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Table of Contents
SEAGATE TECHNOLOGY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
conversion rate of approximately 56.6503 shares per $1,000 principal amount of the notes, at the option of the holders, at any time
during a fiscal quarter if, during the last 30 trading days of the immediately preceding fiscal quarter the common shares trade at a
price in excess of 110% of the conversion price for 20 consecutive trading days. Upon conversion, the 2.375% Notes are subject to
“net cash” settlement whereby the Company will deliver cash for the lesser of the principal amount of the notes being converted or
the “conversion value” of the notes which is calculated by multiplying the conversion rate then in effect by the market price of the
Company’s common shares at the time of conversion. To the extent that the conversion value exceeds the principal amount of the
2.375% Notes, the Company will, at its election, pay cash or issue common shares with a value equal to the value of such excess. If
the 2.375% Notes are surrendered for conversion, the Company may direct the conversion agent to surrender those notes to a
financial institution selected by the Company for exchange, in lieu of conversion, into a number of the Company’s common shares
equal to the applicable conversion rate, plus cash for any fractional shares, or cash or a combination of cash and the Company’s
common shares in lieu thereof. The 2.375% Notes are classified as a current liability on the consolidated balance sheet because they
are currently convertible as the Company’s share price was in excess of 110% of the conversion price for at least 20 consecutive
trading days during the last 30 trading days of the fourth quarter of fiscal year 2006.
•
$55 million in aggregate principal amount of 5.75% Subordinated Debentures due March 2012. The 5.75% subordinated debentures
require semi-annual interest payments on March 1 and September 1 and annual sinking fund payments of $5 million or repurchases
of $5 million in principal amount of debentures in lieu of sinking fund payments. The debentures are currently convertible for a cash
payment of $167.50 per $1,000 principal amount of debentures.
In accordance with APBO No. 14, Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, (“APBO 14”), the
Company determined the existence of substantial premium for both the 2.375% Notes and 6.8% Notes and recorded the notes at par value with
the resulting excess over par (the substantial premium) recorded in Additional Paid In Capital in Shareholders’ Equity. All other debt assumed
was recorded at fair market value.
Upon the closing of the Merger, the Company and Maxtor entered into a supplemental indenture whereby Seagate agreed to guarantee the
2.375% Notes and the 6.8% Notes on a full and unconditional basis, making them equal in rank with the 8% Notes (see Note 14). The 5.75%
subordinated Debentures are subordinated to the 2.375% Notes and the 6.8% Notes.
73
•
A plant construction loan in the amount of $30 million and a project loan in the amount of $30 million were outstanding from the
Bank of China to Maxtor Suzhou (“MTS”). These borrowings are collateralized by the Company’s facilities in Suzhou, China. The
interest rate on the plant construction loan is LIBOR plus 60 basis points, with the borrowings repayable in two installment payments
of $15 million each, both due in October 2008. The interest rate on the project loan is LIBOR plus 100 basis points, and the
borrowing is repayable in April 2009. Interest payments on both the construction loan and the project loan are made semi-annually.
The loans require MTS to maintain annual financial covenants, including a maximum liability to assets ratio and a minimum earnings
to interest expense ratio, with which MTS was in compliance. In connection with the funding of the construction and project loan, the
parent company of MTS, Maxtor International Sàrl, Switzerland, agreed to guaranty MTS’ obligations under both the construction
loan and the project loan.