Company Name: Western Digital Corp.
Public Availability Date:  May 05, 1994

INQUIRY LETTER

GIBSON, DUNN & CRUTCHER
JAMBOREE CENTER
4 PARK PLAZA
IRVINE, CALIFORNIA 92714-8557
(714) 451-3800

March 31, 1994

Securities Act of 1993
Sections 3(a)(10) and 4(1)
Rule 144

Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: Western Digital Corporation

Dear Ladies and Gentlemen:

We are writing as counsel for Western Digital Corporation, a Delaware corporation (the "Company"), in connection with the proposed settlement (the "Settlement") of In re Western Digital Securities Litigation (the "Lawsuit"), a class-action instituted against the Company and others in 1991 and pending before the U.S. District Court for the Central District of California (the "Court"). The Settlement, which is subject to approval by the Court, calls for the issuance by the Company of shares (the "Shares") of the Companys common stock, par value $0.10 per share (the "Common Stock"), as part of the consideration payable to members of the plaintiff class (the "Claimants") in exchange for their claims. It is anticipated that a portion of the Shares will be issued to counsel for the Claimants (the "Class Counsel") in payment of its legal fees. The Shares will be issued by the Company to the Class Counsel within 10 days after the date that the Court rules on such Counsels Fee and Expense Application and to the Claimants when the claim forms have been received and the claim process has been completed by the claims administrator.

We respectfully request the written advice of the staff (the "Staff") of the Division of Corporation Finance (the "Division") that the Staff will not recommend enforcement action to the U.S. Securities and Exchange Commission (the "Commission") based upon the following facts and that the Staff concurs with our opinions that (i) the Company may issue the Shares in exchange for the claims of the Claimants without registration under the Securities Act of 1933, as amended (the "Act") in reliance upon the exemption from registration provided under Section 3(a)(10) thereof; (ii) the Shares as so issued will not be deemed to be "restricted securities" within the meaning of Rule 144(a)(3) under the Act; and (iii) the Shares as so issued will be freely transferable by the Claimants and Class Counsel, except that if any such transferee is deemed to be an "affiliate" of the Company within the meaning of Rule 144(a)(1) under the Act, any public sale of Shares by such person without registration under the Act will be required to comply with the provisions of Rule 144 except for that rules holding period requirement.

BACKGROUND

The Lawsuit

The Company is a publicly held corporation whose Common Stock is listed and traded on the New York Stock Exchange. In July 1991, two actions were filed in the U.S. District Court for the Central District of California against the Company and Roger W. Johnson as purported class actions on behalf of persons who purchased securities issued by the Company between April 20, 1990 and February 8, 1991. These two actions were consolidated for all purposes by the Court, thus producing the current Lawsuit. The Lawsuit alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. On February 16, 1994, trial counsel for the Company and the other defendants and the Class Counsel entered into a stipulation (the "Stipulation") documenting the key terms of the proposed Settlement and providing that solely for purposes of the Stipulation and Settlement, the class period was extended through March 18, 1993. Pursuant to the Stipulation, the class is defined to include all persons who purchased securities issued by the Company during the period April 20, 1990 through and including March 18, 1993, but specifically excludes defendants and subsidiaries, affiliates, officers and directors of the Company.

The Company continues to deny any liability or wrongdoing relating to the Lawsuit. However, the Company desires to settle the Lawsuit on the terms described below in order to avoid further expense, inconvenience, distraction and delay to finally dispose of the litigation and to avoid the risks and uncertainties inherent in complex litigation.

The Proposed Settlement

The Stipulation that was entered into by Class Counsel and counsel for the defendants in the Lawsuit, was filed with the Court on February 18, 1994. The Settlement contemplated by the Stipulation is subject to Court approval following notice to the Claimants and a "fairness" hearing as prescribed by Rule 23(e) of the Federal Rules of Civil Procedure (the "FRCP") and Section 3(a)(10) of the Act. On March 14, 1994, the Court entered an order granting preliminary approval to the Stipulation and Settlement and authorizing the claims administrator to give notice to potential claimants. In addition, effectuation of the Settlement is also subject to the entry of a judgment by the Court approving the Settlement embodied in the Stipulation, such judgment becoming a final judgment no longer subject to appellate review and the expiration of the time period during which the Company may terminate or cancel the Stipulation pursuant to the terms thereof. The earliest date after which each of these events shall have occurred is hereinafter referred to as the "Effective Date."

The Stipulation provides, in part, the following:

(1) The Company shall make available, on a claims made basis, the sum of $6.75 million, comprised of $3.5 million in cash (the "Cash") and Shares of the Companys Common Stock valued at $3.25 million. The number of Shares to be issued in the Settlement shall be determined based upon a per share price that is the higher of $6.375 per share or the average closing price per share during the ten days that trading takes place on the New York Stock Exchange immediately preceding the date which is five calendar days before the date of distribution. A portion of the overall Settlement amount will be paid by the Companys insurance carrier.

(2) Prior to the date on which the fairness hearing (the "Hearing") conducted by the Court relating to the Settlement is held (the "Hearing Date"), notice of the Settlement and proof of claim forms will be sent to the Claimants notifying them of the terms of the Settlement and of their opportunity to object thereto upon proper motion and objection. The potential members of the plaintiff class will have the right to be excluded from the class and therefore not be bound by the Settlement. A summary notice of the Hearing has also been approved by the Court for publication in the National Edition of The Wall Street Journal.

(3) The Courts final judgment upon its approval of the Settlement will release all claims that have been or could have been asserted by any Claimant against any of the defendants and various others based upon or related to the purchase of the Companys securities or any theory of liability which was or could have been alleged in the Lawsuit.

(4) The Settlement contemplated by the Stipulation will not be binding upon the parties until the judgment of the Court approving the Settlement and dismissing the Lawsuit, with prejudice, has become final. Such finality will occur when a time to appeal such judgment has expired or, in the event an appeal is taken, such judgment has been affirmed and/or is no longer subject to review.

(5) The defendants in the Lawsuit agree not to oppose or object to the application to the Court of Class Counsel seeking attorneys fees, which fees will not exceed 30% of the total Settlement (i.e., 30% of the Cash and 30% of the Shares), plus reimbursement of expenses incurred.

At the Hearing, the Court will be informed that, if it approves the proposed Settlement, the Shares issued as part of the Settlement will not be required to be registered under the Act pursuant to the exemption contained in Section 3(a)(10) of the Act.

Based on the $16.875 per share closing sale price of the Common Stock on the New York Stock Exchange on March 30, 1994, the date prior to the submission of this no-action letter request, a maximum of 192,592 Shares of Common Stock could be issued by the Company, on a claims made basis, pursuant to the Settlement. In fact, this number could be less as the Stipulation provides, that, at any time prior to the distribution of the Shares to the Claimants, the Company may reduce the Shares to be distributed by increasing the amount of cash payable to the Claimants. As of February 28, 1994, the Company had a total of 44,296,101 shares of Common Stock outstanding. Based on such recent market value and number of shares outstanding, the Company expects that the Shares upon issuance would constitute less than 0.5% of the Companys then outstanding shares of Common Stock. The Shares to be issued in the Settlement will be listed on the New York Stock Exchange.

The Stipulation and Settlement specifically excludes the defendants, subsidiaries, affiliates, past and present officers and directors of the Company, their heirs and members of their immediate families, and the successors or assigns of any defendant from the plaintiff class. Therefore, the Company does not believe that any "affiliate" of the Company within the meaning of Rule 144(a)(1) of the Act will receive Shares pursuant to the Settlement.

DISCUSSION

Issuance of the Shares of Common Stock in the Settlement

Section 3(a)(10) of the Act provides an exemption from registration under the Act for "any security which is issued in exchange for one or more bona fide outstanding . . . claims . . . where the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions at which all persons to whom it is proposed to issue securities in such exchange shall have the right to appear, by any court . . . ."

It is well established that Section 3(a)(10) of the Act is available with respect to the issuance and distribution of securities pursuant to the settlement of a class action lawsuit which has been approved by a court as fair and reasonable after a hearing of which all members of the class have been given notice, provided that (i) every person entitled to receive such securities has received notice of the hearing; (ii) such persons have the opportunity to be heard at the hearing; (iii) the court has been advised prior to the hearing that if the settlement is approved by the court, the securities issued and distributed pursuant thereto will not be required to be registered under the Act by virtue of the courts approval; and (iv) the court approves the terms and conditions of the settlement as fair, reasonable and adequate. Coeur dAlene Mines Corporation (March 4, 1994); Intellicall, Inc. (August 10, 1993); Medical Imaging Centers of America, Inc. (March 12, 1993); L.A. Gear, Inc. (November 16, 1992); Newbridge Networks Corporation (July 13, 1992); Windmere Corporation (May 20, 1992); Riverbend International Corporation (March 30, 1990); and Cavanagh Communities Corporation (July 22, 1987).

The circumstances surrounding the issuance of the Shares of Common Stock in connection with the Settlement of the Lawsuit will satisfy all the above requirements. Pursuant to Rule 23(e) of the FRCP, the Court will hold the Hearing to determine whether the Settlement is fair, reasonable and adequate. The Claimants will receive notice of and have the right to appear and be heard at the Hearing. The Court will be informed that its approval of the proposed Settlement will result in the availability of the Section 3(a)(10) exemption from registration under the Act for the issuance and distribution of the Shares. Finally, pursuant to Rule 23(e), in order for the Settlement to become effective and binding, the Court must find the terms and conditions of the Settlement are fair, reasonable and adequate and in the best interest of all those who will be effected by it.

Based on the foregoing, and assuming that the Court approval necessary for the proposed Settlement to become effective is received, it is our opinion that the issuance of the Shares by the Company in connection with the proposed Settlement as described above will be exempt from registration under the Act pursuant to Section 3(a)(10).

Resale of Common Stock Issued in the Settlement

The Staff has taken the position in numerous no-action letters that securities issued without registration in reliance upon Section 3(a)(10) are not deemed to be "restricted securities" within the meaning of Rule 144(a)(3) under the Act. Coeur dAlene Mines Corporation (March 4, 1994); Intellicall, Inc. (August 10, 1993); Medical Imaging Centers of America, Inc. (March 12, 1993); L.A. Gear, Inc. (November 16, 1992); Newbridge Networks Corporation (July 13, 1992); Riverbend International Corporation (March 30, 1990); and Cavanagh Communities Corporation (July 22, 1987). Accordingly, persons to whom Shares are issued in the Settlement who are not deemed to be "affiliates" of the Company within the meaning of Rule 144(a)(1) may publicly resell such Shares without registration in reliance upon Section 4(1) of the Act. Furthermore, any persons to whom Shares are issued in the Settlement who are deemed to be "affiliates" of the Company within the meaning of Rule 144(a)(1) may publicly resell such Shares so long as they comply with all of the provisions under Rule 144 except for that rules holding period requirement.

In view of the fact that none of the persons to whom Shares will be issued in connection with the Settlement are officers or directors of the Company, and in view of our expectation that no holder of as much as 5% of Companys Shares of Common Stock will receive Shares and that, indeed, the Shares, when issued, will constitute less than 0.5% of the Companys then outstanding Shares of Common Stock, we expect to be of the opinion that none of such persons will be deemed to be an "affiliate" of the Company. We understand that, as set forth in Release No. 33-6253 (October 28, 1980), the Staff does not provide advice with regard to the determination of "underwriter" status, "affiliate" status or the availability of the exemption from registration under Section 4(1) of the Act. Accordingly, we do not request the Staff to express a position with respect to any "affiliate" status determination.

REQUEST FOR NO-ACTION LETTER

We respectfully request the concurrence of the Staff with our opinions that (i) the Company may issue the Shares as described above in partial exchange for the claims of the Claimants without registration under the Act in reliance upon the exemption from registration provided by Section 3(a)(10) thereof; (ii) the Shares as so issued will not be deemed to be "restricted securities" within the meaning of Rule 144(a)(3) under the Act; and (iii) the Shares as so issued will be freely transferable by the persons to whom such Shares are issued in the Settlement except that if any such person is deemed to be an "affiliate" of the Company within the meaning of Rule 144(a)(1) under the Act, any sale of such Shares by such person without registration under the Act will be required to comply with the provisions of Rule 144 except for that rules holding period requirement.

In the event the Division should reach a preliminary conclusion that it will be unable to take the no-action position we are requesting, we would appreciate an opportunity to discuss the matter further prior to the issuance of a formal response.

If you have any questions or desire any further information with respect to this matter, please call me at (714) 451-3862, or John M. Williams of this firm at (714) 451-3923. We respectfully request that the Staff respond to this letter as soon as possible so that we will be in a position to advise the Court of this matter at the Hearing which is scheduled for June 6, 1994. In accordance with Release No. 33-6269, seven additional copies of this letter are enclosed.

Sincerely,

E. Michael Greaney

EMG/JMW/kea

cc: Robert L. Erickson, Esq.

John M. Williams, Esq.

STAFF REPLY LETTER

May 5, 1994

RESPONSE OF THE OFFICE OF CHIEF COUNSEL

DIVISION OF CORPORATION FINANCE

Re: Western Digital Corporation (the "Company")

Incoming letter dated March 31, 1994

Based on the facts presented in your letter and contingent upon approval of the Settlement by the Court, the Division will not recommend any enforcement action to the Commission if the Company, in reliance upon your opinion as counsel that registration is not required, issues shares of the Companys Common Stock (the "Settlement Stock") in connection with the settlement of the class action pending against the Company, as described in your letter, without registration under the Securities Act of 1933. Recipients of Settlement Stock who are not affiliates of the Company may resell such Settlement Stock for their own accounts without regard to Rule 144. Recipients of such Settlement Stock who are affiliates of the Company may resell pursuant to Rule 144. Because the shares of Settlement Stock will not be restricted securities, the holding period requirement of Rule 144(d) is inapplicable.

Because these positions are based on the representations made to the Division in your letter, it should be noted that any different facts or conditions might require another conclusion. Further, this response only represents the Divisions position on enforcement action and does not purport to express any legal conclusion on the questions presented.

Sincerely,

Martin P. Dunn

Deputy Chief Counsel