minimum tax.
Nonstatutory Stock Options
Options not designated or qualifying as ISOs will be nonstatutory stock
options. Nonstatutory stock options have no special tax status. An optionee
generally recognizes no taxable income as the result of the grant of such an
option. Upon exercise of a nonstatutory stock option, the optionee normally
recognizes ordinary income in an amount equal to the difference between the
option exercise price and the fair market value of the shares on the exercise
date. If the optionee is an employee, the ordinary income generally is subject
to withholding of income and employment taxes. Upon the sale of stock acquired
by the exercise of a nonstatutory stock option, any gain or loss, based on the
difference between the sale price and the fair market value on the exercise
date, will be taxed as capital gain or loss. A capital gain or loss will be
long-term if the optionee's holding period is more than one year. No tax
deduction is available to Maxtor with respect to the grant of a nonstatutory
option or the sale of the stock acquired pursuant to that grant. Maxtor
generally should be entitled to a deduction equal to the amount of ordinary
income recognized by the optionee as a result of the exercise of a nonstatutory
option, except to the extent the deduction is limited by applicable provisions
of the Code or the regulations thereunder.
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AMENDED PLAN BENEFITS
The board of directors administers the amended option plan which generally
determines the amount and timing of option grants under the amended option plan.
Accordingly, with the exception of outside director options, future grants under
the amended option plan will be made at the discretion of the board of directors
and are not yet determinable. Similarly, the exercise price of future options
cannot be determined at this time because such exercise prices are typically
based upon the fair market value of Maxtor's common stock on the date of grant.
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes present or represented by
proxy and voting at the special meeting of stockholders, at which a quorum
representing a majority of all outstanding shares of common stock of Maxtor is
present and voting, is required for approval of this proposal. Abstentions and
broker non-votes will each be counted present for purposes of determining the
presence of a quorum. Abstentions will have the same effect as a negative vote,
whereas broker non-votes will not have any effect on the outcome of the vote.
The board of directors believes that approval of the amended option plan is
in the best interests of Maxtor and its stockholders. THEREFORE, FOR THE REASONS
STATED ABOVE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL
OF THE 1996 STOCK OPTION PLAN, AS AMENDED.
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MAXTOR PROPOSAL NO. 3
(FOR MAXTOR STOCKHOLDERS ONLY)
APPROVAL OF THE AMENDMENT OF MAXTOR'S 1998
EMPLOYEE STOCK PURCHASE PLAN, AS AMENDED
At the special meeting, the stockholders will be asked to approve an
amendment of Maxtor's 1998 employee stock purchase plan, as amended to increase
by 3,500,000 the aggregate number of shares of Maxtor's common stock authorized
for issuance under the plan. Currently, the 1998 stock employee purchase plan
authorizes the issuance of a maximum of 4,500,000 shares of Maxtor's common
stock. Because of the large increase in the number of employees resulting from
the merger and the availability to officers and other employees of an
opportunity to purchase shares at a discount from market price is important to
attracting and retaining qualified officers and employees essential to the
success of Maxtor, the board of directors amended the 1998 employee stock
purchase plan, subject to stockholder approval, to increase the maximum number
of shares issuable under the purchase plan by 3,500,000 shares to an aggregate
total of 8,000,000 shares. The board of directors believes that approval of this
proposal is in the best interests of Maxtor and its stockholders.
Even if approved by stockholders, this proposal will only take effect if
the merger is completed.
SUMMARY OF THE PROVISIONS OF THE STOCK PURCHASE PLAN
The following summary of the amended purchase plan is qualified in its
entirety by the specific language of the amended purchase plan, a copy of which
is available to any stockholder upon request.
In May 1998, the board of directors adopted, and in July 1998 the
stockholders approved, the 1998 employee stock purchase plan. An aggregate of
3,400,000 shares of Maxtor's common stock was initially reserved for issuance
under the plan, subject to adjustment in the event of a stock split, stock
dividend or other similar change in Maxtor common stock or the capital structure
of Maxtor. Also in May 1998, the board approved a one-for-two reverse split of
Maxtor's outstanding common stock, which became effective upon Maxtor's filing
of an amended and restated certificate of incorporation in Delaware on July 24,
1998, thus reducing the number of shares then reserved for issuance under the
1998 employee stock purchase plan to 1,700,000 shares. In August 1999,
stockholders approved an increase in the share reserve to 2,400,000. In May
2000, stockholders approved an increase in the share reserve to 4,500,000.
The purpose of the amended purchase plan is to provide employees of Maxtor
who participate in the plan with an opportunity to purchase common stock of
Maxtor through payroll deductions. The amended purchase plan is intended to
qualify as an "employee stock purchase plan" under the provisions of Section 423
of the Code. Employees of Maxtor and its designated subsidiaries are eligible to
participate in the amended purchase plan. Directors who are not employees are
not eligible to participate. On October 3, 2000, subject to stockholder
approval, the board of directors approved an amendment to the amended purchase
plan increasing the number of shares available for issuance thereunder from
4,500,000 shares to 8,000,000 shares. As of November 9, 2000, a total of
2,421,640 shares of common stock had been sold pursuant to the plan at a
weighted average price of $4.86 per share, with 2,078,360 shares remaining
available for future issuance under the plan (without taking the proposed
increase into account).
Any person who is employed by Maxtor (or any subsidiary designated by the
board of directors) for at least 20 hours per week and more than five months in
a calendar year is eligible to participate in the amended purchase plan,
provided that the employee is employed on the first day of a purchase period (as
defined below) and subject to certain limitations imposed by Section 423(b) of
the Code. Eligible employees become participants in the amended purchase plan by
delivering to Maxtor a subscription agreement authorizing payroll deductions
prior to the commencement of the applicable purchase period.
Under the amended purchase plan, an option is granted to each participant
at the commencement of each six-month offering period, during which deductions
are made from the pay of participants (in accordance with their authorizations)
and credited to their accounts under the plan. A new offering period commences
each February 15 and August 15.
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<PAGE> 135
However, no employee will be permitted to subscribe for shares under the
amended purchase plan if, immediately after the grant of the option, the
employee would own 5% or more of the voting power or value of all classes of
stock of Maxtor or of a parent or of any of its subsidiaries (including stock
which may be purchased under the plan or pursuant to any other options).
Further, no employee will be granted an option that would permit the employee to
buy pursuant to the amended purchase plan more than $25,000 worth of stock
(determined at the fair market value of the shares at the time the option is
granted) in any calendar year.
Participants may not make direct cash payments to their amended purchase
plan accounts. However, a participant may change the rate of his or her payroll
deduction for the remainder of an offering period by delivering an appropriate
notice to Maxtor. The adjusted rate will become effective with the first
practicable payroll period following the date on which Maxtor receives the
notice and will remain in effect for the remainder of the offering period,
unless the participant elects to withdraw from participation in the offering
period. A participant may increase (to the 10% maximum allowed by the amended
purchase plan) or decrease his or her rate of payroll deduction for a subsequent
offering period by filing a new payroll deduction authorization with Maxtor
prior to the start of that offering period. The new rate will become effective
on the first day of the offering period provided the new authorization was
received by Maxtor on or before the subscription date established by Maxtor. The
new authorization will remain in effect for that offering period and each
subsequent offering period until amended or cancelled.
The price per share at which shares of common stock are purchased pursuant
to the amended purchase plan for any offering period is the lesser of (a) 85% of
the fair market value of common stock on the date of the grant of the option
(the commencement of the offering period) or (b) 85% of the fair market value of
common stock on the date of exercise of the option (the last business day of an
offering period). The fair market value of the common stock for either date is
based on the closing price for the common stock. On December , 2000, the
closing price of a share of Maxtor common stock as quoted on The Nasdaq National
Market was $ . On the last business day of each offering period,
amounts credited to the accounts of participants who have neither been
terminated from the employ of Maxtor (or designated subsidiary) nor withdrawn
from the amended purchase plan for such offering period are used to purchase
shares of common stock. Only amounts credited to the accounts of participants
may be applied to the purchase of shares of common stock under the amended
purchase plan. The board of directors or a committee thereof may establish a
maximum number of shares of common stock that any employee may purchase under
the amended purchase plan during an offering period. The number of shares of
common stock that may be purchased is subject to adjustment in the event of a
stock split, stock dividend or other similar change in the common stock or the
capital structure of Maxtor. If, for any offering period, the number of shares
of common stock available for the offering period is insufficient, Maxtor will
make a pro rata allocation of the remaining shares in as uniform a manner as
shall be practicable and as Maxtor determines to be equitable.
Maxtor makes no cash contributions to the amended purchase plan, but bears
the expenses of administration. The amended purchase plan is administered by the
compensation committee of the board of directors, which has the authority to
determine the terms and conditions under which shares are to be offered and
corresponding options are to be granted under the plan for any offering period
during the term of the plan, and to resolve all questions immediately relating
to the administration of the plan. The amended purchase plan will continue until
terminated by the board of directors or until all of the shares reserved for
issuance have been issued.
A participant's interest in a given offering period may be terminated in
whole or in part by signing and delivering to Maxtor a notice of partial or full
withdrawal from the amended purchase plan. Such withdrawal may be elected at any
time prior to the end of the applicable offering period. Any total withdrawal by
the participant of accumulated payroll deductions for a given offering period
automatically terminates the participant's interest in that offering period. The
failure to remain in the continuous employ of Maxtor (or a designated
subsidiary) for at least 20 hours per week and more than five months in a
calendar year during an offering period will be deemed to be a withdrawal from
that offering period.
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<PAGE> 136
No rights or accumulated payroll deductions of a participant under the
amended purchase plan may be pledged, assigned or transferred for any reason. A
purchase right may not be transferred in any manner other than by will or the
laws of descent and distribution.
CERTAIN FEDERAL TAX CONSEQUENCES
The following summary is intended only as a general guide as to the United
States federal income tax consequences under current law with respect to
participation in the amended purchase plan and does not attempt to describe all
possible federal or other tax consequences of such participation or tax
consequences based on particular circumstances.
Amounts deducted from a participant's pay under the amended purchase plan
are part of the employee's regular compensation and remain subject to federal,
state and local income and employment withholding taxes. A participant will not
recognize any additional income at the time the participant elects to
participate in the amended purchase plan or purchases common stock under the
plan.
If a participant disposes of common stock purchased pursuant to the amended
purchase plan within two years after the first day of the offering period or
within one year after the purchase of common stock, or the minimum holding
period, the participant will recognize, for federal tax purposes, ordinary
compensation income at the time of disposition of the common stock in an amount
equal to the excess of the fair market value of the common stock on the day the
common stock was purchased over the purchase price paid. This amount may be
subject to withholding for taxes. In addition, a participant generally will
recognize a capital gain or loss in an amount equal to the difference between
the amount realized upon the disposition of the common stock and the
participant's basis in the common stock (that is, the purchase price plus the
amount taxed as compensation income).
If a participant disposes of common stock purchased pursuant to the amended
purchase plan at any time after the minimum holding period, the participant will
recognize, for federal tax purposes, ordinary compensation income at the time of
such disposition in an amount equal to the lesser of (a) the excess (or zero if
there is no excess) of the fair market value of the common stock at the time of
such disposition over the amount paid for the common stock, or (b) 15% of the
fair market value of the common stock on the first day of the purchase period.
In addition, the participant generally will recognize a capital gain or loss in
an amount equal to the difference between the amount realized upon the
disposition of the common stock and the participant's basis in the stock (that
is, the purchase price plus the amount, if any, taxed as compensation income).
Although the amounts deducted from a participant's pay under the amended
purchase plan generally are tax-deductible business expenses of Maxtor, Maxtor
generally will not be allowed any additional deduction by reason of a
participant's purchase of common stock under the plan. However, if a participant
disposes of common stock purchased pursuant to the amended purchase plan within
the minimum holding period, Maxtor should be entitled to a deduction in an
amount equal to the compensation income recognized by the participant (subject
to the requirements of reasonableness and perhaps, in the future, the
satisfaction of a withholding obligation). If a participant disposes of common
stock purchased under the amended purchase plan after the minimum holding
period, Maxtor will not receive any deduction for federal income tax purposes
with respect to the common stock.
AMENDED PLAN BENEFITS
Because benefits under the amended purchase plan will depend on employees'
elections to participate and the fair market value of Maxtor's common stock at
various future dates, it is not possible to determine the benefits that will be
received by executive officers and other employees if the amended purchase plan
is approved by the stockholders. Non-employee directors are not eligible to
participate in the amended purchase plan.
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<PAGE> 137
VOTE REQUIRED AND BOARD OF DIRECTORS' RECOMMENDATION
The affirmative vote of a majority of the votes present or represented by
proxy and voting at the special meeting of stockholders, at which a quorum
representing a majority of all outstanding shares of common stock of Maxtor is
present and voting, is required for approval of this proposal. Abstentions and
broker non-votes will each be counted present for purposes of determining the
presence of a quorum. Abstentions will have the same effect as a negative vote,
whereas broker non-votes will not have any effect on the outcome of the vote.
The board of directors believes that the availability the amended purchase
plan is important to attracting and retaining qualified officers and employees
essential to the success of Maxtor, and that stock ownership is important to
providing such persons with incentive to perform in the best interests of Maxtor
and its stockholders. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE FOR THE PROPOSAL TO APPROVE THE 1998 EMPLOYEE STOCK PURCHASE PLAN, AS
AMENDED.
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<PAGE> 138
QUANTUM PROPOSAL NO. 2
(FOR QUANTUM STOCKHOLDERS ONLY)
APPROVAL OF AMENDMENTS TO QUANTUM'S RESTATED CERTIFICATE OF INCORPORATION
GENERAL
The purpose of the proposed amendment and restatement of the restated
certificate of incorporation is to eliminate the existing tracking stock
structure. Upon adoption of this proposal and consummation of the merger our
restated certificate of incorporation will be amended and restated as follows:
- all references and provisions in our restated certificate of
incorporation relating to the tracking stock will be eliminated; and
- the total authorized capital will consist of 1,000,000,000 shares of
common stock and 20,000,000 shares of preferred stock.
A total of 149,440,717 shares of Quantum DSS common stock and no shares of
preferred stock were outstanding as of November 9, 2000. A description of
certain provisions of the amended and restated certificate of incorporation is
as follows:
Common Stock
Pursuant to the amended and restated certificate of incorporation, the
holders of Quantum common stock will be entitled to receive dividends as may be
declared by Quantum's board of directors and paid out of legally available
funds. Holders of shares of common stock will be entitled to one vote per share
upon all matters upon which stockholders have the right to vote. In the event of
a voluntary or involuntary liquidation, dissolution or winding up of Quantum,
the holders of Quantum common stock will be entitled to receive and share
ratably in all assets remaining available for distribution to stockholders after
payment of any preferential amounts to which the holders of preferred stock may
be entitled. Quantum common stock will have no preemptive rights and will not be
redeemable, assessable or entitled to the benefits of any sinking fund. Shares
of our common stock held by all other persons will not be convertible. All
outstanding shares of Quantum common stock are validly issued, fully paid and
nonassessable.
Preferred Stock
Pursuant to the amended and restated certificate of incorporation, a total
of 20,000,000 shares of preferred stock will be authorized for issuance, none of
which has been designated in any series. Quantum's board of directors will be
authorized, without further stockholder action, to authorize and issue any of
the 20,000,000 undesignated shares of preferred stock in one or more series and
to fix the voting rights, liquidation preferences, dividend rights, repurchase
rights, conversion rights, preemption rights, redemption rights and terms,
including sinking fund provisions and certain other rights and preferences of
such shares of our preferred stock. The issuance of any class or series of
preferred stock could adversely affect the rights of the holders of common stock
by restricting dividends on, diluting the power of, impairing the liquidation
rights of common stock, or delaying, deferring or preventing a change in control
of Quantum. Quantum has no present plans to issue any preferred stock.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION, AND BYLAWS AND OF DELAWARE LAW
Certain provisions of Quantum's amended and restated certificate of
incorporation, bylaws and Delaware law, described below, may have the effect of
delaying, deferring or discouraging another person from acquiring control of
Quantum.
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<PAGE> 139
Effect of Delaware Anti-Takeover Statute
Quantum is subject to Section 203 of the Delaware General Corporation Law
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder, unless:
- the transaction is approved by the board of directors prior to the date
the interested stockholder attained such status;
- upon the closing 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; or
- on or subsequent to such date the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders by at least two-thirds of the outstanding voting stock that
is 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. Generally, an "interested stockholder" is a person who, together
with affiliates and associates, owns or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock.
VOTE REQUIRED
The vote required to amend and restate Quantum's restated certificate of
incorporation is:
- a majority of the outstanding shares of Quantum common stock; and
- a majority of the outstanding shares of Quantum HDD common stock, voting
as a separate class, entitled to vote at the special meeting of
stockholders, at which a quorum representing a majority of all
outstanding shares of common stock of Quantum and of Quantum HDD,
respectively, is present.
RECOMMENDATION
The Quantum board of directors believes that approval of the amended and
restated certificate of incorporation is in the best interest of Quantum and its
stockholders. THEREFORE, THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE
FOR APPROVAL OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law,
Quantum's amended and restated certificate of incorporation includes a provision
that eliminates the personal liability of its directors for monetary damages for
breach or alleged breach of their duty of care to Quantum or its stockholders.
In addition, the amended and restated certificate of incorporation provides that
each person who is a director or officer, employee or agent of Quantum is
authorized to be indemnified and held harmless by Quantum to the fullest extent
authorized by the Delaware General Corporation Law. The right to indemnification
conferred in Quantum's amended and restated certificate of incorporation
includes the right to be paid by Quantum the expenses incurred in connection
with any such proceeding in advance of its final disposition, subject to certain
limitations of Delaware law and Quantum's amended and restated certificate of
incorporation.
Quantum's policy is to enter into indemnification agreements with each of
its directors and executive officers that provide the maximum indemnity allowed
to directors and executive officers by Section 145 of the Delaware General
Corporation Law and the bylaws, as well as certain additional procedural
protections. The indemnity agreements provide that directors and executive
officers will be indemnified to the fullest possible extent not prohibited by
law against all expenses (including attorney's fees) and
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<PAGE> 140
settlement amounts paid or incurred by them in any action or proceeding,
including any derivative action by or in the right of Quantum, on account of
their services as directors or executive officers of Quantum or as directors or
officers of any other company or enterprise when they are serving in such
capacities at the request of Quantum. Pursuant to the indemnity agreements,
Quantum will not be obligated to indemnify or advance expenses to an indemnified
party with respect to proceedings or claims initiated by the indemnified party
and not by way of defense, except with respect to proceedings specifically
authorized by the board of directors or brought to enforce a right to
indemnification under such indemnity agreement, Quantum's amended and restated
certificate of incorporation, bylaws or any statute or law, or as otherwise
required under Section 145 of the Delaware General Corporation Law. Also under
the indemnity agreements, Quantum is not obligated to indemnify the indemnified
party for (i) any expenses incurred by the indemnified party with respect to any
proceeding instituted by the indemnified party to enforce or interpret the
agreement, if a court of competent jurisdiction determines that each of the
material assertions made by the indemnified party in such proceeding was not
made in good faith or was frivolous, (ii) acts, omissions or transactions on the
part of the indemnified party from which such party may not be relieved of
liability under applicable law or (iii) expenses and the payment of profits
arising from the purchase and sale by the indemnified party of securities in
violation of Section 16(b) of the Exchange Act, or amy similar or successor
statute. The indemnification provisions in the amended and restated certificate
of incorporation and the indemnification agreements entered into between Quantum
and its directors and executive officers, may be sufficiently broad to permit
indemnification of Quantum's officers and directors for liabilities arising
under the Securities Act.
131
<PAGE> 141
STOCK OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
MAXTOR STOCK OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of Maxtor common stock as of November 9, 2000: (i) by each person who
is known by Maxtor to beneficially own more than 5% of Maxtor's common stock;
(ii) by Maxtor's chief executive officer and by each of the four other most
highly compensated executive officers whose salary plus bonus exceeded $100,000
in Maxtor's last fiscal year and by each of Maxtor's directors; and (iii) by all
Maxtor executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF STOCK
NAME OR IDENTITY OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED OUTSTANDING
--------------------------------------- ------------------ ----------------
<S> <C> <C>
Hyundai Electronics America(2).............................. 40,829,850 35.16%
3101 North First Street
San Jose, CA 95134
VGH Partners LLC(3)......................................... 9,402,300 8.10%
260 Franklin Street
Boston, MA 02110
EXECUTIVE OFFICERS AND DIRECTORS:
Dr. Chong Sup Park(4)(5).................................... 31,375 *
Michael R. Cannon(6)........................................ 1,664,590 1.42%
Michael A. Brown............................................ * *
Charles F. Christ(7)........................................ 31,375 *
Thomas L. Chun(8)........................................... 15,000 *
Chang See Chung(5)(9)....................................... 17,500 *
Charles Hill(10)............................................ 31,375 *
Y.H. Kim(5)(11)............................................. 31,375 *
Roger W. Johnson(12)........................................ 13,125 *
Dr. Victor B. Jipson(13).................................... 426,000 *
Paul J. Tufano(14).......................................... 419,500 *
K.H. Teh(15)................................................ 339,750 *
All executives officers and directors as a group (12
persons)(16).............................................. 3,020,965 2.75%
</TABLE>
-------------------------
* Less than one percent (1%)
(1) Number of shares beneficially owned and the percentage of shares
beneficially owned are based on 116,169,646 shares outstanding as of
November 9, 2000. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission. All shares of Maxtor
common stock subject to currently exercisable options or options
exercisable within 60 days after November 9, 2000 are deemed to be
outstanding and to be beneficially owned by the person holding such options
for the purpose of computing the number of shares beneficially owned and
the percentage of ownership of such person, but are not deemed to be
outstanding and to be beneficially owned for the purpose of computing the
percentage of ownership of any other person. Except as indicated in the
footnotes to the table and subject to applicable community property laws,
based on information provided by the persons named in the table, such
persons have sole voting and investment power with respect to all shares of
Maxtor common stock shown as beneficially owned by them.
(2) Hyundai has certain rights to nominate directors, and has agreed to certain
limitations on the acquisition of Maxtor common stock and proxy
solicitations. Includes 12,500,000 shares of Maxtor common stock owned by
Hyundai Electronics America that may be delivered to the DECS Trust IV on
or about February 15, 2002. Hyundai Electronics America may deliver fewer
shares or may elect
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<PAGE> 142
to settle its obligations to the DECS Trust IV in cash. Immediately after
the completion of the merger, Hyundai Electronics America will own 17.5% of
Maxtor's outstanding shares.
(3) Based solely upon publicly available documents filed with the Securities
and Exchange Commission.
(4) All 17,500 shares are subject to options granted under the stock option
plan that are exercisable within 60 days after November 9, 2000.
(5) Excludes 40,829,850 shares of Maxtor common stock beneficially owned by
Hyundai Electronics America. Each such individual disclaims beneficial
ownership of such shares.
(6) Includes 1,063,750 shares subject to options granted under the stock option
plan that are exercisable within 60 days after November 9, 2000, 100,000
shares of Maxtor common stock granted to Mr. Cannon on June 26, 1998
pursuant to the restricted stock plan, and 500,000 shares of Maxtor common
stock granted to him on June 23, 1999 pursuant to the restricted stock
plan.
(7) All 31,375 shares are subject to options granted under the stock option
plan that are exercisable within 60 days after November 9, 2000.
(8) All 15,000 shares are subject to options granted under the stock option
plan that are exercisable within 60 days after November 9, 2000.
(9) All 17,500 shares are subject to options granted under the stock option
plan that are exercisable within 60 days after November 9, 2000.
(10) All 31,375 shares are subject to options granted under the stock option
plan that are exercisable within 60 days after November 9, 2000.
(11) All 31,375 shares are subject to options granted under the stock option
plan that are exercisable within 60 days after November 9, 2000.
(12) All 13,125 shares are subject to options granted under the stock option
plan that are exercisable within 60 days after November 9, 2000.
(13) Includes 230,000 shares subject to options granted under the stock option
plan that are exercisable within 60 days after November 9, 2000, 35,000
shares of Maxtor common stock granted to Dr. Jipson on June 26, 1998
pursuant to the restricted stock plan, and 150,000 shares of Maxtor common
stock granted to him on June 23, 1999 pursuant to the restricted stock
plan.
(14) Includes 230,000 shares subject to options granted under the stock option
plan that are exercisable within 60 days after November 9, 2000, 35,000
shares of common stock granted to Mr. Tufano on June 26, 1998 pursuant to
the restricted stock plan, and 150,000 shares of Maxtor common stock
granted to him on June 23, 1999 pursuant to the restricted stock plan.
(15) Includes 173,750 shares subject to options granted under the stock option
plan that are exercisable within 60 days after November 9, 2000, 35,000
shares of common stock granted to Mr. Teh on June 26, 1998 pursuant to the
restricted stock plan, and 125,000 shares of Maxtor common stock granted to
him on June 23, 1999 pursuant to the restricted stock plan.
(16) Includes 1,854,750 shares subject to options granted under the stock option
plan that are exercisable within 60 days after November 9, 2000, 205,000
shares of common stock granted to executive officers on June 26, 1998
pursuant to the restricted stock plan and 925,000 shares of common stock
granted to executive officers on June 23, 1999 pursuant to the restricted
stock plan.
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<PAGE> 143
QUANTUM STOCK OWNERSHIP
The following table sets forth certain information regarding the beneficial
ownership of Quantum common stock as of November 9, 2000: (i) by each person who
is known by Quantum to beneficially own more than 5% of Quantum's common stock;
(ii) by Quantum's chief executive officer and by each of the four other most
highly compensated executive officers whose salary plus bonus exceeded $100,000
in Quantum's last fiscal year and by each of Quantum's directors; and (iii) by
all Quantum executive officers and directors as a group.
<TABLE>
<CAPTION>
NUMBER OF APPROXIMATE NUMBER OF APPROXIMATE
QUANTUM PERCENTAGE OF QUANTUM PERCENTAGE OF
DSS SHARES QUANTUM HDD SHARES QUANTUM
BENEFICIALLY DSS SHARES BENEFICIALLY HDD SHARES
NAME OWNED(1) OWNED(2) OWNED(1) OWNED (2)
---- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Mellon Financial Corp.................... -- -- 8,915,145(3) 11.5%
One Mellon Bank Center
500 Grant Street
Pittsburgh, PA 15258
AXA Financial, Inc....................... 18,208,280(3) 12.2% -- --
1290 Avenue of the Americas
New York, NY 10104
Wellington Management Co. LLP............ -- -- 10,929,689(3) 14.0%
75 State Street
Boston, MA 02109
Capital Research and Management
Company................................ 9,286,110(3) 6.2% -- --
333 South Hope Street
Los Angeles, CA 90071
FMR Corp................................. 8,538,433(3) 5.7% 9,711,672(3) 12.5%
82 Devonshire Street
Boston, MA 02109-3014
Citigroup Inc............................ -- -- 9,083,705(3) 11.7
153 East 53rd St.
New York, NY 10043
Michael Brown............................ 1,433,430(4) 1.0% 625,715(4) *
Stephen M. Berkley....................... 520,625(5) * 260,312(5) *
Richard L. Clemmer....................... 548,285(6) * 274,140(6) *
Robert J. Casale......................... 109,166(7) * 54,583(7) *
David A. Brown........................... 98,125(7) * 49,062(7) *
John B. Gannon........................... 267,179(8) * 133,587(8) *
Edward M. Esber, Jr. .................... 13,125(7) * 6,562(7) *
Jerald L. Maurer......................... 230,594(9) * 114,904(9) *
Gregory W. Slayton....................... 8,500(10) * 4,250(10) *
W. Curt Francis.......................... 118,736(11) * 59,367(11) *
All directors and executive officers as a
group (10 persons)..................... 3,396,815(12) 2.2 1,137,409(12) 2.0
</TABLE>
-------------------------
* Less than 1%.
(1) Except pursuant to applicable community property laws or as indicated in
the footnotes to this table, to Quantum's knowledge, each stockholder
identified in the table possesses sole voting and investment power with
respect to all shares of Quantum DSS common stock and Quantum HDD common
stock shown as beneficially owned by such stockholder.
(2) Applicable percentage ownership is based on 149,440,917 shares of Quantum
DSS common stock and 77,855,234 shares of Quantum HDD common stock
outstanding as of November 9, 2000. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange
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<PAGE> 144
Commission, based on factors including voting and investment power with
respect to shares. Shares of common stock subject to options currently
exercisable, or exercisable within 60 days after November 9, 2000, are
considered beneficially owned by the holder, but such shares are not deemed
outstanding for computing the percentage ownership of any other person.
(3) Based on the most recent public information available to Quantum as of
November 9, 2000.
(4) Represents 91,966 shares of Quantum DSS common stock, 45,983 shares of
Quantum HDD common stock, 1,341,464 shares subject to Quantum DSS stock
options and 579,732 shares subject to Quantum HDD stock options, each of
which options were exercisable at November 9, 2000 or within 60 days
thereafter.
(5) Represents Quantum DSS and Quantum HDD stock options which were exercisable
at November 9, 2000 or within 60 days thereafter. These totals include
241,250 shares subject to Quantum DSS stock options and 120,625 shares
subject to Quantum HDD stock options for which voting power was transferred
to Mary Hall. Mr. Berkley disclaims beneficial ownership of the 241,250
shares subject to Quantum DSS stock options and 120,625 shares subject to
Quantum HDD stock options which Ms. Hall controls.
(6) Represents 123,025 shares of Quantum DSS common stock, 61,512 shares of
Quantum HDD common stock, 425,260 shares subject to Quantum DSS stock
options and 212,628 shares subject to Quantum HDD stock options, each of
which options were exercisable at November 9, 2000 or within 60 days
thereafter.
(7) Represents Quantum DSS and Quantum HDD stock options which were exercisable
at November 9, 2000 or within 60 days thereafter.
(8) Represents 84,868 shares of Quantum DSS common stock, 42,432 shares of
Quantum HDD common stock, 182,311 shares subject to Quantum DSS stock
options and 91,155 shares subject to Quantum HDD stock options, each of
which options were exercisable at November 9, 2000 or within 60 days
thereafter.
(9) Represents 36,219 shares of Quantum DSS common stock, 17,718 shares of
Quantum HDD common stock, 194,375 shares subject to Quantum DSS stock
options and 97,186 shares subject to Quantum HDD stock options, each of
which options were exercisable at November 9, 2000 or within 60 days
thereafter.
(10) Represents 1,000 shares of Quantum DSS common stock, 500 shares of Quantum
HDD common stock, 7,500 shares subject to Quantum DSS stock options and
3,750 shares subject to Quantum HDD stock options, each of which options
were exercisable at November 9, 2000 or within 60 days thereafter.
(11) Represents 29,260 shares of Quantum DSS common stock, 14,629 shares of
Quantum HDD common stock, 89,476 shares subject to Quantum DSS stock
options and 44,738 shares subject to Quantum HDD stock options, each of
which options were exercisable at November 9, 2000 or within 60 days
thereafter.
(12) Represents 366,338 shares of Quantum DSS common stock, 182,774 shares of
Quantum HDD common stock, 2,981,427 shares subject to Quantum DSS stock
options and 1,399,708 shares subject to Quantum HDD stock options, each of
which options were exercisable at November 9, 2000 or within 60 days
thereafter.
MAXTOR STOCKHOLDER AGREEMENT WITH HYUNDAI
On June 25, 1998, Maxtor, Hyundai Electronics America, and Hyundai
Electronics Industries, collectively "Hyundai", entered into a stockholder
agreement. In consideration of Maxtor entering into the merger agreement, the
parties to the stockholder agreement entered into an amendment to the
stockholder agreement dated as of October 3, 2000. The following describes the
material terms of the stockholder agreement as amended.
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STANDSTILL RESTRICTIONS REGARDING HYUNDAI'S PURCHASE OF ADDITIONAL MAXTOR
VOTING STOCK
From the date of the merger agreement through the second anniversary of the
effective time of the merger, Hyundai and its affiliates may not acquire
additional shares of Maxtor voting stock unless the acquisition of such shares
is approved by Maxtor.
If the merger agreement is terminated, however, from the date of its
termination through December 31, 2001, Hyundai and its affiliates may purchase
additional shares of Maxtor voting stock if any person or group (other than
Hyundai or a Hyundai affiliate), without the consent of Maxtor's board of
directors:
- makes a tender or exchange offer for 40% or more of the outstanding
shares of Maxtor voting stock; or
- acquires ownership of more than 20% of the outstanding shares of Maxtor
voting stock.
REGISTRATION RIGHTS
Hyundai and any transferee are entitled to the following registration
rights under the stockholder agreement, as amended:
- the right to include their shares of Maxtor common stock in a
registration of common stock effected by Maxtor under the Securities Act
for sale, subject to certain customary exceptions; and
- the right to request a total of two registrations (five if the merger
agreement is terminated) of their shares of Maxtor common stock on Form
S-3 for sale. A Hyundai transferee may only request one such registration
in any 12-month period.
Hyundai may transfer its registration rights to a transferee provided
Hyundai has transferred at least 10% of the shares owned by it to the
transferee. The transferee must agree to be bound by certain terms of the
stockholder agreement. If Hyundai transfers its registration rights, the number
of registrations to which it is entitled will be reduced.
The stockholder agreement, as amended, contains customary provisions
regarding expenses of registration, indemnification, Exchange Act reporting,
assignment of registration rights, market stand-off agreements, termination of
registration rights and limitations on subsequent registration rights.
BOARD REPRESENTATION
The procedure for the nomination of the slate of the board of directors is
as set forth below:
- if Hyundai and its affiliates own a majority of Maxtor's voting stock,
Hyundai must maintain at least two directors on the board of directors
who are not, and who never have been, an officer, employee or paid
consultant of Hyundai or Maxtor;
- provided Hyundai and its affiliates own at least 30% but less than a
majority of Maxtor's voting stock, Hyundai may nominate one designee for
each of the three classes of Maxtor's board of directors subject to the
approval of Maxtor's stockholders;
- provided Hyundai and its affiliates own at least 20% but less than 30% of
Maxtor's voting stock, Hyundai may nominate one director in each of two
of the three classes of Maxtor's board of directors subject to the
approval of Maxtor's stockholders;
- provided Hyundai and its affiliates own at least 10% but less that 20% of
Maxtor's voting stock, Hyundai may nominate one director subject to the
approval of Maxtor's stockholders;
- if any director designated by Hyundai ceases to be a director, Hyundai
may nominate a director to fill the vacancy subject to the approval of
the board of directors;
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- if Hyundai does not nominate a director to serve on the board of
directors within 90 days prior to the annual meeting at which such
director would be elected, the board of directors may nominate a person
selected by the nominating committee without regard to any later
designation by Hyundai;
- if Hyundai does not nominate a director to fill a vacancy on the board
within 30 days of notification of the vacancy, the board of directors may
fill the vacancy without regard to any later designation by Hyundai;
- Hyundai and its affiliates will vote their shares in favor of the slate
of directors nominated pursuant to the procedures set forth in the
stockholder agreement; and
- any employee of Hyundai or its affiliates serves on Maxtor's board of
directors.
Maxtor may suspend the sale of any of its securities by Hyundai if:
- Maxtor determines that the offering would require the disclosure of
material information that Maxtor has a bona fide business purpose for
keeping confidential; or
- Maxtor is unable to comply with Securities and Exchange Commission
requirements.
The above restriction will be removed when the information is no longer
confidential or Maxtor complies with Securities and Exchange Commission
requirements, as applicable.
Following the completion of the merger, Hyundai will beneficially own
approximately 17.5% of Maxtor's outstanding common shares.
Trading Restrictions
The stockholder agreement provides that Hyundai and its affiliates may only
sell shares under any registration perfected by Maxtor during the period when a
trading window for company insiders is open if Hyundai has the right to
designate a nominee for director.
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LEGAL AND TAX MATTERS
The validity of the shares of Maxtor common stock to be issued in the
merger will be passed upon for Maxtor by Gray Cary Ware & Freidenrich LLP, Palo
Alto, California. The tax consequences of the merger under section 368 of the
Internal Revenue Code have been passed upon for Maxtor by Gray Cary Ware &
Freidenrich LLP, Palo Alto, California, and for Quantum by Wilson Sonsini
Goodrich & Rosati, A Professional Corporation, Palo Alto, California. The tax
consequences of the separation and the redemption (by themselves and in
conjunction with the merger) under section 355 of the Internal Revenue Code have
been passed upon for Maxtor and Quantum by Ernst & Young LLP.
EXPERTS
The consolidated financial statements of Maxtor incorporated in this joint
proxy statement/prospectus by reference to the annual report on Form 10-K for
the year ended January 1, 2000 have been so incorporated in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Quantum, the combined financial
statements of Quantum DSS and the combined financial statements of Quantum HDD
appearing in Quantum's annual report on Form 10-K for the year ended March 31,
2000 have been audited by Ernst & Young LLP, independent auditors, as set forth
in their reports thereon included therein and incorporated herein by reference.
Such consolidated and combined financial statements are incorporated herein by
reference in reliance upon such reports given on the authority of such firm as
experts in accounting and auditing.
STOCKHOLDER PROPOSALS TO BE PRESENTED
AT NEXT ANNUAL MEETING
MAXTOR ANNUAL MEETING
Proposals of stockholders intended to be presented at the next annual
meeting of stockholders of Maxtor must be received by Maxtor at its offices at
510 Cottonwood Drive, Milpitas, California 95035 not later than March 8, 2001,
and must satisfy the conditions established by the SEC for stockholder proposals
to be included in Maxtor's proxy statement for that meeting and the other
requirements contained in Maxtor's bylaws.
QUANTUM ANNUAL MEETING
Proposals of stockholders for Quantum's 2001 annual meeting must be
received by the secretary of Quantum no later than March 23, 2001 to be
considered for inclusion in the proxy materials relating to that meeting.
Alternatively, under Quantum's bylaws, a proposal that the stockholder does not
seek to include in Quantum's proxy materials must be received by the secretary
of Quantum for the 2001 annual meeting not less than 60 days nor more than 90
days prior to the meeting; provided, however, that in the event that less than
70 days notice or prior public disclosure of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. The stockholder's submission must include the information
specified in Quantum's bylaws. Proposals not meeting these requirements will not
be entertained at the annual meeting. Stockholders should contact the secretary
of Quantum in writing at 500 McCarthy Blvd., Milpitas, California 95035 to make
any submission or to obtain additional information as to the proper form and
content of submissions.
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WHERE YOU CAN FIND MORE INFORMATION
Maxtor and Quantum each file annual, quarterly, and special reports, proxy
statements, and other information with the Securities and Exchange Commission.
Maxtor's common stock is traded on The Nasdaq National Market under the symbol
"MXTR." Quantum HDD's common stock is traded on the NYSE under the symbol "HDD."
You may read and copy any document filed by Maxtor or Quantum at the Securities
and Exchange Commission's public reference facilities or on the Securities and
Exchange Commission's website at http://www.sec.gov, as discussed in more detail
below.
Neither nor any of its subsidiaries comprising is a reporting company and
therefore no additional reports or financial information about are publicly
available.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows Maxtor and Quantum to
"incorporate by reference" the information they file with the Securities and
Exchange Commission, which means that they can disclose important information by
referring you to documents previously filed with the Securities and Exchange
Commission. The information incorporated by reference is considered a part of
this joint proxy statement/prospectus, and any later information that Maxtor or
Quantum files with the Securities and Exchange Commission will automatically
update and supersede this information. This joint proxy statement/prospectus is
part of a registration statement on Form S-4 filed by Maxtor with the Securities
and Exchange Commission.
Maxtor incorporates by reference the documents listed below, and any
additional documents filed by Maxtor with the Securities and Exchange Commission
between the date of this joint proxy statement/prospectus and the date of the
Maxtor special meeting. The documents Maxtor incorporates by reference are:
- Maxtor's Form 8-A filed on July 28, 1998;
- Maxtor's annual report on Form 10-K for the fiscal year ended January 1,
2000;
- Maxtor's quarterly report on Form 10-Q for the quarter ended April 1,
2000;
- Maxtor's quarterly report on Form 10-Q for the quarter ended July 1,
2000;
- Maxtor's quarterly report on Form 10-Q for the quarter ended September
30, 2000; and
- Maxtor's Form 8-K filed on October 16, 2000.
Quantum incorporates by reference the documents listed below and any
documents that Quantum may file with the Securities and Exchange Commission
between the date of this joint proxy statement/ prospectus and the date of the
Quantum special meeting. The documents Quantum incorporates by reference are:
- Quantum's annual report on Form 10-K for the fiscal year ended March 31,
2000;
- Quantum's quarterly report on Form 10-Q for the quarter ended July 2,
2000;
- Quantum's quarterly report on Form 10-Q for the quarter ended October 1,
2000; and
- Quantum's Form 8-K filed on October 13, 2000 and Form 8-K filed on
December 8, 2000.
Documents incorporated by reference are available without charge, excluding
all exhibits unless such exhibits have been specifically incorporated by
reference in this joint proxy statement/prospectus. You may
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obtain documents incorporated by reference by requesting them in writing or by
telephone from the appropriate company as follows:
<TABLE>
<S> <C>
Maxtor Corporation. Quantum Corporation
510 Cottonwood Drive 500 McCarthy Boulevard
Milpitas, California 95035 Milpitas, California 95035
Attention: Jenifer Kirtland Attention: Renee Budig
Investor Relations Investor Relations
Phone Number: (408) 432-4270 Phone Number: (408) 324-7044
E-Mail: [email protected] E-Mail: [email protected]
Web Address: www.maxtor.com Web Address: www.quantum.com
</TABLE>
In order to ensure timely delivery of the documents, any requests should be
made by December , 2000.
In addition, copies of the documents incorporated by reference may be
inspected and copied at the following public reference facilities maintained by
the Securities and Exchange Commission:
<TABLE>
<S> <C> <C>
Judiciary Plaza Citicorp Center Seven World Trade Center
Room 1024 500 West Madison Street 13th Floor
450 Fifth Street, N.W. Suite 1400 New York, New York 10048
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, or by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains a website that contains reports, proxy statements, and other
information regarding each of Maxtor and Quantum. The address of the Securities
and Exchange Commission website is http://www.sec.gov. Reports, proxy
statements, and other information concerning Maxtor and Quantum can also be
inspected at The Nasdaq National Market, Operations, 1735 K Street, N.W.,
Washington, D.C.
Maxtor has filed a registration statement under the Securities Act with the
Securities and Exchange Commission with respect to the Maxtor common stock to be
issued under the merger agreement with Quantum. This joint proxy
statement/prospectus constitutes the prospectus of Maxtor filed as part of the
registration statement. This joint proxy statement/prospectus does not contain
all of the information set forth in the registration statement because certain
parts of the registration statement are omitted as provided by the rules and
regulations of the Securities and Exchange Commission. You may inspect and copy
the registration statement at any of the addresses listed above.
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have additional questions about the merger, you should contact:
<TABLE>
<S> <C>
FOR MAXTOR STOCKHOLDERS: FOR QUANTUM STOCKHOLDERS:
Maxtor Corporation Quantum Corporation
510 Cottonwood Drive 500 McCarthy Boulevard
Milpitas, California 95035 Milpitas, California 95035
Attention: Jenifer Kirtland Attention: Renee Budig
Phone Number: (408) 432-4270 Phone Number: (408) 324-7044
E-Mail: [email protected] E-Mail: [email protected]
</TABLE>
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If you have additional questions about the solicitation of your proxy, you
should contact:
<TABLE>
<S> <C>
FOR MAXTOR STOCKHOLDERS: FOR QUANTUM STOCKHOLDERS:
MacKenzie Partners, Inc. Morrow & Co., Inc.
156 Fifth Avenue 445 Park Avenue
New York, New York 10010 New York, New York 10022-2606
(212) 929-5500 (call collect) (212) 754-8000 (call collect)
(800) 322-2885 (800) 654-2468
</TABLE>
TRANSACTION OF OTHER BUSINESS
At the date of this joint proxy statement/prospectus, the only business
which the board of directors intends to present or knows that others will
present at the meeting is as set forth herein. If any other matter or matters
are properly brought before the meeting, or any adjournment thereof, it is the
intention of the persons named in the accompanying form of proxy to vote the
proxy on such matters in accordance with their best judgment.
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ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AMENDED AND RESTATED
AGREEMENT AND PLAN OF
MERGER AND REORGANIZATION
BY AND AMONG
QUANTUM CORPORATION,
INSULA CORPORATION,
MAXTOR CORPORATION
AND
HAWAII ACQUISITION CORPORATION
DATED AS OF OCTOBER 3, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 152
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I DEFINITIONS................................................ A-2
1.1 Certain Defined Terms....................................... A-2
ARTICLE II SEPARATION, REDEMPTION AND MERGER......................... A-8
2.1 The Separation and Redemption............................... A-8
2.2 The Merger.................................................. A-8
2.3 Effective Time; Closing..................................... A-9
2.4 Effect of the Merger........................................ A-9
2.5 Certificate of Incorporation and Bylaws of Surviving
Corporation................................................. A-9
2.6 Management of the Surviving Corporation..................... A-9
2.7 Effect on Capital Stock..................................... A-9
2.8 Surrender of Certificates................................... A-11
2.9 No Further Ownership Rights in HDD Common Stock or Spinco
Common Stock................................................ A-12
2.10 Lost, Stolen or Destroyed Certificates...................... A-12
2.11 Tax and Accounting Consequences............................. A-12
2.12 Taking of Necessary Action; Further Action.................. A-12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF COMPANY................ A-12
3.1 Organization and Good Standing.............................. A-13
3.2 Charter Documents........................................... A-13
3.3 Capital Structure........................................... A-13
3.4 Subsidiaries................................................ A-14
3.5 Authority................................................... A-14
3.6 Conflicts................................................... A-14
3.7 Consents.................................................... A-15
3.8 SEC Filings; Financial Statements; Undisclosed
Liabilities................................................. A-15
3.9 Absence of Certain Changes or Events........................ A-16
3.10 Taxes....................................................... A-16
3.11 Intellectual Property....................................... A-17
3.12 Compliance; Permits; Restrictions........................... A-18
3.13 Litigation.................................................. A-19
3.14 Brokers' and Finders' Fees.................................. A-19
3.15 Employee Benefit Plans...................................... A-19
3.16 Absence of Liens............................................ A-21
3.17 Environmental Matters....................................... A-21
3.18 Labor Matters............................................... A-21
3.19 Agreements, Contracts and Commitments....................... A-21
3.20 Registration Statement; Proxy Statement; Other Filings...... A-22
3.21 Board Approval.............................................. A-22
3.22 State Takeover Statutes..................................... A-22
3.23 Fairness Opinion............................................ A-23
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SPINCO....... A-23
4.1 Organization and Good Standing.............................. A-23
4.2 Charter Documents........................................... A-23
4.3 Capital Structure........................................... A-23
4.4 Subsidiaries................................................ A-24
4.5 Authority................................................... A-24
4.6 Conflicts................................................... A-25
4.7 Consents.................................................... A-25
4.8 SEC Filings; Financial Statements; Undisclosed
Liabilities................................................. A-26
4.9 Absence of Certain Changes or Events........................ A-26
</TABLE>
A-i
<PAGE> 153
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
4.10 Taxes....................................................... A-27
4.11 Intellectual Property....................................... A-27
4.12 Compliance; Permits; Restrictions........................... A-29
4.13 Litigation.................................................. A-29
4.14 Brokers' and Finders' Fees.................................. A-29
4.15 Employee Benefit Plans...................................... A-30
4.16 Absence of Liens............................................ A-31
4.17 Facilities.................................................. A-31
4.18 Sufficiency of HDD Assets and Parent Intellectual
Property.................................................... A-32
4.19 Environmental Matters....................................... A-32
4.20 Labor Matters............................................... A-32
4.21 Agreements, Contracts and Commitments....................... A-33
4.22 Registration Statement; Proxy Statement; Other Filings...... A-33
4.23 Board Approval.............................................. A-34
4.24 State Takeover Statutes..................................... A-34
4.25 Fairness Opinion............................................ A-34
ARTICLE V CONDUCT PRIOR TO THE EFFECTIVE TIME........................ A-34
5.1 Conduct of Business......................................... A-34
5.2 Restricted Conduct.......................................... A-34
ARTICLE VI ADDITIONAL AGREEMENTS..................................... A-36
6.1 Proxy Statement/Prospectus; Registration Statement.......... A-36
6.2 Meetings of Stockholders.................................... A-37
6.3 Access to Information; Confidentiality...................... A-39
6.4 No Solicitation............................................. A-39
6.5 Public Disclosure........................................... A-42
6.6 Requirements of Law......................................... A-42
6.7 Third Party Consents........................................ A-42
6.8 Notification of Certain Matters............................. A-42
6.9 Further Assurances.......................................... A-42
6.10 Stock Options and Restricted Stock; Parent ESPP............. A-43
6.11 Form S-8.................................................... A-44
6.12 Insurance Policy............................................ A-44
6.13 D&O Insurance............................................... A-44
6.14 Tax-Free Reorganization/Insurance Opinion................... A-45
6.15 Nasdaq Listing.............................................. A-45
6.16 Regulatory Filings; Commercially Reasonable Efforts......... A-45
6.17 Separation Agreements....................................... A-45
6.18 Employee Matters............................................ A-45
6.19 Affiliate Agreements........................................ A-47
ARTICLE VII CONDITIONS TO THE MERGER................................. A-47
7.1 Conditions to Obligations of Each Party to Effect the
Merger...................................................... A-47
7.2 Additional Conditions to Obligations of Company............. A-48
7.3 Additional Conditions to the Obligations of Parent and
Spinco...................................................... A-48
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER...................... A-49
8.1 Termination................................................. A-49
8.2 Notice of Termination; Effect of Termination................ A-50
8.3 Fees and Expenses........................................... A-50
8.4 Amendment................................................... A-52
8.5 Extension; Waiver........................................... A-52
</TABLE>
A-ii
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IX GENERAL PROVISIONS....................................... A-53
9.1 Non-Survival of Representations and Warranties.............. A-53
9.2 Notices..................................................... A-53
9.3 Interpretation.............................................. A-53
9.4 Counterparts................................................ A-54
9.5 Entire Agreement............................................ A-54
9.6 No Third Party Beneficiaries................................ A-54
9.7 Severability................................................ A-54
9.8 Other Remedies; Specific Performance........................ A-54
9.9 Governing Law............................................... A-54
9.10 Assignment.................................................. A-54
9.11 WAIVER OF JURY TRIAL........................................ A-54
9.12 Release of Merger Sub....................................... A-55
9.13 Waiver of Certain Inaccuracies.............................. A-55
</TABLE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Form of Parent Voting Agreement
Exhibit B Form of Company Voting Agreement
</TABLE>
INDEX OF SCHEDULES
<TABLE>
<S> <C>
Schedule 1 Form of General Assignment and Assumption Agreement
Schedule 2 Form of Master Separation and Redemption Agreement
Schedule 3 Form of Tax Sharing Agreement
Schedule 4 Form of Transitional Services Agreement
Schedule 5 Form of Intellectual Property Agreement
Schedule 6 Form of Indemnification Agreement
Schedule 7 Commitment to Issue Insurance Policies
Schedule 8 Form of Amended and Restated Certificate of Incorporation of
the Surviving Corporation
</TABLE>
A-iii
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF
MERGER AND REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
(this "AGREEMENT") is made and entered into as of October 3, 2000, by and among
Quantum Corporation, a Delaware corporation ("PARENT"), Insula Corporation, a
Delaware corporation and a wholly owned subsidiary of Parent ("SPINCO"), Maxtor
Corporation, a Delaware corporation ("COMPANY"), and Hawaii Acquisition
Corporation, a Delaware corporation and a wholly owned subsidiary of Company
("MERGER SUB").
RECITALS
WHEREAS, the parties to this Agreement entered into an Agreement and Plan
of Merger and Reorganization dated as of October 3, 2000 (the "ORIGINAL
AGREEMENT") which provided that, upon the terms and subject to the conditions
set forth in the Original Agreement and in accordance with Delaware Law (as
defined below), Parent and Company were entering into a business combination
transaction pursuant to which Merger Sub would merge with Spinco, with Spinco
continuing after such merger as the surviving corporation and a wholly owned
subsidiary of Company.
WHEREAS, the parties to this Agreement desire to amend and restate the
Original Agreement, by means of this Agreement, to provide for the business
combination transaction between Parent and Company contemplated by the Original
Agreement to be effected by a merger of Spinco with and into the Company (the
"MERGER"), with the Company continuing after the Merger as the surviving
corporation, to release Merger Sub from the Original Agreement and eliminate it
as a party thereto, and to make certain other changes to the Original Agreement.
WHEREAS, the Board of Directors of Parent has determined that, if the
Merger receives all required approvals, Parent shall contribute and transfer to
Spinco (the "SEPARATION") and Spinco shall receive and assume, directly or
indirectly, substantially all of the assets and liabilities associated with the
HDD Business (as defined below) including stock, investments or similar
interests currently held by Parent in subsidiaries and other entities that
conduct such business.
WHEREAS, Parent currently contemplates that, following the transfer and
assumption of such assets and liabilities to Spinco and immediately prior to and
in connection with the Merger, Parent shall redeem all of the outstanding shares
of HDD Common Stock (as defined below) pursuant to Section 2.4(d) of Parent's
Restated Certificate of Incorporation in exchange for all of the outstanding
shares of Spinco (the "REDEMPTION").
WHEREAS, the Board of Directors of Parent (i) has determined that the
Merger and the Redemption are consistent with and in furtherance of the
long-term business strategy of Parent and fair to, advisable and in the best
interests of, Parent and its stockholders; (ii) has approved this Agreement, the
Redemption, the Separation, the Merger and the other transactions contemplated
by this Agreement to be consummated by it; and (iii) has determined to recommend
that the stockholders of Parent vote to approve the Parent Stockholder Proposal
(as defined below).
WHEREAS, the Board of Directors of Company (i) has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of Company and fair to, advisable and in the best interests of, Company and its
stockholders; (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement to be consummated by it; and (iii)
has determined to recommend the approval of the Company Stockholder Proposal (as
defined below).
WHEREAS, the Board of Directors of Spinco (i) has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of Spinco and fair to, advisable and in the best interests of, Spinco and
Parent; (ii) has approved this Agreement, the Merger and the other transactions
A-1
<PAGE> 156
contemplated by this Agreement to be consummated by it; and (iii) has determined
to recommend that Parent, as its sole stockholder, vote to adopt and approve the
Agreement and the Merger.
WHEREAS, concurrently with the execution and delivery of the Original
Agreement, and as a condition and inducement to the willingness of Parent,
Spinco, Company and Merger Sub to enter into the Original Agreement, certain
affiliates of Parent entered into Voting Agreements, in substantially the form
attached hereto as Exhibit A (collectively, the "PARENT VOTING AGREEMENTS"), and
each such affiliate has confirmed in writing that such affiliate's Parent Voting
Agreement applies with equal effect to this Agreement, and certain affiliates of
Company entered into Voting Agreements, in substantially the form attached
hereto as Exhibit B (collectively, the "COMPANY VOTING AGREEMENTS" and, together
with the Parent Voting Agreements, the "VOTING AGREEMENTS"), and each such
affiliate has confirmed in writing that such affiliate's Company Voting
Agreement applies with equal effect to this Agreement.
WHEREAS, the parties hereto intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Code.
WHEREAS, Parent and Spinco intend the Redemption to qualify as a tax-free
transaction under Section 355(a) of the Code.
WHEREAS, the parties hereto intend to account for the Merger as a purchase
for financial reporting purposes.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereby
amend and restate the Original Agreement to provide as set forth in this
Agreement and hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Certain Defined Terms. For all purposes of and under this Agreement,
the following terms shall have the following respective meanings:
"ACTION" or "ACTIONS" shall mean any action, suit, litigation, arbitration,
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding), hearing, inquiry, audit examination or investigation
commenced, brought, conducted or heard by or before, or otherwise involving, any
court or other Governmental Authority or any arbitrator or arbitration panel.
"ACTUAL SEVERANCE" has the meaning set forth in Section 6.18(b) hereof.
"AFFILIATE" or "AFFILIATES" means, with respect to any person, an affiliate
of such person within the meaning of Rule 145 promulgated under the Securities
Act.
"AGREEMENT" has the meaning set forth in the introductory paragraph hereto.
"APPROVED SEVERANCE COSTS" has the meaning set forth in Section 6.18(b)
hereof.
"CERTIFICATE" means a certificate representing shares of HDD Common Stock
outstanding immediately prior to the Redemption.
"CERTIFICATE OF MERGER" has the meaning set forth in Section 2.3 hereto.
"CLOSING" has the meaning set forth in Section 2.3 hereto.
"CLOSING DATE" has the meaning set forth in Section 2.3 hereto.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of 1985,
as amended, or any successor statute thereto.
"CODE" means the United States Internal Revenue Code of 1986, as amended,
or any successor statute thereto.
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"CODE AFFILIATE" or "CODE AFFILIATES" means, with respect to any person, or
any trade or business (whether or not incorporated) which is a member of a
controlled group or which is under common control with such person within the
meaning of Section 414 of the Code.
"COMPANY" has the meaning set forth in the introductory paragraph hereto.
"COMPANY ACQUISITION" has the meaning set forth in Section 8.3(b)(iv)
hereto.
"COMPANY ACQUISITION PROPOSAL" has the meaning set forth in Section
6.4(a)(ii) hereto.
"COMPANY ACQUISITION TRANSACTION" has the meaning set forth in Section
6.4(a)(ii) hereto.
"COMPANY BALANCE SHEET" has the meaning set forth in Section 3.8(b) hereto.
"COMPANY COMMON STOCK" means the Common Stock, par value $0.01 per share,
of Company.
"COMPANY CONTRACT" has the meaning set forth in Section 3.19(b) hereto.
"COMPANY EMPLOYEE" has the meaning set forth in Section 3.15(a) hereto.
"COMPANY ESPP" has the meaning set forth in Section 5.2(f) hereto.
"COMPANY FINANCIAL STATEMENTS" has the meaning set forth in Section 3.8(b)
hereto.
"COMPANY INTELLECTUAL PROPERTY" has the meaning set forth in Section
3.11(a)(i) hereto.
"COMPANY INTERNATIONAL EMPLOYEE PLAN" has the meaning set forth in Section
3.15(g) hereto.
"COMPANY PERMITS" has the meaning set forth in Section 3.12(b) hereto.
"COMPANY PLANS" has the meaning set forth in Section 3.15(a) hereto.
"COMPANY RELATED AGREEMENTS" has the meaning set forth in Section 3.5
hereto.
"COMPANY REGISTERED INTELLECTUAL PROPERTY" has the meaning set forth in
Section 3.11(a)(ii) hereto.
"COMPANY REQUISITE VOTE" means at least a majority of the shares of Company
Common Stock entitled to vote at the Company Stockholders' Meeting with respect
to the Company Stockholder Proposal.
"COMPANY SCHEDULES" has the meaning set forth in Article 3 hereto.
"COMPANY SEC REPORTS" has the meaning set forth in Section 3.8(a) hereto.
"COMPANY STOCK OPTION PLANS" means the Company's Amended and Restated 1996
Stock Option Plan and 1998 Stock Purchase Plan.
"COMPANY STOCKHOLDER PROPOSAL" means the proposal, to be submitted to
Company's stockholders at the Company Stockholders' Meeting, that provides for
the adoption of this Agreement and the approval of the Merger.
"COMPANY STOCKHOLDERS' MEETING" has the meaning set forth in Section 6.1(a)
hereto.
"COMPANY SUPERIOR OFFER" has the meaning set forth in Section 6.2(c)
hereto.
"COMPANY TERMINATION FEE" has the meaning set forth in Section 8.3(b)(i)
hereto.
"COMPANY TRIGGERING EVENT" has the meaning set forth in Section 8.1(h)
hereto.
"COMPANY VOTING AGREEMENTS" has the meaning set forth in the seventh
recital hereto.
"CONFIDENTIALITY AGREEMENT" has the meaning set forth in Section 6.3(b)
hereto.
"CORPORATE HDD EMPLOYEES" has the meaning set forth in Section 6.18(a)
hereof.
"CONVERTED DSS RESTRICTED STOCK" has the meaning set forth in Section
6.10(d) hereto.
"DELAWARE LAW" means the Delaware General Corporation Law as in effect from
time to time (including interpretations thereof by the Delaware Court of
Chancery and the Delaware Supreme Court).
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"DISCHARGE PERIOD" has the meaning as set forth in Section 6.18(b) hereto.
"DOJ" means the United States Department of Justice, or any successor
department thereto.
"DOL" means the United States Department of Labor, or any successor
department thereto.
"DSS COMMON STOCK" means the DLT and Storage Systems Group Common Stock,
par value $0.01 per share, of Parent.
"DSS RESTRICTED STOCK" has the meaning set forth in Section 6.10(a) hereto.
"EFFECTIVE TIME" has the meaning set forth in Section 2.3 hereto.
"ENVIRONMENTAL CLAIM" means any claim made by any Governmental Authority
based on, or arising from, an alleged violation of an Environmental Law.
"ENVIRONMENTAL LAWS" are all applicable laws, rules, regulations, orders,
treaties, statutes, and codes promulgated by any Governmental Authority which
prohibit, regulate or control any Hazardous Material or any Hazardous Material
Activity, including, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, the Resource Recovery and
Conservation Act of 1976, the Federal Water Pollution Control Act, the Clean Air
Act, the Hazardous Materials Transportation Act, the Clean Water Act, comparable
laws, rules, regulations, ordinances, orders, treaties, statutes, and codes of
other Governmental Authorities, the regulations promulgated pursuant to any of
the foregoing, and all amendments and modifications of any of the foregoing, all
as amended to date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute thereto.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or
any successor statute thereto.
"EXCHANGE AGENT" has the meaning set forth in Section 2.8(a) hereto.
"EXCHANGE RATIO" has the meaning set forth in Section 2.7(a)(i) hereof.
"FORMER PARENT SERVICE PROVIDER" means an employee or consultant of the
Parent whose employment or consulting relationship with the Parent terminates
prior to the Redemption Date.
"FTC" means the United States Federal Trade Commission, or any successor
agency thereto.
"GAAP" means United States generally accepted accounting principles.
"GOVERNMENTAL AUTHORITY" means any local, state, provincial, federal, or
international court or governmental authority, department, commission, board,
service, agency, political subdivision or other instrumentality.
"HAZARDOUS MATERIAL" means any material or substance that is prohibited or
regulated by any Environmental Law or that has been designated by any
Governmental Authority to be radioactive, toxic, hazardous or otherwise a danger
to health, reproduction or the environment.
"HDD ASSETS" has the meaning set forth in the Form of General Assignment
and Assumption Agreement attached hereto as Schedule 1.
"HDD BALANCE SHEET" has the meaning set forth in Section 4.8(b) hereto.
"HDD BUSINESS" has the meaning set forth in the Form of General Assignment
and Assumption Agreement attached hereto as Schedule 1.
"HDD COMMON STOCK" means the Hard Disk Drive Group Common stock, par value
$0.01 per share, of Parent.
"HDD LIABILITIES" has the meaning set forth in the Form of General
Assignment and Assumption Agreement attached hereto as Schedule 1.
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"HDD PRODUCTS" means the products currently manufactured, marketed and sold
by the HDD Business.
"HDD RESTRICTED STOCK" has the meaning set forth in Section 6.10(a) hereto.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, or any successor statute thereto.
"IDENTIFIED CORPORATE HDD EMPLOYEES" has the meaning set forth in Section
6.18(a) hereof.
"IDENTIFIED SENIOR MANAGEMENT" has the meaning set forth in Section 6.18(b)
hereof.
"INSURANCE COMMITMENT" means the insurance commitments collectively set
forth as Schedule 7 hereto.
"INSURANCE OPINION" means the tax opinion of Ernst & Young LLP dated
October 3, 2000, referred to in the Insurance Commitments.
"INSURANCE POLICY" means one or more insurance policies issued or to be
issued pursuant to the Insurance Commitment(s).
"INTELLECTUAL PROPERTY" means any or all of the following and all rights
in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights registrations
and applications therefor, and all other rights corresponding thereto throughout
the world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos, common law trademarks
and service marks, trademark and service mark registrations and applications
therefor throughout the world; (vi) all databases and data collections and all
rights therein throughout the world; (vii) all moral and economic rights of
authors and inventors, however denominated, throughout the world, and (viii) any
similar or equivalent rights to any of the foregoing anywhere in the world.
"IRS" means the United States Internal Revenue Service, or any successor
agency thereto.
"LAW" or "LAWS" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, code, order, judgment, decree or other requirement
of law.
"LIABILITY" or "LIABILITIES" means any and all debts, liabilities and
obligations of any type or nature whatsoever, whether accrued or fixed, absolute
or contingent, matured or unmatured, determined or determinable, including,
without limitation, those arising under any Law, Action or governmental order
and those arising under any contract, agreement, arrangement, commitment or
undertaking.
"LIEN" or "LIENS" means any lien, security interest, adverse claim, charge,
mortgage or other encumbrance.
"MATERIAL ADVERSE EFFECT" when used with reference to an entity or business
means any change, event, violation, inaccuracy, circumstance or effect that is
or would reasonably be expected to be materially adverse to the business, assets
(including intangible assets), capitalization, financial condition or results of
operations of such entity or business and its Subsidiaries taken as a whole or
materially adverse to the ability of such entity or business to consummate or
perform, in a timely manner, the transactions contemplated by this Agreement to
be consummated by such party; provided, however, that in no event shall (i) a
decrease in such entity's or business' stock price by itself constitute a
Material Adverse Effect; or (ii) any change, event, violation, inaccuracy,
circumstance or effect that results from (A) the public announcement or pendency
of the Merger, the Separation and Redemption and the other transactions
contemplated hereby; (B) changes generally affecting the industry in which such
entity or business currently operates or conducts business and not
disproportionately adversely affecting such entity or business; (C) changes
generally affecting the United States economy and not disproportionately
adversely
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affecting such entity or business or (D) stockholders' class action litigation
arising from allegations of a breach of fiduciary duty relating to this
Agreement and the transactions contemplated hereby, constitute a Material
Adverse Effect.
"MERGER" has the meaning set forth in the first recital hereto.
"MERGER SUB" has the meaning set forth in the introductory paragraph
hereto.
"NASDAQ" means The Nasdaq Stock Market, Inc.
"NASDAQ NATIONAL MARKET" means the Nasdaq National Market System operated
by Nasdaq.
"NON-CORPORATE HDD EMPLOYEES" has the meaning set forth in Section 6.18(a)
hereof.
"NON-TRANSFERRED EMPLOYEE" had the meaning set forth in Section 6.18(a)
hereof.
"ORDER" means any decree, judgment, injunction or other order (whether
temporary, preliminary or permanent), issued by any court or tribunal, and any
statute, rule, regulation or executive order issued by any Governmental
Authority, which has the effect of prohibiting, preventing or restricting
consummation of the Separation, the Redemption, the Merger or any other
transaction contemplated by this Agreement.
"OTHER HDD RESTRICTED STOCKHOLDERS" has the meaning set forth in Section
6.10(b) hereto.
"OUTSTANDING DSS OPTIONS" has the meaning set forth in Section 6.10(a)
hereto.
"OUTSTANDING HDD OPTIONS" has the meaning set forth in Section 6.10(a)
hereto.
"PARENT" has the meaning set forth in the introductory paragraph hereto.
"PARENT ACQUISITION" has the meaning set forth in Section 8.3(c)(iv)
hereto.
"PARENT ACQUISITION PROPOSAL" has the meaning set forth in Section
6.4(b)(ii) hereto.
"PARENT ACQUISITION TRANSACTION" has the meaning set forth in Section
6.4(b)(ii) hereto.
"PARENT BALANCE SHEET" has the meaning set forth in Section 4.8(b) hereto.
"PARENT COMMON STOCK" has the meaning set forth in Section 4.3(a) hereto.
"PARENT CONTRACTS" has the meaning set forth in Section 4.21(b) hereto.
"PARENT EMPLOYEE" has the meaning set forth in Section 4.15(a) hereto.
"PARENT ESPP" has the meaning set forth in Section 5.2(f) hereto.
"PARENT FACILITIES" has the meaning set forth in Section 4.17 hereto.
"PARENT FINANCIAL STATEMENTS" has the meaning set forth in Section 4.8(b)
hereto.
"PARENT INTELLECTUAL PROPERTY" has the meaning set forth in Section
4.11(a)(i) hereto.
"PARENT INTERNATIONAL EMPLOYEE PLAN" has the meaning set forth in Section
4.15(g) hereto.
"PARENT LEASES" has the meaning set forth in Section 4.17 hereto.
"PARENT PERMITS" has the meaning set forth in Section 4.12(b) hereto.
"PARENT PLANS" has the meaning set forth in Section 4.15(a) hereto.
"PARENT REGISTERED INTELLECTUAL PROPERTY" has the meaning set forth in
Section 4.11(a)(ii) hereto.
"PARENT RELATED AGREEMENTS" has the meaning set forth in Section 4.5
hereto.
"PARENT REQUISITE VOTE" means (a) a majority of the shares of Parent Common
Stock entitled to vote at the Parent Stockholders' Meeting with respect to the
Parent Stockholder Proposal; (b) a majority of the shares of HDD Common Stock
(voting as a separate class) entitled to vote at the Parent Stockholders'
Meeting with respect to the Parent Stockholder Proposal; and (c) a majority of
the votes
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present or represented by proxy and entitled to vote DSS Common Stock (voting as
a separate class) at the Parent Stockholders' Meeting with respect to the Parent
Stockholder Proposal.
"PARENT SCHEDULES" has the meaning set forth in Article 4 hereto.
"PARENT SEC REPORTS" has the meaning set forth in Section 4.8(a) hereto.
"PARENT STOCKHOLDER PROPOSAL" means the proposal, to be submitted at the
Parent Stockholders' Meeting, that provides for the adoption of this Agreement
and the approval of the Merger.
"PARENT STOCK OPTIONS" means outstanding stock options under the Parent
Stock Option Plans.
"PARENT STOCK OPTION PLANS" means Parent's 1986 Stock Option Plan, 1996
Board of Directors Stock Option Plan, 1999 Employee Stock Purchase Plan, 1993
Long-Term Incentive Plan, 1999 Supplemental Stock Option Plan and plans assumed
in connection with the acquisition of Meridian Data, Inc. and ATL Products, Inc.
"PARENT STOCKHOLDERS' MEETING" has the meaning set forth in Section 6.1(a)
hereto.
"PARENT SUPERIOR OFFER" has the meaning set forth in Section 6.2(d) hereto.
"PARENT TERMINATION FEE" has the meaning set forth in Section 8.3(c)(i)
hereto.
"PARENT TRIGGERING EVENT" has the meaning set forth in Section 8.1(g)
hereto.
"PARENT VOTING AGREEMENTS" has the meaning set forth in the seventh recital
hereto.
"PROGRAMS" has the meaning set forth in Section 3.11(a)(iii) hereto.
"PROXY STATEMENT" has the meaning set forth in Section 6.1(a) hereto.
"REDEMPTION" has the meaning set forth in the third recital hereto.
"REDEMPTION DATE" shall mean the date of the effectiveness of the
Redemption.
"REGISTERED INTELLECTUAL PROPERTY" means all United States, international
and foreign: (i) patents and patent applications (including provisional
applications); (ii) registered trademarks, applications to register trademarks,
intent-to-use applications, or other registrations or applications related to
trademarks; (iii) registered copyrights and applications for copyright
registration; and (iv) any other Intellectual Property that is the subject of an
application, certificate, filing, registration or other document issued, filed
with, or recorded by any Governmental Authority.
"REGISTRATION STATEMENT" has the meaning set forth in Section 6.1(a)
hereto.
"RESTATED CERTIFICATE OF INCORPORATION" means Parent's Restated Certificate
of Incorporation filed with the State of Delaware in August of 1999.
"RESTRICTED STOCK" has the meaning set forth in Section 4.3(a) hereto.
"RETURNS" has the meaning set forth in Section 3.10(a) hereto.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
successor statute thereto.
"SECURITIES AND EXCHANGE COMMISSION" means the United States Securities and
Exchange Commission, or any successor agency thereto.
"SEPARATION" has the meaning set forth in the second recital hereto.
"SEPARATION DOCUMENTS" means the documents substantially in the form
attached hereto as Schedules 1 through 7.
"SEVERANCE RESERVE" has the meaning set forth in Section 6.18(b).
"SIGNIFICANT SUBSIDIARY" means a Subsidiary which is a "SIGNIFICANT
SUBSIDIARY" as defined in Regulation S-X promulgated under the Exchange Act and,
in the case of Parent, any Subsidiary which
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has generated more than 10% of the gross revenues of the HDD Business in any of
the fiscal quarters since Parent separated its Common Stock into HDD Common
Stock and DSS Common Stock.
"SPINCO" has the meaning set forth in the introductory paragraph hereto.
"SPINCO COMMON STOCK" has the meaning set forth in Section 4.3(b) hereto.
"SPINCO OFFEREES" shall have the meaning set forth in Section 6.18(a)
hereof.
"SPINCO OPTIONS" has the meaning set forth in Section 6.10(b) hereto.
"SPINCO RESTRICTED STOCK" has the meaning set forth in Section 6.10(b)
hereto.
"SUBSIDIARY" or "SUBSIDIARIES" means any corporation, limited liability
company, general or limited partnership, joint venture, business trust,
unincorporated association or other business enterprise or entity controlled by
a person, directly or indirectly through one or more intermediaries.
"SURVIVING CORPORATION" has the meaning set forth in Section 2.2 hereto.
"TAX" or "TAXES" means any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
"TRANSFERRED EMPLOYEES" has the meaning set forth in Section 6.18(a)
hereof.
"VOTING AGREEMENTS" has the meaning set forth in the seventh recital
hereto.
ARTICLE II
SEPARATION, REDEMPTION AND MERGER
2.1 The Separation and Redemption.
(a) Immediately prior to the Effective Time, and conditioned on the
reasonable determination by Parent that all of the conditions in Article VII
hereof to the obligation of Parent and Spinco to effect the Merger have been, or
will immediately thereafter be, satisfied, Parent shall transfer the HDD
Business to Spinco and thereafter redeem the HDD Common Stock in exchange for
Spinco Common Stock by means of the Separation and the Redemption in a tax-free
transaction. The Separation and the Redemption shall be effected in accordance
with Section 2.4 of the Restated Certificate of Incorporation and the Separation
Documents and on such other terms (including, without limitation, any amendments
to the charter documents of Spinco) as are reasonably satisfactory, in form and
substance, to Parent and Company, as well as in compliance with all applicable
Laws.
(b) No certificates representing shares of Spinco Common Stock shall be
issued to former holders of record of shares of HDD Common Stock in connection
with the Redemption. Instead, an entry shall be made in the books and records of
Parent (or the transfer agent for HDD Common Stock) to reflect the entitlement
of each such former holder of record of shares of HDD Common Stock to an equal
number of shares of Spinco Common Stock, in exchange and replacement for such
shares of HDD Common Stock, as a result of the Redemption. Without the need for
any action by Parent, Spinco or former holders of Certificates, upon the
Redemption all Certificates shall, for all purposes (including the provisions of
Section 2.8 hereof), be deemed to represent a number of shares of Spinco Common
Stock equal to the number of shares of HDD Common Stock represented thereby
immediately prior to the Redemption.
2.2 The Merger. At the Effective Time and upon the terms and subject to
the conditions set forth in this Agreement and the applicable provisions of
Delaware Law, Spinco shall be merged with and into
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Company, the separate corporate existence of Spinco shall cease and Company
shall continue as the surviving corporation of the Merger. As the surviving
corporation after the Merger, Company is hereinafter sometimes referred to as
the "SURVIVING CORPORATION" and references to Company, insofar as they are
applicable to any period of time after the Effective Time, shall be deemed
references to Company as the Surviving Corporation.
2.3 Effective Time; Closing. Upon the terms and subject to the conditions
set forth in this Agreement, the parties hereto shall cause the Merger to be
consummated by filing a Certificate of Merger (the "CERTIFICATE OF MERGER") with
the Secretary of State of the State of Delaware in accordance with the relevant
provisions of Delaware Law (the time of such filing (or such later time as may
be agreed upon in writing by the parties hereto and specified in the Certificate
of Merger) being referred to herein as the "EFFECTIVE TIME") as soon as
practicable on or after the Closing Date (as defined below). The closing of the
Merger (the "CLOSING") shall take place at the offices of Wilson Sonsini
Goodrich & Rosati, Palo Alto, California, at a time and date to be specified by
the parties hereto, which time and date shall be no later than the 5th business
day after the satisfaction or waiver of the conditions set forth in Article VII
hereof, or at such other location, time and date as the parties hereto shall
mutually agree in writing (the date upon which the Closing actually occurs being
referred to herein as the "CLOSING DATE").
2.4 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all of the property, rights, privileges, powers and
franchises of Spinco and Company shall vest in the Surviving Corporation, and
all debts, liabilities and duties of Spinco and Company shall become the debts,
liabilities and duties of the Surviving Corporation.
2.5 Certificate of Incorporation and Bylaws of Surviving Corporation.
(a) Certificate of Incorporation. At the Effective Time, the Certificate
of Incorporation of Company shall be amended and restated to read in its
entirety as set forth in Schedule 8 hereto and as so amended and restated shall
be the Certificate of Incorporation of the Surviving Corporation.
(b) Bylaws. The Bylaws of Company as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until thereafter
amended in accordance with Delaware Law, the Certificate of Incorporation of the
Surviving Corporation and such Bylaws.
2.6 Management of the Surviving Corporation.
(a) Board of Directors. The Board of Directors of the Surviving
Corporation effective as of, and immediately following, the Effective Time shall
consist of seven members, six of whom (including the Chairman of the Board)
shall be designated by Company and one of whom shall be designated by Parent. As
of the date of this Agreement, Parent has designated Michael Brown as its
director. If Mr. Brown is unable to serve in this position, Parent shall
designate another member of the Board of Directors of Parent, who is mutually
acceptable to Parent and Company, to the Board of Directors of Company. Such
designees shall be designated in writing by the parties prior to the mailing of
the Proxy Statement.
(b) Officers. From and after the Effective Time, and until his successor
is duly elected or appointed and qualified in accordance with Delaware Law, the
current Chief Executive Officer of the Company shall hold the title of Chief
Executive Officer of the Surviving Corporation.
2.7 Effect on Capital Stock. On the terms and subject to the conditions
set forth in this Agreement, at the Effective Time, by virtue of the Merger and
without any action on the part of Parent, Company, Spinco or the holders of any
of the following securities, the following shall occur:
(a) Spinco Common Stock.
(i) Each share of Spinco Common Stock to which a pre-Redemption
holder of record of shares of HDD Common Stock became entitled in the Redemption
(other than any shares of Spinco Common Stock to be canceled pursuant to Section
2.7(a)(ii) hereof) shall be canceled and extinguished and automatically
converted (subject to Sections 2.7(a)(iii) and Section 2.7(a)(iv) hereof) into
the right
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to receive 1.52 (the "EXCHANGE RATIO") shares of Company Common Stock, upon the
surrender of the applicable Certificate in the manner provided in Section 2.8
hereof (or, in the case of a lost, stolen or destroyed Certificate, upon
delivery of an affidavit (and bond, if required) in the manner provided in
Section 2.10 hereof); provided, however, that the Company, may, by written
notice given to Parent at any time prior to the Effective Time, increase the
Exchange Ratio to the extent that it determines such increase to be necessary or
advisable in order to have reasonable assurance that the shares of Company
Common Stock to be issued in the Merger will, in the aggregate, represent at
least 50.1%, and in the Board's sole discretion up to not more than 51%, of the
combined voting power of all shares of Company Common Stock that will be
outstanding immediately after the Effective Time.
(ii) Each share of Spinco Common Stock held in the treasury of Parent,
or owned by Parent or any direct or indirect Subsidiary of Parent immediately
prior to the Effective Time, shall be canceled and extinguished without any
conversion thereof or any consideration therefor.
(iii) The Exchange Ratio shall be adjusted to reflect appropriately the
effect of any stock split, reverse stock split, stock dividend (including any
dividend or distribution of securities convertible into Company Common Stock or
Spinco Common Stock), extraordinary cash dividends, reorganization,
recapitalization, reclassification, combination, exchange of shares or other
like change with respect to Spinco Common Stock or Company Common Stock
occurring on or after the date hereof and prior to the Effective Time.
(iv) No fraction of a share of Company Common Stock shall be issued by
virtue of the Merger, but in lieu thereof each pre-Redemption holder of record
of shares of HDD Common Stock who would otherwise be entitled to a fraction of a
share of Company Common Stock as a result of the Merger (after aggregating all
fractional shares of Company Common Stock to be received by such holder) shall
receive from Company an amount of cash (rounded down to the nearest whole cent),
without interest, equal to the product obtained by multiplying (x) such
fraction, by (y) the average closing price of one (1) share of Company Common
Stock for the five (5) consecutive trading days ending on the trading day
immediately prior to the Effective Time, as reported on the Nasdaq National
Market.
(v) Each of the Exchange Agent (as defined in Section 2.8(a) hereof) and
Company shall be entitled to deduct and withhold from the consideration
otherwise deliverable in connection with the Merger to any holder or former
holder of shares of Spinco Common Stock such amounts as may be required to be
deducted and withheld therefrom under the Code or any other applicable provision
of Law. To the extent that such amounts are so deducted and withheld, such
amounts shall be treated for all purposes under this Agreement as having been
delivered or otherwise paid to the person to whom such amounts would otherwise
have been delivered or paid in connection with the Merger pursuant to this
Agreement.
(b) Parent Stock Option Plans and Stock Options. Each option to purchase
HDD Common Stock held by a Transferred Employee under the Parent Stock Option
Plans outstanding as of the Effective Time shall be assumed by Company in
accordance with Section 6.10 hereof.
(c) Parent Convertible Notes. Pursuant to a supplemental indenture
reasonably satisfactory, in form and substance, to Parent and Company and
executed at the Closing, Company shall become obligated, upon conversion of any
of Parent's 7% convertible notes after the Effective Time, to issue to the
holder thereof a number of shares of Company Common Stock calculated (in
accordance with the Exchange Ratio) to reflect the number of shares of HDD
Common Stock that would have been issued to such holder if such holder had
converted such note immediately before the Effective Time.
(d) To the extent relevant, "Spinco Common Stock" as referred to in this
Section 2.7 shall include all former shares of HDD Common Stock which were
exchanged for Spinco Common Stock in the Redemption.
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2.8 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Company shall select
and appoint an institution reasonably satisfactory to Parent to act as the
exchange agent (the "EXCHANGE AGENT") for the Redemption and the Merger.
(i) Stock and Cash to be Provided by Company. Promptly following the
Effective Time, Company shall deposit with the Exchange Agent for purposes of
exchange: (i) the certificates representing the shares of Company Common Stock
into which shares of Spinco Common Stock have been converted in the Merger; (ii)
cash in an amount sufficient to make all cash payments required to be made
pursuant to Section 2.7(a)(iv) hereof in lieu of issuing fractional shares of
Company Common Stock in the Merger; and (iii) any dividends or other
distributions to which pre-Redemption holders of record of shares of HDD Common
Stock may be entitled pursuant to Section 2.8(c) hereof.
(b) Exchange Procedures. Promptly following the Effective Time, Company
shall cause the Exchange Agent to mail to each holder of record (as of the
Redemption) of shares of HDD Common Stock whose shares were exchanged for an
equal number of shares of Spinco Common Stock in the Redemption, and which
shares of Spinco Common Stock were thereafter converted into the right to
receive shares of Company Common Stock pursuant to Section 2.7(a) hereof, cash
in lieu of any fractional shares pursuant to Section 2.7(a)(iv) hereof, and any
dividends or other distributions pursuant to Section 2.8(c) hereof, (i) a letter
of transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Parent and Company may reasonably specify); and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for
certificates representing shares of Company Common Stock pursuant to Section
2.7(a) hereof, cash in lieu of any fractional shares pursuant to Section
2.7(a)(iv), and any dividends or other distributions pursuant to Section 2.8(c)
hereof. Upon the surrender of Certificates for cancellation to the Exchange
Agent or to such other agent or agents as may be appointed by Company, together
with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holders of such Certificates shall
be entitled to receive in exchange therefor certificates representing the number
of whole shares of Company Common Stock and cash in lieu of fractional shares
which such holders have the right to receive pursuant to Section 2.7(a)(iv)
hereof, and any dividends or other distributions payable pursuant to Section
2.8(c) hereof, and the Certificates so surrendered shall forthwith be canceled.
Until so surrendered, outstanding Certificates shall be deemed from and after
the Effective Time, for all corporate purposes, subject to the terms of Section
2.8(c) hereof as to the payment of dividends, to evidence the ownership of the
number of full shares of Company Common Stock into which such shares of HDD
Common Stock shall have been so converted pursuant to Section 2.7(a) hereof, and
the right to receive an amount in cash in lieu of the issuance of any fractional
shares pursuant to Section 2.7(a)(iv) hereof, and any dividends or distributions
payable pursuant to Section 2.8(c) hereof.
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the date hereof with respect to
Company Common Stock with a record date after the Effective Time shall be paid
to any holder of any unsurrendered Certificates with respect to the shares of
Company Common Stock that such holder has the right to receive in the Merger
until such holder shall surrender such Certificates in accordance with Section
2.8(b) hereof. Subject to applicable law, following the surrender of any such
Certificates, the Exchange Agent shall deliver to the record holders thereof,
without interest, certificates representing whole shares of Company Common Stock
issued in exchange therefor pursuant to Section 2.7(a) hereof, along with
payment in lieu of fractional shares pursuant to Section 2.7(a)(iv) hereof and
the amount of any such dividends or other distributions with a record date after
the Effective Time payable with respect to such whole shares of Company Common
Stock.
(d) Transfers of Ownership. If certificates for shares of Company Common
Stock are to be issued in a name other than that in which the Certificates
surrendered in exchange therefor are registered, it shall be a condition to the
issuance thereof that the Certificates so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the persons requesting such
exchange will have paid to
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Company or any agent designated by Company any transfer or other taxes required
by reason of the issuance of Certificates for shares of Company Common Stock in
any name other than that of the registered holders of the Certificates
surrendered, or established to the satisfaction of Company or any agent
designated by it that such tax has been paid or is not payable.
(e) No Liability. Notwithstanding anything to the contrary set forth in
this Section 2.8, none of the Exchange Agent, Parent, Spinco, the Surviving
Corporation nor any other party hereto shall be liable to a holder of shares of
HDD Common Stock or Company Common Stock for any amount properly paid to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
2.9 No Further Ownership Rights in HDD Common Stock or Spinco Common
Stock. All shares of Company Common Stock issued in accordance with the terms
hereof (including any cash paid in respect thereof pursuant to Section
2.7(a)(iv) and Section 2.8(c) hereof) shall be deemed to have been issued in
full satisfaction of all rights pertaining to the shares of HDD Common Stock
(exchanged for an equal number of shares of Spinco Common Stock in the
Redemption) surrendered therefor, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of HDD Common
Stock which were outstanding immediately prior to the Redemption of shares of
Spinco Common Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article II.
2.10 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Company Common
Stock, cash for fractional shares, if any, as may be required pursuant to
Section 2.7(a)(iv) hereof and any dividends or distributions payable pursuant to
Section 2.8(c) hereof; provided, however, that Company may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
Company or the Exchange Agent with respect to the Certificates alleged to have
been lost, stolen or destroyed.
2.11 Tax and Accounting Consequences.
(a) Tax Treatment. It is intended by the parties hereto that the Merger
constitute a "reorganization" within the meaning of Section 368 of the Code. In
accordance therewith, the parties hereto hereby adopt this Agreement as a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the United States Income Tax Regulations.
(b) Accounting Treatment. It is intended by the parties hereto that the
Merger be accounted for as a purchase by Company of Spinco.
2.12 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable in order to carry
out the purposes and intent of this Agreement, to vest the Surviving Corporation
with full right, title and possession to all assets, property, rights,
privileges, powers and franchises of Spinco and Company, the officers and
directors of the Surviving Corporation shall be fully authorized to take all
such action.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF COMPANY
Company hereby represents and warrants to Parent and Spinco, subject to (i)
the documents, agreements and transactions contemplated by this Agreement, (ii)
the exceptions disclosed in writing in the disclosure letter, dated as of the
date hereof, delivered by Company and Merger Sub to Parent and Spinco
concurrently with the execution and delivery of the Original Agreement, accepted
by Parent, and deemed redelivered by Company and accepted by Parent for purposes
of this Agreement (the "COMPANY
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SCHEDULES"), and (iii) the information set forth in any Company SEC Reports (as
defined in Section 3.8(a) hereof) filed by Company with the SEC prior to the
date hereof, as follows:
3.1 Organization and Good Standing. Company and each of its Significant
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with the
corporate power and authority to own, lease and operate its assets and property
and to carry on its business as now being conducted and as proposed to be
conducted, and is duly qualified to conduct business and in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
and in good standing would reasonably be expected to have a Material Adverse
Effect on Company.
3.2 Charter Documents. Company has delivered or made available to Parent a
true and complete copy of the Certificate of Incorporation and Bylaws of Company
and similar governing charter instruments of each of its Significant
Subsidiaries, each as amended to date, and each such instrument is in full force
and effect. Neither Company nor any of its Subsidiaries is in violation of any
of the provisions of its Certificate of Incorporation or Bylaws or equivalent
governing charter instruments.
3.3 Capital Structure.
(a) The authorized capital stock of Company consists of 250,000,000
shares of Common Stock, par value $0.01 per share, of which there were
116,125,550 shares issued and outstanding as of September 29, 2000, and
95,000,000 shares of Preferred Stock, par value $0.01 per share, of which no
shares are issued or outstanding. All outstanding shares of Company Common Stock
are duly authorized and validly issued, fully paid and nonassessable, and are
not subject to any preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of Company or any agreement or other instrument to which
Company is a party or by which Company or its properties or assets are bound. As
of September 29, 2000, (i) Company had reserved an aggregate of 21,328,990
shares of Company Common Stock, net of exercises, for issuance to employees,
consultants and non-employee directors pursuant to Company's Amended and
Restated 1996 Stock Option Plan, of which 14,672,301 shares were subject to
outstanding options, 1,690,000 shares were issued as restricted stock grants and
4,966,689 shares were available for future grant, (ii) Company had reserved an
aggregate of 390,000 shares of Company Common Stock for issuance under Company's
1998 Restricted Stock Plan, of which 345,000 shares were issued and 45,000
shares remained available for future issuances, (iii) Company had reserved an
aggregate of 154,153 shares of Company Common Stock for issuance upon exercise
of outstanding assumed options granted under the Creative Design Solutions, Inc.
Incentive Stock Option Plan, and (iv) Company had reserved an aggregate of
4,500,000 shares for issuance under Company's 1998 Employee Stock Purchase Plan.
All shares of Company Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions set forth in the instruments pursuant to
which they are issuable, would be duly authorized and validly issued, fully paid
and nonassessable. Section 3.3(a) of the Company Schedules contains a complete
and accurate list of each outstanding option to acquire shares of Company Common
Stock as of September 29, 2000, the name of the holder of each such option, the
number of shares subject to each such option, the exercise price of each such
option, the number of shares as to which each such option was vested as of such
date, and whether the exercisability of each such option will be accelerated in
any way as a result of the Merger or any other transactions contemplated by this
Agreement or for any other reason, and indicates the extent of acceleration, if
any.
(b) There are no equity securities, partnership interests or other
similar ownership interests of any class or series of capital stock of Company,
or any securities convertible into or exercisable or exchangeable for such
equity securities, partnership interests or other similar ownership interests
issued, reserved for issuance or outstanding. Except for securities Company
owns, directly or indirectly through one or more Subsidiaries, there are no
equity securities, partnership interests or other similar ownership interests of
any class or series of capital stock of any Subsidiary of Company, or any
securities convertible into or exercisable or exchangeable for such equity
securities, partnership interests or other similar ownership interests issued,
reserved for issuance or outstanding. There are no options, warrants, equity
securities, partnership interests or other similar ownership interests, calls,
rights (including preemptive
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rights), commitments or agreements of any kind or character to which Company or
any of its Subsidiaries is a party or by which Company or any of its
Subsidiaries is bound obligating Company or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, or repurchase, redeem
or otherwise acquire, or cause the repurchase, redemption or acquisition, of any
shares of capital stock of Company or any of its Subsidiaries or obligating
Company or any of its Subsidiaries to grant, extend, accelerate the vesting of
or enter into any such option, warrant, equity security, partnership interest or
other similar ownership interest, call, right, commitment or agreement. There
are no registration rights and, to the knowledge of Company, there are no voting
trusts, proxies or other agreements or understandings with respect to any class
or series of capital stock of Company or with respect to any equity security,
partnership interest or other similar ownership interest of any class or series
of capital stock of any of its Subsidiaries.
3.4 Subsidiaries. Section 3.4 of the Company Schedules contains a
complete and accurate list of each Subsidiary of Company, indicating the
jurisdiction of incorporation of each such Subsidiary and Company's percentage
equity interest therein.
3.5 Authority. Company has all requisite corporate power and authority to
enter into this Agreement, the Company Affiliate Agreements, the Company Voting
Agreements and the Separation Documents to be entered into or executed by
Company (collectively, the "COMPANY RELATED AGREEMENTS"), to perform its
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by Company of this
Agreement and the Company Related Agreements, the performance by Company of its
obligations hereunder and thereunder, and the consummation by Company of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action on the part of Company, subject only to the Company
Requisite Vote. This Agreement and the Company Related Agreements have been (or,
in the case of those Company Related Agreements that are not being executed and
delivered by the Company concurrently with the execution and delivery of this
Agreement, will, when they are executed and delivery by the Company, have been)
duly executed and delivered by Company and, assuming the due authorization,
execution and delivery thereof by the other parties thereto, constitute (or, in
the case of those Company Related Agreements that are not being executed and
delivered by the Company concurrently with the execution and delivery of this
Agreement, will, when they are executed and delivered by the Company,
constitute) the valid and binding obligations of Company, enforceable in
accordance with their respective terms, subject to (i) the effect of any
applicable Laws of general application relating to bankruptcy, reorganization,
insolvency, moratorium or other similar Laws affecting creditors' rights and the
relief of debtors generally; and (ii) the effect of rules of law and general
principles of equity, including, without limitation, rules of law and general
principal of equity governing specific performance, injunctive relief and other
equitable remedies (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
3.6 Conflicts. The execution and delivery of this Agreement and the
Company Related Agreements by Company do not, and the performance by Company of
its obligations hereunder and thereunder and the consummation of the
transactions contemplated hereby and thereby will not, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of Company or the equivalent
organizational documents of any of its Subsidiaries; (ii) subject to obtaining
the Requisite Company Vote and the consents, approvals, orders and
authorizations, and making the registrations, declarations and filings,
described in Section 3.7 hereof, conflict with or violate any Law, rule,
regulation, order, judgment or decree applicable to Company or any of its
Subsidiaries or by which any of their respective properties and assets are bound
or affected; or (iii) result in any breach of, or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or impair rights of Company or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien on any of
the properties or assets of Company or any of its Subsidiaries pursuant to, any
material note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Company or any of
its Subsidiaries is a party or by which Company or any of its Subsidiaries or
any of their respective properties and assets are bound or
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affected, except to the extent such conflict, violation, breach, default,
impairment or other effect would not, in the case of clauses (ii) or (iii)
above, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Company.
3.7 Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is required
by or with respect to Company in connection with the execution and delivery by
Company of this Agreement and the Company Related Agreements, the performance by
Company of its obligations hereunder and thereunder, or the consummation by
Company of the transactions contemplated hereby or thereby, except for (i) the
filing of the Registration Statement (as defined in Section 6.1 hereof) with the
SEC in accordance with the Securities Act; (ii) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware; (iii) the filing of
the Proxy Statement (as defined in Section 6.1 hereof) with the SEC in
accordance with the Exchange Act; (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws; (v) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
the HSR Act and the comparable Laws of any foreign countries; and (vi) such
other consents, approvals, orders, authorizations, registrations, declarations
and filings which, if not obtained or made, would not reasonably be expected to
have a Material Adverse Effect on Company.
3.8 SEC Filings; Financial Statements; Undisclosed Liabilities.
(a) Company has filed all forms, reports and documents required to be
filed by it with the SEC since December 31, 1998. All such required forms,
reports and documents, and all exhibits and schedules thereto and documents
incorporated by reference therein, (including those filed by Company after the
date hereof) are referred to herein as the "COMPANY SEC REPORTS." As of their
respective dates, the Company SEC Reports (i) complied in all material respects
with the applicable requirements of the Securities Act or the Exchange Act, as
the case may be, and the applicable rules and regulations of the SEC promulgated
thereunder; and (ii) did not at the time each such Company SEC Report was filed
(or if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing) contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. None of the Subsidiaries of Company is
required to file any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the Company SEC Reports (including
any Company SEC Reports filed by Company after the date hereof until the
Closing) (collectively, the "COMPANY FINANCIAL STATEMENTS"), (i) complied as to
form in all material respects with the published rules and regulations of the
SEC in effect, at the time of filing, with respect thereto; (ii) was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act); and (iii) fairly presented the consolidated
financial position of Company and its consolidated Subsidiaries as of the
respective dates thereof and the consolidated results of operations and cash
flows of Company and its consolidated Subsidiaries for the periods indicated
therein, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not, or are not
expected to be, material in amount. The balance sheet of Company contained in
the Company SEC Reports as of July 1, 2000, is hereinafter referred to as the
"COMPANY BALANCE SHEET."
(c) Neither Company nor any of its Subsidiaries has any Liabilities of a
nature required to be disclosed on a balance sheet or in the related notes to
consolidated financial statements prepared in accordance with GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Company and its Subsidiaries taken as a
whole, except Liabilities (i) reflected in the Company Balance Sheet; or (ii)
incurred since the date of the Company Balance Sheet in the ordinary course of
business consistent with past practices.
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(d) Company has heretofore furnished to Parent a true and complete copy
of any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed following the date hereof, to forms, reports
and documents which previously had been filed by Company with the SEC pursuant
to the Securities Act or the Exchange Act.
3.9 Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet: (a) there has not been, occurred or arisen: (i) any Material
Adverse Effect on Company; (ii) any material change by Company in its accounting
methods, principles or practices, except as required by concurrent changes in
GAAP; or (iii) any revaluation by Company of any of its assets, including,
without limitation, writing down of the value of capitalized inventory or
writing off notes or accounts receivable other than in the ordinary course of
business; and (b) Company has not taken any action, or failed to take any
action, the taking or failure to take which action would, if it had occurred
after the execution and delivery of this Agreement, have constituted a breach by
Company of Sections 5.1 or 5.2 hereof.
3.10 Taxes.
(a) Company and each of its Subsidiaries have timely filed all federal,
state, local and foreign returns, estimates, information statements and reports
("RETURNS") relating to Taxes required to be filed by Company and each of its
Subsidiaries with any Tax authority, except such Returns which are not material
to Company. Company and each of its Subsidiaries have paid all Taxes shown to be
due on such Returns.
(b) Neither Company nor any of its Subsidiaries has been delinquent in
the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against Company or any of its Subsidiaries,
nor has Company or any of its Subsidiaries executed any unexpired waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(c) No audit or other examination of any Return of Company or any of its
Subsidiaries by any Tax authority is presently in progress, nor has Company or
any of its Subsidiaries been notified of any request for such an audit or other
examination.
(d) Neither Company nor any of its Subsidiaries has any Liability for
any material unpaid Taxes which has not been accrued for or reserved on Company
Balance Sheet in accordance with GAAP, which is material to Company, other than
any Liability for unpaid Taxes that may have accrued since December 31, 1999, in
connection with the operation of the business of Company and its Subsidiaries in
the ordinary course.
(e) There is no contract, agreement, plan or arrangement to which
Company or any of its Subsidiaries is a party as of the date of this Agreement
(including, without limitation, this Agreement), covering any employee or former
employee of Company or any of its Subsidiaries that, individually or
collectively, would reasonably be expected to give rise to the payment of any
amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of
the Code. There is no contract, agreement, plan or arrangement to which Company
or any of its Subsidiaries is a party or by which Company or any of its
Subsidiaries is bound to compensate any individual for excise taxes paid
pursuant to Section 4999 of the Code.
(f) Neither Company nor any of its Subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by Company or any of its Subsidiaries.
(g) Other than as set forth in the Separation Documents, neither Company
nor any of its Subsidiaries is party to or has any obligation under any
Tax-sharing, Tax indemnity or Tax allocation agreement or arrangement.
(h) None of the assets of Company or any of its Subsidiaries are tax
exempt use property within the meaning of Section 168(h) of the Code.
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3.11 Intellectual Property.
(a) For all purposes of and under this Agreement, the following terms
shall have the following respective meanings:
(i) "COMPANY INTELLECTUAL PROPERTY" means any Intellectual Property
that is owned by, or exclusively licensed to, Company or any of its
Subsidiaries.
(ii) "COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the
Registered Intellectual Property owned by, or filed in the name of, Company or
any of its Subsidiaries.
(iii) "PROGRAMS" means that a portion of a party's Intellectual
Property having a plurality of instructions capable of being executed by a
machine, whether or not such instructions are in a machine-readable form.
(b) No Company Intellectual Property or product or service of Company or
any of its Subsidiaries is subject to any proceeding or outstanding decree,
order, judgment, contract, license, agreement, or stipulation restricting in any
manner the use, transfer, or licensing thereof by Company or any of its
Subsidiaries, or which may affect the validity, use or enforceability of such
Company Intellectual Property.
(c) Either Company or one of its Subsidiaries owns and has good and
exclusive title to, or has a valid license to (sufficient for the conduct of its
business as currently conducted and as currently proposed to be conducted), each
material item of Company Intellectual Property or other Intellectual Property
used by the Company or the applicable Subsidiary free and clear of any Lien
(excluding licenses and related restrictions), and either Company or one of its
Subsidiaries is the exclusive owner of all trademarks and trade names used in
connection with the operation or conduct of the business of Company or the
applicable Subsidiary, including the sale of any products or the provision of
any services by Company or such Subsidiary.
(d) Either Company or one of its Subsidiaries owns exclusively, and has
good title to, all copyrighted works that are products of Company of the
applicable Subsidiary or which Company or the applicable Subsidiary otherwise
expressly purports to own.
(e) To the extent that any material Intellectual Property has been
developed or created by a third party for Company or any of its Subsidiaries,
Company or such Subsidiary has a written agreement with such third party with
respect thereto and Company or such Subsidiary thereby either (i) has obtained
ownership of, and is the exclusive owner of; or (ii) has obtained a license
(sufficient for the conduct of its business as currently conducted and as
currently proposed to be conducted) to all such third party's Intellectual
Property in such work, material or invention by operation of law or by valid
assignment, to the fullest extent it is legally possible to do so.
(f) Neither Company nor any of its Subsidiaries has transferred
ownership of, or granted any exclusive license with respect to, any Intellectual
Property that is or was material Company Intellectual Property, to any third
party.
(g) To the knowledge of Company, the operation of the business of
Company and its Subsidiaries as such business is currently conducted and
currently proposed to be conducted, including Company's and its Subsidiaries'
design, development, manufacture, marketing and sale of the products or services
of Company and its Subsidiaries (including products currently under development)
has not, does not and will not infringe or misappropriate the Intellectual
Property of any third party or, to the knowledge of Company, constitute unfair
competition or trade practices under the laws of any jurisdiction.
(h) Neither Company nor any of its Subsidiaries has received notice from
any third party that the operation of the business of Company or any of its
Subsidiaries or any act, product or service of Company or any of its
Subsidiaries, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the laws
of any jurisdiction.
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(i) To the knowledge of Company, no person has or is infringing or
misappropriating any Company Intellectual Property.
(j) All Company Registered Intellectual Property included in the Company
Intellectual Property is valid and subsisting. All maintenance and annuity fees
have been fully paid and all fees paid during prosecution and after issuance of
any Company Registered Intellectual Property have been paid in the correct
entity status amounts.
(k) There are no royalties, fees or other payments payable by Company or
any of its Subsidiaries to any third party by reason of the ownership, use, sale
or disposition of Company Intellectual Property.
(l) Neither Company nor any of its Subsidiaries is in breach of any
license, sublicense or other agreement relating to material Company Intellectual
Property. Neither the execution of this Agreement or any ancillary agreement
contemplated hereby nor the consummation of the Merger will contravene, conflict
with or result in an impairment of Company's right to own or use any of the
material Company Intellectual Property or any intellectual property of any third
party.
(m) To the knowledge of Company, it has at all times been Company's
practice and procedure to require all employees of Company and its Subsidiaries
to execute an agreement (containing no exceptions or exclusions from the scope
of its coverage) regarding the protection of proprietary information and the
assignment to Company of any Intellectual Property arising from services
performed for Company by such employees, the current form of which has been
provided to Parent.
(n) The Programs do not contain any open source code or any materials
subject to the GNU Public License (GPL), GNU Lesser Public License (GLPL) or any
similar license, and the Programs are not subject to any open source license
restrictions, including without limit the GPL or GLPL.
(o) To the knowledge of Company, the Programs will be free of any and
all viruses, Trojan horses, trap doors, passwords, keys, protection codes or any
other devices or mechanisms which are intended to cause it to perform any
material functions other than those specified or intended or which are intended
to halt, disrupt, limit access or grant improper access to or sabotage the
operation of the Programs or any other process or device.
3.12 Compliance; Permits; Restrictions.
(a) Neither Company nor any of its Subsidiaries is in conflict with, or
in default or violation of (i) any Law, rule, regulation, order, judgment or
decree applicable to Company or any of its Subsidiaries or by which any of their
respective properties and assets are bound or affected; or (ii) any material
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Company or any of its
Subsidiaries is a party or by which Company or any of its Subsidiaries or any of
their respective properties and assets are bound or affected, except for
conflicts, defaults or violations which, neither individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on
Company. To the knowledge of Company, no investigation or review by any
Governmental Authority is pending or threatened against Company or its
Subsidiaries, nor has any Governmental Authority indicated an intention to
conduct the same, except for investigations which, neither individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect on
Company. There is no material agreement, judgment, injunction, order or decree
binding upon Company or any of its Subsidiaries which would reasonably be
expected to have the effect of prohibiting or materially impairing any business
practice of Company or any of its Subsidiaries, any acquisition of material
property by Company or any of its Subsidiaries or the conduct of business by
Company and any of its Subsidiaries as currently conducted or currently proposed
to be conducted.
(b) Company and its Subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from Governmental Authorities for the operation
of its respective business of Company, failure to hold which would, individually
or in the aggregate, reasonably be expected to have a Material Adverse
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Effect on Company (collectively, the "COMPANY PERMITS"). Company and its
Subsidiaries are in compliance in all material respects with the terms of the
Company Permits.
3.13 Litigation. There are no Actions pending, or as to which Company or
any of its Subsidiaries has received any notice of assertion nor, to the
knowledge of Company, is there a threatened Action against Company or any of its
Subsidiaries which would reasonably be expected to have a Material Adverse
Effect on Company, or which in any manner challenges or seeks to prevent,
enjoin, alter or delay the Merger or any of the other transactions contemplated
by this Agreement.
3.14 Brokers' and Finders' Fees. Except for fees payable to Salomon Smith
Barney pursuant to an engagement letter, dated September 26, 2000, a copy of
which has been provided to Parent, Company has not incurred, nor will it incur,
directly or indirectly, any Liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement, the Merger
or any other transactions contemplated by this Agreement.
3.15 Employee Benefit Plans.
(a) Section 3.15(a) of the Company Schedules contains a complete and
accurate list of all employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments, agreements or other arrangements (whether or
not set forth in a written document and including, without limitation, all
"employee benefit plans" within the meaning of Section 3(3) of ERISA) covering
any active or former employee, director or consultant of Company ("COMPANY
EMPLOYEE" which shall for this purpose mean an employee of Company or a Code
Affiliate of Company), any Subsidiary of Company, or with respect to which
Company has or, to its knowledge, may in the future have Liability
(collectively, the "COMPANY PLANS"). Company has provided or will make available
to Parent prior to the Closing: (i) true and complete copies of all documents
embodying each Company Plan including, without limitation, all amendments
thereto, all trust documents related thereto, and all material written
agreements and contracts relating to each such Company Plan; (ii) the most
recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Company Plan; (iii) the most recent summary plan
description together with the summary(ies) of material modifications thereto, if
any, required under ERISA with respect to each Company Plan; (iv) all IRS
determination, opinion, notification and advisory letters relating to each
Company Plan; (v) all material correspondence to or from any Governmental
Authority relating to each Company Plan; (vi) all forms and related notices
required under the COBRA; (vii) the most recent discrimination tests for each
Company Plan; (viii) the most recent actuarial valuations, if any, prepared for
each Company Plan; (ix) if the Company Plan is funded, the most recent annual
and periodic accounting of the Company Plan assets; and (x) all material
communication to Company Employees relating to any Company Plan and any proposed
Company Plan, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules, or other events which would result in any material liability
to Company or any Code Affiliate.
(b) Each Company Plan has been maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all Laws, including, without limitation, ERISA and the
Code, which are applicable to such Company Plans. No Action (excluding claims
for benefits incurred in the ordinary course of Company Plan activities) has
been brought, or to the knowledge of Company, is threatened, against or with
respect to any Company Plan. There are no audits, inquiries or proceedings
pending or, to the knowledge of Company, threatened by the IRS or the DOL with
respect to any Company Plans. All contributions, reserves or premium payments
required to be made or accrued as of the date hereof to the Company Plans have
been timely made or accrued. Any Company Plan intended to be qualified under
Section 401(a) of the Code and each trust intended to qualify under Section
501(a) of the Code (i) has either obtained a favorable determination,
notification, advisory and/or opinion letter, as applicable, as to its qualified
status from the IRS or still has a remaining period of time under applicable
Treasury Regulations or IRS pronouncements in which to apply for such letter and
to make any amendments necessary to obtain a favorable determination; and (ii)
incorporates or has been amended to incorporate all provisions required to
comply with the Tax Reform Act of 1986, as amended.
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To the knowledge of Company, no condition or circumstance exists giving rise to
a material likelihood that any such Company Plan would not be treated as
qualified by the IRS. Company does not have any plan or commitment to establish
any new Company Plan, to modify any Company Plan (except to the extent required
by applicable Law or the applicable Company Plan or to conform any such Company
Plan to the requirements of any applicable Law, in each case as previously
disclosed to Parent in writing, or as required by the terms of this Agreement),
or to enter into any new Company Plan. Each Company Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance with
its terms, without liability to Parent, Company or any of its Code Affiliates
(other than ordinary administration expenses).
(c) Neither Company, any of its Subsidiaries, nor any of their Code
Affiliates has at any time ever maintained, established, sponsored, participated
in, or contributed to any plan subject to Title IV of ERISA or Section 412 of
the Code and at no time has Company contributed to or been requested to
contribute to any "multiemployer plan," as such term is defined under ERISA.
Neither Company, any of its Subsidiaries, nor any officer or director of Company
or any of its Subsidiaries is subject to any material Liability or penalty under
Section 4975 through 4980B of the Code or Title I of ERISA. No "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 4975 of the Code and
Section 408 of ERISA, has occurred with respect to any Company Plan which could
subject Company or its Affiliates to material Liability.
(d) None of the Company Plans promises or provides retiree medical or
other retiree welfare benefits to any person except as required by applicable
Law, and neither Company nor any of its Subsidiaries has represented, promised
or contracted (whether in oral or written form) to provide such retiree benefits
to any Company Employee, former employee, director, consultant or other person,
except to the extent required by applicable Law.
(e) Neither Company nor any of its Subsidiaries is bound by or subject
to (and none of its respective properties or assets is bound by or subject to)
any arrangement with any labor union. No employee of Company or any of its
Subsidiaries is represented by any labor union or covered by any collective
bargaining agreement and, to the knowledge of Company, no campaign to establish
such representation is in progress. There is no pending or, to the knowledge of
Company, threatened labor dispute involving Company or any of its Subsidiaries
and any group of its employees nor has Company or any of its Subsidiaries
experienced any labor interruptions over the past three (3) years, and Company
and its subsidiaries consider their relationships with their employees to be
good. Company is in compliance in all material respects with all applicable
material Laws respecting employment, employment practices, terms and conditions
of employment and wages and hours.
(f) Neither the execution and delivery by Company of this Agreement or
the Separation Documents, nor the performance by Company of its obligations
hereunder and thereunder, nor the consummation by Company of the transactions
contemplated hereby or thereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any stockholder, director or Company Employee or any of its
Subsidiaries under any Company Plan or otherwise; (ii) materially increase any
benefits otherwise payable under any Company Plan; or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
(g) Each Company International Employee Plan (as defined below) has been
established, maintained and administered in material compliance with its terms
and conditions and with the requirements prescribed by any and all Laws that are
applicable to such Company International Employee Plan. Furthermore, no Company
International Employee Plan has unfunded Liabilities that, as of the Effective
Time, will not be offset by insurance or fully accrued. Except as required by
applicable Law, no condition exists that would prevent Company or Parent from
terminating or amending any Company International Employee Plan at any time for
any reason. For all purposes of and under this Agreement, "COMPANY INTERNATIONAL
EMPLOYEE PLAN" means each Company Plan that has been adopted or maintained by
Company or any of its Subsidiaries, whether informally or formally, for the
benefit of current or former employees of Company or any of its Subsidiaries
outside the United States.
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3.16 Absence of Liens. Company and each of its Subsidiaries has good and
valid title to, or, in the case of leased properties and assets, valid leasehold
interests in, all of its material tangible properties and assets (real, personal
and mixed) used in its business, free and clear of any Liens, except (i) Liens
reflected in the Company Financial Statements; (ii) Liens for Taxes not yet due
and payable; and (iii) Liens which are not material to Company and its
Subsidiaries taken as a whole.
3.17 Environmental Matters.
(a) (i) To the knowledge of Company, Company and its Subsidiaries are
in compliance with and have been in compliance with all applicable Environmental
Laws (which compliance includes, but is not limited to, the possession by
Company and its Subsidiaries of all permits and other governmental
authorizations required under applicable Environmental Laws, and compliance with
the terms and conditions thereof), except where failures to be in compliance
would not, in the aggregate, reasonably be expected to have a Material Adverse
Effect on Company. Since December 31, 1997, neither Company nor any of its
Subsidiaries has received any communication (written or oral), whether from a
Governmental Authority, citizens' group, employee or otherwise, alleging that
Company or any of its Subsidiaries is not in such compliance, except where
failures to be in compliance would not, in the aggregate, reasonably be expected
to have a Material Adverse Effect on Company.
(ii) There is no Environmental Claim pending or, to the knowledge of
Company, threatened against Company or any of its Subsidiaries or, to the
knowledge of the Company, against any entity or business whose liability for any
Environmental Claim Company or any of its Subsidiaries has or may have retained
or assumed either contractually or by operation of law that would reasonably be
expected to have a Material Adverse Effect on Company.
(iii) There are no present or, to the knowledge of Company, past
actions, activities, circumstances, conditions, events or incidents, including,
without limitation, the release or presence of any Hazardous Material that could
form the basis of any Environmental Claim against Company or any of its
Subsidiaries or, to the knowledge of Company, against any entity or business
whose liability for any Environmental Claim Company or any of its Subsidiaries
has or may have retained or assumed either contractually or by operation of law
that would, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Company.
(b) Neither the Company nor any of its Subsidiaries is subject to any
indemnity or other agreement relating to liability under any Environmental Laws
or relating to Hazardous Materials, except for indemnity or similar provisions
contained in Company contracts entered into in the ordinary course of business
of the Company or any of its Subsidiaries.
3.18 Labor Matters. There are no material controversies pending or, to the
knowledge of Company, threatened, between Company or any of its Subsidiaries and
any of their respective employees. As of the date of this Agreement, neither
Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by
Company or its Subsidiaries nor does Company know of any activities or
proceedings of any labor union to organize any such employees. As of the date of
this Agreement, Company has no knowledge of any strikes, slowdowns, work
stoppages or lockouts, or threats thereof, by or with respect to any employees
of Company or any of its Subsidiaries.
3.19 Agreements, Contracts and Commitments.
(a) Neither Company nor any of its Subsidiaries is a party to or is
bound by:
(i) any employment or consulting agreement, contract or commitment
with any executive officer or member of the Board of Directors of Company, other
than those that are terminable by Company or any of its Subsidiaries on no more
than thirty (30) days' notice without Liability or financial obligation to
Company;
(ii) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting
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of benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement;
(iii) any agreement of indemnification or any guaranty other than any
agreement of indemnification entered into in connection with the sale or license
of products or services in the ordinary course of business;
(iv) any agreement, contract or commitment containing any covenant
limiting in any respect the right of Company or any of its Subsidiaries to
engage in any line of business or to compete with any person or granting any
exclusive distribution rights;
(v) any agreement, contract or commitment currently in force relating
to the disposition or acquisition by Company or any of its Subsidiaries after
the date of this Agreement of a material amount of assets not in the ordinary
course of business or pursuant to which Company has any material ownership
interest in any corporation, partnership, joint venture or other business
enterprise other than its Subsidiaries; or
(vi) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit.
(b) Neither Company nor any of its Subsidiaries, nor to the knowledge of
Company any other party to a Company Contract (as defined below), is in breach,
violation or default under, and neither Company nor any of its Subsidiaries has
received written notice that it has breached, violated or defaulted under, any
of the material terms or conditions of any of the agreements, contracts or
commitments to which Company or any of its Subsidiaries is a party or by which
Company or any of its Subsidiaries is bound that are required to be disclosed in
the Company Schedules pursuant to this Agreement (any such agreement, contract
or commitment, a "COMPANY CONTRACT") in such a manner as would permit any other
party to cancel or terminate any such Company Contract, or would permit any
other party to seek material damages or other material remedies (for any or all
of such breaches, violations or defaults, or all of them in the aggregate).
3.20 Registration Statement; Proxy Statement; Other Filings. None of the
information supplied or to be supplied by Company for inclusion or incorporation
by reference in (i) the Registration Statement (as defined in Section 6.1
hereof) will at the time it is declared or ordered effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances in which they were made,
not misleading; and (ii) the Proxy Statement (as defined in Section 6.1 hereof)
shall not, on the date the Proxy Statement is first mailed to the stockholders
of Company and the stockholders of Parent, at the time of the Company
Stockholders' Meeting (as defined in Section 6.1 hereof) or the Parent
Stockholders' Meeting (as defined in Section 6.1 hereof) and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
false or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Company Stockholders' Meeting or the Parent Stockholders'
Meeting which has become false or misleading. The Proxy Statement will comply as
to form in all material respects with the provisions of the Exchange Act and the
rules and regulations promulgated thereunder that are applicable by reason of
the Proxy Statement constituting a proxy statement of Company. Notwithstanding
the foregoing, Company makes no representation or warranty with respect to any
information supplied by Parent or Spinco which is contained in any of the
foregoing documents.
3.21 Board Approval. The Board of Directors of Company has, as of the date
of this Agreement, made the determinations set forth in the sixth recital to
this Agreement.
3.22 State Takeover Statutes. The Board of Directors of Company has
approved the Merger, this Agreement, the Company Related Agreements and the
transactions contemplated hereby and thereby, and
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such approval is sufficient to render inapplicable to the Merger, this
Agreement, the Company Related Agreements and the transactions contemplated
hereby and thereby the provisions of Section 203 of Delaware Law to the extent,
if any, such section is applicable to the Merger, this Agreement, the Company
Related Agreements and the transactions contemplated hereby and thereby. No
other state takeover statute or similar statute or regulation applies to or
purports to apply to the Merger, this Agreement, the Company Related Agreements
or the transactions contemplated hereby and thereby.
3.23 Fairness Opinion. Company has received a written opinion from Salomon
Smith Barney, dated as of the date hereof, to the effect that as of the date
hereof, the Exchange Ratio is fair to the Company from a financial point of view
and has delivered to Parent a copy of such opinion.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SPINCO
Parent and Spinco hereby represent and warrant to Company, subject to (i)
the documents, agreements and transactions contemplated by this Agreement, (ii)
the exceptions disclosed in writing in the disclosure letter, dated as of the
date hereof, delivered by Parent and Spinco to Company and Merger Sub
concurrently with the execution and delivery of the Original Agreement, accepted
by Company, and deemed redelivered by Parent and Spinco and accepted by Company
for purposes of this Agreement (the "PARENT SCHEDULES"), and (iii) the
information set forth in any Parent SEC Reports (as defined in Section 4.8(a)
hereof) filed by Parent with the SEC prior to the date hereof, as follows:
4.1 Organization and Good Standing. Parent, Spinco and each of their
respective Significant Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, with the corporate power and authority to own, lease and operate
its assets and property and to carry on its business as now being conducted and
as currently proposed to be conducted, and is duly qualified to conduct business
and in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified and in good standing would reasonably be expected to
have a Material Adverse Effect on Spinco or the HDD Business.
4.2 Charter Documents. Parent and Spinco have delivered or made available
to Company a true and complete copy of the Restated Certificate of Incorporation
and Bylaws of Parent and the Certificate of Incorporation and Bylaws of Spinco
and similar governing charter instruments of each of its Significant
Subsidiaries, each as amended to date, and each such instrument is in full force
and effect. None of Parent or Spinco, nor any of their respective Subsidiaries
is in violation of any of the provisions of its Certificate of Incorporation or
Bylaws or equivalent governing charter instruments.
4.3 Capital Structure.
(a) The authorized capital stock of Parent consists of 600,000,000
shares of HDD Common Stock, par value $0.01 per share, of which there were
76,968,118 shares issued and outstanding as of September 30, 2000, 1,000,000,000
shares of DSS Common Stock, par value $0.01 per share, of which there were
148,823,768 shares issued and outstanding as of September 30, 2000 (together the
"PARENT COMMON STOCK"), and 20,000,000 shares of Preferred Stock, par value
$0.01 per share, of which no shares are issued or outstanding. All outstanding
shares of Parent Common Stock are duly authorized and validly issued, fully paid
and nonassessable, and are not subject to any preemptive rights created by
statute, the Restated Certificate of Incorporation or Bylaws of Parent or any
agreement or other instrument to which Parent is a party or by which Parent or
its properties or assets are bound. Of the shares of HDD Common Stock
outstanding as of September 30, 2000, 1,494,409 were issued as shares of
restricted stock and were subject to repurchase upon the termination of
employment of the holder ("RESTRICTED STOCK") and of the shares of DSS Common
Stock outstanding as of such date, 2,988,809 were shares of Restricted Stock. As
of September 30, 2000, Parent had reserved an aggregate of 59,884,263 shares of
Parent Common Stock, net of exercises, for issuance to employees, consultants
and non-employee directors pursuant to the Parent Stock Option Plans, under
which (i) options were outstanding to purchase an aggregate of 54,630,672
shares; and (ii) 5,253,591 shares were available for future grant. All shares of
Parent Common Stock
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subject to issuance as aforesaid, upon issuance on the terms and conditions set
forth in the instruments pursuant to which they are issuable, would be duly
authorized and validly issued, fully paid and nonassessable. Section 4.3(a) of
the Parent Schedules contains a complete and accurate list of each outstanding
option to acquire shares of Parent Common Stock as of September 30, 2000, the
name of the holder of each such option, the number of shares subject to each
such option, the exercise price of each such option, the number of shares as to
which each such option was vested as of such date, the vesting schedule for each
such option and whether the exercisability of each such option will be
accelerated in any way as a result of the Merger or any other transactions
contemplated by this Agreement or for any other reason, and indicates the extent
of acceleration, if any.
(b) At the Effective Time, the authorized capital stock of Spinco will
consist of 100,000,000 shares of Common Stock, par value $0.01 per share. At the
Effective Time, the number of shares of Spinco Common Stock which are issued and
outstanding shall be equal to the number of shares of HDD Common Stock issued
and outstanding immediately prior to the Redemption (the "SPINCO COMMON STOCK")
and no shares of Preferred Stock will be issued and outstanding. All outstanding
shares of Spinco Common Stock will be duly authorized and validly issued, fully
paid and nonassessable, and will not be subject to any preemptive rights created
by statute, the Certificate of Incorporation or Bylaws of Spinco or any
agreement or other instrument to which Spinco is a party or by which Spinco or
its properties or assets are bound. All shares of Spinco Common Stock subject to
issuance as aforesaid, upon issuance on the terms and conditions set forth in
the instruments pursuant to which they are issuable, will be duly authorized and
validly issued, fully paid and nonassessable.
(c) There are no equity securities, partnership interests or other
similar ownership interests of any class or series of capital stock of Parent,
or any securities convertible into or exercisable or exchangeable for such
equity securities, partnership interests or other similar ownership interests
issued, reserved for issuance or outstanding. Except for securities Parent owns,
directly or indirectly through one or more Subsidiaries, there are no equity
securities, partnership interests or other similar ownership interests of any
class or series of capital stock of any Subsidiary of Parent, or any securities
convertible into or exercisable or exchangeable for such equity securities,
partnership interests or other similar ownership interests issued, reserved for
issuance or outstanding. There are no options, warrants, equity securities,
partnership interests or other similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any kind or
character to which Parent or any of its Subsidiaries is a party or by which
Parent or any of its Subsidiaries is bound obligating Parent or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition, of any shares of capital stock of Parent or any of
its Subsidiaries or obligating Parent or any of its Subsidiaries to grant,
extend, accelerate the vesting of or enter into any such option, warrant, equity
security, partnership interest or other similar ownership interest, call, right,
commitment or agreement. There are no registration rights and, to the knowledge
of Parent, there are no voting trusts, proxies or other agreements or
understandings with respect to any class or series of capital stock of Parent or
with respect to any equity security, partnership interest or other similar
ownership interest of any class or series of capital stock of any of its
Subsidiaries.
4.4 Subsidiaries. Section 4.4 of the Parent Schedules contains a complete
and accurate list of each Subsidiary of Parent and Spinco, indicating the
jurisdiction of incorporation of each such Subsidiary and Parent's and Spinco's
percentage equity interest therein.
4.5 Authority. Parent and Spinco have all requisite corporate power and
authority to enter into this Agreement, the Parent Voting Agreements, the Parent
Affiliate Agreements and the Separation Documents to be entered into or executed
by Parent or Spinco (collectively, the "PARENT RELATED AGREEMENTS"), to perform
their respective obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by
Parent and Spinco of this Agreement and the Parent Related Agreements, the
performance by Parent and Spinco of their respective obligations hereunder and
thereunder, and the consummation by Parent and Spinco of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action on the part of Parent or Spinco, as applicable (including,
without limitation, the adoption of this Agreement and the
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approval of the Merger by Parent as the sole stockholder of Spinco), subject
only to the Parent Requisite Vote. This Agreement and the Parent Related
Agreements have been (or, in the case of those Parent Related Agreements that
are not being executed and delivered by Parent or Spinco concurrently with the
execution and delivery of this Agreement, will, when they are executed and
delivered by Parent or Spinco, have been) duly executed and delivered by Parent
and Spinco, and, assuming the due authorization, execution and delivery thereof
by the other parties thereto, constitute (or, in the case of those Parent
Related Agreements that are not being executed and delivered by Parent or Spinco
concurrently with the execution and delivery of this Agreement, will, when they
are executed and delivered by Parent or Spinco, constitute) valid and binding
obligations of Parent and Spinco, enforceable in accordance with their
respective terms, subject to (i) the effect of any applicable Laws of general
application relating to bankruptcy, reorganization, insolvency, moratorium or
other similar Laws affecting creditors' rights and the relief of debtors
generally; and (ii) the effect of rules of law and general principles of equity,
including, without limitation, rules of law and general principal of equity
governing specific performance, injunctive relief and other equitable remedies
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
4.6 Conflicts. The execution and delivery of this Agreement and the Parent
Related Agreements by Parent and Spinco do not, and the performance by Parent
and Spinco of their obligations hereunder and thereunder and the consummation of
the transactions contemplated hereby and thereby will not, (i) conflict with or
violate the Restated Certificate of Incorporation or Bylaws of Parent or the
Certificate of Incorporation or Bylaws of Spinco or the equivalent
organizational documents of any of their Subsidiaries; (ii) subject to obtaining
the Parent Requisite Vote and the consents, approvals, orders and
authorizations, and making the registrations, declarations and filings,
described in Section 4.7 hereof, conflict with or violate any Law, rule,
regulation, order, judgment or decree applicable to Parent or any of its
Subsidiaries or by which any of their respective properties and assets are bound
or affected; or (iii) result in any breach of, or constitute a default (or an
event that with notice or lapse of time or both would become a default) under,
or impair rights of Parent or alter the rights or obligations of any third party
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a Lien on any of the properties or
assets of Parent or Spinco or any of their respective Subsidiaries pursuant to,
any material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Parent or
Spinco or any of their respective Subsidiaries is a party or by which Parent or
Spinco or any of their respective Subsidiaries or any of their respective
properties and assets are bound or affected, except to the extent such conflict,
violation, breach, default, impairment or other effect would not, in the case of
clauses (ii) or (iii) above, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on Spinco or the HDD Business.
4.7 Consents. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority is required
by or with respect to Parent or Spinco in connection with the execution and
delivery by Parent or Spinco of this Agreement, the Separation Documents and the
Parent Related Agreements, the performance by Parent or Spinco of their
respective obligations hereunder and thereunder, or the consummation by Parent
or Spinco of the transactions contemplated hereby or thereby, except for (i) the
filing of a Registration Statement (as defined in Section 6.1 hereof) with the
SEC in accordance with the Securities Act; (ii) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware; (iii) the filing of
the Proxy Statement (as defined in Section 6.1 hereof) with the SEC in
accordance with the Exchange Act; (iv) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws; (v) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
the HSR Act and the comparable Laws of any foreign countries; and (vi) such
other consents, approvals, orders, authorizations, registrations, declarations
and filings which, if not obtained or made, would not reasonably be expected to
have a Material Adverse Effect on Spinco or the HDD Business.
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4.8 SEC Filings; Financial Statements; Undisclosed Liabilities.
(a) Parent has filed all forms, reports and documents relating to the
HDD Business required to be filed with the SEC since December 31, 1998. All such
required forms, reports and documents, and all exhibits and schedules thereto
and documents incorporated by reference therein (including those filed by Parent
relating to the HDD Business after the date hereof) are referred to herein as
the "PARENT SEC REPORTS." As of their respective dates, the Parent SEC Reports
(i) complied in all material respects with the applicable requirements of the
Securities Act or the Exchange Act, as the case may be, and the applicable rules
and regulations of the SEC promulgated thereunder; and (ii) did not at the time
each such Parent SEC Report was filed (or if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing) contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. None of the Subsidiaries of Parent or Spinco is required to file any
forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements of Parent and the
combined financial statements of Parent's Hard Disk Drive Group (including, in
each case, any related notes thereto) contained in the Parent SEC Reports
(including any Parent SEC Reports filed by Parent after the date hereof until
the Closing) (collectively, the "PARENT FINANCIAL STATEMENTS"), (i) complied as
to form in all material respects with the published rules and regulations of the
SEC in effect, at the time of filing, with respect thereto; (ii) was prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act); and (iii) fairly presented the consolidated
financial position of Parent and its consolidated Subsidiaries as of the
respective dates thereof and the consolidated results of operations and cash
flows of Parent and its consolidated Subsidiaries for the periods indicated
therein, except that the unaudited interim financial statements were or are
subject to normal and recurring year-end adjustments which were not, or are not
expected to be, material in amount. The consolidated balance sheet of Parent
contained in the Parent SEC Reports as of June 30, 2000, is hereinafter referred
to as the "PARENT BALANCE SHEET" and the separate combined balance sheet of
Parent's Hard Disk Drive Group contained in the Parent SEC Reports as of June
30, 2000, is hereafter referred to as the "HDD BALANCE SHEET."
(c) Neither Parent nor any of its Subsidiaries has any Liabilities of a
nature required to be disclosed on a balance sheet or in the related notes to
consolidated financial statements prepared in accordance with GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Parent and its Subsidiaries taken as a
whole, except Liabilities (i) reflected in the Parent Balance Sheet; or (ii)
incurred since the date of the Parent Balance Sheet in the ordinary course of
business consistent with past practices. Spinco does not have any Liabilities as
of the date of this Agreement, and, as of the Effective Time, will have no
Liabilities other than the HDD Liabilities.
(d) Neither Parent nor any of its Subsidiaries has any Liabilities of a
nature relating to the HDD Business and included as HDD Liabilities that are
required to be disclosed on a balance sheet or in the related notes to
consolidated or combined financial statements prepared in accordance with GAAP
which are, individually or in the aggregate, material to the business, results
of operations or financial condition of Parent and its Subsidiaries taken as a
whole, except Liabilities (i) reflected in the HDD Balance Sheet; or (ii)
incurred since the date of the HDD Balance Sheet in the ordinary course,
consistent with past practices, of the HDD Business.
(e) Parent has heretofore furnished to Company a true and complete copy
of any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed following the date hereof, to forms, reports
and documents which previously had been filed by Company with the SEC pursuant
to the Securities Act or the Exchange Act relating to the HDD Business.
4.9 Absence of Certain Changes or Events. Since the date of the Parent
Balance Sheet: (a) there has not been, occurred or arisen: (i) any Material
Adverse Effect on the HDD Business;
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(ii) any material change by Parent in its accounting methods, principles or
practices, except as required by concurrent changes in GAAP; or (iii) any
revaluation by Parent of any of its assets, including, without limitation,
writing down of the value of capitalized inventory or writing off notes or
accounts receivable other than in the ordinary course of business; and (b)
Parent has not taken any action, or failed to take any action, the taking or
failure to take which action would, if it had occurred after the execution and
delivery of this Agreement, have constituted a breach by Parent of Section 5.1
or Section 5.2 hereof.
4.10 Taxes.
(a) Parent and each of its Subsidiaries have timely filed all Returns
relating to Taxes required to be filed by Parent and each of its Subsidiaries
with any Tax authority. Parent and each of its Subsidiaries have paid all Taxes
shown to be due on such Returns.
(b) Neither Parent nor any of its Subsidiaries has been delinquent in
the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against Parent or any of its Subsidiaries, nor
has Parent or any of its Subsidiaries executed any unexpired waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(c) No audit or other examination of any Return of Parent or any of its
Subsidiaries by any Tax authority is presently in progress, nor has Parent or
any of its Subsidiaries been notified of any request for such an audit or other
examination.
(d) Neither Parent nor any of its Subsidiaries has any Liability for any
material unpaid Taxes which has not been accrued for or reserved on Parent
Balance Sheet in accordance with GAAP, other than any Liability for unpaid Taxes
that may have accrued since June 30, 2000.
(e) There is no contract, agreement, plan or arrangement to which Parent
or any of its Subsidiaries is a party as of the date of this Agreement
(including, without limitation, this Agreement), covering any employee or former
employee of Parent or any of its Subsidiaries that, individually or
collectively, would reasonably be expected to give rise to the payment of any
amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of
the Code. There is no contract, agreement, plan or arrangement to which Parent
or any of its Subsidiaries is a party or by which Parent or any of its
Subsidiaries is bound to compensate any individual for excise taxes paid
pursuant to Section 4999 of the Code.
(f) Neither Parent nor any of its Subsidiaries has filed any consent
agreement under Section 341(f) of the Code or agreed to have Section 341(f)(2)
of the Code apply to any disposition of a subsection (f) asset (as defined in
Section 341(f)(4) of the Code) owned by Parent or any of its Subsidiaries.
(g) Other than the Separation Documents contemplated hereby, neither
Parent nor any of its Subsidiaries is party to or has any obligation under any
Tax-sharing, Tax indemnity or Tax allocation agreement or arrangement.
(h) None of the assets of Parent or any of its Subsidiaries are tax
exempt use property within the meaning of Section 168(h) of the Code.
4.11 Intellectual Property.
(a) For all purposes of and under this Agreement, the following terms
shall have the following respective meanings:
(i) "PARENT INTELLECTUAL PROPERTY" means all Intellectual Property
that is owned by, or exclusively licensed to, Parent or any of its Subsidiaries
and used in the HDD Business.
(ii) "PARENT REGISTERED INTELLECTUAL PROPERTY" means all of the
Registered Intellectual Property owned by, or filed in the name of, Parent or
any of its Subsidiaries and used in the HDD Business.
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(b) No Parent Intellectual Property or product or service of Parent or
any of its Subsidiaries is subject to any proceeding or outstanding decree,
order, judgment, contract, license, agreement, or stipulation restricting in any
manner the use, transfer, or licensing thereof by Parent or any of its
Subsidiaries, or which may affect the validity, use or enforceability of such
Parent Intellectual Property.
(c) Either Parent or one of its Subsidiaries owns and has good and
exclusive title to, or has a valid license to (sufficient for the conduct of its
business as currently conducted and as currently proposed to be conducted), each
material item of Parent Intellectual Property or other Intellectual Property
used by Parent or the applicable Subsidiary free and clear of any Lien
(excluding licenses and related restrictions), and either Parent or one of its
Subsidiaries is the exclusive owner of all trademarks and trade names used in
connection with the operation or conduct of the business of Parent or the
applicable Subsidiary, including the sale of any products or the provision of
any services by Parent or such Subsidiary.
(d) Either Parent or one of its Subsidiaries owns exclusively, and has
good title to, all copyrighted works that are products of Parent or the
applicable Subsidiary or which Parent or the applicable Subsidiary otherwise
expressly purports to own that are used in the HDD Business.
(e) To the extent that any material Intellectual Property has been
developed or created by a third party for Parent or any of its Subsidiaries that
is used in the HDD Business, Parent or such Subsidiary has a written agreement
with such third party with respect thereto and Parent or such Subsidiary thereby
either (i) has obtained ownership of, and is the exclusive owner of; or (ii) has
obtained a license (sufficient for the conduct of its business as currently
conducted and as proposed to be conducted) to all such third party's
Intellectual Property in such work, material or invention by operation of law or
by valid assignment, to the fullest extent it is legally possible to do so.
(f) Neither Parent nor any of its Subsidiaries has transferred ownership
of, or granted any exclusive license with respect to, any Intellectual Property
that is or was material Parent Intellectual Property, to any third party.
(g) To the knowledge of Parent, the operation of the HDD Business of
Parent and its Subsidiaries as such business is currently conducted and
currently proposed to be conducted, including Parent's and its Subsidiaries'
design, development, manufacture, marketing and sale of the products or services
of Parent and its Subsidiaries (including products currently under development)
has not, does not and will not infringe or misappropriate the Intellectual
Property of any third party or, to the knowledge of Parent, constitute unfair
competition or trade practices under the laws of any jurisdiction.
(h) Neither Parent nor any of its Subsidiaries has received notice from
any third party that the operation of the HDD Business of Parent or any of its
Subsidiaries or any act, product or service of Parent or any of its
Subsidiaries, infringes or misappropriates the Intellectual Property of any
third party or constitutes unfair competition or trade practices under the laws
of any jurisdiction.
(i) To the knowledge of Parent, no person has or is infringing or
misappropriating any Parent Intellectual Property.
(j) All Parent Registered Intellectual Property included in the Parent
Intellectual Property is valid and subsisting. All maintenance and annuity fees
have been fully paid and all fees paid during prosecution and after issuance of
any Parent Registered Intellectual Property have been paid in the correct entity
status amounts.
(k) There are no royalties, fees or other payments payable by Parent or
any of its Subsidiaries to any third party by reason of the ownership, use, sale
or disposition of Parent Intellectual Property.
(l) Neither Parent nor any of its Subsidiaries is in breach of any
license, sublicense or other agreement relating to material Parent Intellectual
Property. Neither the execution of this Agreement or any ancillary agreement
contemplated hereby nor the consummation of the Merger will contravene, conflict
with or result in an impairment of Parent's right to own or use any of the
material Parent Intellectual Property or any intellectual property of any third
party.
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(m) To the knowledge of Parent, it has at all times been Parent's
practice and procedure to require all employees of Parent and its Subsidiaries
to execute an agreement (containing no exceptions or exclusions from the scope
of its coverage) regarding the protection of proprietary information and the
assignment to Parent of any Intellectual Property arising from services
performed for Parent by such employees, the current form of which has been
provided to Company.
(n) The Programs do not contain any open source code or any materials
subject to the GNU Public License (GPL), GNU Lesser Public License (GLPL) or any
similar license, and the Programs are not subject to any open source license
restrictions; including without limit the GPL or GLPL.
(o) To the knowledge of Parent, the Programs will be free of any and all
viruses, Trojan horses, trap doors, passwords, keys, protection codes or any
other devices or mechanisms which are intended to cause it to perform any
material functions other than those specified or intended or which are intended
to halt, disrupt, limit access or grant improper access to or sabotage the
operation of the Programs or any other process or device.
4.12 Compliance; Permits; Restrictions.
(a) Neither Parent nor any of its Subsidiaries is in conflict with, or
in default or violation of (i) any Law, rule, regulation, order, judgment or
decree applicable to Parent or any of its Subsidiaries or by which any of their
respective properties and assets are bound or affected; or (ii) any material
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Parent or any of its
Subsidiaries is a party or by which Parent or any of its Subsidiaries or any of
their respective properties and assets are bound or affected, except for
conflicts, defaults or violations which, neither individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect on the
HDD Business. To the knowledge of Parent, no investigation or review by any
Governmental Authority is pending or threatened against Parent or its
Subsidiaries, nor has any Governmental Authority indicated an intention to
conduct the same, except for investigations which, neither individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect on
the HDD Business or Spinco. There is no material agreement, judgment,
injunction, order or decree binding upon Parent or any of its Subsidiaries which
would reasonably be expected to have the effect of prohibiting or materially
impairing any business practice of Parent or any of its Subsidiaries, any
acquisition of material property by Parent or any of its Subsidiaries or the
conduct of business by Parent and any of its Subsidiaries as currently
conducted.
(b) Parent and its Subsidiaries hold (or, in the case of Spinco, will
hold upon the consummation of the Separation) all permits, licenses, variances,
exemptions, orders and approvals from Governmental Authorities for the operation
of the HDD Business, failure to hold which would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the HDD
Business or Spinco (collectively, the "PARENT PERMITS"). Parent and its
Subsidiaries are in compliance in all material respects with the terms of the
Parent Permits.
4.13 Litigation. There are no Actions pending, or as to which Parent or
any of its Subsidiaries has received any notice of assertion nor, to the
knowledge of Parent, is there a threatened Action against Parent or any of its
Subsidiaries which would reasonably be expected to have a Material Adverse
Effect on Spinco, or which in any manner challenges or seeks to prevent, enjoin,
alter or delay the Merger or any of the other transactions contemplated by this
Agreement, except as is not material to Spinco.
4.14 Brokers' and Finders' Fees. Except for fees payable to Lehman
Brothers pursuant to an engagement letter, dated August 17, 2000, a copy of
which has been provided to Company, neither Parent nor Spinco has incurred, nor
will either incur, directly or indirectly, any Liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement, the Merger or any other transactions contemplated by this
Agreement.
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4.15 Employee Benefit Plans.
(a) Section 4.15(a) of the Parent Schedules contains a complete and
accurate list of all employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments, agreements or other arrangements (whether or
not set forth in a written document and including, without limitation, all
"employee benefit plans" within the meaning of Section 3(3) of ERISA) covering
any active or former employee, director or consultant of Parent to be
transferred in the Separation to Spinco ("PARENT EMPLOYEE" which shall for this
purpose mean an employee of Parent or a Code Affiliate of Parent to be
transferred in the Separation to Spinco), any Subsidiary of Parent, or with
respect to which Parent has or, to its knowledge, may in the future have
Liability, (collectively, the "PARENT PLANS"). Parent has provided or will make
available to Company prior to the Closing: (i) true and complete copies of all
documents embodying each Parent Plan including, without limitation, all
amendments thereto, all trust documents related thereto; and all material
written agreements and contracts relating to each such Parent Plan; (ii) the
most recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Parent Plan; (iii) the most recent summary plan description
together with the summary(ies) of material modifications thereto, if any,
required under ERISA with respect to each Parent Plan; (iv) all IRS
determination, opinion, notification and advisory letters relating to each
Parent Plan; (v) all material correspondence to or from any Governmental
Authority relating to each Parent Plan; (vi) all forms and related notices
required under the COBRA; (vii) the most recent discrimination tests for each
Parent Plan; (viii) the most recent actuarial valuations, if any, prepared for
each Parent Plan; (ix) if the Parent Plan is funded, the most recent annual and
periodic accounting of the Parent Plan assets; and (x) all material
communication to Parent Employees relating to any Parent Plan and any proposed
Parent Plan, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules, or other events which would result in any material liability
to Parent or any Code Affiliate.
(b) Each Parent Plan has been maintained and administered in all
material respects in compliance with its terms and with the requirements
prescribed by any and all Laws, including, without limitation, ERISA and the
Code, which are applicable to such Parent Plans. No Action (excluding claims for
benefits incurred in the ordinary course of Parent Plan activities) has been
brought, or to the knowledge of Parent, is threatened, against or with respect
to any Parent Plan. There are no audits, inquiries or proceedings pending or, to
the knowledge of Parent, threatened by the IRS or the DOL with respect to any
Parent Plans. All contributions, reserves or premium payments required to be
made or accrued as of the date hereof to the Parent Plans have been timely made
or accrued. Any Parent Plan intended to be qualified under Section 401(a) of the
Code and each trust intended to qualify under Section 501(a) of the Code (i) has
either obtained a favorable determination, notification, advisory and/or opinion
letter, as applicable, as to its qualified status from the IRS or still has a
remaining period of time under applicable Treasury Regulations or IRS
pronouncements in which to apply for such letter and to make any amendments
necessary to obtain a favorable determination; and (ii) incorporates or has been
amended to incorporate all provisions required to comply with the Tax Reform Act
of 1986 and subsequent legislation. To the knowledge of Parent, no condition or
circumstance exists giving rise to a material likelihood that any such Parent
Plan would not be treated as qualified by the IRS. Parent does not have any plan
or commitment to establish any new Parent Plan, to modify any Parent Plan
(except to the extent required by applicable Law or the applicable Parent Plan
or to conform any such Parent Plan to the requirements of any applicable Law, in
each case as previously disclosed to Company in writing, or as required by the
terms of any Parent Plan or this Agreement), or to enter into any new Parent
Plan. Each Parent Plan can be amended, terminated or otherwise discontinued
after the Effective Time in accordance with its terms, without liability to
Company, Parent or any of its Code Affiliates (other than ordinary
administration expenses).
(c) Neither Parent, any of its Subsidiaries, nor any of their Code
Affiliates has at any time ever maintained, established, sponsored, participated
in, or contributed to any plan subject to Title IV of ERISA or Section 412 of
the Code and at no time has Parent contributed to or been requested to
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contribute to any "multiemployer plan," as such term is defined under ERISA.
Neither Parent, any of its Subsidiaries, nor any officer or director of Parent
or any of its Subsidiaries is subject to any material Liability or penalty under
Section 4975 through 4980B of the Code or Title I of ERISA. No "prohibited
transaction," within the meaning of Section 4975 of the Code or Sections 406 and
407 of ERISA, and not otherwise exempt under Section 4975 of the Code and
Section 408 of ERISA, has occurred with respect to any Parent Plan which could
subject Parent or its Affiliates to material Liability.
(d) None of the Parent Plans promises or provides retiree medical or
other retiree welfare benefits to any person except as required by applicable
Law, and neither Parent nor any of its Subsidiaries has represented, promised or
contracted (whether in oral or written form) to provide such retiree benefits to
any Parent Employee, former employee, director, consultant or other person,
except to the extent required by applicable Law.
(e) Neither Parent nor any of its Subsidiaries is bound by or subject to
(and none of its respective properties or assets is bound by or subject to) any
arrangement with any labor union. No employee of Parent or any of its
Subsidiaries is represented by any labor union or covered by any collective
bargaining agreement and, to the knowledge of Parent, no campaign to establish
such representation is in progress. There is no pending or, to the knowledge of
Parent, threatened labor dispute involving Parent or any of its Subsidiaries and
any group of its employees nor has Parent or any of its Subsidiaries experienced
any labor interruptions over the past three (3) years, and Parent and its
subsidiaries consider their relationships with their employees to be good.
Parent is in compliance in all material respects with all applicable material
Laws respecting employment, employment practices, terms and conditions of
employment and wages and hours.
(f) Neither the execution and delivery by Parent of this Agreement or
the Separation Documents, nor the performance by Parent of its obligations
hereunder or thereunder, or the consummation by Parent of the transactions
contemplated hereby or thereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any stockholder, director or Parent Employee or any of its
Subsidiaries under any Parent Plan or otherwise, (ii) materially increase any
benefits otherwise payable under any Parent Plan, or (iii) result in the
acceleration of the time of payment or vesting of any such benefits.
(g) Each Parent International Employee Plan (as defined below) has been
established, maintained and administered in material compliance with its terms
and conditions and with the requirements prescribed by any and all Laws that are
applicable to such Parent International Employee Plan. Furthermore, no Parent
International Employee Plan has unfunded Liabilities that, as of the Effective
Time, will not be offset by insurance or fully accrued. Except as required by
applicable Law, no condition exists that would prevent Parent or Company from
terminating or amending any Parent International Employee Plan at any time for
any reason. For all purposes of and under this Agreement, "PARENT INTERNATIONAL
EMPLOYEE PLAN" means each Parent Plan covering employees to be transferred in
the Separation to Spinco that has been adopted or maintained by Parent or any of
its Subsidiaries, whether informally or formally, for the benefit of current or
former employees of Parent or any of its Subsidiaries outside the United States.
4.16 Absence of Liens. Parent and each of its Subsidiaries has good and
valid title to, or, in the case of leased properties and assets, valid leasehold
interests in, all of its material tangible properties and assets (real, personal
and mixed) used in the HDD Business, free and clear of any Liens, except (i)
Liens reflected in the Parent Financial Statements; (ii) Liens for Taxes not yet
due and payable; and (iii) such Liens as would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect on the HDD
Business.
4.17 Facilities. Section 4.19 of the Parent Schedules provides an accurate
and complete list of any facility or real property, including without
limitation, any improvement, equipment, structure, building or fixture that is
currently owned, used, occupied, controlled or rented in connection with the HDD
Business (collectively, the "PARENT FACILITIES"), and Parent has provided
Company true and complete copies of all leases, licenses or other agreements
relating to Parent's use or occupancy of the Parent Facilities
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(collectively, the "PARENT LEASES"). Neither Parent nor any of its Subsidiaries,
nor to the knowledge of Parent any other party to a Parent Lease, is in material
breach, violation or default under, and neither Parent nor any of its
Subsidiaries has received written notice that it has breached, violated or
defaulted under, any of the terms or conditions of any Parent Lease.
4.18 Sufficiency of HDD Assets and Parent Intellectual Property. The
Parent Intellectual Property constitutes and includes all of the Intellectual
Property used in the HDD Business, or necessary for the conduct of the HDD
Business, as the HDD Business is currently conducted. The HDD Assets, together
with the Parent Intellectual Property and the rights conferred under the
contracts assigned to (or the economic benefits of which are conferred on)
Spinco in the Separation pursuant to the Separation Documents, constitutes and
includes all of the property and assets, tangible and intangible, and all
agreements and rights, used in the HDD Business, or necessary for the conduct of
the HDD Business, as the HDD Business is currently conducted.
4.19 Environmental Matters.
(a) (i) To the knowledge of Parent, the HDD Business is in compliance
and has been in compliance with all applicable Environmental Laws (which
compliance includes, but is not limited to, the possession by the HDD Business
and its Subsidiaries of all permits and other governmental authorizations
required under applicable Environmental Laws, and compliance with the terms and
conditions thereof), except where failures to be in compliance would not, in the
aggregate, reasonably be expected to have a Material Adverse Effect on Spinco or
the HDD Business. Since December 31, 1997, neither Parent, Spinco nor any of
their respective Subsidiaries has received any communication (written or oral),
whether from a Governmental Authority, citizens' group, employee or otherwise,
indicating that the HDD Business is not in such compliance, except where
failures to be in compliance would not, in the aggregate, reasonably be expected
to have a Material Adverse Effect on Spinco or the HDD Business.
(ii) There is no Environmental Claim pending or, to the knowledge of
Parent, threatened against the HDD Business or, to the knowledge of Parent,
against any entity or business whose liability for any Environmental Claim
Spinco or any of its Subsidiaries has or may have retained, assumed or been
allocated, or that Spinco or any of its Subsidiaries may or will assume, be
allocated or otherwise acquire, that would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Spinco or the HDD
Business.
(iii) There are no present or, to the knowledge of Parent, past
actions, activities, circumstances, conditions, events or incidents, including,
without limitation, the release or presence of any Hazardous Material that could
form the basis of any Environmental Claim against Parent (in connection with the
HDD Business), Spinco or any of its Subsidiaries or the Surviving Corporation
or, to the knowledge of Parent, against any entity or business whose liability
for any Environmental Claim Spinco or any of its Subsidiaries has or may have
retained, assumed or been allocated, or that Spinco or any of its Subsidiaries
may or will assume, be allocated or otherwise acquire, that would, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
Spinco.
(b) Neither Spinco nor any of its Subsidiaries is subject to any
indemnity or other agreement, or will after the Separation be subject to any
indemnity or other agreement, relating to liability under any Environmental Laws
or relating to Hazardous Materials, except for indemnity or similar provisions
contained in Parent Contracts that were entered into in the ordinary course of
Parent's business.
4.20 Labor Matters. Except as would not be material to the HDD Business,
there are no controversies pending or, to the knowledge of Parent, threatened,
between Parent or any of its Subsidiaries and any of their respective employees.
As of the date of this Agreement, neither Parent nor any of its Subsidiaries is
a party to any collective bargaining agreement or other labor union contract
applicable to persons employed by Parent or its Subsidiaries nor does Parent
know of any activities or proceedings of any labor union to organize any such
employees. As of the date of this Agreement, Parent has no knowledge of any
strikes, slowdowns, work stoppages or lockouts, or threats thereof, by or with
respect to any employees of Parent or any of its Subsidiaries.
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4.21 Agreements, Contracts and Commitments.
(a) Except as would not be material to the HDD Business, neither Parent
nor any of its Subsidiaries is a party to or is bound by:
(i) any employment or consulting agreement, contract or commitment
with any officer or director or higher level employee or member of the Board of
Directors of Parent, other than those that are terminable by Parent or any of
its Subsidiaries on no more than thirty (30) days' notice without Liability or
financial obligation to Parent;
(ii) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement;
(iii) any agreement of indemnification or any guaranty other than any
agreement of indemnification entered into in connection with the sale or license
of products or services in the ordinary course of business;
(iv) any agreement, contract or commitment containing any covenant
limiting in any respect the right of Parent or any of its Subsidiaries to engage
in any line of business or to compete with any person or granting any exclusive
distribution rights;
(v) any agreement, contract or commitment currently in force relating
to the disposition or acquisition by Parent or any of its Subsidiaries after the
date of this Agreement of a material amount of assets not in the ordinary course
of business or pursuant to which Parent has any material ownership interest in
any corporation, partnership, joint venture or other business enterprise other
than its Subsidiaries; or
(vi) any mortgages, indentures, guarantees, loans or credit
agreements, security agreements or other agreements or instruments relating to
the borrowing of money or extension of credit.
(b) Neither Parent nor any of its Subsidiaries, nor to the knowledge of
Parent any other party to a Parent Contract (as defined below), is in breach,
violation or default under, and neither Parent nor any of its Subsidiaries has
received written notice that it has breached, violated or defaulted under, any
of the material terms or conditions of any of the agreements, contracts or
commitments to which Parent or any of its Subsidiaries is a party or by which
Parent or any of its Subsidiaries is bound that are required to be disclosed in
the Parent Schedules pursuant to this Agreement (any such agreements, contracts
or commitments are "PARENT CONTRACTS") in such a manner as would permit any
other party to cancel or terminate any such Parent Contract, or would permit any
other party to seek material damages or other material remedies (for any of such
breaches, violations or defaults, or all of them in the aggregate).
4.22 Registration Statement; Proxy Statement; Other Filings. None of the
information supplied or to be supplied by Parent for inclusion or incorporation
by reference in (i) the Registration Statement (as defined in Section 6.1
hereof) will at the time it is declared or ordered effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances in which they were made,
not misleading; and (ii) the Proxy Statement (as defined in Section 6.1 hereof)
shall not, on the date the Proxy Statement is first mailed to the stockholders
of Parent and the stockholders of Company, at the time of the Parent
Stockholders' Meeting (as defined in Section 6.1 of this Agreement) or the
Company Stockholders' Meeting (as defined in Section 6.1 of this Agreement) and
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not false or misleading, or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of proxies for the Parent Stockholders' Meeting or the Company
Stockholders' Meeting which has become false or misleading. The
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Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations promulgated
thereunder that are applicable by reason of the Proxy Statement constituting a
proxy statement of Parent. Notwithstanding the foregoing, Parent makes no
representation or warranty with respect to any information supplied by Company
which is contained in any of the foregoing documents.
4.23 Board Approval. The Board of Directors of Parent has, as of the date
of this Agreement, made the determinations set forth in the fifth recital to
this Agreement.
4.24 State Takeover Statutes. The Board of Directors of Parent has
approved the Merger, this Agreement, the Parent Related Agreements and the
transactions contemplated hereby and thereby, and such approval is sufficient to
render inapplicable to the Merger, the Redemption, this Agreement, the Parent
Related Agreements and the transactions contemplated hereby and thereby the
provisions of Section 203 of Delaware Law to the extent, if any, such section is
applicable to the Merger, the Redemption, this Agreement, the Parent Related
Agreements and the transactions contemplated hereby and thereby. No other state
takeover statute or similar statute or regulation applies to or purports to
apply to the Merger, the Redemption, this Agreement, the Parent Related
Agreements or the transactions contemplated hereby and thereby.
4.25 Fairness Opinion. Parent has received a written opinion from Lehman
Brothers, dated as of the date hereof, to the effect that as of the date hereof,
the Exchange Ratio is fair to the holders of HDD Common Stock from a financial
point of view and has delivered to Company a copy of such opinion.
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business. During the period commencing with the execution
and delivery of this Agreement and continuing until the earlier to occur of the
termination of this Agreement pursuant to its terms or the Effective Time,
except (i) in the case of Company as provided in Article V of the Company
Schedules and in the case of Parent as provided in Article V of the Parent
Schedules; or (ii) to the extent that the other party shall otherwise consent in
writing, Company (which for the purposes of this Article V shall include Company
and each of its Subsidiaries) and Parent (which for the purposes of this Article
V shall include Parent and each of its Subsidiaries) shall (a) carry on its
business diligently and in accordance with good commercial practices and in the
ordinary course, in substantially the same manner as heretofore conducted and in
compliance with all applicable Laws, (b) pay its debts and Taxes when due
(unless being contested or disputed in good faith), (c) pay or perform other
material obligations when due, (d) keep in force all insurance policies relating
to the HDD Business and (e) use its commercially reasonable efforts consistent
with past practices and policies to preserve intact its present business
organization, keep available the services of its present officers and employees
and preserve its relationships with customers, suppliers, distributors,
licensors, licensees, landlords, creditors, employees and others with which it
has business dealings. In furtherance of the foregoing and subject to applicable
Law, Company and Parent shall confer, as promptly as practicable, prior to
taking any material actions or making any material management decisions with
respect to the conduct of the HDD Business during the foregoing period.
5.2 Restricted Conduct. Except (i) in the case of Company, as provided in
Article V of the Company Schedules; and (ii) in the case of Parent or Spinco, as
provided in Article V of the Parent Schedules, or as provided in this Agreement,
none of Company, Parent or Spinco shall do any of the following, and none of
Company, Parent or Spinco shall permit its Subsidiaries to do any of the
following, without the prior written consent of the other party hereto
(provided, however, that subparagraphs (a), (b), (d), (e), (f), (g), (h), (i)
and (j) shall only apply to the HDD Business and its employees and Spinco):
(a) except as required by applicable Law or pursuant to the terms of a
Company Plan or a Parent Plan, as the case may be, in effect as of the date
hereof, waive any stock repurchase rights,
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accelerate, amend or change the period of exercisability of options or
restricted stock, or reprice options, granted under any employee, consultant or
director stock plans or authorize cash payments in exchange for any options
granted under any of such plans;
(b) grant any severance or termination pay to any director, officer or
employee, except pursuant to written agreements outstanding, or policies
existing, on the date hereof and as previously disclosed in writing to the other
party hereto, or adopt any new severance plan or amend or modify or alter in any
manner any severance plan, agreement or arrangement existing on the date hereof;
(c) transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Company Intellectual
Property or the Parent Intellectual Property, as the case may be, or enter into
grants to transfer or license to any person future patent rights, other than in
the ordinary course of business or amend or modify or alter in any manner any
severance plan, agreement or arrangement existing on the date hereof;
(d) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock, or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(e) purchase, redeem or otherwise acquire, directly or indirectly, any
shares of capital stock of Company or its Subsidiaries, or Parent or its
Subsidiaries, as the case may be, except repurchases of unvested shares at cost
in connection with the termination of the employment relationship with any
employee pursuant to stock option or purchase agreements in effect on the date
hereof;
(f) issue, deliver, sell, authorize, pledge or otherwise encumber or
propose any of the foregoing with respect to any shares of capital stock or any
securities convertible into shares of capital stock, or subscriptions, rights,
warrants or options to acquire any shares of capital stock or any securities
convertible into shares of capital stock, or enter into other agreements or
commitments of any kind or character obligating it to issue any such shares or
convertible securities, other than (i) the issuance, delivery and/or sale of
shares of Company Common Stock or Parent Common Stock, as the case may be,
pursuant to the exercise of stock options therefor outstanding on the date
hereof; (ii) the granting of options to purchase shares of Company Common Stock
or Parent Common Stock, as the case may be, to be granted at fair market value
in the ordinary course of business, consistent with past practice (as to
recipients, amounts and vesting); (iii) shares of Company Common Stock or Parent
Common Stock, as the case may be, issuable upon the exercise of the options
referred to in clause (ii); and (iv) shares of Company Common Stock or Parent
Common Stock, as the case may be, issuable to participants in Parent's 1999
Employee Stock Purchase Plan (the "PARENT ESPP") or the Company 1998 Employee
Stock Purchase Plan (the "COMPANY ESPP") consistent with the terms thereof;
(g) acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets which are material, individually or in the aggregate, to
the business of Company or Parent, as the case may be, or enter into any joint
ventures, strategic partnerships or alliances, other than in the ordinary course
of business consistent with past practice;
(h) adopt a plan of complete or partial liquidation, dissolution,
consolidation, restructuring, recapitalization or other reorganization;
(i) incur any indebtedness or guarantee any such indebtedness of another
person, issue or sell any debt securities or options, warrants, calls or other
rights to acquire any debt securities of Company or Parent, as the case may be,
enter into any "keep well" or other agreement to maintain any financial
statement condition or enter into any arrangement having the economic effect of
any of the foregoing, other than (i) in connection with the financing of
ordinary course trade payables consistent with past practice; or (ii) pursuant
to existing credit facilities in the ordinary course of business;
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(j) adopt or amend any employee benefit plan or employee stock purchase
or employee stock option plan other than routine amendments in the ordinary
course and consistent with past practices, or enter into any employment contract
or collective bargaining agreement (other than offer letters and letter
agreements entered into in the ordinary course of business consistent with past
practice with employees who are terminable "at will"), pay any special bonus or
special remuneration to any director or employee other than in the ordinary
course of business consistent with past practices, or increase the salaries or
wage rates or fringe benefits (including rights to severance or indemnification)
of its directors, officers, employees or consultants;
(k) revalue any of its assets or, except as required by GAAP, make any
change in accounting methods, principles or practices;
(l) engage in any action that could reasonably be expected to cause the
Merger to fail to qualify as a "reorganization" under Section 368(a) of the
Code, whether or not otherwise permitted by the terms of this Article V;
(m) sell, dispose of or license any of the HDD Assets to any person,
except Inventory in the ordinary course of business, or mortgage, pledge,
subject to a Lien, grant a security interest in or otherwise encumber any of the
HDD Assets;
(n) change accounting methods or practices relating to or affecting the
HDD Assets, the HDD Liabilities or the HDD Business (including, without
limitation, methods and practices relating to the internal allocation of assets
and liabilities as between the HDD Business and Parent's DLT & Storage Systems
Group);
(o) amend, terminate or waive any rights under any contract of Parent
relating to the HDD Business, except in the ordinary course of the HDD Business
consistent with past practices; or
(p) agree in writing or otherwise to take any of the actions described
in Section 5.1 through Section 5.2(p), inclusive.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Proxy Statement/Prospectus; Registration Statement.
(a) As promptly as practicable after the execution of this Agreement,
(i) Company and Parent shall prepare and file with the SEC a joint proxy
statement (the "PROXY STATEMENT") to be sent to the stockholders of Company and
the stockholders of Parent in connection with the meeting of the stockholders of
Company to consider the approval of the Company Stockholder Proposal (the
"COMPANY STOCKHOLDERS' MEETING") and in connection with the meeting of the
stockholders of Parent to consider the approval of the Parent Stockholder
Proposal (the "PARENT STOCKHOLDERS' MEETING"), and (ii) Company shall prepare
and file with the SEC a registration statement on Form S-4 (the "REGISTRATION
STATEMENT"), in which the Proxy Statement will be included as a prospectus, to
register under the Securities Act the issuance of shares of Company Common Stock
in connection with the Merger. Each of Company and Parent shall respond to any
comments of the SEC, use its respective commercially reasonable efforts to have
the Registration Statement declared or ordered effective under the Securities
Act as promptly as practicable after such filing, and cause the Proxy Statement
to be mailed to its respective stockholders at the earliest practicable time. As
promptly as practicable after the date hereof, Company and Parent shall prepare
and file any other filings required under the Exchange Act or the Securities
Act. Each party hereto shall notify the other promptly upon the receipt of any
comments from the SEC or its staff and of any request by the SEC or its staff
for amendments or supplements to the Proxy Statement or the Registration
Statement or for additional information, and shall supply the other party or
parties hereto with copies of all correspondence between such party or any of
its representatives, on the one hand, and the SEC or its staff, on the other
hand, with respect to the Proxy Statement or the Registration Statement. Each
party hereto shall comply in all material respects with all requirements of Law
applicable to such
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party in connection with the Proxy Statement and the Registration Statement.
Whenever any event occurs which is required to be set forth in an amendment or
supplement to the Proxy Statement or the Registration Statement, Company or
Parent, as the case may be, shall promptly inform the other party hereto of such
occurrence and cooperate in filing with the SEC or its staff, and/or mailing to
stockholders of Company or stockholders of Parent, such amendment or supplement.
As promptly as practicable after the Registration Statement shall have become
effective, each of Parent and Company shall mail the Proxy Statement to their
respective stockholders.
(b) Subject to Section 6.2(c) and Section 6.2(d) hereof, the Proxy
Statement shall also include the recommendations of (i) the Board of Directors
of Company in favor of approval of the Company Stockholder Proposal, and (ii)
the Board of Directors of Parent in favor of approval of the Parent Stockholder
Proposal.
6.2 Meetings of Stockholders.
(a) Company shall take all action necessary in accordance with Delaware
Law and its Certificate of Incorporation and Bylaws to convene the Company
Stockholders' Meeting, to be held as promptly as practicable after the
Registration Statement is declared effected under the Securities Act, for the
purpose of voting upon the approval of the Company Stockholder Proposal and
shall use its commercially reasonable efforts to convene and hold the Company
Stockholders' Meeting on the same day and at the same time as the Parent
Stockholders' Meeting. Parent shall take all action necessary in accordance with
Delaware Law, the Restated Certificate of Incorporation and its Bylaws to
convene the Parent Stockholders' Meeting, to be held as promptly as practicable
after the Registration Statement is declared effected under the Securities Act,
for the purpose of voting upon the approval of the Parent Stockholder Proposal
and shall use its commercially reasonable efforts to hold the Parent
Stockholders' Meeting on the same day and at the same time as the Company
Stockholders' Meeting. Subject to Section 6.2(c) and Section 6.2(d) hereof,
Parent and Company shall each use its commercially reasonable efforts to solicit
from its stockholders proxies in favor of the approval of the Company
Stockholder Proposal, in the case of Company, and in favor of the approval of
the Parent Stockholder Proposal, in the case of Parent, and shall take all other
action necessary or advisable to secure the Company Requisite Vote, in the case
of Company's stockholders, and the Parent Requisite Vote, in the case of
Parent's stockholders, in each case as required by Delaware Law and all other
applicable legal requirements (including, without limitation, the rules of
Nasdaq, in the case of Company, and the rules of the New York Stock Exchange, in
the case of Parent).
(b) Subject to Section 6.2(c) and Section 6.2(d) hereof: (i) the Board
of Directors of Company shall recommend that the stockholders of Company vote in
favor of approval of the Company Stockholder Proposal at the Company
Stockholders' Meeting, and the Board of Directors of Parent shall recommend that
the stockholders of Parent vote in favor of the approval of the Parent
Stockholder Proposal at the Parent Stockholders' Meeting; (ii) the Proxy
Statement shall include a statement to the effect that the Board of Directors of
Company has recommended that the stockholders of Company vote in favor of
approval of the Company Stockholder Proposal at the Company Stockholders'
Meeting, and a statement to the effect that the Board of Directors of Parent has
recommended that the stockholders of Parent vote in favor of the approval of the
Parent Stockholder Proposal at the Parent Stockholders' Meeting; and (iii)
neither Board of Directors, nor any committee thereof, shall withdraw, amend or
modify, or propose or resolve to withdraw, amend or modify, in a manner adverse
to the other party hereto, its respective recommendation.
(c) Notwithstanding anything in this Agreement to the contrary, nothing
in this Agreement shall prevent the Board of Directors of Company from
withholding, withdrawing, amending or modifying its recommendation in favor of
approval of the Company Stockholder Proposal by the stockholders of Company if
(i) a Company Superior Offer (as defined below) is made to Company and is not
withdrawn; (ii) neither Company nor any of its representatives shall have
violated any of the restrictions set forth in Section 6.4(a) hereof; and (iii)
the Board of Directors of Company concludes in good faith, after consultation
with its legal counsel, that, in light of such Company Superior Offer, the
withholding,
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withdrawal, amendment or modification of such recommendation is necessary in
order for the Board of Directors of Company to comply with its fiduciary
obligations to the stockholders of Company under applicable Law. Nothing
contained in this Section 6.2(c) shall limit Company's obligation to convene and
hold the Company Stockholders' Meeting (regardless of whether the recommendation
of the Board of Directors of Company shall have been withdrawn, amended or
modified). For purposes of this Agreement, "COMPANY SUPERIOR OFFER" shall mean
an unsolicited, bona fide written offer made by a third party to consummate any
of the following transactions: (i) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving Company, pursuant to which the stockholders of Company immediately
preceding such transaction hold less than fifty percent (50%) of the equity
interest in the surviving or resulting entity of such transaction; (ii) a sale
or other disposition by Company of assets (excluding inventory and used
equipment sold in the ordinary course of business) representing in excess of
fifty percent (50%) of the fair market value of Company's assets immediately
prior to such sale, or (iii) the acquisition by any person or group (including
by way of a tender offer or an exchange offer or issuance by Company), directly
or indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing in excess of fifty percent (50%) of the voting
power of the then outstanding shares of capital stock of Company, in each case
on terms that the Board of Directors of Company determines, in its reasonable
judgment (after consultation with its financial advisor) to be more favorable to
the Company stockholders from a financial point of view than the terms of the
Merger; provided, however, that no such offer shall be deemed to be a Company
Superior Offer if any financing required to consummate the transaction
contemplated by such offer is not committed and is not likely in the good faith
judgment of the Board of Directors of Company to be obtained by such third party
on a timely basis.
(d) Notwithstanding anything in this Agreement to the contrary, nothing
in this Agreement shall prevent the Board of Directors of Parent from
withholding, withdrawing, amending or modifying its recommendation in favor of
the adoption and approval of this Agreement and the approval of the Merger by
the stockholders of Parent if (i) a Parent Superior Offer (as defined below) is
made to Parent and is not withdrawn; (ii) neither Parent nor any of its
representatives shall have violated any of the restrictions set forth in Section
6.4(b) hereof; and (iii) the Board of Directors of Parent concludes in good
faith, after consultation with its legal counsel, that, in light of such Parent
Superior Offer, the withholding, withdrawal, amendment or modification of such
recommendation is necessary in order for the Board of Directors of Parent to
comply with its fiduciary obligations to the stockholders of Parent under
applicable Law. Nothing contained in this Section 6.2(d) shall limit Parent's
obligation to convene and hold the Parent Stockholders' Meeting (regardless of
whether the recommendation of the Board of Directors of Parent shall have been
withdrawn, amended or modified). For purposes of this Agreement, "PARENT
SUPERIOR OFFER" shall mean an unsolicited, bona fide written offer made by a
third party to consummate any of the following transactions: (i) a merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving Parent, pursuant to which the holders of HDD
Common Stock immediately preceding such transaction hold less than fifty percent
(50%) of the equity interest in the surviving or resulting entity of such
transaction; (ii) a sale or other disposition by Parent of assets (excluding
inventory and used equipment sold in the ordinary course of business)
representing in excess of fifty percent (50%) of the fair market value of assets
that would have been part of the HDD Business and transferred to Spinco if the
Separation had taken place; or (iii) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or issuance by Parent),
directly or indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing in excess of fifty percent (50%) of the voting
power of the then outstanding HDD Common Stock, in each case on terms that the
Board of Directors of Parent determines, in its reasonable judgment (after
consultation with its financial advisor) to be more favorable to the Parent
stockholders than the terms of the Merger; provided, however, that no such offer
shall be deemed to be a Parent Superior Offer if any financing required to
consummate the transaction contemplated by such offer is not committed and is
not likely, in the good faith judgment of the Board of Directors of Parent, to
be obtained by such third party on a timely basis.
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(e) Nothing in this Agreement shall prohibit the Company, Parent or
their respective Boards of Directors from complying with Rule 14-2 and Rule
14d-9 promulgated under the Securities Exchange Act with respect to a tender or
exchange offer made by a third party for any or their respective securities.
6.3 Access to Information; Confidentiality.
(a) Each party hereto shall afford the other party hereto and its
accountants, counsel and other representatives reasonable access during normal
business hours to the properties, books, records and personnel of the other
party hereto during the period prior to the Effective Time to obtain all
information concerning the business, including the status of product development
efforts, properties, results of operations and personnel of such party, as the
other party hereto may reasonably request. No information or knowledge obtained
in any investigation pursuant to this Section 6.3 shall affect or be deemed to
modify any representation or warranty contained herein or the conditions to the
obligations of the parties hereto to consummate the Merger or the other
transactions contemplated hereby.
(b) The parties acknowledge that Company and Parent have previously
executed a Confidentiality Agreement, dated August 14, 2000 (the
"CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement shall continue in
full force and effect in accordance with its terms.
6.4 No Solicitation.
(a) Restrictions on Company.
(i) During the period commencing with the execution and delivery of
this Agreement and continuing until the earlier to occur of the termination of
this Agreement pursuant to its terms or the Effective Time, Company and its
Subsidiaries shall not, nor shall they authorize or permit any of their
respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by any of them to,
directly or indirectly (A) solicit, initiate, encourage or induce the making,
submission or announcement of any Company Acquisition Proposal (as defined in
Section 6.4(a)(ii) hereof); (B) participate in any discussions or negotiations
regarding, or furnish to any person any non-public information with respect to,
or take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to, any Company
Acquisition Proposal or relating to any Company Acquisition Transaction; (C)
engage in discussions with any person with respect to any Company Acquisition
Proposal; (D) subject to Section 6.2(c) hereof, approve, endorse or recommend
any Company Acquisition Proposal; or (E) enter into any letter of intent or
similar document or any contract, agreement or commitment contemplating or
otherwise relating to any Company Acquisition Transaction (as defined in Section
6.4(a)(ii) hereof); provided, however, that until the date on which this
Agreement is approved and adopted by the Company Requisite Vote, this Section
6.4(a) shall not prohibit Company from furnishing nonpublic information
regarding Company and its Subsidiaries to, entering into a confidentiality
agreement or discussions or negotiations with, any person or group in response
to a Company Superior Offer submitted by such person or group (and not
withdrawn) if (w) neither Company nor any representative of Company and its
Subsidiaries shall have violated any of the restrictions set forth in this
Section 6.4(a); (x) the Board of Directors of Company concludes in good faith,
after consultation with its legal counsel, that such action is necessary in
order for the Board of Directors of Company to comply with its fiduciary
obligations to the stockholders of Company under applicable Law; (y) (1) at
least forty-eight (48) hours prior to furnishing any such nonpublic information
to, or entering into discussions or negotiations with, such person or group,
Company gives Parent written notice of the identity of such person or group and
of Company's intention to furnish nonpublic information to, or enter into
discussions or negotiations with, such person or group, and (2) Company receives
from such person or group an executed confidentiality agreement containing
customary limitations on the use and disclosure of all nonpublic written and
oral information furnished to such person or group by or on behalf of Company
and containing terms no less favorable to the disclosing party than the terms of
the Confidentiality Agreement; and (z) contemporaneously with furnishing any
such nonpublic information to such person or group, Company furnishes such
nonpublic information to Parent (to the extent such nonpublic information has
not been previously furnished by Company to Parent). Company and its
Subsidiaries shall immediately cease any and all existing activities,
discussions
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or negotiations with any parties conducted heretofore with respect to any
Company Acquisition Proposal. Without limiting the foregoing, it is understood
that any violation of the restrictions set forth in this Section 6.4(a), any
officer or director of Company or any of its Subsidiaries or any investment
banker, attorney or other advisor or representative of Company or any of its
Subsidiaries shall be deemed to be a breach of this Section 6.4(a) by Company.
In addition to the foregoing, Company shall (i) provide Parent with at least
forty-eight (48) hours' prior notice (or such lesser prior notice as provided to
the members of the Board of Directors of Company but in no event less than eight
(8) hours) of any meeting of the Board of Directors of Company at which the
Board of Directors of Company is reasonably expected to consider a Company
Superior Offer, and (ii) provide Parent with at least forty-eight (48) hours'
prior written notice of a meeting of the Board of Directors of Company at which
the Board of Directors of Company is reasonably expected to recommend a Company
Superior Offer to its stockholders and together with such notice a copy of the
definitive documentation relating to such Company Superior Offer.
(ii) For all purposes of and under this Agreement, "COMPANY
ACQUISITION PROPOSAL" means any offer or proposal (other than an offer or
proposal by Parent) relating to any Company Acquisition Transaction. For all the
purposes of and under this Agreement, "COMPANY ACQUISITION TRANSACTION" means
any transaction or series of related transactions (other than the transactions
contemplated by this Agreement) involving: (A) any acquisition or purchase from
Company by any person or "group" (as defined under Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder) of fifty percent (50%)
or more in interest of the total outstanding voting securities of Company or any
of its Subsidiaries, or any tender offer or exchange offer that if consummated
would result in any person or "group" (as defined under Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder) beneficially
owning fifteen percent (15%) or more in interest of the total outstanding voting
securities of Company or any of its Subsidiaries, or any merger, consolidation,
business combination or similar transaction involving Company pursuant to which
the stockholders of Company immediately preceding such transaction hold less
than fifty percent (50%) of the equity interests in the surviving or resulting
entity of such transaction; (B) any sale, lease (other than in the ordinary
course of business), exchange, transfer, license (other than in the ordinary
course of business), acquisition or disposition of fifteen percent (15%) or more
of the assets of Company; or (C) any liquidation or dissolution of Company.
(iii) In addition to the obligations of Company set forth in Section
6.4(a)(i) hereof, as promptly as practicable, and in any event within
twenty-four (24) hours, Company shall advise Parent orally and in writing of any
request received by Company for non-public information which Company reasonably
believes could lead to a Company Acquisition Proposal or of any Company
Acquisition Proposal, the material terms and conditions of such request or
Company Acquisition Proposal, and the identity of the person or group making any
such request or Company Acquisition Proposal. Company shall keep Parent informed
in all material respects of the status and details (including material
amendments or proposed amendments) of any such request or Company Acquisition
Proposal.
(b) Restrictions on Parent.
(i) During the period commencing with the execution and delivery of
this Agreement and continuing until the earlier to occur of the termination of
this Agreement pursuant to its terms or the Effective Time, Parent and its
Subsidiaries shall not, nor shall they authorize or permit any of their
respective officers, directors, affiliates or employees or any investment
banker, attorney or other advisor or representative retained by any of them to,
directly or indirectly (A) solicit, initiate, encourage or induce the making,
submission or announcement of any Parent Acquisition Proposal (as defined in
Section 6.4(b)(ii) hereof); (B) participate in any discussions or negotiations
regarding, or furnish to any person any non-public information with respect to,
or take any other action to facilitate any inquiries or the making of any
proposal that constitutes or may reasonably be expected to lead to, any Parent
Acquisition Proposal or relating to any Parent Acquisition Transaction; (C)
engage in discussions with any person with respect to any Parent Acquisition
Proposal; (D) subject to Section 6.2(d) hereof, approve, endorse or recommend
any Parent Acquisition Proposal; or (E) enter into any letter of intent or
similar document or any contract, agreement or commitment contemplating or
otherwise relating to any Parent Acquisition
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Transaction (as defined in Section 6.4(b)(ii) hereof); provided, however, until
the date on which this Agreement is approved and adopted by the Parent Requisite
Vote, this Section 6.4(b) shall not prohibit Parent from furnishing nonpublic
information regarding Parent and its Subsidiaries to, entering into a
confidentiality agreement or into discussions or negotiations with, any person
or group in response to a Parent Superior Offer submitted by such person or
group (and not withdrawn) if (w) neither Parent nor any representative of Parent
and its Subsidiaries shall have violated any of the restrictions set forth in
this Section 6.4(b); (x) the Board of Directors of Parent concludes in good
faith, after consultation with its legal counsel, that such action is advisable
in order for the Board of Directors of Parent to comply with its fiduciary
obligations to the stockholders of Parent under applicable Law; (y) (1) at least
forty-eight (48) hours prior to furnishing any such nonpublic information to, or
entering into discussions or negotiations with, such person or group, Parent
gives Company written notice of the identity of such person or group and of
Parent's intention to furnish nonpublic information to, or enter into
discussions or negotiations with, such person or group, and (2) Parent receives
from such person or group an executed confidentiality agreement containing
customary limitations on the use and disclosure of all nonpublic written and
oral information furnished to such person or group by or on behalf of Parent and
containing terms no less favorable to the disclosing party than the terms of the
Confidentiality Agreement; and (z) contemporaneously with furnishing any such
nonpublic information to such person or group, Parent furnishes such nonpublic
information to Company (to the extent such nonpublic information has not been
previously furnished by Parent to Company). Parent and its Subsidiaries shall
immediately cease any and all existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any Parent Acquisition
Proposal. Without limiting the foregoing, it is understood that any violation of
the restrictions set forth in this Section 6.4(b) by any officer or director of
Parent or any of its Subsidiaries or any investment banker, attorney or other
advisor or representative of Parent or any of its Subsidiaries shall be deemed
to be a breach of this Section 6.4(b) by Parent. In addition to the foregoing,
Parent shall (i) provide Company with at least forty eight (48) hours' prior
notice (or such lesser prior notice as provided to the members of the Board of
Directors of Parent but in no event less than eight (8) hours) of any meeting of
the Board of Directors of Parent at which the Board of Directors of Parent is
reasonably expected to consider a Parent Superior Offer; and (ii) provide
Company with at least forty-eight (48) hours' prior written notice of a meeting
of the Board of Directors of Parent at which the Board of Directors of Parent is
reasonably expected to recommend a Parent Superior Offer to its stockholders and
together with such notice a copy of the definitive documentation relating to
such Parent Superior Offer.
(ii) For all purposes of and under this Agreement, "PARENT
ACQUISITION PROPOSAL" means any offer or proposal (other than an offer or
proposal by Company) relating to any Parent Acquisition Transaction. For all the
purposes of and under this Agreement, "PARENT ACQUISITION TRANSACTION" means any
transaction or series of related transactions (other than the transactions
contemplated by this Agreement) involving: (A) any acquisition or purchase from
Parent by any person or "group" (as defined under Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder) of fifteen percent
(15%) or more in interest of the total outstanding HDD Common Stock of Parent or
any of its Subsidiaries, or any tender offer or exchange offer that if
consummated would result in any person or "group" (as defined under Section
13(d) of the Exchange Act and the rules and regulations promulgated thereunder)
beneficially owning fifteen percent (15%) or more in interest of the total
outstanding HDD Common Stock of Parent or any of its Subsidiaries, or any
merger, consolidation, business combination or similar transaction involving
Parent pursuant to which the aggregate percentage equity interest in the
surviving or resulting entity of such transaction held by the former holders of
HDD Common Stock represents 50% or less of the aggregate equity interest in
Parent represented by their shares of HDD Common Stock immediately before the
transaction; or (B) any sale, lease (other than in the ordinary course of
business), exchange, transfer, license (other than in the ordinary course of
business), acquisition or disposition of fifteen percent (15%) or more of the
HDD Business assets.
(iii) In addition to the obligations of Parent set forth in Section
6.4(b)(i), as promptly as practicable, and in any event within twenty-four (24)
hours, Parent shall advise Company orally and in writing of any request received
by Parent for non-public information which Parent reasonably believes could lead
to a Parent Acquisition Proposal or of any Parent Acquisition Proposal, the
material terms and
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conditions of such request or Parent Acquisition Proposal and the identity of
the person or group making any such request or Parent Acquisition Proposal.
6.5 Public Disclosure. Parent and Company shall consult with each other
and agree before issuing any press release or otherwise making any public
statement with respect to the Merger, this Agreement, a Company Acquisition
Proposal or a Parent Acquisition Proposal and shall not issue any such press
release or make any such public statement prior to such agreement, except as may
be required by applicable Law or any listing agreement with a national
securities exchange or Nasdaq in which case reasonable efforts to consult with
the other party hereto shall be made prior to such release or public statement;
provided, however, that no such consultation or agreement shall be required if,
prior to the date of such release or public statement, either party hereto shall
have withheld, withdrawn, amended or modified its recommendation in favor of the
transactions contemplated hereby.
6.6 Requirements of Law. Each of Parent, Spinco and Company shall take all
commercially reasonable actions necessary or desirable to comply promptly with
all requirements of Law which may be imposed on them with respect to the
consummation of the Merger or any other transactions contemplated by this
Agreement (including furnishing all information required in connection with
approvals of or filings with any Governmental Authority, and prompt resolution
of any litigation prompted hereby) and will promptly cooperate with and furnish
information to each other and any third party necessary in connection with any
such requirements imposed upon any of them or their respective Subsidiaries in
connection with the consummation of the Merger or any other transactions
contemplated by this Agreement. Company shall use its commercially reasonable
efforts to take such steps as may be necessary to comply with the securities and
blue sky laws of all jurisdictions which are applicable to the issuance of
Company Common Stock in connection with the Merger. Parent shall use its
commercially reasonable efforts to assist Company as may be necessary to comply
with the securities and blue sky laws of all jurisdictions which are applicable
in connection with the issuance of Company Common Stock in connection with the
Merger.
6.7 Third Party Consents. As soon as practicable following the date
hereof, Parent, Spinco and Company shall each use its commercially reasonable
efforts to obtain all material consents, waivers and approvals under any of its
or its Subsidiaries' agreements, contracts, licenses or leases required to be
obtained in connection with the consummation of the Merger, the Separation, the
Redemption and other transactions contemplated by this Agreement and to permit
the Surviving Corporation to operate the HDD Business under the ownership of
Company following the Effective Time.
6.8 Notification of Certain Matters. Parent and Spinco shall give prompt
notice to Company, and Company shall give prompt notice to Parent, of the
occurrence, or failure to occur, of any event, which occurrence or failure to
occur would be reasonably likely to cause (i) any representation or warranty
contained in this Agreement to be untrue or inaccurate at any time from the date
of this Agreement to the Effective Time, such that the conditions set forth in
Section 7.2(a) or Section 7.3(a) hereof, as the case may be, would not be
satisfied as a result thereof; or (ii) any material failure of Parent and Spinco
or Company as the case may be, or of any officer, director, employee or agent
thereof, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement. Notwithstanding the
foregoing, the delivery of any notice pursuant to this Section 6.8 shall not
limit or otherwise affect the remedies available hereunder to the party hereto
receiving such notice.
6.9 Further Assurances. Subject to the respective rights and obligations
of Parent, Spinco and Company under this Agreement, each of the parties hereto
shall use its commercially reasonable efforts to effectuate the Merger, the
Separation, the Redemption and the other transactions contemplated hereby, and
to fulfill and cause to be fulfilled the conditions to the other parties'
obligations to proceed with the closing under this Agreement. Each party hereto
agrees to cooperate fully with the other party and to execute such further
instruments, documents and agreements, to supplement the respective forms of
each of the Separation Documents and to give such further written assurances, as
may be reasonably requested by any other party to better evidence and reflect
the transactions described herein and contemplated hereby and to carry into
effect the intent and purposes of this Agreement.
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6.10 Stock Options and Restricted Stock; Parent ESPP.
(a) Outstanding HDD & DSS Options and Restricted Stock. The Parent Stock
Options covering shares of HDD Common Stock that are outstanding as of the
Redemption Date shall be referred to herein as "OUTSTANDING HDD OPTIONS." The
Parent Stock Options covering shares of DSS Common Stock that are outstanding as
of the Redemption Date shall be referred to herein as "OUTSTANDING DSS OPTIONS."
Restricted Stock covering shares of HDD Common Stock as of the Redemption Date
shall be referred to herein as "HDD RESTRICTED STOCK." Restricted Stock covering
shares of DSS Common Stock as of the Redemption Date shall be referred to herein
as "DSS RESTRICTED STOCK."
(b) Spinco Assumption of Outstanding HDD Options and Restricted Stock
Held by Transferred Employees, Former Parent Service Providers and Other
Individuals Holding Vested HDD Restricted Stock. In the Redemption, (i) all
Outstanding HDD Options and HDD Restricted Stock held by Transferred Employees,
whether or not vested; (ii) all vested Outstanding HDD Options and HDD
Restricted Stock held by Former Parent Service Providers; and (iii) all vested
HDD Restricted Stock held by other individuals shall be assumed by Spinco
("OTHER HDD RESTRICTED STOCKHOLDERS"). Each Outstanding HDD Option and share of
HDD Restricted Stock so assumed by Spinco under this Agreement shall continue to
have, and be subject to, the same terms and conditions of such options and
restricted stock agreements immediately prior to the Redemption Date (including,
without limitation, any repurchase rights or post-termination exercise
provisions), and shall cover the same number of shares of Spinco Common Stock,
at the same per share exercise price, as the number of shares of HDD Common
Stock covered by the option or subject to the HDD Restricted Stock award prior
to the assumption. Such assumed options shall be referred to herein as "SPINCO
OPTIONS." Such assumed HDD Restricted Stock shall be referred to herein as
"SPINCO RESTRICTED STOCK."
(c) Company Assumption of Spinco Options and Spinco Restricted Stock
Held by Transferred Employees, Former Parent Service Providers and Other HDD
Restricted Stockholders. At the Effective Time, (i) all Spinco Options and
Spinco Restricted Stock held by Transferred Employees, whether or not vested;
(ii) all vested Spinco Options and vested Spinco Restricted Stock held by Former
Parent Service Providers; and (iii) all vested Spinco Restricted Stock held by
Other HDD Restricted Stockholders shall be assumed by Company. Each Spinco
Option and share of Spinco Restricted Stock so assumed by Company under this
Agreement shall continue to have, and be subject to, the same terms and
conditions of such options and restricted stock agreements immediately prior to
the Effective Time (including, without limitation, any repurchase rights, or
post-termination exercise provisions), except that (i) for purposes of
determining vesting, continuous service shall include service for Parent
immediately prior to the Effective Time and service with Company from and after
the Effective Time; (ii) each Spinco Option shall be exercisable (or shall
become exercisable in accordance with its terms) for that number of whole shares
of Company Common Stock equal to the product obtained by multiplying (x) the
number of shares of Spinco Common Stock that were issuable upon exercise of such
Spinco Option immediately prior to the Effective Time; by (y) the Exchange
Ratio, rounded down to the nearest whole number of shares of Company Common
Stock, (iii) the per share exercise price for the shares of Spinco Common Stock
issuable upon exercise of such assumed Spinco Option shall be equal to the
quotient determined by dividing (x) the exercise price per share of Spinco
Common Stock at which such Spinco Option was exercisable immediately prior to
the Effective Time, by (y) the Exchange Ratio, rounded up to the nearest whole
cent; and (iv) each share of Spinco Restricted Stock shall be converted into
that number of whole shares of Company Common Stock equal to the product
obtained by multiplying (x) the number of shares of Spinco Common Stock subject
to the Spinco Restricted Stock, by (y) the Exchange Ratio, rounded down to the
nearest whole number of shares of Company Common Stock.
(d) Treatment of Outstanding DSS Options Held by Transferred
Employees. At the Effective Time (i) Transferred Employees holding Outstanding
DSS Options vested as of such date shall have the post-termination exercise
period as set forth in relevant provisions of the applicable stock option
agreement to exercise such vested Outstanding DSS Options after which such
vested Outstanding DSS Options shall terminate and be without further force and
effect; and (ii) Outstanding DSS Options that are unvested as of such date shall
be converted into shares of DSS restricted stock with a per share purchase price
equal
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to par value (the "CONVERTED DSS RESTRICTED STOCK"). The conversion formula for
the Converted DSS Restricted Stock shall be determined by Parent, but shall
confer an economic value at least equal to the option spread at the time of
conversion. The Converted DSS Restricted Stock shall vest as to fifty percent
(50%) of the shares upon the earlier of (i) three (3) months following the
Effective Time, subject to the optionee's continued employment or consulting
relationship with the Company or its affiliates through such vesting date; or
(ii) upon the optionee's involuntary termination other than for Cause, death or
Disability or upon his or her voluntary termination for Good Reason, as such
terms are defined in the applicable restricted stock agreement. The remaining
fifty percent (50%) of the Converted DSS Restricted Stock shall vest ratably
each month over the succeeding nine (9) month period, subject to the optionee's
continued employment or consulting relationship with the Company or its
affiliates through such monthly vesting dates, so as to be 100% vested one (1)
year following the Effective Time.
(e) Outstanding HDD Options and Unvested HDD Restricted Stock Held by
Individuals Other than Transferred Employees and Former Parent Service
Providers. Outstanding HDD Options (both vested and unvested) and unvested HDD
Restricted Stock held by individuals other than Transferred Employees and Former
Parent Service Providers shall be converted into DSS Options and DSS Restricted
Stock as determined by Parent (and consistent with the terms of the Insurance
Opinion and the statement of facts provided therein).
(f) Parent ESPP. As of the Redemption Date, Transferred Employees will
cease to participate in the Parent ESPP. In accordance with the terms of the
Parent ESPP, any monies set aside under such Plan that were not previously used
to purchase ESPP shares shall promptly be returned to the Transferred Employees.
6.11 Form S-8. Company agrees to file a registration statement on Form S-8
for the shares of Company Common Stock issuable with respect to assumed Parent
Stock Options as soon as is reasonably practicable following the Effective Time,
but in no event later than ten (10) business days following the Effective Time.
6.12 Insurance Policy. Company and Parent shall cooperate in obtaining the
Insurance Policy. Unless Parent otherwise consents in writing, the Insurance
Policy shall be issued in the name of Parent, as insured, and shall include
Company as a "loss payee" as its interests may appear. Company shall pay all
premiums due and owing to obtain and maintain the Insurance Policy in effect.
6.13 D&O Insurance.
(a) For a period of six (6) years after the Effective Time, Company
shall maintain in effect directors' and officers' liability insurance for any
claims in connection with this Agreement and the transactions contemplated
hereby (and only such claims) covering those persons who are currently covered
by Parent's directors' and officers' liability insurance policy on terms
comparable to those applicable to the then current directors and officers of
Company; provided, however, that Company shall not be obligated to spend
annually more than 150% of the annual premium most recently charged to Parent
for such insurance and, if such insurance is not readily available on
commercially reasonable terms within such limit, Company shall be required to
obtain only such insurance as is readily available on reasonable terms within
such limit; and provided, further, that Company may elect to satisfy its
obligation under this Section 6.13(a) by purchasing one or more "tail" or
"run-off" policies providing the required coverage for such six-year period.
(b) The terms and provisions of this Section 6.13 are (i) intended to be
for the benefit of, and shall be enforceable by, each of the persons referred to
in Section 6.13(a) hereof, Parties; and (ii) in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
of such persons may have by contract or otherwise.
(c) This Section 6.13 shall survive any termination of this Agreement
and the consummation of the Merger at the Effective Time, and shall be binding
on all successors and assigns of Company and the Surviving Corporation.
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6.14 Tax-Free Reorganization/Insurance Opinion. Neither Parent nor Company
shall, nor shall either permit any of its respective Subsidiaries to, take or
cause to be taken any action that would reasonably be expected to disqualify the
Merger as a "reorganization" within the meaning of Section 368(a) of the Code or
would make any certification or representation or warranty given by either party
to the issuer of the Insurance Opinion and referenced in the Insurance Opinion
untrue or incorrect in any material respect.
6.15 Nasdaq Listing. Company shall authorize for listing on Nasdaq
National Market the shares of Company Common Stock issuable, and those required
to be reserved for issuance, in connection with the Merger, upon official notice
of issuance.
6.16 Regulatory Filings; Commercially Reasonable Efforts.
(a) As soon as reasonably practicable after the date of this Agreement,
Company and Parent each shall file with the FTC and the Antitrust Division of
the DOJ, Notification and Report Forms relating to the Merger and any other
transactions contemplated by this Agreement as required by the HSR Act, as well
as comparable pre-merger notification forms required by the merger notification
or control Laws of any other applicable jurisdiction, as agreed to by the
parties hereto. Company and Parent each shall promptly (i) supply the other with
any information which may be required in order to effectuate such filings; and
(ii) supply any additional information which reasonably may be required by the
FTC, the DOJ or the competition or merger control authorities of any other
jurisdiction and which the parties may reasonably deem appropriate. Each of
Company and Parent shall use all commercially reasonable efforts to cause the
early termination or expiration of the waiting periods applicable to all such
filings as soon as reasonably practicable.
(b) Each of Company and Parent shall use all commercially reasonable
efforts to resolve such objections, if any, as may be asserted by any
Governmental Authority with respect to the transactions contemplated by this
Agreement. In connection therewith, if any Action is instituted (or threatened
to be instituted) challenging any transaction contemplated by this Agreement as
violative of any Law, each of Company and Parent shall cooperate and use all
commercially reasonable efforts vigorously to contest and resist any such
Action.
6.17 Separation Agreements. The parties will use all commercially
reasonable efforts to execute all agreements relating to the Separation in
substantially the forms attached hereto as Schedules 1 through 6.
6.18 Employee Matters.
(a) Transferred Employees. Non-Transferred Employees. Within twenty (20)
days prior to the Company Stockholders' Meeting, Parent shall provide to Company
a list of all corporate employees providing services to the HDD Business (the
"CORPORATE HDD EMPLOYEES") and all other employees primarily engaged in the HDD
Business up to a maximum of 2,600 individuals (the "NON-CORPORATE HDD
EMPLOYEES"). Commencing not later than thirty (30) days prior to the Redemption
Date, Company shall notify Parent of the names of the Non-Corporate HDD
Employees and Corporate HDD Employees to whom Company (in its sole discretion)
and Spinco shall make written offers of employment (the "SPINCO OFFEREES").
Spinco and the Company agree to hire the Spinco Offerees who accept their offer
of employment in writing. The Company agrees to hire, or be responsible for the
Approved Severance Costs (as provided in Section 6.18(b) below) of the
Non-Corporate HDD Employees and 535 Corporate HDD Employees provided that such
Corporate HDD Employees shall be identified by the Company in its sole
discretion ("IDENTIFIED CORPORATE HDD EMPLOYEES"). Parent agrees to use
commercially reasonable efforts to assist the Company and Spinco with the
delivery of written offers of employment. Spinco Offerees and Identified
Corporate HDD Employees who accept their employment offers in writing and
commence work with Spinco or the Company pursuant to such offers shall be
referred to herein as "TRANSFERRED EMPLOYEES." All other Non-Corporate HDD
Employees and Identified Corporate HDD Employees shall be referred to herein as
"NON-TRANSFERRED EMPLOYEES."
(b) Certain Terminations of Employment of Non-Transferred Employees. In
the event that any Non-Transferred Employee is terminated by Parent primarily
because of the transaction contemplated by
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this Agreement within thirty (30) days prior to the Effective Time but after the
signing of this Agreement, or in the case of any Non-Transferred Employee who is
terminated within nine (9) months after the Effective Time (the "DISCHARGE
PERIOD"), then the Company shall be responsible for severance costs payable
pursuant to the severance policy agreed to by Parent and Company and attached as
Schedule 6.18(b) of the Parent Schedules (the "APPROVED SEVERANCE COSTS") for
such employee, provided, however, that the aggregate number of Identified
Corporate HDD Employees for whom Company has responsibility to pay Approved
Severance Costs shall not exceed 535 less the number of Identified Corporate HDD
Employees who are Transferred Employees. Parent shall disclose to the Company
the Non-Transferred Employees terminated or to be terminated within the
Discharge Period prior to the Effective Time. Parent shall withhold an amount
equal to the Approved Severance Costs from the monies otherwise transferable to
Spinco pursuant to the transfer of the HDD Business as specified in Section 2.1
hereof to pay for such Approved Severance Costs (the "SEVERANCE RESERVE").
Following the Discharge Period, Parent shall provide the Company with a final
accounting of the Approved Severance Costs associated with terminations of
employment of the Non-Transferred Employees (the "ACTUAL SEVERANCE"). Parent
shall issue a check or an invoice to the Company for the difference (including
interest at 6.20%), if any, between the Severance Reserve and the Actual
Severance. Company agrees to pay Parent for fifty percent (50%) (one hundred
percent (100%) for Messrs. Gannon and Shoquist) of the severance costs, up to
the maximum Company payment reflected on Parent Schedule 6.18(b), associated
with the termination of employment of those members of Parent's senior
management team as agreed to and set forth on Parent Schedule 6.18(b)
("IDENTIFIED SENIOR MANAGEMENT") that arise primarily due to the transactions
contemplated by this Agreement and which termination occurs within 9 months
following the Effective Time. Notwithstanding the foregoing, in the event any
member of Identified Senior Management (i) becomes employed by Company within
the Discharge Period, or (ii) rejects a Company employment offer within the
Discharge Period for a position with comparable pay and within forty (40) miles
of such member's current office location, the Company will not be required to
pay Parent for severance costs associated with such person. Except for the
Approved Severance Costs and except as otherwise specified in this Agreement,
the Company is not responsible or liable for any claim for severance benefits or
other cash or equity compensation under any severance plan, program, policy or
arrangement maintained by Parent or agreement covering severance or change of
control benefits between Parent and any individual providing services to Parent.
(c) Liability for Terminated Employees. Parent shall be responsible and
assume all liability for all notices, benefits or payments (other than those
required to be paid by the Company pursuant to Section 6.18(b) above) due to any
Non-Transferred Employees, and all notices, payments, fines or assessments due
to any government authority, pursuant to any applicable foreign, federal, state
or local law, common law, statute, rule or regulation with respect to the
employment, discharge or layoff of employees by Parent prior to the Effective
Date, including but not limited to the Worker Adjustment and Retraining
Notification Act and COBRA and any rules or regulations thereunder. Such
severance benefits shall be made consistent with the severance methodology for
such individuals discussed with the Company prior to the signing of this
Agreement. The Company and Spinco shall be responsible and assume all liability
for all notices, benefits or payments due to any Transferred Employees, and all
notices, payments, fines or assessments due to any government authority,
pursuant to any applicable foreign, federal, state or local law, common law,
statute, rule or regulation with respect to the employment, discharge or layoff
of employees by the Company or Spinco after the Effective Time, including but
not limited to the Worker Adjustment and Retraining Notification Act and COBRA
and any rules or regulations thereunder.
(d) 401(k) Plan-to-Plan Transfer. Parent and Company each covenant and
agree, as soon as administratively feasible following the Effective Time, as
follows: (i) to facilitate a plan-to-plan transfer of the account balances of
Transferred Employees in Parent's 401(k) plan; (ii) Parent agrees to provide the
Company with information concerning the Transferred Employees who are
participants in the Parent 401(k) Plan, including such participants' Parent
401(k) Plan account balances, vesting, outstanding loan balances, and any
additional information which may be necessary in order to administer a transfer
of assets; and (iii) Parent and the Company shall make reasonable efforts to
take any and all actions
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necessary to accomplish the plan-to-plan transfer as soon as administratively
feasible following the Effective Time.
6.19 Affiliate Agreements. Parent will use commercially reasonably efforts
to cause its Affiliates to execute and deliver agreements with the Company in a
form customary for transactions of the nature of the Merger and reasonably
acceptable to both parties prior to the Closing.
ARTICLE VII
CONDITIONS TO THE MERGER
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction or fulfillment, at or prior to the
Effective Time, of the following conditions:
(a) Stockholder Approvals. The Company Stockholder Proposal shall have
been approved at the Company Stockholders' Meeting by the Company Requisite Vote
and the Parent Stockholder Proposal shall have been approved at the Parent
Stockholders' Meeting by the Parent Requisite Vote.
(b) Registration Statement Effective; Proxy Statement. The SEC shall
have declared the Registration Statement effective in accordance with the
provisions of the Securities Act; and no stop order suspending the effectiveness
of the Registration Statement or any part thereof shall have been issued by the
SEC and no proceeding for that purpose, and no similar proceeding in respect of
the Proxy Statement, shall have been initiated or threatened in writing by the
SEC.
(c) HSR Act and Comparable Laws. All waiting periods, if any, under the
HSR Act relating to the transactions contemplated hereby shall have expired or
been terminated and clearance for such transactions shall have been obtained
under the comparable Laws of any foreign countries where consummation of such
transactions prior to such clearance would reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect on Company or Parent.
(d) Insurance Opinion. The Insurance Opinion shall have been re-issued
to Company and Parent and re-dated at and as of the Closing without any adverse
qualifications or modifications.
(e) Tax Opinions. Company and Parent shall each have received
substantially identical written opinions from their counsel, Gray Cary Ware &
Freidenrich LLP and Wilson Sonsini Goodrich & Rosati, Professional Corporation,
respectively, in form and substance reasonably satisfactory to each, to the
effect that the Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code, and such opinions shall not have been withdrawn;
provided, however, that if the counsel to either Company or Parent does not
render such opinion, this condition shall nonetheless be deemed to be satisfied
with respect to such party if counsel to the other party renders such opinion to
such party. The parties to this Agreement agree to make reasonable
representations as requested by such counsel for the purpose of rendering such
opinions.
(f) Nasdaq Listing. The shares of Company Common Stock issuable to
stockholders of Spinco in connection with the Merger and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on the Nasdaq National Market upon official notice
of issuance.
(g) Separation and Redemption. The Separation and the Redemption shall
have been consummated in accordance with the terms and provisions of the Form of
Separation and Redemption Agreement attached hereto as Schedule 2.
(h) Insurance Policy. The Insurance Policy shall have been issued and be
in full force and effect.
(i) No Orders. No Order shall be in effect and no person shall have
initiated any Action seeking an Order.
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7.2 Additional Conditions to Obligations of Company. The obligation of
Company to consummate and effect the Merger shall be subject to the satisfaction
or fulfillment, at or prior to the Effective Time, of each of the following
conditions, any of which may be waived, in writing, exclusively by Company:
(a) Representations and Warranties. (i) The representations and
warranties of Parent and Spinco contained in this Agreement (without giving
effect to any qualifiers and exceptions therein relating to materiality or
Material Adverse Effect) shall have been true and correct as of the date of this
Agreement, except where the failure to be so true and correct would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Spinco or the HDD Business; (ii) the representations and
warranties of Parent and Spinco contained in this Agreement (without giving
effect to any qualifiers and exceptions therein relating to materiality or
Material Adverse Effect) shall be true and correct on and as of the Effective
Time, except for changes contemplated by this Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such particular date), with the
same force and effect as if made on and as of the Effective Time, except in such
cases where the failure to be so true and correct would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
Spinco; (iii) the representations, warranties and certifications of Parent
incorporated by reference into the Insurance Opinion shall have been true and
correct as of the date of the Insurance Opinion, and shall be true and correct
on and as of the Effective Time, except in any respect that would not reasonably
be expected to alter any of the conclusions set forth in the Insurance Opinion;
and (iv) Company shall have received a certificate with respect to the foregoing
signed on behalf of Parent and Spinco by their respective Chief Executive
Officers and by the Chief Financial Officers of Parent.
(b) Agreements and Covenants. Parent and Spinco shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Effective Time, and Company shall have received a certificate to such effect
signed for on behalf of Parent and Spinco by the Chief Executive Officer and the
Chief Financial Officer of Parent and Spinco, as applicable.
7.3 Additional Conditions to the Obligations of Parent and Spinco. The
obligations of Parent and Spinco to consummate and effect the Merger shall be
subject to the satisfaction or fulfillment, at or prior to the Effective Time,
of each of the following conditions, any of which may be waived, in writing,
exclusively by Parent:
(a) Representations and Warranties. (i) The representations and
warranties of Company contained in this Agreement (without giving effect to any
qualifiers and exceptions therein relating to materiality or Material Adverse
Effect) shall have been true and correct as of the date of this Agreement,
except where the failure to be so true and correct would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
Company; (ii) the representations and warranties of Company contained in this
Agreement (without giving effect to any qualifiers and exceptions therein
relating to materiality or Material Adverse Effect) shall be true and correct on
and as of the Effective Time, except for changes contemplated by this Agreement
and except for those representations and warranties which address matters only
as of a particular date (which shall remain true and correct as of such
particular date), with the same force and effect as if made on and as of the
Effective Time, except in such cases where the failure to be so true and correct
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Company; (iii) the representations, warranties and
certifications of Company incorporated by reference into the Insurance Opinion
shall have been true and correct as of the date of the Insurance Opinion, and
shall be true and correct on and as of the Effective Time, except in any respect
that would not reasonably be expected to alter any of the conclusions set forth
in the Insurance Opinion; and (iv) Parent shall have received a certificate with
respect to the foregoing signed on behalf of Company by its President and its
Chief Financial Officer.
(b) Agreements and Covenants. Company shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with
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by it on or prior to the Effective Time, and Parent shall have received a
certificate to such effect signed for and on behalf of Company by the President
and the Chief Financial Officer of Company.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time of the Merger, whether before or after adoption and approval of
this Agreement and approval of the Merger by the stockholders of Parent or the
approval of the issuance of shares of Company Common Stock in connection with
the Merger by the stockholders of Company:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent and Company;
(b) by either Company or Parent if the Merger shall not have been
consummated by June 30, 2001; provided, however, that the right to terminate
this Agreement pursuant to this Section 8.1(b) shall not be available to any
party whose action or failure to act has been a principal cause of or resulted
in the failure of the Merger to occur on or before such date and such action or
failure to act constitutes a material breach of this Agreement;
(c) by either Company or Parent if a Governmental Authority shall have
issued an order, decree or ruling or taken any other action, in any case having
the effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, which order, decree or ruling is final and nonappealable;
(d) by either Company or Parent if the Company Requisite Vote is not
obtained upon a vote taken on the Company Stockholder Proposal at the Company
Stockholders' Meeting (or at any adjournment or postponement thereof) or the
Parent Requisite Vote is not obtained upon a vote taken on the Parent
Stockholder Proposal at the Parent Stockholders' Meeting (or at any adjournment
or postponement thereof); provided, however, that the right to terminate this
Agreement pursuant to this Section 8.1(d) shall not be available to any party
where the failure to obtain stockholder approval of such party shall have been
caused by the action or failure to act of such party and such action or failure
to act constitutes a material breach of this Agreement;
(e) by Company, upon a breach of any representation, warranty, covenant
or agreement on the part of Parent or Spinco set forth in this Agreement, or if
any representation or warranty of Parent or Spinco shall have become untrue, in
either case such that the conditions set forth in Section 7.2(a) or Section
7.2(b) hereof would not be satisfied as of the time of such breach or as of the
time such representation or warranty shall have become untrue, provided,
however, that if such inaccuracy in the representations and warranties of Parent
and Spinco or breach by Parent or Spinco is curable by Parent or Spinco through
the exercise of their respective commercially reasonable efforts, then Company
may not terminate this Agreement pursuant to this Section 8.1(e) for thirty (30)
calendar days after delivery of written notice from Company to Parent and Spinco
of such breach, provided Parent and Spinco continue to exercise their respective
commercially reasonable efforts to cure such breach (it being understood that
Company may not terminate this Agreement pursuant to this Section 8.1(e) if such
breach by Parent or Spinco is cured during such thirty (30) calendar day
period);
(f) by Parent, upon a breach of any representation, warranty, covenant
or agreement on the part of Company set forth in this Agreement, or if any
representation or warranty of Company shall have become untrue, in either case
such that the conditions set forth in Section 7.3(a) or Section 7.3(b) hereof
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, however, that if
such inaccuracy in Company's representations and warranties or breach by Company
is curable by Company through the exercise of its commercially reasonable
efforts, then Parent may not terminate this Agreement pursuant to this Section
8.1(f) for thirty (30) days after delivery of written notice from Parent to
Company of such breach, provided Company continues to exercise commercially
reasonable efforts to cure such breach (it being understood that Parent
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may not terminate this Agreement pursuant to this Section 8.1(f) if such breach
by Company is cured during such thirty (30) calendar day period);
(g) by Parent if a Parent Triggering Event (as defined below) shall have
occurred. For all purposes of and under this Agreement, a "PARENT TRIGGERING
EVENT" shall be deemed to have occurred if: (i) the Board of Directors of
Company or any committee thereof shall for any reason have withdrawn or shall
have amended or modified in a manner adverse to Parent its recommendation in
favor of the approval of the issuance of shares of Company Common Stock in
connection with the Merger; (ii) Company shall have failed to include in the
Proxy Statement the recommendation of the Board of Directors of Company in favor
of the approval of the issuance of shares of Company Common Stock in connection
with the Merger; (iii) the Board of Directors of Company shall have failed to
reaffirm its recommendation in favor of the approval of the Merger within ten
(10) business days after Parent requests in writing that such recommendation be
reaffirmed at any time following the announcement of a Company Acquisition
Proposal; (iv) the Board of Directors of Company or any committee thereof shall
have approved or recommended any Company Acquisition Proposal; (v) Company shall
have entered into any letter of intent or similar document or any agreement,
contract or commitment accepting any Company Acquisition Proposal or relating to
any Company Acquisition Transaction; (vi) a tender or exchange offer relating to
securities of Company shall have been commenced by a person unaffiliated with
Parent, and Company shall not have sent to its securityholders pursuant to Rule
14e-2 promulgated under the Securities Act, within ten (10) business days after
such tender or exchange offer is first published, sent or given, a statement
that Company recommends rejection of such tender or exchange offer; or (vii)
Company shall have breached the terms of Section 6.4(a) hereof; or
(h) by Company if a Company Triggering Event (as defined below) shall
have occurred. For all purposes of and under this Agreement, a "COMPANY
TRIGGERING EVENT" shall be deemed to have occurred if: (i) the Board of
Directors of Parent or any committee thereof shall for any reason have withdrawn
or shall have amended or modified in a manner adverse to Company its
recommendation in favor of the adoption and approval of this Agreement or the
approval of the Merger; (ii) Parent shall have failed to include in the Proxy
Statement the recommendation of the Board of Directors of Parent in favor of the
adoption and approval of this Agreement or the approval of the Merger; (iii) the
Board of Directors of Parent shall have failed to reaffirm its recommendation in
favor of the adoption and approval of this Agreement and the approval of the
Merger within 10 business days after Company requests in writing that such
recommendation be reaffirmed at any time following the announcement of a Parent
Acquisition Proposal; (iv) the Board of Directors of Parent or any committee
thereof shall have approved or recommended any Parent Acquisition Proposal; (v)
Parent shall have entered into any letter of intent or similar document or any
agreement, contract or commitment accepting any Parent Acquisition Proposal or
relating to any Company Acquisition Transaction; (vi) a tender or exchange offer
relating to securities of Parent shall have been commenced by a person
unaffiliated with Company, and Parent shall not have sent to its securityholders
pursuant to Rule 14e-2 promulgated under the Securities Act, within 10 business
days after such tender or exchange offer is first published sent or given, a
statement that Parent recommends rejection of such tender or exchange offer; or
(vii) Parent shall have breached the terms of Section 6.4(b) hereof.
8.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement pursuant to Section 8.1 hereof shall be effective immediately upon the
delivery of written notice of the terminating party to the other party hereto.
In the event of the termination of this Agreement pursuant to Section 8.1
hereof, this Agreement shall be of no further force or effect, except (i) as set
forth in this Section 8.2, Section 8.3 and Article IX hereof, each of which
shall survive the termination of this Agreement; and (ii) nothing herein shall
relieve any party hereto from Liability for any intentional breach of this
Agreement.
8.3 Fees and Expenses.
(a) General. Except as set forth in this Section 8.3, all fees and
expenses incurred in connection with this agreement and the transactions
contemplated hereby shall be paid by the party
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incurring such expenses, whether or not the Merger is consummated; provided,
however, that Parent and Company shall share equally all fees and expenses,
other than attorneys' and accountants' fees and expenses, incurred (i) in
connection with the printing and filing of the Proxy Statement (including any
preliminary materials related thereto) and the Registration Statement (including
financial statements and exhibits) and any amendments or supplements thereto;
and (ii) in connection with the filing of the pre-merger notification and report
forms under the HSR act.
(b) Company Payments.
(i) Company shall pay to Parent in immediately available funds,
within one (1) business day after notice of termination is delivered, an amount
equal to $35 million (the "COMPANY TERMINATION FEE") if this Agreement is
terminated by Parent pursuant to Section 8.1(g) hereof.
(ii) Company shall pay Parent in immediately available funds, within
two (2) business days after demand by Parent, an amount equal to the Company
Termination Fee, if this Agreement is terminated by Parent or Company, as
applicable, pursuant to Section 8.1(b) or Section 8.1(d) hereof as a result of
the Company Stockholder Proposal not receiving the Company Requisite Vote upon
the vote being taken thereon at the Company Stockholders' Meeting (or any
adjournment or postponement thereof) and any of the following shall occur:
(1) if following the date hereof and prior to the taking of such
vote, a third party has publicly announced, and not publicly withdrawn, a
Company Acquisition Proposal and within twelve (12) months following the
termination of this Agreement a Company Acquisition (as defined below) is
consummated; or
(2) if following the date hereof and prior to the taking of such
vote, a third party has publicly announced, and not publicly withdrawn, a
Company Acquisition Proposal and within twelve (12) months following the
termination of this Agreement Company enters into an agreement or letter of
intent providing for a Company Acquisition.
(iii) Company acknowledges that the agreements contained in this
Section 8.3(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Parent would have not entered
into this Agreement. Accordingly, if Company fails to pay in a timely manner the
amounts due pursuant to this Section 8.3(b) and, in order to obtain such
payment, Parent makes a claim that results in a judgment against Company for the
amounts set forth in this Section 8.3(b), Company shall pay to Parent its
reasonable costs and expenses (including reasonable attorneys' fees and
expenses) in connection with such suit, together with interest on the amounts
set forth in this Section 8.3(b) at the prime rate of the Chase Manhattan Bank
in effect on the date such payment was required to be made. Payment of the fees
described in this Section 8.3(b) shall not be in lieu of damages incurred in the
event of breach of this Agreement.
(iv) For the purposes of this Section 8.3, "COMPANY ACQUISITION"
means any of the following transactions (other than the transactions
contemplated by this Agreement): (A) a merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar transaction
involving Company pursuant to which the stockholders of Company immediately
preceding such transaction hold less than fifty percent (50%) of the aggregate
equity interest in the surviving or resulting entity of such transaction; (B) a
sale or other disposition by Company of assets representing in excess of fifty
percent (50%) of the aggregate fair market value of Company's assets immediately
prior to such sale; or (C) the acquisition by any person or group (including by
way of a tender offer or an exchange offer or issuance by Company), directly or
indirectly, of beneficial ownership or a right to acquire beneficial ownership
of shares representing in excess of fifty percent (50%) of the voting power of
the then outstanding shares of capital stock of Company.
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(c) Parent Payments.
(i) Parent shall pay to Company in immediately available funds,
within one (1) business day after notice of termination is delivered, an amount
equal to $35 million (the "PARENT TERMINATION FEE") if this Agreement is
terminated by Company pursuant to Section 8.1(h) hereof.
(ii) Parent shall pay Company in immediately available funds, within
two (2) business days after demand by Company, an amount equal to the Parent
Termination Fee, if this Agreement is terminated by Company or Parent, as
applicable, pursuant to Section 8.1(b) or Section 8.1(d) hereof as a result of
the Parent Stockholder Proposal not receiving the Parent Requisite Vote upon the
vote being taken thereon at the Parent Stockholders' Meeting (or any adjournment
or postponement thereof) and any of the following shall occur:
(1) if following the date hereof and prior to the taking of such
vote, a third party has publicly announced, and not publicly withdrawn, a Parent
Acquisition Proposal and within twelve (12) months following the termination of
this Agreement a Parent Acquisition (as defined below) is consummated; or
(2) if following the date hereof and prior to the taking of such
vote, a third party has publicly announced, and not publicly withdrawn, a Parent
Acquisition Proposal and within twelve (12) months following the termination of
this Agreement Parent enters into an agreement or letter of intent providing for
a Parent Acquisition.
(iii) Parent acknowledges that the agreements contained in this
Section 8.3(c) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Company would not have entered
into this Agreement. Accordingly, if Parent fails to pay in a timely manner the
amounts due pursuant to this Section 8.3(c) and, in order to obtain such
payment, Company makes a claim that results in a judgment against Parent for the
amounts set forth in this Section 8.3(c), Parent shall pay to Company its
reasonable costs and expenses (including reasonable attorneys' fees and
expenses) in connection with such suit, together with interest on the amounts
set forth in this Section 8.3(c) at the prime rate of The Chase Manhattan Bank
in effect on the date such payment was required to be made. Payment of the fees
described in this Section 8.3(c) shall not be in lieu of damages incurred in the
event of breach of this Agreement.
(iv) For the purposes of this Section 8.3, "PARENT ACQUISITION" means
any of the following transactions (other than the transactions contemplated by
this Agreement): (A) a merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving
Parent pursuant to which the aggregate percentage equity interest in the
surviving or resulting entity of such transaction held by the former holders of
HDD Common Stock represents 50% or less of the aggregate equity interest in
Parent represented by their shares of HDD Common Stock immediately before the
transaction; (B) a sale or other disposition by Parent of assets representing in
excess of fifty percent (50%) of the aggregate fair market value of assets that
would have been part of the HDD Business and transferred to Spinco if the
Separation had taken place; or (C) the acquisition by any person or group
(including by way of a tender offer or an exchange offer or issuance by Parent),
directly or indirectly, of beneficial ownership or a right to acquire beneficial
ownership of shares representing in excess of fifty percent (50%) of the voting
power of the HDD Common Stock then outstanding.
8.4 Amendment. Subject to applicable Law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of the parties hereto.
8.5 Extension; Waiver. At any time prior to the Effective Time, any party
hereto may, to the extent legally permitted, (i) extend the time for the
performance of any of the obligations or other acts of the other party or
parties hereto; (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto; and (iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in
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writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.
ARTICLE IX
GENERAL PROVISIONS
9.1 Non-Survival of Representations and Warranties. The representations
and warranties of Company, Parent and Spinco contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via facsimile (receipt confirmed) to the parties at
the following addresses or facsimile numbers (or at such other address or
facsimile numbers for a party as shall be specified by like notice):
(a) if to Parent or Spinco, to:
Quantum Corporation
500 McCarthy Blvd.
Milpitas, CA 95035
Attention: General Counsel
Telephone No.: (408) 894-4000
Facsimile No.: (408) 232-6798
with copies to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
One Market, Spear Street Tower
Suite 3300
San Francisco, California 94105
Attention: Larry W. Sonsini, Esq.
Michael J. Kennedy, Esq.
Telephone No.: (415) 947-2000
Facsimile No.: (415) 947-2099
(b) if to Company, to:
Maxtor Corporation
510 Cottonwood Drive
Milpitas, CA 95035
Attention: General Counsel
Telephone No.: (303) 678-2050
Facsimile No.: (303) 678-3111
with copies to:
Gray Cary Ware & Freidenrich
400 Hamilton Street
Palo Alto, California
Attention: Diane Holt Frankle, Esq.
Henry Lesser, Esq.
Telephone No.: (650) 833-2400
Facsimile No.: (650) 327-3699
9.3 Interpretation. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
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limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When reference is made herein to "the business
of" an entity, such reference shall be deemed to include the business of all
direct and indirect Subsidiaries of such entity.
9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party or parties hereto, it being
understood that all parties hereto need not sign the same counterpart.
9.5 Entire Agreement. This Agreement, the Separation Documents and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Schedules and the
Parent Schedules (i) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and shall survive any
termination of this Agreement; and (ii) are not intended to confer upon any
other person any rights or remedies hereunder, except as set forth herein.
9.6 No Third Party Beneficiaries. Except as provided in Section 6.12, this
Agreement is not intended to confer upon any person other than the parties to
this Agreement any rights or remedies under this Agreement.
9.7 Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions of this Agreement.
If any provision of this Agreement, or the application of that provision to any
person or any circumstance, is invalid or unenforceable, (a) a suitable and
equitable provision shall be substituted for that provision in order to carry
out, so far as may be valid and enforceable, the intent and purpose of the
invalid or unenforceable provision and (b) the remainder of this Agreement and
the application of the provision to other persons or circumstances shall not be
affected by such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of the provision, or the
application of that provision, in any other jurisdiction.
9.8 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party hereto
shall be deemed cumulative with and not exclusive of any other remedy conferred
hereby, or by Law or equity upon such party, and the exercise by a party hereto
of any one remedy will not preclude the exercise of any other remedy. The
parties hereto agree that irreparable damage would occur in the event that any
of the terms of this Agreement were not performed in accordance with its
specific terms or were otherwise breached. It is accordingly agreed that the
parties hereto shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
9.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the parties hereto. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
9.11 WAIVER OF JURY TRIAL. EACH OF PARENT, SPINCO AND COMPANY HEREBY
IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT,
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SPINCO OR COMPANY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND
ENFORCEMENT HEREOF.
9.12 Release of Merger Sub. Merger Sub is hereby forever unconditionally
and irrevocably released and discharged from the Original Agreement and from all
of its obligations and liabilities thereunder and shall cease for all purposes
to be party to this Agreement.
9.13 Waiver of Certain Inaccuracies. Notwithstanding any other provision
of this Agreement, any failure of any of the representations and warranties made
by any party in this Agreement to be true and correct in all material respects
solely due to the fact that the Original Agreement provided for the merger of
Merger Sub with and into Spinco whereas this Agreement contemplates the merger
of Spinco with the Company (the "CHANGE IN MERGER FORM") shall not be a breach
of, or constitute a failure of condition under, this Agreement, provided, at the
Closing, such party shall set forth in its certificate under Section 7.2(a) or
7.3(a) (as the case may be) the respects in which its representations and
warranties made in this Agreement failed to be true and correct in all material
respects at the Closing solely due to the Change in Merger Form, and provided
further that nothing herein shall relieve any party of its obligations under
Section 6.7 hereof.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, Parent, Spinco Company and Merger Sub have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
each as of the date first written above.
QUANTUM CORPORATION
By: /s/ Michael A. Brown
------------------------------------
Name: Michael A. Brown
----------------------------------
Title: President & CEO
-----------------------------------
INSULA CORPORATION
By: /s/ Michael A. Brown
------------------------------------
Name: Michael A. Brown
----------------------------------
Title: President & CEO
-----------------------------------
MAXTOR CORPORATION
By: /s/ Michael R. Cannon
------------------------------------
Name: Michael R. Cannon
----------------------------------
Title: President & CEO
-----------------------------------
HAWAII ACQUISITION CORPORATION
By: /s/ Michael R. Cannon
------------------------------------
Name: Michael R. Cannon
----------------------------------
Title: CEO
-----------------------------------
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SALOMON SMITH BARNEY LETTERHEAD
ANNEX B
October 3, 2000
Board of Directors
Maxtor Corporation
510 Cottonwood Drive
Milpitas, California 95035
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to Maxtor Corporation ("Maxtor") of the Exchange Ratio (as defined
below) in connection with the Merger (as defined below) contemplated by the
Agreement and Plan of Merger (the "Merger Agreement") to be entered into by
Quantum Corporation ("Quantum") Insula Corporation, a wholly owned subsidiary of
Quantum ("Spinco"), Hawaii Acquisition Corporation, a wholly owned subsidiary of
Maxtor, and Maxtor.
As more specifically set forth in the Merger Agreement, and subject to the
terms and conditions thereof, Spinco will merge with and into Maxtor (the
"Merger"), and each issued and outstanding share of the common stock, par value
$0.01 per share, of Spinco (the "Spinco Common Stock") other than certain shares
to be cancelled pursuant to the Merger Agreement, will be converted into the
right to receive 1.52 (the "Exchange Ratio") shares of the common stock, par
value $0.01 per share, of Maxtor (the "Maxtor Common Stock"). As more
specifically set forth in, and subject to the terms and conditions of, the
Master Separation and Redemption Agreement (the "Separation Agreement"), the
General Assignment and Assumption Agreement (the "Assignment Agreement"), the
Tax Sharing Agreement (the "Tax Agreement"), the Transitional Services Agreement
(the "Services Agreement"), the Intellectual Property Agreement (the "Property
Agreement") and the Indemnification Agreement (the "Indemnification Agreement,"
and together with the Merger Agreement and the other agreements referred to in
this sentence, the "Agreements"), in each case to be entered into by Maxtor,
Spinco and Quantum, immediately prior to the effective time of the Merger,
Quantum will transfer the HDD Business (as defined in the Merger Agreement) to
Spinco and in connection therewith each share of the Hard Disk Drive Group
Common Stock, par value $0.01, of Quantum (the "HDD Common Stock") will be
redeemed in exchange for one share of Spinco Common Stock (the transactions
referred to in this sentence, the "Spin Off").
In arriving at our opinion, we reviewed a draft of the Merger Agreement
dated October 2, 2000, and drafts of the Separation Agreement, the Assignment
Agreement, the Tax Agreement, the Services Agreement, the Property Agreement and
the Indemnification Agreement , in each case dated October 2, 2000, and held
discussions with certain senior officers, directors and other representatives
and advisors of each of Maxtor, Quantum and the combined company concerning the
businesses, operations and prospects of Maxtor and the HDD Business. We examined
certain publicly available business and financial information relating to Maxtor
and the HDD Business, as well as certain financial forecasts and other
information and data for Maxtor, the HDD Business and Spinco which were provided
to or otherwise discussed with us by the managements of Maxtor and Quantum,
including information relating to certain strategic implications and operational
benefits anticipated to result from the Merger. We reviewed the financial terms
of the Merger as set forth in the Merger Agreement in relation to, among other
things: current and historical market prices and trading volumes of Maxtor
Common Stock and HDD Common Stock; the historical earnings and other operating
data of Maxtor and the HDD Business; the projected earnings and other operating
data for Maxtor and Spinco; the historical capitalization and financial
condition of Maxtor and the HDD Business; and the projected capitalization and
financial condition of Maxtor and Spinco. We considered, to the extent publicly
available, the financial terms of certain other similar transactions recently
effected that we considered relevant in evaluating the Exchange Ratio and
analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies whose operations we
considered relevant in evaluating those of Maxtor and the HDD
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Business. We also evaluated the pro forma financial impact of the Merger on
Maxtor. In addition to the foregoing, we conducted such other analyses and
examinations and considered such other information and financial, economic and
market criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us and have further relied upon the assurances of the
managements of Maxtor and Quantum that they are not aware of any facts that
would make any of such information inaccurate or misleading. With respect to
financial forecasts and other information and data provided to or otherwise
reviewed by or discussed with us, we have been advised by the managements of
Maxtor and Quantum that such forecasts and other information and data were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of Maxtor and Quantum as to the future
financial performance of Maxtor, the HDD Business and Spinco and the strategic
implications and operational benefits anticipated to result from the Merger. We
express no view with respect to such forecasts and other information and data or
the assumptions on which they were based. We have assumed, with your consent,
that the Merger will be treated as a tax-free reorganization for U.S. federal
income tax purposes pursuant to Section 368 of the Code (as defined in the
Merger Agreement). We have further assumed, with your consent, that the Spin Off
will be treated as a tax-free reorganization for U.S. federal income tax
purposes pursuant to Sections 355 of the Code. We have not independently
verified that such tax treatment will be available in respect of the Merger
and/or Spin Off, and we express no view with respect to the tax treatment that
will be required to be applied to the Merger and Spin Off. We have further
assumed, with your consent, that no indemnification payments in respect of any
taxes in connection with the Merger or Spin Off will be required to made by
Maxtor in excess of any insurance proceeds actually received in respect of such
payments. We have assumed, with your consent, that no adjustments will be made
to the Exchange Ratio. We have not made or been provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Maxtor or the HDD Business nor have we made any physical inspection of the
properties or assets of Maxtor or the HDD Business. You have advised us, and we
have assumed, that the final terms of the Agreements will not vary materially
from those set forth in the drafts reviewed by us. We have further assumed that
the Spin Off and Merger will be consummated in a timely fashion in accordance
with the terms of the Agreements without waiver of any of the conditions
precedent to the Spin Off or Merger contained in the Agreements.
Our opinion, as set forth herein, relates to the relative values of Maxtor
and Spinco. We are not expressing any opinion as to what the value of the Maxtor
Common Stock actually will be when issued in the Merger or the price at which
Maxtor Common Stock will trade subsequent to the Merger. We were not requested
to consider, and our opinion does not address, the relative merits of the Merger
as compared to any alternative business strategies that might exist for Maxtor
or the effect of any other transaction in which Maxtor might engage. We were not
requested to consider, and our opinion does not address, any term of the Spin
Off or Merger or any of the related transactions or Agreements, other than the
Exchange Ratio. Our opinion necessarily is based upon information available to
us and financial, stock market and other conditions and circumstances existing
and disclosed to us as of the date hereof.
Salomon Smith Barney Inc. is acting as financial advisor to Maxtor in
connection with the Merger and will receive a fee for our services, a portion of
which is payable only upon the consummation of the Merger. We have in the past
provided and currently are providing investment banking services to Maxtor and
Quantum unrelated to the Merger, for which we have received and will receive
compensation. In the ordinary course of our business, we and our affiliates may
actively trade or hold the securities of Maxtor, Spinco and Quantum for our own
account or for the account of our customers and, accordingly, may at any time
hold a long or short position in such securities. Salomon Smith Barney Inc. and
its affiliates (including Citigroup Inc. and its affiliates) may maintain
relationships with Maxtor, Spinco and Quantum and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Maxtor in its evaluation of the Merger
and our opinion is not intended to be and does not
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constitute a recommendation of the Merger to Maxtor or a recommendation to any
stockholder as to how such stockholder should vote on any matters relating to
the Merger.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Exchange Ratio is fair, from
a financial point of view, to Maxtor.
Very truly yours,
/s/ SALOMON SMITH BARNEY INC.
--------------------------------------
SALOMON SMITH BARNEY INC.
B-3
<PAGE> 214
ANNEX C
LEHMAN BROTHERS
October 3, 2000
Board of Directors
Quantum Corporation
500 McCarthy Boulevard
Milpitas, CA 95035
Members of the Board:
We understand that Quantum Corporation ("Quantum" or the "Company")
proposes to reorganize itself by distributing to the holders of the Hard Disk
Drive Group Common Stock, par value $0.01 per share (the "HDD Common Stock"), of
the Company all of the shares of common stock of a new corporation ("Newco") to
be composed of Quantum's Hard Disk Drive Group ("HDD") such that holders of HDD
Common Stock will receive one share of common stock of Newco for each share of
HDD Common Stock (the "Split-off"). We further understand that, immediately
following the Split-off, pursuant to an Agreement and Plan of Merger dated
October 3, 2000 (the "Merger Agreement") between Quantum, Newco and Maxtor
Corporation ("Maxtor"), Newco will be merged with and into Maxtor and each
outstanding share of common stock of Newco will be converted into 1.52 shares of
common stock of Maxtor (the "Merger" and, together with the Split-off, the
"Proposed Transaction"). For the purpose of this opinion, the consideration to
be received by the holders of HDD Common Stock in exchange for shares of HDD
Common Stock in the Proposed Transaction is deemed to consist of the shares of
common stock of Maxtor to be received in the Merger (the "Exchange Ratio"). The
terms and conditions of the Proposed Transaction are set forth in more detail in
the Distribution Agreement dated as of October 3, 2000 between Quantum and
Newco, the Transaction Services Agreement dated as of October 3, 2000 between
Quantum and Maxtor and the Merger Agreement (together, the "Agreements").
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
holders of shares of HDD Common Stock of the Exchange Ratio to be offered to
such holders in the Proposed Transaction. We have not been requested to opine as
to, and our opinion does not in any manner address, the Company's underlying
business decision to proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreements
and the specific terms of the Proposed Transaction, (2) publicly available
information concerning the Company, HDD and Maxtor that we believe to be
relevant to our analysis, including Annual Reports on Form 10-K for the fiscal
year ended December 31, 1999 and Quarterly Reports on the form 10-Q for the
quarter ended June 30, 2000, (3) financial and operating information with
respect to the business, operations and prospects of the Company, HDD and Newco
furnished to us by the Company, (4) financial and operating information with
respect to the business, operations and prospects of Maxtor furnished to us by
Maxtor, (5) a trading history of the HDD Common Stock from July 26, 1999 to the
present and a comparison of that trading history with those of other companies
that we deemed relevant, (6) a trading history of the Maxtor's common stock from
July 26, 1999 to the present and a comparison of that trading history with those
of other companies that we deemed relevant, (7) a comparison of the historical
financial results and present financial condition of HDD and Maxtor with those
of other companies that we deemed relevant, (8) a comparison of the financial
terms of the Proposed Transaction with the financial terms of certain other
transactions that we deemed relevant, (9) the potential pro forma impact of the
Proposed Transaction on Maxtor, including the cost savings, operating synergies
and strategic benefits expected by management of the Company and Maxtor to
result from a combination of the businesses of HDD and Maxtor and (10) the
relative contributions of HDD and Maxtor to the historical and future financial
performance of
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<PAGE> 215
the combined company on a pro forma basis. In addition, we have had discussions
with the managements of the Company and Maxtor concerning the respective
businesses, operations, assets, financial conditions, and prospects of HDD and
Maxtor and have undertaken such other studies, analyses and investigations as we
deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of management of the Company and Maxtor
that they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of HDD and Maxtor on a stand alone basis, and the financial projections of
Maxtor on a pro forma basis following consummation of the Proposed Transaction,
upon advice of the Company and Maxtor we have assumed that such projections have
been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the respective managements of the Company and Maxtor
as to the future financial performance of HDD and Maxtor, as the case may be,
and that on a stand alone basis HDD and Maxtor would perform, and on a pro forma
basis Maxtor will perform, substantially in accordance with such projections. In
arriving at our opinion, we have not conducted a physical inspection of the
properties and facilities of the Company or HDD and have not made or obtained
any evaluations or appraisals of the assets or liabilities of the Company or
HDD. Upon advice of the Company and its legal advisors and with your consent, we
have assumed that the Split-off shall qualify as a tax-free distribution within
the meaning of Section 355 of the Internal Revenue Code of 1986 (the "Code"),
and the Merger shall qualify as a tax-free reorganization within the meaning of
Section 355(e) of the Code, and therefore that the Proposed Transaction will be
a tax-free transaction for Quantum and the holders of HDD Common Stock. Our
opinion necessarily is based upon market, economic and other conditions as they
exist on, and can be evaluated as of, the date of this letter.
In addition, we do not express any opinion as to the prices at which shares
of common stock of Maxtor will actually trade following the consummation of the
Proposed Transaction and this opinion should not be viewed as providing any
assurance that the market value of the shares of Maxtor Common Stock to be
received by holders of HDD Common Stock pursuant to the Proposed Transaction
will be in excess of the market value of the shares of HDD Common Stock owned by
such stockholder at any time prior to announcement or consummation of the
Proposed Transaction.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Exchange Ratio to be
offered to the holders of HDD Common Stock in the Proposed Transaction is fair
to such holders.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is contingent
upon the consummation of the Proposed Transaction. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. We also have performed various investment banking
services for the Company in the past and have received customary fees for such
services. In the ordinary course of our business, we may actively trade in the
securities of the Company and Maxtor for our own account and for the accounts of
our customers and, accordingly, may at any time hold a long or short position in
such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
C-2
<PAGE> 216
ANNEX D
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF QUANTUM CORPORATION,
A DELAWARE CORPORATION
Quantum Corporation, a corporation organized and existing under the laws of
the State of Delaware, certifies that:
1. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on January 28,
1987.
2. The amendment and restatement herein set forth has been duly
approved by the Board of Directors of the corporation and by the
stockholders of the Corporation pursuant to Sections 141, 228 and 242 of
the General Corporation Law of the State of Delaware ("Delaware Law").
3. The amendment and restatement herein set forth has been duly
adopted pursuant to Section 245 of the Delaware Law. This Amended and
Restated Certificate of Incorporation restates, integrates and amends the
provisions of the corporation's Certificate of Incorporation.
4. The text of the Certificate of Incorporation is hereby amended and
restated to read in its entirety as follows:
"ARTICLE I
The name of this Corporation is Quantum Corporation (the "Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State of
Delaware is 410 South State Street, in the city of Dover, County of Kent, 19901.
The name of its registered agent at such address is Incorporating Services, Ltd.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under Delaware Law.
ARTICLE IV
This Corporation is authorized to issue two classes of shares to be
designated, respectively, Common Stock and Preferred Stock. Each share of Common
Stock shall have a par value of $0.01 and each share of Preferred Stock shall
have a par value of $0.01. The total number of shares of Common Stock this
Corporation shall have authority to issue is 1,000,000,000 and the total number
of shares of Preferred Stock this Corporation shall have authority to issue is
20,000,000. The Board of Directors of the corporation, subject to any
restrictions contained in Delaware Law, the Bylaws, any preferences and
relative, participating, optional or other special rights of any outstanding
class or series of preferred stock of the Corporation and any qualifications or
restrictions on the Common Stock created thereby, may declare and pay dividends
upon the shares of its capital stock. The directors of the corporation may set
apart out of any of the funds of the corporation available for dividends a
reserve or reserves for any proper purpose and may abolish any such reserve.
The Preferred Stock initially shall be undesignated as to series. Any
Preferred Stock not previously designated as to series may be issued from time
to time in one or more series pursuant to a resolution or
D-1
<PAGE> 217
resolutions providing for such issue duly adopted by the Board of Directors
(authority to do so being hereby expressly vested in the Board), and such
resolution or resolutions shall also set forth the voting powers, full or
limited or none, of each such series of Preferred Stock and shall fix the
designations, preferences and relative, participating, optional or other special
rights of each such series of Preferred Stock and the qualifications,
limitations or restrictions of such powers, designations, preferences or rights.
The Board of Directors is also authorized to fix the number of shares of each
such series of Preferred Stock. The Board of Directors is authorized to alter
the powers, designation, preferences, rights, qualifications, limitations and
restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock and, within the limits and restrictions stated in any resolution or
resolutions of the Board of Directors originally fixing the number of shares
constituting any series of Preferred Stock, to increase or decrease (but not
below the number of shares of any such series then outstanding) the number of
shares of any such series subsequent to the issue of shares of that series.
Each share of Preferred Stock issued by the Corporation, if reacquired by
the Corporation (whether by redemption, repurchase, conversion to Common Stock
or other means), shall upon such reacquisition resume the status of authorized
and unissued shares of Preferred Stock, undesignated as to series and available
for designation and issuance by the Corporation in accordance with the
immediately preceding paragraph.
The Corporation shall from time to time in accordance with Delaware Law
increase the authorized amount of its Common Stock if at any time the number of
shares of Common Stock remaining unissued and available for issuance shall not
be sufficient to permit conversion, if applicable, of the Preferred Stock.
ARTICLE V
Except as otherwise provided in this Amended and Restated Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of the Corporation.
ARTICLE VI
The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
constituting the whole Board of Directors shall be designated in the Bylaws of
the Corporation.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE IX
To the fullest extent permitted by Delaware Law as the same exists or as
may hereafter be amended, a director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. Neither any amendment nor repeal of this Article
IX shall, nor the adoption of any provision of this Certificate of Incorporation
inconsistent with this Article IX, shall eliminate or reduce the effect of this
Article IX in respect of any matter occurring, or
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<PAGE> 218
any cause of action, suit or claim that, but for this Article IX, would accrue
or arise, action, suit or claim that, but for this Article IX, would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE X
Subject to Article XI hereof, at all elections of directors of the
Corporation, each holder of stock or of any class or classes or of a series or
series thereof shall be entitled to as many votes as shall equal the number of
votes which (except for this provision as to cumulative voting) he would be
entitled to cast for the election of directors with respect to his shares of
stock multiplied by the number of directors to be elected, and he may cast all
of such votes for a single director or may distribute them among the number of
directors to be voted for, or for any two or more of them as he may see fit.
ARTICLE XI
Advance notice of new business and stockholder nominations for the election
of directors shall be given in the manner and to the extent provided in the
Bylaws of the Corporation.
ARTICLE XII
Any action required or permitted to be taken by the stockholders of the
Corporation must be effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by such holders.
Unless otherwise required by law, special meetings of the stockholders of
the Corporation, for any purpose or purposes, may be called only by either (i)
the Board of Directors of the Corporation, (ii) the Chairman of the Board of
Directors of the Corporation, if there be one, or (iii) the President of the
Corporation.
ARTICLE XIII
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Amended and Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
ARTICLE XIV
The Corporation shall have perpetual existence."
* * *
IN WITNESS WHEREOF, the undersigned has executed this certificate on
December , 2000.
Quantum Corporation
By:
------------------------------------
Richard L. Clemmer,
President
D-3
<PAGE> 219
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors, and other corporate agents under certain circumstances
and subject to certain limitations. Maxtor's certificate of incorporation and
bylaws provide that Maxtor shall indemnify its directors, officers, employees,
and agents to the full extent permitted by Delaware law. The certificate of
incorporation and bylaws further provide that Maxtor may indemnify directors,
officers, employees, and agents in circumstances in which indemnification is
otherwise discretionary under Delaware law. In addition, Maxtor entered into
separate indemnification agreements with Maxtor's directors and officers which
would require Maxtor, among other things, to indemnify them against certain
liabilities which may arise by reason of their status or service (other than
liabilities arising from willful misconduct of a culpable nature) and to
maintain directors' and officer's liability insurance, if available on
reasonable terms.
These indemnification provisions and the indemnification agreements that
Maxtor have entered into with Maxtor's officers and directors may be
sufficiently broad to permit indemnification of Maxtor's officers and directors
for liabilities (including reimbursement of expenses incurred) arising under the
Securities Act of 1933, as amended.
Maxtor has a policy of directors' and officers' liability insurance that
insures Maxtor's directors and officers against the cost of defense, settlement
or payment of a judgment under certain circumstances.
At present, there is no pending litigation or proceeding involving any of
Maxtor's directors, officers, employees or other agents in which indemnification
is being sought. Maxtor is not aware of any threatened litigation that may
result in a claim for indemnification by any of Maxtor's directors, officers,
employees or other agents.
ITEM 21. EXHIBITS.
The following exhibits are filed with this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE NOTES
------- ------------- -----
<C> <S> <C>
2.1 Amended and Restated Agreement and Plan of Merger and
Reorganization, dated as of October 3, 2000 by and among
Quantum Corporation, Insula Corporation, Hawaii Acquisition
Corporation and Maxtor (1)
2.2 Form of Separation and Redemption Agreement between Quantum
Corporation, Insula Corporation and Maxtor
2.3 Form of General Assignment and Assumption Agreement between
Quantum Corporation, Insula Corporation and Maxtor
2.4 Form of Tax Sharing and Indemnity Agreement between Quantum
Corporation, Insula Corporation and Maxtor
2.5 Form of Transitional Services Agreement between Quantum
Corporation, Insula Corporation and Maxtor
2.6 Form of Intellectual Property Agreement between Quantum
Corporation, Insula Corporation and Maxtor
2.7 Form of Indemnification Agreement between Quantum
Corporation, Insula Corporation and Maxtor
3.1 Restated Certificate of Incorporation of Maxtor
4.1 Form of Voting Agreement, dated as of October 3, 2000,
between Maxtor and certain stockholders of Quantum
4.2 Form of Voting Agreement, dated as of October 3, 2000,
between Quantum and certain stockholders of Maxtor
</TABLE>
II-1
<PAGE> 220
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE NOTES
------- ------------- -----
<C> <S> <C>
4.3 Stockholder Agreement dated June 25, 1998 (2)
4.4 Amendment No. 1 to Stockholder Agreement, dated as of
October 3, 2000, by and among Hyundai Electronics America,
Hyundai Electronics Industries, Ltd. and Maxtor
5.1* Legal opinion of Gray Cary Ware & Freidenrich LLP, counsel
for Maxtor
8.1* Tax opinion of Gray Cary Ware & Freidenrich LLP, counsel for
Maxtor
8.2* Tax opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel for Quantum
8.3* Tax opinion of Ernst & Young LLP
23.1* Consent of Gray Cary Ware & Freidenrich LLP (see Exhibit
5.1)
23.2 Consent of PricewaterhouseCoopers LLP, independent auditors
23.3 Consent of Ernst & Young LLP, independent auditors
23.4 Consent of Ernst & Young LLP
23.5* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (see Exhibit 8.2)
24.1 Power of Attorney (included as page II-4)
99.1 Form of Proxy Card of Maxtor
99.2 Form of Proxy Card of Quantum Corporation
99.3 Consent of Salomon Smith Barney Inc.
99.4 Consent of Lehman Brothers
</TABLE>
-------------------------
* To be filed by amendment
(1) Included as an Annex to this Form S-4 registration statement.
(2) Incorporated by reference to exhibits of Form S-1 filed July 30, 1998.
ITEM 22. UNDERTAKINGS.
The registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities 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.
The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
The registrant undertakes that every prospectus: (i) that is filed pursuant
to the paragraph immediately above, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the 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,
II-2
<PAGE> 221
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The registrant hereby undertakes to respond to requests for information
that is incorporated by reference into this joint proxy statement/prospectus
pursuant to Items 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
The registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-3
<PAGE> 222
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 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 the 8th day of
December, 2000.
MAXTOR CORPORATION
By:
/s/ MICHAEL R. CANNON
------------------------------------
Michael R. Cannon
President and Chief Executive
Officer
POWER OF ATTORNEY
Each of the officers and directors of Maxtor Corporation. whose signature
appears below hereby constitutes and appoints Michael R. Cannon and Glenn H.
Stevens his true and lawful attorneys and agents, with full power of
substitution, and with power to act alone, to sign on behalf of the undersigned
any amendment or amendments to this Registration Statement on Form S-4
(including post-effective amendments) and any and all new registration
statements filed pursuant to Rule 462 under the Securities Act and to perform
any acts necessary to file such amendments or registration statements, with
exhibits thereto and other documents in connection therewith, and each of the
undersigned does hereby ratify and confirm his signature as it may be signed by
his said attorneys and agents to any and all such documents and all that said
attorneys and agents, or their substitutes, shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed on December 8, 2000 by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DR. CHONG SUP PARK Chairman of the Board December 8, 2000
-----------------------------------------------------
Dr. Chong Sup Park
/s/ MICHAEL R. CANNON President, Chief Executive December 8, 2000
----------------------------------------------------- Officer, and Director
Michael R. Cannon
/s/ PAUL J. TUFANO Senior Vice President, December 8, 2000
----------------------------------------------------- Finance,
Paul J. Tufano Chief Financial Officer, and
Principal Accounting Officer
/s/ CHARLES HILL Director December 8, 2000
-----------------------------------------------------
Charles Hill
/s/ CHARLES F. CHRIST Director December 8, 2000
-----------------------------------------------------
Charles F. Christ
/s/ Y.H. KIM Director December 8, 2000
-----------------------------------------------------
Y.H. Kim
</TABLE>
II-4
<PAGE> 223
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THOMAS CHUN Director December 8, 2000
-----------------------------------------------------
Thomas Chun
/s/ ROGER W. JOHNSON Director December 8, 2000
-----------------------------------------------------
Roger W. Johnson
/s/ CHANG SEE CHUNG Director December 8, 2000
-----------------------------------------------------
Chang See Chung
</TABLE>
II-5
<PAGE> 224
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE NOTES
------- ------------- -----
<C> <S> <C>
2.1 Amended and Restated Agreement and Plan of Merger and
Reorganization, dated as of October 3, 2000 by and among
Quantum Corporation, Insula Corporation, Hawaii Acquisition
Corporation and Maxtor (1)
2.2 Form of Separation and Redemption Agreement between Quantum
Corporation, Insula Corporation and Maxtor
2.3 Form of General Assignment and Assumption Agreement between
Quantum Corporation, Insula Corporation and Maxtor
2.4 Form of Tax Sharing and Indemnity Agreement between Quantum
Corporation, Insula Corporation and Maxtor
2.5 Form of Transitional Services Agreement between Quantum
Corporation, Insula Corporation and Maxtor
2.6 Form of Intellectual Property Agreement between Quantum
Corporation, Insula Corporation and Maxtor
2.7 Form of Indemnification Agreement between Quantum
Corporation, Insula Corporation and Maxtor
3.1 Restated Certificate of Incorporation of Maxtor
4.1 Form of Voting Agreement, dated as of October 3, 2000,
between Maxtor and certain stockholders of Quantum
4.2 Form of Voting Agreement, dated as of October 3, 2000,
between Quantum and certain stockholders of Maxtor
4.3 Stockholder Agreement dated June 25, 1998 (2)
4.4 Amendment No. 1 to Stockholder Agreement, dated as of
October 3, 2000, by and among Hyundai Electronics America,
Hyundai Electronics Industries, Ltd. and Maxtor
5.1* Legal opinion of Gray Cary Ware & Freidenrich LLP, counsel
for Maxtor
8.1* Tax opinion of Gray Cary Ware & Freidenrich LLP, counsel for
Maxtor
8.2* Tax opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel for Quantum
8.3* Tax opinion of Ernst & Young LLP
23.1* Consent of Gray Cary Ware & Freidenrich LLP (see Exhibit
5.1)
23.2 Consent of PricewaterhouseCoopers LLP, independent auditors
23.3 Consent of Ernst & Young LLP, independent auditors
23.4 Consent of Ernst & Young LLP
23.5* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (see Exhibit 8.2)
24.1 Power of Attorney (included as page II-4)
99.1 Form of Proxy Card of Maxtor
99.2 Form of Proxy Card of Quantum Corporation
99.3 Consent of Salomon Smith Barney Inc.
99.4 Consent of Lehman Brothers
</TABLE>
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* To be filed by amendment
(1) Included as an Annex to this Form S-4 registration statement.
(2) Incorporated by reference to exhibits of Form S-1 filed July 30, 1998.
