EMC 2006 Annual Report Download - page 72

Table of Contents
EMC CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Upon conversion, we will pay cash up to the principal amount of the Notes converted. With respect to any conversion value in excess of the principal
amount of the Notes converted, we have the option to settle the excess with cash, shares of our common stock, or a combination of cash and shares of our
common stock based on a daily conversion value, determined in accordance with the indenture, calculated on a proportionate basis for each day of the
relevant 20-day observation period. The initial conversion rate for the Notes will be 62.1978 shares of our common stock per one thousand principal amount
of Notes, which represents a 27.5 percent conversion premium and is equivalent to a conversion price of approximately $16.08 per share of our common
stock. The conversion price is subject to adjustment in some events as set forth in the indenture. In addition, if a "fundamental change" (as defined in the
indenture) occurs prior to the maturity date, we will in some cases increase the conversion rate for a holder of Notes that elects to convert its Notes in
connection with such fundamental change.
Subject to certain exceptions, if we undergo a "designated event" (as defined in the indenture) including a "fundamental change," holders of the Notes
will have the option to require us to repurchase all or any portion of their Notes. The designated event repurchase price will be 100% of the principal amount
of the Notes to be purchased plus any accrued interest up to but excluding the relevant repurchase date. We will pay cash for all Notes so repurchased. We
may not redeem the Notes prior to maturity.
In connection with the sale of the Notes, we entered into a registration rights agreement (the "Registration Rights Agreement"). Pursuant to the
Registration Rights Agreement, on February 2, 2007, we filed a shelf registration statement with the SEC covering the resale of the Notes and our common
stock issuable upon conversion of the Notes. We also have agreed to use our commercially reasonable efforts to keep the shelf registration statement effective
until the earliest of (i) the date when all securities covered by the registration statement have been sold; (ii) the expiration of the applicable holding period
with respect to the Notes and our common stock issuable upon conversion of the Notes under Rule 144(k) under the Securities Act of 1933, or any successor
provision; and (iii) the date that is two years after the effective date of the registration statement. We may suspend the use of the registration statement to
resell Notes or shares of our common stock issued upon conversion of Notes for reasons relating to pending corporate developments, public filings or other
events.
Subject to certain limitations, we will be required to pay the holders of the Notes special interest on the Notes if we fail to keep such registration
statement effective during specified time periods. The Notes pay interest in cash at a rate of 1.75% semi-annually in arrears on December 1 and June 1 of each
year, beginning on June 1, 2007. Aggregate debt issuance costs of approximately $58.9 million are being amortized to interest expense over the respective
terms of the Notes.
A total of $2.2 billion of the net proceeds from the issuance of the Notes was used to repay the outstanding indebtedness under our six-month unsecured
credit facility which was used to finance the acquisition of RSA. Additionally, $945.8 million of the net proceeds were used to repurchase 75.0 million shares
of our common stock.
In connection with the sale of the Notes, we entered into separate Purchased Options (the "Purchased Options") with respect to our common stock. The
Purchased Options allow us to receive shares of our common stock and/or cash related to the excess conversion value that we would pay to the holders of the
Notes upon conversion. The Purchased Options will cover, subject to customary anti-dilution adjustments, approximately 215 million shares of our common
stock. Half of the Purchased Options expire on December 1, 2011 and the remaining half of the Purchased Options expire on December 1, 2013. We paid an
aggregate amount of $669.1 million of the proceeds from the sale of the Notes for the Purchased Options.
We also entered into separate transactions in which we sold warrants to acquire, subject to customary anti-dilution adjustments, approximately
215 million shares of our common stock at an exercise price of approximately $19.55 per share of our common stock. Half of the Sold Warrants have
expiration dates between February 15, 2012 and March 15, 2012 and the remaining half of the Sold Warrants have expiration dates between February 18,
2014 and March 18, 2014. We received aggregate proceeds of $391.1 million from the sale of the Sold Warrants.
The Purchased Options and Sold Warrants will generally have the effect of increasing the conversion price of the Notes to approximately $19.55 per
share of our common stock, representing an approximate 55 percent conversion premium based on the closing price of $12.61 per share of our common stock
on November 13, 2006.
The cost of the Purchased Options and net proceeds from the sale of the Sold Warrants are classified in stockholders' equity.
In April 2006, we redeemed the Documentum Notes for $126.1 million, based on a contractual redemption price of 100.9%.
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