Seagate 2003 Annual Report Download - page 24

Table of Contents
An indemnification agreement provided that New SAC and its subsidiaries would be required to indemnify VERITAS and its affiliates
for specified liabilities of Seagate Delaware and Seagate Software Holdings, Inc., including selected taxes. In return, VERITAS, Seagate
Delaware and their affiliates agreed to indemnify New SAC and its subsidiaries for specified liabilities, including all taxes of Seagate Delaware
for which New SAC would not be obligated to indemnify VERITAS and its affiliates. VERITAS deposited $150 million in an escrow account,
which could be applied by New SAC to satisfy certain tax liabilities, and which remained in the escrow account in full. To the extent that any
part of the $150 million was not utilized to satisfy these tax liabilities, it would be paid out to the former Seagate Delaware stockholders. In
July 2002, we, and those of our affiliates that were parties to the indemnification agreement entered into a reimbursement agreement, which
allocated the respective liabilities and obligations under the indemnification agreement.
Under the reimbursement agreement, if we and our affiliates became obligated to indemnify Seagate Delaware, VERITAS or any of their
affiliates for tax liabilities under the indemnification agreement, Seagate Technology HDD Holdings would be responsible for the first $125
million of the tax liabilities, and any amount exceeding $125 million would then be allocated among Seagate Technology HDD Holdings,
Seagate Technology SAN Holdings, Certance Holdings and Seagate Software (Cayman) Holdings Corporation on a pro rata basis in
accordance with the portion of the purchase price allocated to each entity in connection with the November 2000 transactions. For
indemnification obligations other than tax liabilities under the indemnification agreement, the responsible entity would reimburse any entity
that satisfied the obligation on its behalf.
On July 31, 2001, Seagate Delaware and the Internal Revenue Service filed a settlement stipulation with the United States Tax Court in
complete settlement of the remaining disputed tax matter reflected in the statutory notice of deficiency dated June 12, 1998. The settlement
stipulation was expressly contingent upon Seagate Delaware and the Internal Revenue Service entering into a closing agreement in connection
with certain tax matters arising in all or some part of the open tax years of Seagate Delaware and New SAC. The Internal Revenue Service
completed its review of Seagate Delaware’
s federal tax returns for the periods prior to the acquisition date of the operating assets and submitted
its conclusions to the congressional Joint Committee on Taxation for review. On March 15, 2004, VERITAS received written notification from
the Internal Revenue Service that the congressional Joint Committee on Taxation had completed its review and had taken no exception to the
Internal Revenue Service’s conclusions.
As a result of the conclusion of the tax audits with no additional tax due, and based on the March 15, 2004 notification to VERITAS from
the Internal Revenue Service, we recorded a $125 million income tax benefit in our third fiscal quarter of 2004 from the reversal of accrued
income taxes relating to the tax indemnification amounts due to VERITAS pursuant to the Indemnification Agreement between Seagate
Delaware, New SAC and VERITAS.
Management Rollover
In connection with the November 2000 transactions, approximately 100 members of Seagate Delaware’s management group entered into
rollover agreements under which they agreed not to receive merger consideration consisting of a portion of their restricted shares of Seagate
Delaware’s common stock and unvested options to purchase those shares. The aggregate value of this foregone consideration was
approximately $184 million. Instead of receiving this merger consideration, members of the management group received 1,843,000 restricted
ordinary and 48,500 preferred shares of New SAC and approximately $179 million in participation interests in our deferred compensation plan.
The restricted ordinary and preferred shares of New SAC and the interests in our deferred compensation plan were scheduled to vest as
follows:
• one-third on November 22, 2001;
• one-third proportionately each month over the 18 months following November 22, 2001; and
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• the final one-third on May 22, 2003.