Seagate 2003 Annual Report Download - page 51

Table of Contents
potential acquisitions will be limited by our high degree of leverage, the covenants contained in the indenture that governs our outstanding 8%
senior notes, the credit agreement that governs our senior secured credit facilities and any agreements governing any other debt we may incur.
If we are successful in acquiring other companies, these acquisitions may have an adverse effect on our operating results, particularly
while the operations of the acquired business are being integrated. It is also likely that integration of acquired companies would lead to the loss
of key employees from those companies or the loss of customers of those companies. In addition, the integration of any acquired companies
would require substantial attention from our senior management, which may limit the amount of time available to be devoted to our day-to-day
operations or to the execution of our strategy. Furthermore, the expansion of our business involves the risk that we might not manage our
growth effectively, that we would incur additional debt to finance these acquisitions or investments and that we would incur substantial charges
relating to the write-off of in-process research and development, similar to that which we incurred in connection with several of our prior
acquisitions. Each of these items could have a material adverse effect on our financial position and results of operations.
Potential Loss of Licensed Technology—The closing of the November 2000 transactions may have triggered change of control or
anti-assignment provisions in some of our license agreements, which could result in a loss of our right to use licensed technology.
We have a number of cross-licenses with third parties that enable us to manufacture our products free from any infringement claims that
might otherwise be made by these third parties against us. A number of these licenses contain change of control or anti-assignment provisions.
We have taken steps to transfer these licenses in connection with the closing of the November 2000 transactions; however, we cannot assure
you that these transfers will not be challenged. For example, Papst Licensing GmbH, IBM and Hitachi initially took the position that their
license agreements did not transfer to our new business entities. Subsequently, we entered into new license agreements with IBM and Hitachi
in December 2001. In September 2002, we settled a broader dispute with Papst that also resolved the claim by Papst that its license agreement
was not properly transferred.
We received a letter dated November 20, 2002 from Read-Rite Corporation asserting that we do not currently have a license to its
patented technology and that our rigid disc drive products infringe at least two of its patents. We have since received additional letters from
Read-Rite Corporation making the same claims. Seagate Delaware entered into a Patent Cross License Agreement dated December 31, 1994,
which covered the two patents referenced in the November 20, 2002 letter, as well as other intellectual property of Read-Rite Corporation.
Prior to the November 20, 2002 letter, Read-Rite Corporation had not responded to our efforts to confirm that under the Patent Cross License
Agreement we were entitled to a new license agreement in our own name and on materially the same terms as the 1994 agreement. In order to
clarify the parties’ rights under the Patent Cross License Agreement, we filed a declaratory judgment action on May 7, 2003 in the Superior
Court of California, County of Santa Clara, seeking a declaration that we are entitled to a cross-license, effective as of November 22, 2000,
under terms substantially identical to those contained in the Patent Cross License Agreement. On June 11, 2003 Read-Rite Corporation
answered the complaint putting forward a general denial and asserting various affirmative defenses. On June 17, 2003, Read-Rite Corporation
filed a voluntary petition for bankruptcy under Chapter 7 of the U.S. Bankruptcy Code. Upon notice, our declaratory judgment action has been
stayed. On July 23, 2003, the U.S. Bankruptcy Court approved Western Digital Corporation’s bid to acquire the assets of Read-Rite
Corporation, including the intellectual property that was the subject of Read-Rite’s dispute with us, in a transaction that closed on July 31,
2003. We objected to Western Digital’s assumption of the Patent Cross-License Agreement. On November 14, 2003, the Bankruptcy Trustee
made a motion to assume or reject certain Read-Rite executory contracts, rejecting the Patent Cross-License Agreement. We have given notice
of our election to retain the benefits of the Patent Cross-License Agreement to the extent permitted by Section 365(n) of the U.S. Bankruptcy
Code.
To the extent that third party cross-licenses, including the Patent Cross License Agreement dated December 31, 1994 between Read-Rite
Corporation and Seagate Delaware, are deemed not to have been properly assigned to us in the November 2000 transactions, our inability to
either obtain new licenses or transfer existing
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