NetApp Offers $1.1 Billion Convertible Senior Notes

NetApp proposes to offer $1.1 billion aggregate principal amount of convertible senior notes, subject to market conditions and other factors. The notes would be due in 2013 and are to be offered and sold to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. NetApp also intends to grant to the initial purchasers of the notes an option to purchase up to an additional $165 million aggregate principal amount of notes solely to cover over-allotments.

The notes will be unsecured, unsubordinated obligations of NetApp, and interest will be payable semi-annually. The notes will be convertible, subject to certain conditions, into cash up to the principal amount of the notes and, with respect to any excess conversion value, into shares of NetApp’s common stock. The interest rate, conversion rate, offering price and other terms are to be determined by negotiations between NetApp and the initial purchasers.

NetApp also expects to enter into convertible note hedge transactions with counterparties, one or more of which may be affiliated with the initial purchasers of the notes (the ‘hedge counterparties’), and intends to use a portion of the net proceeds from this offering to pay for the convertible note hedge transactions. NetApp also expects to enter into separate warrant transactions with the hedge counterparties, and to use the proceeds of those warrant transactions to partially offset the cost of the convertible note hedge transactions. NetApp anticipates that the warrants will have an exercise price that is approximately 70 percent higher than the closing price of NetApp’s common stock on the date the warrants are issued. In connection with the convertible note hedge and warrant transactions, the hedge counterparties have advised NetApp that they or their affiliates may enter into various derivative transactions with respect to the common stock of NetApp and/or purchase common stock of NetApp or other securities linked to or referencing NetApp’s common stock concurrently with or shortly after the pricing of the notes. These activities could have the effect of increasing or preventing a decline in the price of the common stock of NetApp concurrently with or after the pricing of the notes. In addition, the hedge counterparties or their affiliates may from time to time, following the pricing of the notes, enter into or unwind various derivative transactions with respect to the common stock of NetApp and/or purchase or sell common stock of NetApp or other securities linked to or referencing NetApp’s common stock in secondary market transactions (and are likely to do so during any observation period relating to the conversion of the notes). These activities could have the effect of decreasing the price of the common stock of NetApp and could adversely affect the price of the notes during any observation period related to the conversion of notes.

NetApp expects to use:

• up to $275 million of the net proceeds of the offering to repurchase shares of its common stock in negotiated transactions with institutional investors, through one or more of the initial purchasers as its agent, concurrently with the offering,
• a portion of the net proceeds for the cost of the convertible note hedge transactions described above, after such cost is offset by the proceeds received from the warrant transactions described above, and
• any remaining net proceeds for general corporate purposes, including capital expenditures, possible future stock repurchases, working capital and potential acquisitions and strategic transactions. The repurchase of such shares in connection with the offering could have the effect of raising or maintaining the market price of the common stock above levels that would otherwise have prevailed, or preventing, slowing or delaying a decline in such price. If the initial purchasers exercise the over-allotment option, NetApp intends to use any proceeds therefrom to enter into additional convertible note hedge transactions and for general corporate purposes, and in such event also intends to enter into additional warrant transactions, which would result in the receipt of additional proceeds.

This announcement is neither an offer to sell nor a solicitation of an offer to buy any of these securities (including the shares of NetApp common stock into which the notes are convertible) and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale is unlawful.

The notes and the shares of common stock issuable upon conversion of the notes have not been registered under the Securities Act of 1933, as amended, or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements.