<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________to __________
Commission file number 001-12925
GENERAL INSTRUMENT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-4134221
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 TOURNAMENT DRIVE, HORSHAM, PENNSYLVANIA, 19044
(Address of principal executive offices)
(Zip Code)
(215) 323-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
As of July 15, 1998, there were 151,746,136 shares of Common Stock outstanding.
<PAGE>
PAGES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets 3-4
Consolidated Statements of Operations 5
Consolidated Statement of Stockholders' Equity 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8-16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 17-21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 22
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 23
ITEM 4. Submission of Matters to a Vote of Securities Holders 24
ITEM 5. Other Information 24-25
ITEM 6. Exhibits 25
SIGNATURES 26
INDEX TO EXHIBITS 27
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Cash and cash equivalents $ 82,854 $ 35,225
Short-term investments 25,659 30,346
Accounts receivable, less allowance for doubtful accounts
of $3,120 and $3,566, respectively 323,000 343,625
Inventories 261,031 288,078
Deferred income taxes 121,494 105,582
Other current assets 14,112 21,862
----------- -----------
Total current assets 828,150 824,718
Property, plant and equipment, net 226,918 236,821
Intangibles, less accumulated amortization of $91,547
and $86,333, respectively 76,171 82,546
Excess of cost over fair value of net assets acquired, less
accumulated amortization of $114,919 and $108,123,
respectively 457,418 471,186
Deferred income taxes 19,889 5,634
Investments and other assets 84,723 54,448
----------- -----------
TOTAL ASSETS $ 1,693,269 $ 1,675,353
=========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Accounts payable $ 203,780 $ 200,817
Other accrued liabilities 170,993 188,250
----------- -----------
Total current liabilities 374,773 389,067
Deferred income taxes 5,663 5,745
Other non-current liabilities 62,525 65,730
----------- -----------
Total liabilities 442,961 460,542
----------- -----------
Commitments and contingencies (See Note 5)
Stockholders' Equity:
Preferred Stock, $.01 par value; 20,000,000 shares
authorized; no shares issued - -
Common Stock, $.01 par value; 400,000,000 shares
authorized; 151,686,994 and 148,358,188 shares
issued at June 30, 1998 and December 31, 1997,
respectively 1,517 1,484
Additional paid-in capital 1,282,428 1,213,566
Accumulated deficit (49,165) (19,236)
Accumulated other comprehensive income, net of
taxes of $9,129 and $11,347, respectively 15,530 18,999
----------- -----------
1,250,310 1,214,813
Less-Treasury Stock, at cost, 6,134 shares of Common Stock (2) (2)
----------- -----------
Total stockholders' equity 1,250,308 1,214,811
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,693,269 $ 1,675,353
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 488,505 $ 450,403 $ 905,425 $ 858,431
Cost of sales 347,384 332,785 671,316 627,299
--------- --------- --------- ---------
GROSS PROFIT 141,121 117,618 234,109 231,132
--------- --------- --------- ---------
OPERATING EXPENSES:
Selling, general and administrative 45,883 51,890 101,768 94,644
Research and development 42,266 49,630 158,169 100,675
Amortization of excess of cost over fair
value of net assets acquired 3,562 3,560 7,123 7,118
--------- --------- --------- ---------
Total operating expenses 91,711 105,080 267,060 202,437
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 49,410 12,538 (32,951) 28,695
Other expense - net (796) (1,324) (9,804) (1,853)
Interest expense - net (284) (6,420) (1,264) (13,511)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 48,330 4,794 (44,019) 13,331
Benefit (provision) for income taxes (18,367) (4,388) 14,090 (7,965)
--------- --------- --------- ---------
NET INCOME (LOSS) $ 29,963 $ 406 $ (29,929) $ 5,366
========= ========= ========= =========
EARNINGS (LOSS) PER SHARE - BASIC $ 0.20 $ (0.20)
========= =========
EARNINGS (LOSS) PER SHARE - DILUTED $ 0.19 $ (0.20)
========= =========
PRO FORMA EARNINGS PER SHARE - BASIC
AND DILUTED $ - $ 0.04
========= =========
WEIGHTED-AVERAGE SHARES
OUTSTANDING - BASIC 151,226 150,450
WEIGHTED-AVERAGE SHARES
OUTSTANDING - DILUTED 160,863 150,450
PRO FORMA WEIGHTED-AVERAGE SHARES
OUTSTANDING 148,700 148,700
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited - In thousands)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other Common Total
--------------------- Paid-In Accumulated Comprehensive Stock-In Stockholders'
Shares Amount Capital Deficit Income Treasury Equity
--------- --------- ------- ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 148,358 $ 1,484 $1,213,566 $(19,236) $18,999 $ (2) $1,214,811
Net loss (29,929) (29,929)
Exercise of stock options
and related tax benefit 3,329 33 57,216 57,249
Amortization of warrant costs 11,646 11,646
Net change in investments (3,469) (3,469)
-------- ------- ---------- -------- ------- -------- ----------
BALANCE, JUNE 30, 1998 151,687 $ 1,517 $1,282,428 $(49,165) $15,530 $ (2) $1,250,308
======== ======= ========== ======== ======= ======== ==========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
GENERAL INSTRUMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ (29,929) $ 5,366
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 50,307 45,660
Gain on sale of short-term investment (4,529) -
Losses from asset sales and write-downs, net 6,714 -
Loss from equity investments 17,852 -
Changes in assets and liabilities:
Accounts receivable 13,103 49,560
Inventories 13,133 (18,800)
Prepaid expenses and other current assets 2,427 779
Deferred income taxes (28,031) 4,620
Non-current assets (436) -
Accounts payable and other accrued liabilities (1,458) (21,806)
Other non-current liabilities (3,206) 3,041
Other (901) (2,105)
----------- -----------
Net cash provided by operating activities 35,046 66,315
----------- -----------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (40,091) (36,547)
Investments in other assets (1,995) (20,778)
Proceeds from sale of short-term investment 4,529 -
----------- -----------
Net cash used in investing activities (37,557) (57,325)
----------- -----------
FINANCING ACTIVITIES:
Transfers to Distributing Company - (8,990)
Proceeds from stock option exercises 50,140 -
----------- -----------
Net cash provided by (used in) financing activities 50,140 (8,990)
----------- -----------
Change in cash and cash equivalents 47,629 -
Cash and cash equivalents, beginning of period 35,225 -
----------- -----------
Cash and cash equivalents, end of period $ 82,854 $ -
=========== ===========
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, unless otherwise noted)
1. COMPANY BACKGROUND
General Instrument Corporation ("General Instrument" or the "Company"),
formerly NextLevel Systems, Inc., is a leading worldwide supplier of systems
and components for high-performance networks, delivering video, voice and
Internet/data services to the cable, satellite and telephony markets.
General Instrument is the world leader in digital and analog set-top systems
for wired and wireless cable television networks, as well as hybrid
fiber/coaxial network transmission systems used by cable television operators
and is a leading provider of digital satellite systems for programmers,
direct-to-home satellite network providers and private networks for business
communications. Through its limited partnership interest in Next Level
Communications, L.P. (the "Partnership")(see Note 10), the Company provides
telephone network solutions through the Partnership's NLevel3-Registered
Trademark- Switched Digital Access system.
The Company was formerly the Communications Business of the former
General Instrument Corporation (the "Distributing Company"). In a
transaction that was consummated on July 28, 1997, the Distributing Company
(i) transferred all the assets and liabilities relating to the manufacture
and sale of broadband communications products used in the cable television,
satellite, and telecommunications industries to the Company (then a
wholly-owned subsidiary of the Distributing Company) and all the assets and
liabilities relating to the manufacture and sale of coaxial, fiber optic and
other electric cable used in the cable television, satellite and other
industries to its wholly-owned subsidiary CommScope, Inc. ("CommScope") and
(ii) distributed all of its outstanding shares of capital stock of each of
the Company and CommScope to its stockholders on a pro rata basis as a
dividend. Approximately 147.3 million shares of the Company's common stock,
par value $.01 per share (the "Common Stock"), based on a ratio of one for
one, were distributed to the Distributing Company's stockholders of record on
July 25, 1997 (the "Communications Distribution"). On July 28, 1997,
approximately 49.1 million shares of CommScope common stock, based on a ratio
of one for three, were distributed to the Company's stockholders of record on
that date (the "CommScope Distribution" and, together with the Communications
Distribution, the "Distributions"). On July 28, 1997, the Company and
CommScope began operating as independent entities with publicly traded common
stock, and the Distributing Company retained no ownership interest in either
the Company or CommScope. Additionally, immediately following the
Communications Distribution, the Distributing Company was renamed General
Semiconductor, Inc. ("General Semiconductor") and effected a one for four
reverse stock split.
2. BASIS OF PRESENTATION
The accompanying interim consolidated financial statements reflect the
results of operations, financial position, changes in stockholders' equity
and cash flows of General Instrument. The consolidated balance sheet as of
June 30, 1998, the consolidated statements of operations for the three and
six months ended June 30, 1998 and 1997, the consolidated statement of
stockholders' equity for the six months ended June 30, 1998 and the
consolidated statements of cash flows for the six months ended June 30, 1998
and 1997 of General Instrument are unaudited and reflect all adjustments of a
normal recurring nature (except for those charges disclosed in Notes 5, 9, 10
and 12) which are, in the opinion of management, necessary for a fair
presentation of the interim period financial statements. The results of
operations for the interim period are not necessarily indicative of the
results of operations to be expected for the full year.
The consolidated statements of operations for the three and six months
ended June 30, 1997 include an allocation of general corporate expenses from the
Distributing Company. In the opinion of management, general corporate
administrative expenses have been allocated to the Company on a reasonable and
consistent basis using management's estimate of services provided to the Company
by the Distributing Company. However, such allocation is not necessarily
indicative of the level of expenses which would have been incurred had the
Company been operating as a separate stand alone entity during the periods
presented.
8
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, unless otherwise noted)
Prior to the Distributions, the Company participated in the Distributing
Company's cash management program, and the accompanying consolidated statements
of operations for the three and six months ended June 30, 1997 include an
allocation of net interest expense from the Distributing Company. To the extent
the Company generated positive cash, such amounts were remitted to the
Distributing Company. To the extent the Company experienced temporary cash
needs for working capital purposes or capital expenditures, such funds were
historically provided by the Distributing Company. Net interest expense has been
allocated based upon the Company's net assets as a percentage of the total net
assets of the Distributing Company. The allocations were made consistently in
each period, and management believes the allocations are reasonable. However,
these interest costs would not necessarily be indicative of what the actual
costs would have been had the Company operated as a separate, stand-alone
entity. Subsequent to the Distributions, the Company is responsible for all
cash management functions using its own resources or purchased services and is
responsible for the costs associated with operating as a public company.
Prior to the Distributions, the Company's financial results included the
costs incurred under the Distributing Company's pension and postretirement
benefit plans for employees and retirees of the Company. Subsequent to the
Distributions, the Company's financial results include the costs incurred under
the Company's own pension and postretirement benefit plans. The provision for
income taxes for the periods prior to the Distributions was based on the
Company's expected annual effective tax rate calculated assuming the Company had
filed separate tax returns under its then existing structure. For the three and
six months ended June 30, 1998, income taxes were computed based upon the
expected annual effective tax rate.
The financial information included herein, related to the periods prior to
the Distributions, may not necessarily reflect the consolidated results of
operations, financial position and cash flows of the Company since the Company
was not a separate stand-alone entity.
9
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, unless otherwise noted)
3. PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma consolidated statements of operations presented
below give effect to the Distributions as if they had occurred on January 1,
1997. The unaudited pro forma statements of operations set forth below do not
purport to represent what the Company's operations actually would have been had
the Distributions occurred on January 1, 1997 or to project the Company's
operating results for any future period.
The unaudited pro forma information has been prepared utilizing the
historical consolidated statements of operations of the Company which were
adjusted to reflect: (i) an additional $1.8 million and $3.6 million of selling,
general and administrative costs for the three and six months ended June 30,
1997, respectively, to eliminate the allocation of corporate expenses to
CommScope and General Semiconductor, as such costs subsequent to the
Distributions were no longer allocable and were expected to be incurred by the
Company in the future; and (ii) a net debt level of $100 million at January 1,
1997.
Three months ended Six months ended
June 30, 1997 June 30, 1997
------------- -------------
Net sales $ 450,403 $ 858,431
Cost of sales 332,785 627,299
--------- ---------
Gross profit 117,618 231,132
Operating expenses:
Selling, general and administrative 53,690 98,244
Research and development 49,630 100,675
Amortization of excess of cost over
fair value of net assets acquired 3,560 7,118
--------- ---------
Total operating expenses 106,880 206,037
--------- ---------
Operating income 10,738 25,095
Other expense - net (1,324) (1,853)
Interest expense - net (1,900) (3,800)
--------- ---------
Income before income taxes 7,514 19,442
Provision for income taxes (5,488) (10,387)
--------- ---------
Net income $ 2,026 $ 9,055
========= =========
Weighted-average shares outstanding 148,700 148,700
Earnings per share - basic and diluted $ 0.01 $ 0.06
========= =========
10
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, unless otherwise noted)
4. INVENTORIES
Inventories consist of:
JUNE 30, 1998 DECEMBER 31, 1997
------------- -----------------
Raw materials $ 107,144 $ 111,148
Work in process 17,054 19,676
Finished goods 136,833 157,254
---------- ----------
Total inventories $ 261,031 $ 288,078
========== ==========
5. COMMITMENTS AND CONTINGENCIES
The Company is either a plaintiff or a defendant in several pending legal
matters. In addition, the Company is subject to various federal, state, local
and foreign laws and regulations governing the use, discharge and disposal of
hazardous materials. The Company's manufacturing facilities are believed to be
in substantial compliance with current laws and regulations. Compliance with
current laws and regulations has not had, and is not expected to have, a
material adverse effect on the Company's financial statements.
On May 5, 1998, the action entitled BROADBAND TECHNOLOGIES, INC. V. GENERAL
INSTRUMENT CORP., pending in the United States District Court for the Eastern
District of North Carolina, was dismissed with prejudice. In addition, on May
4, 1998, the action entitled NEXT LEVEL COMMUNICATIONS V. BROADBAND
TECHNOLOGIES, INC., was dismissed with prejudice. These dismissals were entered
pursuant to a settlement agreement under which, among other things, the
Partnership has paid BroadBand Technologies $5 million and BroadBand
Technologies and the Partnership have entered into a perpetual cross-license of
patents applied for or issued currently or during the next five years. The
Company also has granted BroadBand Technologies a covenant not to sue on all
Company patents applied for or issued currently or during the next five years.
A securities class action is presently pending in the United States
District Court for the Northern District of Illinois, Eastern Division, IN RE
GENERAL INSTRUMENT CORPORATION SECURITIES LITIGATION. This action, which
consolidates numerous class action complaints filed in various courts between
October 10 and October 27, 1995, is brought by plaintiffs, on their own behalf
and as representatives of a class of purchasers of the Distributing Company's
common stock during the period March 21, 1995 through October 18, 1995. The
complaint alleges that the Distributing Company and certain of its officers and
directors, as well as Forstmann Little & Co. and certain related entities,
violated the federal securities laws, namely, Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), prior to the
Distributions, by allegedly making false and misleading statements and failing
to disclose material facts about the Distributing Company's planned shipments in
1995 of its CFT 2200 and DigiCipher-Registered Trademark- products. Also
pending in the same court, under the same name, is a derivative action brought
on behalf of the Distributing Company. The derivative action alleges that,
prior to the Distributions, the members of the Distributing Company's Board of
Directors, several of its officers and Forstmann Little & Co. and related
entities have breached their fiduciary duties by reason of the matter complained
of in the class action and the defendants' alleged use of material non-public
information to sell shares of the Distributing Company's stock for personal
gain. The court had granted the defendants' motions to dismiss the original
complaints in both of these actions, but allowed the plaintiffs in each action
an opportunity to file amended complaints. Amended complaints were filed on
November 7, 1997. The defendants have answered the amended consolidated
complaint in the class actions, denying liability, and have filed a renewed
motion to dismiss the derivative action. The Company intends to vigorously
contest these actions.
An action entitled BKP PARTNERS, L.P. V. GENERAL INSTRUMENT CORP. was
brought in February 1996 by certain holders of preferred stock of Next Level
Communications ("NLC"), which merged into a subsidiary of the Distributing
Company in
11
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, unless otherwise noted)
September 1995. The action was originally filed in the Northern District of
California and was subsequently transferred to the Northern District of
Illinois. The plaintiffs allege that the defendants violated federal securities
laws by making misrepresentations and omissions and breached fiduciary duties to
NLC in connection with the acquisition of NLC by the Distributing Company.
Plaintiffs seek, among other things, unspecified compensatory and punitive
damages and attorneys' fees and costs. On September 23, 1997, the district
court dismissed the complaint, without prejudice, and the plaintiffs were given
until November 7, 1997 to amend their complaint. On November 7, 1997,
plaintiffs served the defendants with amended complaints, which contain
allegations substantially similar to those in the original complaint. The
defendants have filed a motion to dismiss parts of the amended complaint and
have answered the balance of the amended complaint, denying liability. The
Company intends to vigorously contest this action.
In connection with the Distributions, the Company has agreed to indemnify
General Semiconductor in respect of its obligations, if any, arising out of or
in connection with the matters discussed in the preceding two paragraphs.
On February 19, 1998, a consolidated securities class action complaint
entitled IN RE NEXTLEVEL SYSTEMS, INC. SECURITIES LITIGATION was filed in the
United States District Court for the Northern District of Illinois, Eastern
Division, naming the Company and certain former officers and directors as
defendants. The complaint was filed on behalf of stockholders who purchased
or otherwise acquired stock of the Company between July 25, 1997 and October
15, 1997. The complaint alleged that the defendants violated Sections 11 and
15 of the Securities Act of 1933, as amended (the "Securities Act"), and
Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder by
making false and misleading statements about the Company's business, finances
and future prospects. On April 9, 1998, the plaintiffs voluntarily dismissed
their Securities Act claims. On May 5, 1998, the defendants served upon the
plaintiffs a motion to dismiss the remaining counts of the complaint.
On March 5, 1998, an action entitled DSC COMMUNICATIONS CORPORATION V. NEXT
LEVEL COMMUNICATIONS, L.P. was filed in the Superior Court of the State of
Delaware in and for New Castle County. DSC alleged that the defendants
misappropriated trade secrets relating to a switched digital video product, and
that the defendants conspired to misappropriate the trade secrets. The
plaintiffs sought monetary and exemplary damages and attorney fees. On May 14,
1998, the United States District Court for the Eastern District of Texas issued
a preliminary injunction preventing DSC from proceeding with this litigation.
DSC has filed a notice of appeal of that order. On July 6, 1998, the defendants
filed a motion for summary judgment with the district court requesting a
permanent injunction preventing DSC from proceeding with this litigation.
In May 1997, StarSight Telecast, Inc. ("StarSight") filed a Demand for
Arbitration against the Company alleging that the Company breached the terms of
a license agreement with StarSight by (a) developing a competing product that
wrongfully incorporates StarSight's technology and inventions claimed within a
certain StarSight patent, (b) failing to promote and market the StarSight
product as required by the license agreement, and (c) wrongfully using
StarSight's technical information, confidential information and StarSight's
graphical user interface in breach of the license agreement. StarSight is
seeking injunctive relief as well as damages. The Company has denied StarSight's
allegations and is vigorously defending the arbitration action. The arbitration
proceeding was originally scheduled to begin before an arbitration panel of the
American Arbitration Association in San Francisco, California in July 1998. Due
to the resignation of one of the panel members two days before the arbitration
proceeding was expected to begin, the proceeding has been postponed until a
third arbitrator is selected and a new scheduling order is issued. The Company
currently anticipates the proceeding to begin in 1999.
While the ultimate outcome of the matters described above cannot be
determined, management does not believe that the final disposition of these
matters will have a material adverse effect on the Company's financial
statements.
12
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, unless otherwise noted)
6. EARNINGS (LOSS) PER SHARE AND PRO FORMA EARNINGS PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted-average number of common shares outstanding. Diluted earnings
(loss) per share is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding adjusted for the dilutive
effect of stock options and warrants (unless inclusion of such common stock
equivalents would be anti-dilutive). The dilutive effect of options and
warrants of 9,637 shares for the Second Quarter 1998 was computed using the
treasury stock method. Further, since the computation of diluted loss per share
is anti-dilutive for the six months ended June 30, 1998, the amounts reported
for basic and diluted loss per share are the same.
Prior to the Distributions, the Company did not have its own capital
structure, and pro forma per share information has been presented for the three
and six months ended June 30, 1997. The pro forma weighted-average number of
shares outstanding used in the pro forma per share calculation for the three and
six months ended June 30, 1997 equaled the number of common shares issued and
common equivalent shares existing on the date of the Distributions.
7. LONG-TERM DEBT
In July 1997, the Company entered into a bank credit agreement (the "Credit
Agreement") which provides a $600 million unsecured revolving credit facility
and matures on December 31, 2002. The Credit Agreement permits the Company to
choose between two interest rate options: an Adjusted Base Rate (as defined in
the Credit Agreement), which is based on the highest of (i) the rate of interest
publicly announced by The Chase Manhattan Bank as its prime rate, (ii) 1% per
annum above the secondary market rate for three-month certificates of deposit
and (iii) the federal funds effective rate from time to time plus 0.5%, and a
Eurodollar rate (LIBOR) plus a margin which varies based on certain performance
criteria. The Company is also able to set interest rates through a competitive
bid procedure. In addition, the Credit Agreement requires the Company to pay a
facility fee on the total loan commitment. The Credit Agreement contains
financial and operating covenants, including limitations on guarantee
obligations, liens and sale of assets, and requires the maintenance of certain
financial ratios. In addition, under the Credit Agreement, certain changes in
control of the Company would result in an event of default, and the lenders
under the Credit Agreement could declare all outstanding borrowings under the
Credit Agreement immediately due and payable. None of the restrictions
contained in the Credit Agreement is expected to have a significant effect on
the Company's ability to operate. As of June 30, 1998, the Company was in
compliance with all financial and operating covenants under the Credit
Agreement. At June 30, 1998, the Company had available credit of $500 million
under the Credit Agreement. The Company had approximately $109 million of
letters of credit outstanding at June 30, 1998.
8. OTHER EXPENSE-NET
Other expense-net for the Second Quarter 1998 and for the six months ended June
30, 1998 includes $7 million and $18 million, respectively, related to the
Company's share of the Partnership losses, including the charges described in
Note 12, partially offset by $2 million and $5 million, respectively, related to
a gain on the sale of a portion of the Company's investment in Ciena
Corporation and $5 million for both periods related to proceeds received from
the settlement of an insurance claim.
9. RESTRUCTURINGS
In the fourth quarter of 1997, the Company announced a plan to streamline the
cost structure of its San
13
<PAGE>
GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, unless otherwise noted)
Diego-based satellite business and reduced this unit's headcount by 225.
Additionally, the Company closed its Puerto Rico satellite TV manufacturing
facility, which manufactured receivers used in the private network, commercial
and consumer satellite markets for the reception of analog and digital
television signals, and reduced headcount by 1,100. The Company recorded a
pre-tax charge of $36 million during the fourth quarter of 1997 related to the
restructuring. Current satellite receiver manufacturing has been subcontracted
to a third party manufacturer.
As part of the restructuring plan, the Company recorded an additional
$16 million of pre-tax charges in the first quarter of 1998 primarily related
to severance and other employee separation costs, costs associated with the
closure of various facilities and the write-down of certain assets to their
estimated net realizable values. Of these charges, $9 million were recorded
as cost of sales and $6 million as SG&A. Through June 30, 1998, the Company
has made severance and other restructuring related payments of $17 million.
Substantially all of the remaining severance and other employee separation
costs are expected to be paid during 1998. Also, during the first quarter of
1998, the Company moved its corporate headquarters from Chicago, Illinois to
Horsham, Pennsylvania.
In connection with the Distributions (see Note 1), during the second
quarter of 1997 and the six months ended June 30, 1997, the Company recorded
pre-tax charges to cost of sales of $16 million and $18 million, respectively,
for employee costs related to dividing the Distributing Company's Taiwan
operations between the Company and General Semiconductor.
10. THE PARTNERSHIP
In January 1998, the Company transferred the net assets, principally
technology, and the management and workforce of NLC to the newly formed
Partnership in exchange for approximately an 89% limited partnership interest
(subject to additional dilution). The limited partnership interest is
included in "investments and other assets" in the accompanying consolidated
balance sheet at June 30, 1998. The operating general partner, which was
formed by Spencer Trask & Co., has acquired approximately an 11% interest in
the Partnership and has the potential to acquire up to an additional 11% in
the future. Net assets transferred to the Partnership of $44 million
primarily included property, plant and equipment, inventories and accounts
receivable partially offset by accounts payable and accrued expenses.
Pursuant to the Partnership agreement, the operating general partner
controls the Partnership and is responsible for developing the business plan
and infrastructure necessary to position the Partnership as a stand-alone
company. The Company, as the limited partner, has certain protective rights,
including the right to approve an alteration of the legal structure of the
Partnership, the sale of the Partnership's principal assets, the sale of the
Partnership, a change in the general partner and a change in the limited
partner's financial interests in the Partnership. Since the operating
general partner controls the day-to-day operations of the Partnership and has
the ability to make decisions typical of a controlling party, the
Partnership's operating results have not been consolidated with the operating
results of the Company subsequent to the January 1998 transfer.
In addition, in January 1998, the Company advanced $75 million to the
Partnership in exchange for an 8% debt instrument (the "Note"), and the Note
contains normal creditor security rights, including a prohibition against
incurring amounts of indebtedness for borrowed money in excess of $10 million.
Since the repayment of the Note is solely dependent upon the results of the
Partnership's research and development activities and the commercial success of
its product development, the Company recorded a charge to research and
development expense during the quarter ended March 31, 1998 to fully reserve for
the Note concurrent with the funding.
The Company is accounting for its interest in the Partnership as an
investment under the equity method of accounting. Further, the Company's share
of the Partnership's losses related to future research
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GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, unless otherwise noted)
and development activities will be offset against the $75 million reserve
discussed above. For the three and six months ended June 30, 1998, the
Company's share of the Partnership's losses was $7 million and $18 million,
respectively, (net of the Company's share of research and development expenses
of $10 million and $19 million, respectively). The Company has eliminated its
interest income from the Note against its share of the Partnership's related
interest expense on the Note.
11. COMPREHENSIVE INCOME (LOSS)
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." This
statement requires that an enterprise report the change in its net assets during
the period from nonowner sources. Since this statement only requires
additional disclosures, it had no impact on the Company's consolidated financial
position or cash flows. For the three and six months ended June 30, 1998 and
1997, other comprehensive income comprised unrealized gains and losses on
investments. Comprehensive income is summarized below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $ 29,963 $ 406 $ (29,929) $ 5,366
Other comprehensive income (loss) 3,904 7,307 (3,469) 18,487
--------- --------- --------- ---------
Total comprehensive income (loss) $ 33,867 $ 7,713 $ (33,398) $ 23,853
========= ========= ========= =========
</TABLE>
12. OTHER CHARGES
The Company incurred approximately $33 million of certain other pre-tax
charges during the first quarter of 1998. Of these charges, $18 million has
been reflected in cost of sales and $7 million has been reflected in SG&A
expense. These charges relate to the write-down of inventories and certain other
assets to their net realizable value, and moving costs associated with
relocating certain assets to other facilities owned by the Company. The
remaining $8 million of charges are included in "other expense-net" and relate
to costs incurred by the Partnership, which the Company accounts for under the
equity method. Such costs are primarily related to the BBT litigation settlement
(see Note 5) and compensation expense related to key executives of an acquired
company.
13. NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
SEGMENT REPORTING - In June 1997, SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," was issued and is effective for
fiscal periods beginning after December 15, 1997. SFAS No. 131 establishes
standards for the reporting of information about operating segments, including
related disclosures about products and services, geographic areas and major
customers, and requires the reporting of selected information about operating
segments in interim financial statements. The Company is currently evaluating
the disclosure requirements of this statement and will include the necessary
disclosures in the year-end financial statements as required in the initial year
of adoption.
PENSION AND OTHER POSTRETIREMENT DISCLOSURES - In February 1998, the FASB
issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits - an amendment of FASB Statements No. 87, 88 and 106."
This statement, which is effective for fiscal years beginning after December 15,
1997,
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GENERAL INSTRUMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In thousands, unless otherwise noted)
requires revised disclosures about pension and other postretirement benefit
plans.
Since the above two statements only revise financial statement
disclosures, their adoption will not have any impact on the Company's
consolidated financial position, results of operations or cash flows.
DERIVATIVE AND HEDGE ACCOUNTING - In June 1998, SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued and is effective
for fiscal years beginning after June 15, 1999. SFAS No. 133 requires that all
derivative instruments be measured at fair value and recognized in the balance
sheet as either assets or liabilities. The Company is currently evaluating the
impact this pronouncement will have on its consolidated financial statements.
14. SUBSEQUENT EVENT
On June 17, 1998, the Company entered into an Asset Purchase Agreement
(the "Agreement") with two affiliates of Tele-Communications, Inc.,
TCIVG-GIC, Inc. ("TCIVG") and NDTC Technology, Inc. ("NDTC Technology" and,
collectively with TCIVG, "TCI") pursuant to which the Company agreed to
acquire from TCIVG, in exchange for 21,356,000 shares of the Company's Common
Stock, certain assets, a license to certain intellectual property from NDTC
Technology which will enable the Company to conduct authorization services
and future cash consideration as discussed below. The Company's provision of
services under the aforementioned license is intended to provide the cable
industry with a secure access control platform to support widespread
deployment of digital terminals and related systems and applications. On
July 17, 1998 the transaction was consummated. The Agreement provides the
Company with minimum revenue guarantees from TCI over the first nine years
from the date of closing. The Company has contracted with NDTC Technology
for certain support services during the first nine years following the date
of closing, with renewable one-year terms. The Agreement gives the Company
the right to license the technology for a period of 20 years. As mentioned
above, the Agreement contains a provision for TCIVG to pay the Company $50
million over the first five years from the date of closing in equal monthly
installments which represents a reduction of purchase price. The net purchase
price of approximately $280 million will be allocated to the license and the
assets acquired based on their respective estimated fair values. The Company
expects to amortize the license over the license term of 20 years.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NET SALES
Net sales for the three months ended June 30, 1998 ("Second Quarter 1998")
were $489 million compared to $450 million for the three months ended June 30,
1997 ("Second Quarter 1997"), an increase of $39 million, or 9%. Net sales for
the six months ended June 30, 1998 were $905 million compared to $858 million
for the six months ended June 30, 1997, an increase of $47 million, or 5%. The
increases in net sales for the three and six month periods reflect increased
sales of digital cable systems, partially offset by lower sales of analog cable
terminals and satellite systems for private and commercial networks. Analog and
digital products each represented approximately 50% of total sales of the
Company for the six months ended June 30, 1998, compared to approximately 63%
and 37%, respectively, for the six months ended June 30, 1997.
Worldwide broadband sales (consisting of digital and analog cable and
wireless television systems and network transmission systems) of $380 million
and $689 million for Second Quarter 1998 and for the six months ended June 30,
1998, respectively, increased $61 million, or 19%, and $71 million, or 11%,
respectively, from the comparable 1997 periods primarily as a result of
increased U.S sales volume of digital cable terminals and headends, partially
offset by the expected decline in sales of basic analog cable network systems.
These sales reflect the increasing commitment of cable television operators to
deploy state-of-the-art digital and interactive advanced analog systems in order
to offer advanced entertainment, interactive services and Internet access to
their customers. During the Second Quarter 1998 and Second Quarter 1997, net
broadband sales in the U.S. were 83% and 70%, respectively, combined U.S. and
Canadian sales were 84% and 73%, respectively, and all other international sales
were 16% and 27%, respectively, of total worldwide broadband sales. For the six
months ended June 30, 1998 and 1997, net broadband sales in the U.S. were 82%
and 69%, respectively, combined U.S. and Canadian sales were 84% and 73%,
respectively, and all other international sales were 16% and 27%, respectively,
of total worldwide broadband sales.
Worldwide satellite sales of $109 million and $216 million for Second
Quarter 1998 and the six months ended June 30, 1998, respectively, decreased $22
million, or 17%, and $24 million, or 10%, respectively, from the comparable 1997
periods primarily as a result of lower private and commercial network sales.
During the Second Quarter 1998 and Second Quarter 1997, net satellite sales in
the U.S. were 96% and 75%, respectively, combined U.S. and Canadian sales were
96% and 85%, respectively, and all other international sales were 4% and 15%,
respectively, of total worldwide satellite sales. For the six months ended June
30, 1998 and 1997, net satellite sales in the U.S. were 95% and 79%,
respectively, combined U.S. and Canadian sales were 98% and 86%, respectively,
and all other international sales were 2% and 14%, respectively, of total
worldwide satellite sales.
The decrease in broadband and satellite international sales during the 1998
periods was experienced in all international regions. The largest decreases in
sales during the first half of 1998 were experienced in the Asia/Pacific and
Latin American regions and there can be no assurance that international sales
will return to 1997 levels in the near term.
TCI and Time Warner, including affiliates, each represented approximately
14% of the revenues of the Company for the year ended December 31, 1997. For the
six months ended June 30, 1998, TCI, Primestar and Time Warner accounted for
approximately 24%, 14% and 11% of total Company sales, respectively.
GROSS PROFIT
Gross profit of $141 million and $234 million for Second Quarter 1998 and
the six months ended June 30, 1998, respectively, increased $23 million, or 20%,
and $3 million, or 1%, respectively, from the comparable 1997 periods. Gross
profit was 29% and 26% of sales for Second Quarter 1998 and the six months ended
June 30, 1998, respectively, compared to 26% and 27%, respectively, for the
comparable 1997 periods. Gross profit for the six months ended June 30, 1998
included $27 million of charges recorded in the first quarter of 1998, primarily
related to severance and other employee separation costs, costs associated with
the closure of various facilities and the write-down of certain assets to their
net realizable values. Gross profit for Second Quarter 1997 and the six
17
<PAGE>
months ended June 30, 1997 included $16 million and $18 million, respectively,
of charges for employee costs related to dividing the Distributing Company's
Taiwan operations between the Company and General Semiconductor. Gross
profit increases primarily reflect increased sales levels.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general & administrative ("SG&A") expense was $46 million and $102
million for the Second Quarter 1998 and the six months ended June 30, 1998,
respectively, compared to $52 million and $95 million, respectively, for the
comparable 1997 periods. SG&A expense as a percentage of sales was 9% and 11%
for the Second Quarter 1998 and the six months ended June 30, 1998,
respectively, and 12% and 11%, respectively, for the 1997 periods. SG&A
spending for the six months ended June 30, 1998 included $13 million of charges
primarily related to severance and other employee separation costs, costs
associated with the closure of various facilities, including moving costs and
costs associated with changing the Company's corporate name. SG&A spending for
the Second Quarter 1997 and the six months ended June 30, 1997 included $6
million of charges primarily for legal and other professional fees directly
related to the Communications Distribution. SG&A spending for the 1997 periods
also included SG&A expenses related to NLC.
RESEARCH AND DEVELOPMENT
Research and development ("R&D") expense was $42 million and $158 million
for the Second Quarter 1998 and six months ended June 30, 1998, respectively,
compared to $50 million and $101 million, respectively, for the comparable 1997
periods. R&D expense for the six months ended June 30, 1998 included a $75
million charge to fully reserve the Partnership Note (see Note 10). R&D
spending in 1998 is focused on new product opportunities, including advanced
digital services, high-speed internet and data systems, and next generation
transmission network systems. In addition, the Company is incurring R&D expense
to develop analog and digital products for international markets, reduce costs
and expand the features of its digital cable and satellite systems.
OTHER EXPENSE - NET
Other expense was $1 million and $10 million for the Second Quarter 1998
and the six months ended June 30, 1998, respectively, compared with $1 million
and $2 million, respectively, for the comparable 1997 periods. Other expense
increased in the first half of 1998 from the comparable 1997 period primarily
due to the Company's equity interest in the Partnership's loss (see Notes 8 and
10), which includes the BBT litigation settlement (see Note 5) and compensation
expense related to key executives of an acquired company, partially offset by a
gain on the sale of a portion of the Company's investment in Ciena Corporation
and settlement of an insurance claim.
INTEREST EXPENSE - NET
Net interest expense for the three and six months ended June 30, 1997
represents an allocation of interest expense from the Distributing Company
and was allocated based upon the Company's net assets as a percentage of the
total net assets of the Distributing Company for the period prior to the date
of the Communications Distribution. Net interest expense allocated to the
Company was $6 million and $14 million for the Second Quarter 1997 and for
the six months ended June 30, 1997, respectively. Subsequent to July 25,
1997, the date of the Communications Distribution, net interest represents
actual net interest expense incurred by the Company.
Pro forma interest expense for the Second Quarter 1997 and the six months
ended June 30, 1997 includes a reduction of interest expense of $5 million and
$10 million, respectively, to reflect an assumed net debt level of $100 million
at January 1, 1997.
INCOME TAXES
Through the date of the Distributions, income taxes were determined as if
the Company had filed separate tax returns under its existing structure for the
periods presented. Accordingly, future tax rates could vary from the historical
effective tax rates depending on the Company's future tax elections. The
Company recorded a provision
18
<PAGE>
for income taxes of $18 million and a benefit for income taxes of $14 million
for the Second Quarter 1998 and the six months ended June 30, 1998,
respectively, and a provision for income taxes of $4 million and $8 million,
respectively, for the comparable 1997 periods based upon the expected annual
effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Distributions, the Company participated in the Distributing
Company's cash management program. To the extent the Company generated positive
cash, such amounts were remitted to the Distributing Company. To the extent the
Company experienced temporary cash needs for working capital purposes or capital
expenditures, such funds were historically provided by the Distributing Company.
At the date of the Distributions, $125 million of cash was transferred to the
Company.
For the six months ended June 30, 1998 and 1997, cash provided by
operations was $35 million and $66 million, respectively. Cash provided by
operations in the first half of 1998 primarily reflects cash generated from
operations, partially offset by the funding provided to the Partnership related
to its R&D activities and payments related to the restructuring. Cash provided
by operations in the first half of 1997 primarily represents cash generated
by the broadband business, partially offset by increased inventory levels
to support business growth.
At June 30, 1998 and December 31, 1997, working capital was $453 million
and $436 million, respectively. The Company believes that working capital levels
are adequate to support the growth of the digital business, however, there can
be no assurance that future industry-specific developments or general economic
trends will not continue to alter the Company's working capital requirements.
During the six months ended June 30, 1998 and 1997, the Company invested
$40 million and $37 million, respectively, in equipment and facilities. The
Company expects to continue to expand its capacity to meet increased current and
anticipated future demands for digital products, with capital expenditures for
the year expected to approximate $120 million. The Company's R&D expenditures
were $158 million (including the $75 million funding related to the
Partnership's R&D activities) and $101 million during the first six months of
1998 the first six months of 1997, respectively. The Company expects total R&D
expenditures to approximate $245 million (including the $75 million funding
related to the Partnership) for the year ending December 31, 1998.
The Company has a bank credit agreement (the "Credit Agreement") which
provides a $600 million unsecured revolving credit facility and matures on
December 31, 2002. The Credit Agreement permits the Company to choose between
two competitive interest rate options. The Credit Agreement contains financial
and operating covenants, including limitations on guarantee obligations, liens
and the sale of assets, and requires the maintenance of certain financial
ratios. None of the restrictions contained in the Credit Agreement is expected
to have a significant effect on the Company's ability to operate. As of June
30, 1998, the Company was in compliance with all financial and operating
covenants contained in the Credit Agreement and had available credit of $500
million.
In January 1998, the Company announced that, subject to the completion of
definitive agreements, Sony Corporation of America will purchase 7.5 million new
shares of common stock of the Company for $188 million.
In January 1998, the Company transferred the net assets, principally
technology, and the management and workforce of NLC to a newly formed limited
partnership in exchange for approximately an 89% (subject to additional
dilution) limited partnership interest. Additionally, the Company advanced
to the Partnership $75 million, utilizing available operating funds and
borrowings under its Credit Agreement, in exchange for the Note. Since the
repayment of the Note is solely dependent upon the results of the
Partnership's research and development activities and the commercial success
of its product development, the Company recorded a charge to fully reserve
for the Note concurrent with the funding (see Note 10). The Company will
make an additional $50 million equity investment in the Partnership in
November, 1998 to fund the Partnership's growth and assist the Partnership in
meeting its forecasted working capital requirements.
19
<PAGE>
The Company's management assesses its liquidity in terms of its overall
ability to obtain cash to support its ongoing business levels and to fund its
growth objectives. The Company's principal sources of liquidity both on a
short-term and long-term basis are cash flows provided by operations and
borrowings under the Credit Agreement. The Company believes that based upon its
analysis of its consolidated financial position and its expected operating cash
flows from future operations, along with available funding under the Credit
Agreement, cash flows will be adequate to fund operations, research and
development and capital expenditures. There can be no assurance, however, that
future industry-specific developments or general economic trends will not
adversely affect the Company's operations or its ability to meet its cash
requirements.
NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
SEGMENT REPORTING - In June 1997, SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," was issued and is effective for
fiscal periods beginning after December 15, 1997. SFAS No. 131 establishes
standards for the reporting of information about operating segments, including
related disclosures about products and services, geographic areas and major
customers, and requires the reporting of selected information about operating
segments in interim financial statements. The Company is currently evaluating
the disclosure requirements of this statement and will include the necessary
disclosures in the year-end financial statements as required in the initial year
of adoption.
PENSION AND OTHER POSTRETIREMENT DISCLOSURES - In February 1998, the FASB
issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits - an amendment of FASB Statements No. 87, 88 and 106."
This statement, which is effective for fiscal years beginning after December 15,
1997, requires revised disclosures about pension and other postretirement
benefit plans.
Since the above two statements only revise financial statement disclosures,
their adoption will not have any impact on the Company's consolidated financial
position, results of operations or cash flows.
DERIVATIVE AND HEDGE ACCOUNTING - In June 1998, SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued and is effective
for fiscal years beginning after June 15, 1999. SFAS No. 133 requires that all
derivative instruments be measured at fair value and recognized in the balance
sheet as either assets or liabilities. The Company is currently evaluating the
impact this pronouncement will have on its consolidated financial statements.
NEW TECHNOLOGIES
The Company operates in a dynamic and competitive environment in which its
success will be dependent upon numerous factors, including its ability to
continue to develop appropriate technologies and successfully implement
applications based on those technologies. In this regard, the Company has made
significant investments to develop advanced systems and equipment for the cable
and satellite television, Internet/data delivery and local telephone access
markets. Additionally, the future success of the Company will be dependent on
the ability of the cable and satellite television operators to successfully
market the services provided by the Company's advanced digital terminals to
their customers. Furthermore, as a result of the higher costs of initial
production, digital products presently being shipped carry lower margins than
the Company's mature analog products.
Management of the Company expects cable television operators in the United
States and abroad to continue to purchase analog products to upgrade their basic
networks and to develop, using U.S. architecture and systems, international
markets where cable penetration is low and demand for entertainment programming
is growing. However, management expects that demand in North America for its
basic analog cable products will continue to decline.
As the Company continues to introduce new products and technologies and
such technologies gain market acceptance, there can be no assurance that sales
of products based on new technologies will not affect the Company's product
sales mix and/or will not have an adverse impact on sales of certain of the
Company's other products.
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INTERNATIONAL MARKETS
Management of the Company believes that additional growth for the Company
will come from international markets, although the Company's international sales
decreased in the first half of 1998 in comparison to the prior year, and there
can be no assurance that international sales will increase to 1997 levels in the
near future. In order to support the Company's international product and
marketing strategies, it is currently expected that the Company will add
operations in foreign markets in the following areas, among others: customer
service, sales, finance, product warehousing and expansion of manufacturing
capacity at existing facilities. Although no assurance can be given, management
expects that the expansion of international operations will not require
significant increased levels of capital expenditures.
EFFECT OF INFLATION
The Company continually attempts to minimize any effect of inflation on
earnings by controlling its operating costs and selling prices. During the past
few years, the rate of inflation has been low and has not had a material impact
on the Company's results of operations.
READINESS FOR YEAR 2000
The Company has identified and evaluated the changes to its computer
systems and products necessary to achieve a year 2000 date conversion, and
required conversion and testing efforts are currently underway and are
expected to be completed by mid 1999. The Company continues to communicate
with its suppliers, customers and others with which it does business to
understand the impact of any year 2000 issues on the Company. However, there
can be no assurance that the companies with which the Company does business
will achieve a year 2000 conversion in a timely fashion, or that such failure
to convert by another company will not have an adverse effect on the Company.
The Company does not expect the cost of achieving year 2000 compliance will
exceed $5 million. Additionally, based on the current status of these
efforts, the Company believes that it will be able to manage its total year
2000 transition without any material adverse effect on its business
operations, products or financial prospects.
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Management's Discussion and
Analysis of Financial Condition and Results of Operations and other sections of
this Form 10-Q may include forward-looking statements concerning, among other
things, the Company's prospects, developments and business strategies. These
forward-looking statements are identified by their use of such terms and phrases
as "intends," "intend," "intended," "goal," "estimate," "estimates," "expects,"
"expect," "expected," "project," "projects," "projected," "projections,"
"plans," "anticipates," "anticipated," "should," "designed to," "foreseeable
future," "believe," "believes," "subject to" and "scheduled." These
forward-looking statements are subject to certain uncertainties and other
factors that could cause actual results to differ materially from such
statements. These risks include, but are not limited to, uncertainties relating
to general political and economic conditions, uncertainties relating to
government and regulatory policies, uncertainties relating to customer plans and
commitments, the Company's dependence on the cable television industry and cable
television spending, signal security, the pricing and availability of equipment,
materials and inventories, technological developments, the competitive
environment in which the Company operates, changes in the financial markets
relating to the Company's capital structure and cost of capital, the
uncertainties inherent in international operations and foreign currency
fluctuations and authoritative generally accepted accounting principles or
policy changes from such standard-setting bodies as the Financial Accounting
Standards Board and the Securities and Exchange Commission. Reference is made
to Exhibit 99 in this Form 10-Q for a further discussion of such factors.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date the statement was made. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
21
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A significant portion of the Company's products are manufactured or
assembled in Taiwan and Mexico. These foreign operations are subject to market
risk changes with respect to currency exchange rate fluctuations, which could
impact the Company's consolidated financial statements. The Company monitors
its underlying exchange rate exposures on an ongoing basis and continues to
implement selective hedging strategies to reduce the market risks from changes
in exchange rates. On a selective basis, the Company enters into contracts to
hedge the currency exposure of monetary assets and liabilities, contractual and
other firm commitments denominated in foreign currencies and the currency
exposure of anticipated, but not yet committed, transactions expected to be
denominated in foreign currencies. The use of these derivative financial
instruments allows the Company to reduce its overall exposure to exchange rate
movements since the gains and losses on these contracts substantially offset
losses and gains on the assets, liabilities and transactions being hedged.
Foreign currency exchange contracts are sensitive to changes in exchange
rates. As of June 30, 1998, a hypothetical 10% fluctuation in the exchange rate
of foreign currencies applicable to the Company, principally the New Taiwan and
Canadian dollars, would result in a net $2 million gain or loss on the contracts
the Company has outstanding, which would offset the related net loss or gain on
the assets, liabilities and transactions being hedged.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 5, 1998, the action entitled BROADBAND TECHNOLOGIES, INC. V. GENERAL
INSTRUMENT CORP., pending in the United States District Court for the Eastern
District of North Carolina, was dismissed with prejudice. In addition, on May
4, 1998, the action entitled NEXT LEVEL COMMUNICATIONS V. BROADBAND
TECHNOLOGIES, INC., was dismissed with prejudice. These dismissals were entered
pursuant to a settlement agreement under which, among other things, the
Partnership has paid BroadBand Technologies $5 million and BroadBand
Technologies and the Partnership have entered into a perpetual cross-license of
patents applied for or issued currently or during the next five years. The
Company also has granted BroadBand Technologies a covenant not to sue on all
Company patents applied for or issued currently or during the next five years.
On February 19, 1998, a consolidated securities class action complaint
entitled IN RE NEXTLEVEL SYSTEMS, INC. SECURITIES LITIGATION was filed in the
United States District Court for the Northern District of Illinois, Eastern
Division, naming the Company and certain former officers and directors as
defendants. The complaint was filed on behalf of stockholders who purchased or
otherwise acquired stock of the Company between July 25, 1997 and October 15,
1997. The complaint alleged that the defendants violated Sections 11 and 15 of
the Securities Act, and Sections 10(b) and 20(a) of the Exchange Act and Rule
10b-5 thereunder by making false and misleading statements about the Company's
business, finances and future prospects. On April 9, 1998, the plaintiffs
voluntarily dismissed their Securities Act claims. On May 5, 1998, the
defendants served upon the plaintiffs a motion to dismiss the remaining counts
of the complaint.
On March 5, 1998, an action entitled DSC COMMUNICATIONS CORPORATION V. NEXT
LEVEL COMMUNICATIONS, L.P. was filed in the Superior Court of the State of
Delaware in and for New Castle County. DSC alleged that the defendants
misappropriated trade secrets relating to a switched digital video product, and
that the defendants conspired to misappropriate the trade secrets. The
plaintiffs sought monetary and exemplary damages and attorney fees. On May 14,
1998, the United States District Court for the Eastern District of Texas issued
a preliminary injunction preventing DSC from proceeding with this litigation.
DSC has filed a notice of appeal of that order. On July 6, 1998, the defendants
filed a motion for summary judgment with the district court requesting a
permanent injunction preventing DSC from proceeding with this litigation.
In May 1997, StarSight Telecast, Inc. ("StarSight") filed a Demand for
Arbitration against the Company alleging that the Company breached the terms of
a license agreement with StarSight by (a) developing a competing product that
wrongfully incorporates StarSight's technology and inventions claimed within a
certain StarSight patent, (b) failing to promote and market the StarSight
product as required by the license agreement, and (c) wrongfully using
StarSight's technical information, confidential information and StarSight's
graphical user interface in breach of the license agreement. StarSight is
seeking injunctive relief as well as damages. The Company has denied StarSight's
allegations and is vigorously defending the arbitration action. The arbitration
proceeding was originally scheduled to begin before an arbitration panel of the
American Arbitration Association in San Francisco, California in July 1998. Due
to the resignation of one of the panel members two days before the arbitration
proceeding was expected to begin, the proceeding has been postponed until a
third arbitrator is selected and a new scheduling order is issued. The Company
currently anticipates the proceeding to begin in 1999.
23
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The following matters were voted upon at the Annual Meeting of Stockholders
of General Instrument Corporation held in Philadelphia, Pennsylvania on May 27,
1998:
(a) On the election of the following nominees as directors of the Company to
serve until the 2001 Annual Meeting of Stockholders:
NUMBER OF VOTES
FOR WITHHELD
Edward D. Breen 136,191,596 2,021,456
Alex J. Mandl 136,306,825 1,906,227
(b) To approve the General Instrument Corporation Amended and Restated 1997
Long-Term Incentive Plan:
NUMBER OF VOTES
FOR AGAINST ABSTENTIONS BROKER NON-VOTES
111,727,591 26,148,723 336,738 -
(c) To approve the General Instrument Corporation Annual Incentive Plan:
NUMBER OF VOTES
FOR AGAINST ABSTENTIONS BROKER NON-VOTES
116,549,582 2,173,181 356,508 19,133,781
(d) To ratify the appointment by the Board of Directors of Deloitte & Touche
LLP as independent auditor for the 1998 fiscal year:
NUMBER OF VOTES
FOR AGAINST ABSTENTIONS BROKER NON-VOTES
138,016,481 93,445 103,126 -
ITEM 5. OTHER INFORMATION
Pursuant to an Asset Purchase Agreement, dated as of June 17, 1998 (the
"Asset Purchase Agreement"), among the Company and two affiliates of
Tele-Communications, Inc., TCIVG-GIC, Inc. ("TCIVG") and NDTC Technology,
Inc. ("NDTC Technology" and, collectively with TCIVG, "TCI"), the Company
issued on July 17, 1998, 21,356,000 shares of Common Stock (the "Transaction
Shares") to TCIVG as consideration for the acquisition by the Company of assets
and a license relating to TCIVG's authorization business that controls the
receipt of cable programming services delivered to subscribers by TCI's Headend
In The Sky-Registered Trademark- (HITS). In exchange for the Transaction
Shares, the Company received certain physical assets (the "Authorization
Center"), and a license from NDTC Technology to the Company of associated
intellectual property (the "License").
24
<PAGE>
The Authorization Center provides services for authorizing and
de-authorizing individual set-top terminals throughout the United States for the
decoding and receipt of premium and pay-per-view programming signals from HITS.
NDTC Technology has agreed to operate the Authorization Center for the Company,
for an annual fee, pursuant to a services agreement with the Company. If annual
gross revenues of the Authorization Center are below a specified amount for each
of the first nine years following the acquisition, TCI is obligated to pay the
Company the difference between the actual gross revenues received and the
specified amount. In addition, TCIVG will pay to the Company $50,000,000 over
the first five years following the closing in equal monthly installments.
The number of shares to be issued to TCIVG as consideration under the
Asset Purchase Agreement was established based upon the closing price of the
Common Stock on December 16, 1997 (the date on which the Company executed a
letter of intent with respect to the transaction). The issuance of the
Transaction Shares to TCIVG was exempt from registration under Section 4(2)
of the Securities Act of 1933 as a transaction by an issuer not involving a
public offering. TCIVG is entitled to specified demand and piggyback
registration rights for the Transaction Shares and has agreed to certain
transfer restrictions.
Tele-Communications, Inc. and its affiliates may in the ordinary course of
their business be customers of the Company. In connection with an agreement to
purchase digital set-top terminals from the Company, the Company issued National
Digital Television Center, Inc., a wholly-owned subsidiary of
Tele-Communications, Inc., warrants to purchase shares of Company Common Stock.
Such warrants are not presently exercisable. A description of this transaction
and the issuance of the warrants is contained in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 under Item 1. Business - Recent
Developments and under Note 14. Stockholders' Equity in the Notes to
Consolidated Financial Statements contained in Item 8. Financial Statements and
Supplementary Data.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.1 Restated Certificate of Incorporation of the Company
Exhibit 3.2 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock
Exhibit 3.3 Amended and Restated By-Laws of the Company
Exhibit 10.1 Asset Purchase Agreement among TCIVG-GIC, Inc., NDTC Technology,
Inc. and General Instrument Corporation dated as of June 17, 1998
Exhibit 10.2 License Agreement by and between NDTC Technology, Inc. and
General Instrument Corporation dated as of July 17, 1998.
Exhibit 27 Financial Data Schedule
Exhibit 99 Forward-Looking Information
(b) Reports on Form 8-K
None
25
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENERAL INSTRUMENT CORPORATION
/s/ Marc E. Rothman
--------------------------------------
Marc E. Rothman
Vice President and Controller
(Signing both in his capacity as Vice
President on behalf of the Registrant and
as chief accounting officer of the
Registrant)
JULY 31, 1998
- -------------
Date
26
<PAGE>
INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
Exhibit 3.1 Restated Certificate of Incorporation of the Company
Exhibit 3.2 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock
Exhibit 3.3 Amended and Restated By-Laws of the Company
Exhibit 10.1 Asset Purchase Agreement among TCIVG-GIC, Inc., NDTC Technology,
Inc. and General Instrument Corporation dated as of June 17, 1998
Exhibit 10.2 License Agreement by and between NDTC Technology, Inc. and
General Instrument Corporation dated as of July 17, 1998.
Exhibit 27 Financial Data Schedule
Exhibit 99 Forward-Looking Information
27
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
GENERAL INSTRUMENT CORPORATION
(Pursuant to Section 245 of the General Corporation Law
of the State of Delaware)
The undersigned, Robert A. Scott, certifies that he is the Senior
Vice President, Legal and Secretary of General Instrument Corporation, a
corporation organized and existing under the laws of the State of Delaware
(the "Corporation"), and does hereby further certify as follows:
(1) The name of the Corporation is General Instrument Corporation.
(2) The Corporation's original Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on January 6,
1997. The Corporation's original name was NextLevel Systems of Delaware,
Inc. A Certificate of Amendment, which changed the Corporation's name to
NextLevel Systems, Inc., was filed with the Secretary of State of the State
of Delaware on January 17, 1997. An Amended and Restated Certificate of
Incorporation was filed with the Secretary of State of the State of Delaware
on July 25, 1997. The Corporation changed its name to General Instrument
Corporation pursuant to a Certificate of Ownership and Merger which was filed
with the Secretary of State of the State of Delaware and became effective on
February 2, 1998.
(3) This Restated Certificate of Incorporation, which restates the
Certificate of Incorporation of the Corporation as heretofore amended, was
duly adopted by the Board of Directors of the Corporation in accordance with
Sections 141 and 245 of the General Corporation Law of the State of Delaware
(the "GCL").
<PAGE>
(4) This Restated Certification of Incorporation only restates and
integrates and does not further amend the provisions of the Corporation's
Certificate of Incorporation as heretofore amended. There is no discrepancy
between the provisions of the Corporation's Certificate of Incorporation as
heretofore amended and the provisions of this Restated Certificate of
Incorporation.
(5) Pursuant to Section 103(a) of the GCL, this Restated
Certificate of Incorporation shall become effective at 8:00 a.m. on June 22,
1998 (the "Effective Date").
(6) The text of the Certificate of Incorporation of the
Corporation is restated to read in its entirety as follows:
FIRST: The name of the Corporation is General Instrument
Corporation.
SECOND: The address of the Corporation's registered office in
the State of Delaware is Corporation Trust Center, 1209 Orange Street in the
City of Wilmington, County of New Castle, Delaware 19801. The name of its
registered agent at such address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the GCL.
FOURTH: The total number of shares of all classes of capital
stock which the Corporation shall have the authority to issue is 420,000,000
shares divided into two classes of which 20,000,000 shares of par value $.01
per share shall be designated Preferred Stock and 400,000,000 shares of par
value $.01 per share shall be designated Common Stock.
2
<PAGE>
A. Common Stock
1. Dividends. Subject to the preferential rights, if any, of the
Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable either
in cash, in property, or in shares of Common Stock.
2. Voting Rights. Except as otherwise required by law, at every
annual or special meeting of stockholders of the Corporation, every holder of
Common Stock shall be entitled to one vote, in person or by proxy, for each
share of Common Stock standing in such holder's name on the books of the
Corporation.
3. Liquidation, Dissolution, or Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution, or winding up of the
affairs of the Corporation, after payment or provision for payment of the
debts and other liabilities of the Corporation and of the preferential
amounts, if any, to which the holders of Preferred Stock shall be entitled,
the holders of all outstanding shares of Common Stock shall be entitled to
share ratably in the remaining net assets of the Corporation.
B. Preferred Stock
1. Issuance. The Board of Directors of the Corporation is
authorized, subject to limitations prescribed by law, to provide for the
issuance of shares of Preferred Stock of the Corporation from time to time in
one or more series, each of which series shall have such distinctive
designation or title as shall be fixed by the Board of Directors prior to the
issuance of any shares thereof. Each such series of Preferred Stock shall
have such voting powers, full or limited, or no voting powers, and such
qualifications, limitations or restrictions thereof, as shall be stated in
such resolution or
3
<PAGE>
resolutions providing for the issue of such series of Preferred Stock as may be
adopted from time to time by the Board of Directors prior to the issuance of any
shares thereof pursuant to the authority hereby expressly vested in it, all in
accordance with the laws of the State of Delaware.
2. Amendment. Except as may otherwise be required by law or
this Restated Certificate of Incorporation, the terms of any series of
Preferred Stock may be amended without the consent of the holders of any
other series of Preferred Stock or of any class of Common Stock of the
Corporation.
FIFTH: The business and affairs of the Corporation shall be
managed by and under the direction of the Board of Directors. The Board of
Directors may exercise all such authority and powers of the Corporation and
do all such lawful acts and things as are not by statute or this Restated
Certificate of Incorporation directed or required to be exercised or done by
the stockholders.
A. Number of Directors. Except as otherwise fixed by or pursuant
to the provisions of this Restated Certificate of Incorporation relating to
the rights of the holders of Preferred Stock to elect directors under
specified circumstances, the number of directors shall be fixed from time to
time exclusively by the Board of Directors pursuant to a resolution adopted
by a majority of the then authorized number of directors of the Corporation,
but in no event shall the number of directors be fewer than three. No
director need be a stockholder.
B. Classes and Terms of Directors. The directors shall be
divided into three classes (I, II and III), as nearly equal in number as
possible, and no class shall include less than one director. The initial
term of office for members of Class I shall expire at the annual meeting of
stockholders in 1998; the initial term of office for
4
<PAGE>
members of Class II shall expire at the annual meeting of stockholders in
1999; and the initial term of office for members of Class III shall expire at
the annual meeting of stockholders in 2000. At each annual meeting of
stockholders beginning in 1998, directors elected to succeed those directors
whose terms expire shall be elected for a term of office to expire at the
third succeeding annual meeting of stockholders after their election, and
shall continue to hold office until their respective successors are elected
and qualified. In the event of any increase in the number of directors fixed
by the Board of Directors, the additional directors shall be so classified
that all classes of directors have as nearly equal numbers of directors as
may be possible. In the event of any decrease in the number of directors,
all classes of directors shall be decreased equally as nearly as may be
possible, but in no case will a decrease in the number of directors shorten
the term of any incumbent director.
C. Newly-Created Directorships and Vacancies. Subject to the
rights of the holders of any series of Preferred Stock then outstanding,
newly created directorships resulting from any increase in the number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or any other
cause shall be filled only by a majority of the directors then in office,
even if less than a quorum is then in office, or by the sole remaining
director, and shall not be filled by stockholders. Directors elected to fill
a newly created directorship or other vacancies shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor has been elected and has qualified.
D. Removal of Directors. Subject to the rights of the holders of
any series of Preferred Stock then outstanding, the directors or any director
may be removed from office at any time, but only for cause, at a meeting
called for that purpose, and only by the affirmative vote of the holders of
at least a majority of the voting power of all
5
<PAGE>
issued and outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single
class.
E. Rights of Holders of Preferred Stock. Notwithstanding the
foregoing provisions of this Article FIFTH, whenever the holders of any one
or more series of Preferred Stock issued by the Corporation shall have the
right, voting separately by series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
rights and preferences of such Preferred Stock as set forth in this Restated
Certificate of Incorporation or in the resolution or resolutions of the Board
of Directors relating to the issuance of such Preferred Stock, and such
directors so elected shall not be divided into classes pursuant to this
Article FIFTH unless expressly provided by such rights and preferences.
F. Written Ballot Not Required. Elections of directors need not
be by written ballot unless the By-laws of the Corporation shall otherwise
provide.
SIXTH: To the fullest extent permitted under the law of the State of
Delaware, including the GCL, a director of the Corporation shall not be
personally liable to the Corporation or its stockholders for damages for any
breach of fiduciary duty as a director. No amendment to or repeal of this
Article SIXTH shall apply to or have any effect on the liability or alleged
liability of any director of the Corporation for or with respect to any acts
or omissions of such director occurring prior to such amendment or repeal.
In the event that the GCL is hereafter amended to permit further elimination
or limitation of the personal liability of directors, then the liability of a
director of the Corporation shall be so eliminated or limited to the fullest
extent permitted by the GCL as so amended without further action by either
the Board of Directors or the stockholders of the Corporation.
6
<PAGE>
SEVENTH: Each person who was or is made a party or is threatened to be
made a party to or is involved (including, without limitation, as a witness)
in any threatened, pending or completed action, suit, arbitration,
alternative dispute resolution mechanism, investigation, administrative
hearing or any other proceeding, whether civil, criminal, administrative or
investigative ("Proceeding"), by reason of the fact that such person (the
"Indemnitee") is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan, whether the basis
of such Proceeding is alleged action in an official capacity as a director or
officer or in any other capacity while serving as such a director or officer,
shall be indemnified and held harmless by the Corporation to the full extent
permitted by law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), or by other applicable
law as then in effect, against all expense, liability, losses and claims
(including attorneys' fees, judgments, fines, excise taxes under the Employee
Retirement Income Security Act of 1974, as amended from time to time,
penalties and amounts to be paid in settlement) actually incurred or suffered
by such Indemnitee in connection with such Proceeding.
EIGHTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, repeal,
alter, amend, or rescind the By-laws of the Corporation. In addition, the
By-laws of the Corporation may be adopted, repealed, altered, amended or
rescinded by the affirmative vote of the holders of at least a majority of
the voting power of all the issued and outstanding shares of capital stock of
the Corporation entitled to vote thereon.
7
<PAGE>
NINTH: The Corporation reserves the right to repeal, alter, amend or
rescind any provision contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
IN WITNESS WHEREOF, General Instrument Corporation has caused this Restated
Certificate of Incorporation to be signed by Robert A. Scott, its Senior Vice
President, Legal and Secretary, on this 19th day of June, 1998.
GENERAL INSTRUMENT CORPORATION
By: /s/ Robert A. Scott
--------------------
Robert A. Scott
Senior Vice President, Legal
and Secretary
8
<PAGE>
Exhibit 3.2
GENERAL INSTRUMENT CORPORATION.
CERTIFICATE OF DESIGNATION, PREFERENCES
AND RIGHTS OF SERIES A JUNIOR PARTICIPATING
PREFERRED STOCK
(Pursuant to Section 151
of the General Corporation Law of the State of Delaware)
I, Keith A. Zar, Vice President and General Counsel of General Instrument
Corporation, a corporation organized and existing under the General Corporation
Law of the State of Delaware (the "Corporation"), in accordance with the
provisions of Section 103 thereof, do hereby certify:
That pursuant to the authority conferred upon the Board of Directors by the
Corporation's Certificate of Incorporation (the "Certificate of Incorporation"),
the Board of Directors on June 10, 1997, adopted the following resolution
creating a series of 400,000 shares of Preferred Stock designated as Series A
Junior Participating Preferred Stock:
WHEREAS, the Certificate of Incorporation provides that the Corporation is
authorized to issue 20,000,000 shares of preferred stock, none of which are
outstanding, now therefore it is.
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation by Article FOURTH of the Certificate of Incorporation, a
series of Preferred Stock of the Corporation be, and it hereby is, created out
of the authorized but unissued shares of the capital stock of the Corporation,
such series to be designated Series A Junior Participating Preferred Stock (the
"Participating Preferred Stock"), to consist of four hundred thousand (400,000)
shares, par value $.01 per share, of which the preferences and relative and
other rights, and the qualifications, limitations or restrictions thereof, shall
be as follows:
1. FUTURE INCREASE OR DECREASE. Subject of paragraph 4(e) of this
resolution, the number of shares of said series may at any time or from time to
time be increased or decreased by the Board of Directors notwithstanding that
shares of such series may be outstanding at such time of increase or decrease.
<PAGE>
2. DIVIDEND RATE.
(a) The holders of shares of Participating Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors out of
funds legally available for the purpose, quarterly dividends payable in cash on
the first day of each November, February, May and August in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Participating Preferred Stock, in an amount
per share (rounded to the nearest cent) equal to the greater of (a) $10.00 or
(b) 1,000 times the aggregate per share amount of all cash dividends and 1,000
times the aggregate per share amount (payable in kind) of all non-cash dividends
or other distributions other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by reclassification
or otherwise), declared on the Common Stock, par value $.01 per share, of the
Corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of
Participating Preferred Stock.
(b) On or after the first issuance of any share or fractional share of
Participating Preferred Stock, no dividend on Common Stock shall be declared
unless concurrently therewith a dividend or distribution is declared on the
Participating Preferred Stock as provided in paragraph (a) above; and the
declaration of any such dividend on the Common Stock shall be expressly
conditioned upon payment or declaration of and provision for a dividend on the
Participating Preferred Stock as above provided. In the event no dividend or
distribution shall have been declared on the Common Stock during the period
between any Quarterly Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $10.00 per share on the Participating
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Participating Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Participating Preferred
Stock, unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or unless
the date of issue is a Quarterly Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Participating
Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends shall
begin to accrue and be cumulative from such Quarterly Dividend Payment Date.
Accrued but unpaid dividends shall not bear interest. The Board of Directors
may fix a record date for the determination of holders of shares of
Participating Preferred Stock entitled to receive
-2-
<PAGE>
payment of a dividend distribution declared thereon, which record date shall be
no more than 30 days prior to the date fixed for the payment thereof.
3. DISSOLUTION, LIQUIDATION AND WINDING UP. In the event of any
voluntary or involuntary dissolution, liquidation or winding up of the affairs
of the Corporation (hereinafter referred to as a "Liquidation"), the holders of
Participating Preferred Stock shall receive at least $100.00 per share, plus an
amount equal to accrued and unpaid dividends and distributions thereon, whether
or not declared, to the date of such payment, provided that the holders of
shares of Participating Preferred Stock shall be entitled to receive at least an
aggregate amount per share equal to 1,000 times the aggregate amount to be
distributed per share to holders of Common Stock (the "Participating Preferred
Liquidation Preference").
4. VOTING RIGHTS. The holders of shares of Participating Preferred Stock
shall have the following voting rights:
(a) Each share of Participating Preferred Stock shall entitle the holder
thereof to one thousand (1,000) votes on all matters submitted to a vote of the
stockholders of the Corporation.
(b) Except as otherwise provided herein, or by law, the Certificate of
Incorporation or the Amended and Restated Bylaws of the Corporation (the
"Bylaws"), the holders of shares of Participating Preferred Stock and the
holders of shares of Common Stock shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(c) If and whenever dividends on the Participating Preferred Stock shall
be in arrears in an amount equal to six quarterly dividend payments, then and in
such event the holders of the Participating Preferred Stock, voting separately
as a class (subject to the provisions of subparagraph (d) below), shall be
entitled at the next annual meeting of the stockholders or at any special
meeting to elect two (2) directors. Each share of Participating Preferred Stock
shall be entitled to one vote, and holders of fractional shares shall have the
right to a fractional vote. Upon election, such directors shall become
additional directors of the Corporation and the authorized number of directors
of the Corporation shall thereupon be automatically increased by such number of
directors. Such right of the holders of Participating Preferred Stock to elect
directors may be exercised until all dividends in default on the Participating
Preferred Stock shall have been paid in full, and dividends for the current
dividend period declared and funds therefor set apart, and when so paid and set
apart, the right of the holders of Participating Preferred Stock to elect such
number of directors shall cease, the term of such directors shall thereupon
terminate, and the authorized number of directors of the Corporation shall
thereupon return to the number of authorized directors otherwise in effect, but
subject always to the same provisions for the vesting of such special voting
rights in the case of
-3-
<PAGE>
any such future dividend default or defaults. The fact that dividends have been
paid and set apart as required by the preceding sentence shall be evidenced by a
certificate executed by the President and the chief financial officer of the
Corporation and delivered to the Board of Directors. The directors so elected
by holders of Participating Preferred Stock shall serve until the certificate
described in the preceding sentence shall have been delivered to the Board of
Directors or until their respective successors shall be elected or appointed and
qualify.
At any time when such special voting rights have been so vested in the
holders of the Participating Preferred Stock, the Secretary of the Corporation
may, and upon the written request of the holders of record of 10% or more of the
number of shares of the Participating Preferred Stock then outstanding addressed
to such Secretary at the principal office of the Corporation in the State of
Illinois, shall, call a special meeting of the holders of the Participating
Preferred Stock for the election of the directors to be elected by them as
hereinabove provided, to be held in the case of such written request within
forty (40) days after delivery of such request, and in either case to be held at
the place and upon the notice provided by law and in the Bylaws of the
Corporation for the holding of meetings of stockholders; PROVIDED, HOWEVER, that
the Secretary shall not be required to call such a special meeting (i) if any
such request is received less than ninety (90) days before the date fixed for
the next ensuing annual or special meeting of stockholders or (ii) if at the
time any such request is received, the holders of Participating Preferred Stock
are not entitled to elect such directors by reason of the occurrence of an event
specified in the third sentence of subparagraph (d) below.
(d) if, at any time when the holders of Participating Preferred Stock are
entitled to elect directors pursuant to the foregoing provisions of this
paragraph 4, the holders of any one or more additional series of Preferred Stock
are entitled to elect directors by reason of any default or event specified in
the Certificate of Incorporation, as in effect at the time of the certificate of
designation for such series, and if the terms for such other additional series
so permit, the voting rights of the two or more series then entitled to vote
shall be combined (with each series having a number of votes proportional to the
aggregate liquidation preference of its outstanding shares). In such case, the
holders of Participating Preferred Stock and of all such other series then
entitled so to vote, voting as a class, shall elect such directors. If the
holders of any such other series have elected such directors prior to the
happening of the default or event permitting the holders of Participating
Preferred Stock to elect directors, or prior to a written request for the
holding of a special meeting being received by the Secretary of the Corporation
from the holders of not less than 10% of the then outstanding shares of
Participating Preferred Stock, then such directors so previously elected will be
deemed to have been elected by and on behalf of the holders of Participating
Preferred Stock as well as such other series, without prejudice to the right of
the holders of Participating Preferred Stock to vote for directors if such
previously elected directors shall resign, cease to serve or fail to stand for
reelection while the holders of Participating Preferred Stock are entitled to
-4-
<PAGE>
vote. If the holders of any such other series are entitled to elect in excess
of two (2) directors, the Participating Preferred Stock shall not participate in
the election of more than two (2) such directors, and those directors whose
terms first expire shall be deemed to be the directors elected by the holders of
Participating Preferred Stock; PROVIDED that, if at the expiration of such terms
the holders of Participating Preferred Stock are entitled to vote in the
election of directors pursuant to the provisions of this paragraph 4, then the
Secretary of the Corporation shall call a meeting (which meeting may be the
annual meeting or special meeting of stockholders referred to in
subparagraph (c)) of holders of Participating Preferred Stock for the purpose of
electing replacement directors (in accordance with the provisions of this
paragraph 4) to be held on or prior to the time of expiration of the expiring
terms referred to above.
(e) Except as otherwise set forth herein or required by law, the
Certificate of Incorporation or the Bylaws, holders of Participating Preferred
Stock shall have no special voting rights and their consent shall not be
required (except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for the taking of any corporate action. No consent
of the holders of outstanding shares of Participating Preferred Stock at any
time outstanding shall be required in order to permit the Board of Directors to:
(i) increase the number of authorized shares of Participating Preferred Stock or
to decrease such number to a number not below the sum of the number of shares of
Participating Preferred Stock then outstanding and the number of shares with
respect to which there are outstanding rights to purchase; or (ii) to issue
Preferred Stock which is senior to the Participating Preferred Stock, junior to
the Participating Preferred Stock or on a parity with the Participating
Preferred Stock.
5. REDEMPTION. The shares of Participating Preferred Stock shall not be
redeemable.
6. CONVERSION RIGHTS. The Participating Preferred Stock is not
convertible into Common Stock or any other security of the Corporation.
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IN WITNESS WHEREOF, the undersigned Vice President and General Counsel of
the Corporation declares under penalty or perjury the truth, to the best of his
knowledge, of this Certificate of Designation, Preferences and Rights of Series
A Junior Participating Preferred Stock.
Executed this 23rd day of July, 1998 in Chicago, Illinois
By: /s/ Keith A. Zar
--------------------------------
Keith A. Zar
Vice President and General Counsel
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AMENDED AND RESTATED
BY-LAWS OF
GENERAL INSTRUMENT CORPORATION
(formerly NextLevel Systems, Inc., hereinafter called the "Corporation")
(As of May 21, 1998)
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation within the State of Delaware shall be in the City of Wilmington,
County of New Castle.
Section 2. Other Offices. The Corporation may also have an
office or offices other than said registered office at such place or places,
either within or without the State of Delaware, as the Board of Directors
shall from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders
for the election of directors or for any other purpose shall be held at any
such time and place, either within or without the State of Delaware as shall
be designated from time to time by the Board of Directors and stated in the
notice of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of stockholders
shall be held on such date and at such time as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting or
in a duly executed waiver thereof. At such annual meetings, the stockholders
shall elect by a plurality vote the directors standing for election and
transact such other business as may properly be brought before the meeting in
accordance with these Amended and Restated By-Laws.
Section 3. Special Meetings. Special meetings of
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute may be called
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by the Board of Directors, the Chairman of the Board of Directors, if one
shall have been elected, or the President and shall be called by the
Secretary upon the request in writing of a stockholder or stockholders
holding of record at least a majority of the voting power of the issued and
outstanding shares of capital stock of the Corporation entitled to vote at
such meeting.
Section 4. Notice of Meetings. Except as otherwise expressly
required by statute, written notice of each annual and special meeting of
stockholders stating the date, place and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given to each stockholder of record entitled to vote thereat
not less than ten nor more than sixty days before the date of the meeting.
Business transacted at any special meeting of stockholders shall be limited
to the purposes stated in the notice. Notice shall be given personally or by
mail and, if by mail, shall be sent in a postage prepaid envelope, addressed
to the stockholder at such stockholder's address as it appears on the records
of the Corporation. Notice by mail shall be deemed given at the time when
the same shall be deposited in the United States mail, postage prepaid.
Notice of any meeting shall not be required to be given to any person who
attends such meeting, except when such person attends the meeting in person
or by proxy for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened, or who, either before or after the meeting,
shall submit a signed written waiver of notice, in person or by proxy.
Neither the business to be transacted at, nor the purpose of, an annual or
special meeting of stockholders need be specified in any written waiver of
notice.
Section 5. Organization. At each meeting of stockholders, the
Chairman of the Board, if one shall have been elected, or, in such person's
absence or if one shall not have been elected, the President, shall act as
chairman of the meeting. The Secretary or, in such person's absence or
inability to act, the person whom the chairman of the meeting shall appoint
secretary of the meeting, shall act as secretary of the meeting and keep the
minutes thereof.
Section 6. Conduct of Business. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seems to him or her in order. The date and time of the opening
and closing of the polls for each matter upon which the stockholders will
vote at a meeting shall be announced at the meeting.
Section 7. Quorum, Adjournments. The holders of a majority
of the voting power of the issued and outstanding shares of capital stock of
the
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Corporation entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at all
meetings of stockholders, except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum shall not be present
or represented by proxy at any meeting of stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall
have the power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented by proxy. At such adjourned meeting at which a quorum shall be
present or represented by proxy, any business may be transacted which might
have been transacted at the meeting as originally called. If the adjournment
is for more than thirty days, or, if after adjournment a new record date is
set, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 8. Voting. Except as otherwise provided by statute or
the Certificate of Incorporation and these Amended and Restated By-Laws, each
stockholder of the Corporation shall be entitled at each meeting of
stockholders to one vote for each share of capital stock of the Corporation
standing in such stockholder's name on the record of stockholders of the
Corporation:
(a) on the date fixed pursuant to the provisions of Section 7 of
Article V of these Amended and Restated By-Laws as the record date
for the determination of the stockholders who shall be entitled to
notice of and to vote at such meeting; or
(b) if no such record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice
thereof shall be given, or, if notice is waived, at the close of
business on the date next preceding the day on which the meeting is
held.
Each stockholder entitled to vote at any meeting of stockholders
may authorize another person or persons to act for such stockholder by a
proxy signed by such stockholder or such stockholder's attorney-in-fact, but
no proxy shall be voted after three years from its date, unless the proxy
provides for a longer period. Any such proxy shall be delivered to the
secretary of the meeting at or prior to the time designated in the order of
business for so delivering such proxies. When a quorum is present at any
meeting, the affirmative vote of the holders of a majority of the voting
power of the issued and outstanding stock of the Corporation entitled to vote
thereon, present in person or represented by proxy, shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of statute or of the Certificate of Incorporation or of these
Amended and Restated By-Laws, a different vote is required, in which case
such
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express provision shall govern and control the decision of such question.
Unless required by statute, or determined by the chairman of the meeting to
be advisable, the vote on any question need not be by ballot. On a vote by
ballot, each ballot shall be signed by the stockholder voting, or by such
stockholder's proxy, if there be such proxy.
Section 9. List of Stockholders Entitled to Vote. At least ten
days before each meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the
name of each stockholder shall be prepared. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to
the meeting, either at a place within the city, town, or village where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any
stockholder of the Corporation who is present.
Section 10. Inspectors. The Board of Directors shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act
at such meeting or any adjournment thereof. If any of the inspectors so
appointed shall fail to appear or act, the chairman of the meeting shall, or
if inspectors shall not have been appointed, the chairman of the meeting may
appoint one or more inspectors. Each inspector, before entering upon the
discharge of such inspector's duties, shall take and sign an oath faithfully
to execute the duties of inspector at such meeting with strict impartiality
and according to the best of such inspector's ability. The inspectors shall
determine the number of shares of capital stock of the Corporation
outstanding and the voting power of each, the number of shares represented at
the meeting, the existence of a quorum, the validity and effect of proxies,
and shall receive votes, ballots or consents, hear and determine all
challenges and questions arising in connection with the right to vote, count
and tabulate all votes, ballots or consents, determine the results, and do
such acts as are proper to conduct the election or vote with fairness to all
stockholders. On request of the chairman of the meeting, the inspectors
shall make a report in writing of any challenge, request or matter determined
by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as an inspector of
an election of directors. Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided by statute or in the Certificate of Incorporation, any action
required to be taken or which may be taken at any annual or special meeting
of the
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stockholders of the Corporation may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action
so taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of any such corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing.
Section 12. Advance Notice Provisions for Election of Directors.
Only persons who are nominated in accordance with the following procedures
shall be eligible for election as directors of the Corporation. Nominations of
persons for election to the Board of Directors may be made at any annual
meeting of stockholders, or at any special meeting of stockholders called for
the purpose of electing directors, (a) by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (b) by any
stockholder of the Corporation (i) who is a stockholder of record on the date
of the giving of the notice provided for in this Section 12 and on the record
date for the determination of stockholders entitled to vote at such meeting
and (ii) who complies with the notice procedures set forth in this Section 12.
In addition to any other applicable requirements, for a nomination
to be made by a stockholder such stockholder must have given timely notice
thereof in proper written form to the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation (a) in the case of an annual meeting, not less than 60 days nor
more than 90 days prior to the date of the annual meeting; provided, however,
that in the event that less than 70 days' notice or prior public disclosure
of the date of the annual meeting is given or made to stockholders, notice by
the stockholder in order to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of
the date of the annual meeting was mailed or such public disclosure of the
date of the annual meeting was made, whichever first occurs; and (b) in the
case of a special meeting of stockholders called for the purpose of electing
directors, not later than the close of business on the 10th day following the
day on which notice of the date of the special meeting was mailed or public
disclosure of the date of the special meeting was made, whichever first
occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the stockholder proposes
to nominate for
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election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of
the Corporation which are owned beneficially or of record by the person and
(iv) any other information relating to the person that would be required to
be disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant
to Section 14 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder; and
(b) as to the stockholder giving the notice (i) the name and record address
of such stockholder, (ii) the class or series and number of shares of capital
stock of the Corporation which are owned beneficially or of record by such
stockholder, (iii) a description of all arrangements or understandings
between such stockholder and each proposed nominee and any other person or
persons (including their names) pursuant to which the nomination(s) are to be
made by such stockholder, (iv) a representation that such stockholder intends
to appear in person or by proxy at the meeting to nominate the persons named
in its notice and (v) any other information relating to such stockholder that
would be required to be disclosed in a proxy statement or other filings
required to be made in connection with solicitations of proxies for election
of directors pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. Such notice must be accompanied by a
written consent of each proposed nominee to be named as a nominee and to
serve as a director if elected.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in
this Section 12. If the Chairman of the meeting determines that a nomination
was not made in accordance with the foregoing procedures, the Chairman shall
declare to the meeting that the nomination was defective and such defective
nomination shall be disregarded.
Section 13. Advance Notice Provisions for Business to be
Transacted at Annual Meeting. No business may be transacted at an annual
meeting of stockholders, other than business that is either (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors (or any duly authorized committee thereof),
(b) otherwise properly brought before the annual meeting by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (c) otherwise properly brought before the annual meeting by any stockholder
of the Corporation (i) who is a stockholder of record on the date of the giving
of the notice provided for in this Section 13 and on the record date for the
determination of stockholders entitled to vote at such annual meeting and
(ii) who complies with the notice procedures set forth in this Section 13.
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In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to
the Secretary of the Corporation.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the date of
the annual meeting; provided, however, that in the event that less than 70
days' notice or prior public disclosure of the date of the annual meeting is
given or made to stockholders, notice by the stockholder in order to be
timely must be so received not later than the close of business on the 10th
day following the day on which such notice of the date of the annual meeting
was mailed or such public disclosure of the date of the annual meeting was
made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and record address of such
stockholder, (iii) the class or series and number of shares of capital stock
of the Corporation which are owned beneficially or of record by such
stockholder, (iv) a description of all arrangements or understandings between
such stockholder and any other person or persons (including their names) in
connection with the proposal of such business by such stockholder and any
material interest of such stockholder in such business and (v) a
representation that such stockholder intends to appear in person or by proxy
at the annual meeting to bring such business before the meeting.
No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in accordance
with the procedures set forth in this Section 13, provided, however, that,
once business has been properly brought before the annual meeting in
accordance with such procedures, nothing in this Section 13 shall be deemed
to preclude discussion by any stockholder of any such business. If the
Chairman of an annual meeting determines that business was not properly
brought before the annual meeting in accordance with the foregoing
procedures, the Chairman shall declare to the meeting that the business was
not properly brought before the meeting and such business shall not be
transacted.
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ARTICLE III
DIRECTORS
Section 1. Place of Meetings. Meetings of the Board of
Directors shall be held at such place or places, within or without the State of
Delaware, as the Board of Directors may from time to time determine or as
shall be specified in the notice of any such meeting.
Section 2. Annual Meeting. The annual meeting of the Board of
Directors may be held at such time or place (within or without the State of
Delaware) as shall be specified in a notice thereof given as hereinafter
provided in Section 5 of this Article III.
Section 3. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such time and place as the Board of Directors may
fix. If any day fixed for a regular meeting shall be a legal holiday at the
place where the meeting is to be held, then the meeting which would otherwise
be held on that day shall be held at the same hour on the next succeeding
business day.
Section 4. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, if one shall have been
elected, or by two or more directors of the Corporation or by the President.
Section 5. Notice of Meetings. Notice of regular meetings of
the Board of Directors need not be given except as otherwise required by law
or these Amended and Restated By-Laws. Notice of each special meeting of the
Board of Directors for which notice shall be required, shall be given by the
Secretary as hereinafter provided in this Section 5, in which notice shall be
stated the time and place of the meeting. Except as otherwise required by
these Amended and Restated By-Laws, such notice need not state the purposes
of such meeting. Notice of any special meeting, and of any regular or annual
meeting for which notice is required, shall be given to each director at
least (a) four hours before the meeting if by telephone or by being
personally delivered or sent by telex, telecopy, or similar means or (b) two
days before the meeting if delivered by mail to the director's residence or
usual place of business. Such notice shall be deemed to be delivered when
deposited in the United States mail so addressed, with postage prepaid, or
when transmitted if sent by telex, telecopy, or similar means. Neither the
business to be transacted at, nor the purpose of, any special meeting of the
Board of Directors need be specified in the notice or waiver of notice of
such meeting. Any director may waive notice of any meeting by a writing
signed by the director entitled to the notice and filed with the minutes or
corporate records. The
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attendance at or participation of the director at a meeting shall constitute
waiver of notice of such meeting, unless the director at the beginning of the
meeting or promptly upon such director's arrival objects to holding the
meeting or transacting business at the meeting.
Section 6. Organization. At each meeting of the Board of
Directors, the Chairman of the Board, if one shall have been elected, or, in the
absence of the Chairman of the Board or if one shall not have been elected, the
President (or, in the President's absence, another director chosen by a
majority of the directors present) shall act as chairman of the meeting and
preside thereat. The Secretary or, in such person's absence, any person
appointed by the chairman shall act as secretary of the meeting and keep the
minutes thereof.
Section 7. Quorum and Manner of Acting. A majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, and, except as otherwise
expressly required by statute or the Certificate of Incorporation or these
Amended and Restated By-Laws, the affirmative vote of a majority of the
directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors. In the absence of a quorum at any meeting of
the Board of Directors, a majority of the directors present thereat may
adjourn such meeting to another time and place. Notice of the time and place
of any such adjourned meeting shall be given to all of the directors unless
such time and place were announced at the meeting at which the adjournment
was taken, in which case such notice need only be given to the directors who
were not present thereat. At any adjourned meeting at which a quorum is
present, any business may be transacted which might have been transacted at
the meeting as originally called. The directors shall act only as a Board
and the individual directors shall have no power as such.
Section 8. Action by Consent. Unless restricted by the
Certificate of Incorporation, any action required or permitted to be taken by
the Board of Directors or any committee thereof may be taken without a
meeting if all members of the Board of Directors or such committee, as the
case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of the Board of Directors or such
committee, as the case may be.
Section 9. Telephonic Meeting. Unless restricted by the
Certificate of Incorporation, any one or more members of the Board of
Directors or any committee thereof may participate in a meeting of the Board
of Directors or such committee by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear
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each other. Participation by such means shall constitute presence in person
at a meeting.
Section 10. Committees. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate
one or more committees, including an executive committee, each committee to
consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence of disqualification of any member of a
committee, the member or members present at any meeting and not disqualified
from voting, whether or not such members constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
Each such committee, to the extent provided in the resolution
creating it, shall have and may exercise all the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to
all papers which require it; provided, however, that no such committee shall
have the power or authority in reference to the following matters: (a)
approving or adopting, or recommending to the stockholders, any action or
matter expressly required by the General Corporation Law of Delaware to be
submitted to stockholders for approval or (b) adopting, amending or repealing
any by-law of the Corporation. Each such committee shall serve at the
pleasure of the Board of Directors and have such name as may be determined
from time to time by resolution adopted by the Board of Directors. Each
committee shall keep regular minutes of its meetings and report the same to
the Board of Directors.
Section 11. Fees and Compensation. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by the Board of
Directors. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
Section 12. Resignations. Any director of the Corporation may
resign at any time by giving written notice of such director's resignation to
the Corporation. Any such resignation shall take effect at the time
specified therein or, if the time when it shall become effective shall not be
specified therein, immediately upon its receipt. Unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
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Section 13. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership, association,
or other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or
voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or
committee thereof which authorizes the contract or transaction, or solely
because such person's or persons' votes are counted for such purposes if (a)
the material facts as to such person's or persons' relationship or interest
and as to the contract or transaction are disclosed or are known to the
directors or committee who then in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum, (b)
the material facts as to such person's or persons' relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders or (c) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee
thereof or the stockholders. Interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors
or of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall include a President, one or more Vice
Presidents (including Senior, Executive or other classifications of Vice
Presidents) and a Secretary. The Board of Directors, in its discretion, may
also choose as an officer of the Corporation a Chairman of the Board and a
Vice Chairman of the Board and may choose other officers (including a
Treasurer, one or more Assistant Secretaries and one or more Assistant
Treasurers) as may be necessary or desirable. Such officers as the Board of
Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any officer of the Corporation the power to choose
such other officers and to proscribe their respective duties and powers. Any
number of offices may be held by the same person, unless otherwise prohibited
by law, the Certificate of Incorporation or these Amended and Restated
By-Laws. The officers of the Corporation need not be stockholders of the
Corporation nor, except in the case of the Chairman of the
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Board and Vice Chairman of the Board of Directors, need such officers be
directors of the Corporation.
Section 2. Term. All officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
Section 3. Resignations. Any officer of the Corporation may
resign at any time by giving written notice of such officer's resignation to the
Corporation. Any such resignation shall take effect at the time specified
therein or, if the time when it shall become effective shall not be specified
therein, immediately upon receipt. Unless otherwise specified therein, the
acceptance of any such resignation shall not be necessary to make it
effective.
Section 4. Removal. Any officer may be removed at any time by
the Board of Directors with or without cause.
Section 5. Compensation. The compensation of the officers of
the Corporation for their services as such officers shall be fixed from time
to time by the Board of Directors. An officer of the Corporation shall not
be prevented from receiving compensation by reason of the fact that such
officer is also a director of the Corporation.
Section 6. Chairman of the Board. The Chairman of the Board,
if one shall have been elected, shall be a member of the Board, an officer of
the Corporation and, if present, shall preside at each meeting of the Board
of Directors or the stockholders. The Chairman of the Board shall advise and
counsel with the President, and in the President's absence with other
executives of the Corporation, and shall perform such other duties as may
from time to time be assigned to the Chairman of the Board by the Board of
Directors.
ARTICLE V
STOCK CERTIFICATES AND THEIR TRANSFER
Section 1. Stock Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the
name of the Corporation by, the Chairman of the Board or a Vice Chairman of
the Board or the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation, certifying the number of shares owned by such holder in the
Corporation. If the Corporation shall be
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authorized to issue more than one class of stock or more than one series of
any class, the designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restriction of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate which the Corporation shall issue to represent such class or
series of stock, provided that, except as otherwise provided in Section 202
of the General Corporation Law of Delaware, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock,
a statement that the Corporation will furnish without charge to each
stockholder who so requests the designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
Section 2. Facsimile Signatures. Any or all of the
signatures on a certificate may be a facsimile, engraved or printed. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it
may be issued by the Corporation with the same effect as if such person was
such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen, or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issuance thereof, require the owner of
such lost, stolen, or destroyed certificate or certificates, or the owner's
legal representative, to give the Corporation a bond in such sum as it may
direct sufficient to indemnify it against any claim that may be made against
the Corporation on account of the alleged loss, theft or destruction of any
such certificate or the issuance of such new certificate.
Section 4. Transfers of Stock. Upon surrender to the
Corporation or the transfer agent of the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, it shall be the duty of the Corporation
to issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its records; provided, however,
that the Corporation shall be entitled to recognize and enforce any lawful
restriction on transfer. Whenever any transfer of stock shall be made for
collateral security, and not absolutely, it shall be so expressed in the
entry
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of transfer if, when the certificates are presented to the Corporation for
transfer, both the transferor and the transferee request the Corporation to
do so.
Section 5. Transfer Agents and Registrars. The Board of
Directors may appoint, or authorize any officer or officers to appoint, one
or more transfer agents and one or more registrars.
Section 6. Regulations. The Board of Directors may make such
additional rules and regulations, not inconsistent with these Amended and
Restated By-Laws, as it may deem expedient concerning the issue, transfer and
registration of certificates for shares of stock of the Corporation.
Section 7. Fixing the Record Date. In order that the
Corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 8. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its
records as the owner of shares of stock to receive dividends and to vote as
such owner, and shall not be bound to recognize any equitable or other claim
to or interest in such share or shares of stock on the part of any other
person, whether or not it shall have express or other notice thereof, except
as otherwise provided by law.
ARTICLE VI
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 1. General. Each person who was or is made a party or is
threatened to be made a party to or is involved (including, without
limitation, as a witness) in any threatened, pending or completed action,
suit, arbitration, alternative dispute resolution mechanism, investigation,
administrative hearing or any other proceeding, whether civil, criminal,
administrative or investigative ("Proceeding") brought by reason of the fact
that such person (the "Indemnitee") is
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or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan, whether the basis of such
Proceeding is alleged action in an official capacity as a director or officer
or in any other capacity while serving as such a director or officer, shall
be indemnified and held harmless by the Corporation to the full extent
authorized by the General Corporation Law of Delaware, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide
prior to such amendment), or by other applicable law as then in effect,
against all expenses, liabilities, losses and claims (including attorneys'
fees, judgments, fines, excise taxes under the Employee Retirement Income
Security Act of 1974, as amended from time to time, penalties and amounts to
be paid in settlement) actually incurred or suffered by such Indemnitee in
connection with such Proceeding (collectively, "Losses").
Section 2. Derivative Actions. The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to or is
involved (including, without limitation, as a witness) in any Proceeding
brought by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that such person (also an "Indemnitee") is or was
a director or officer of the Corporation, or is or was serving at the request
of the Corporation as a director or officer of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan, against Losses actually incurred or
suffered by the Indemnitee in connection with the defense or settlement of
such action or suit if the Indemnitee acted in good faith and in a manner the
Indemnitee reasonably believed to be in or not opposed to the best interests
of the Corporation, provided that no indemnification shall be made in respect
of any claim, issue or matter as to which Delaware law expressly prohibits
such indemnification by reason of an adjudication of liability of the
Indemnitee unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, the Indemnitee is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Section 3. Indemnification in Certain Cases. Notwithstanding
any other provision of this Article VI, to the extent that an Indemnitee has
been wholly successful on the merits or otherwise in any Proceeding referred
to in Sections 1 or 2 of this Article VI on any claim, issue or matter
therein, the
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Indemnitee shall be indemnified against Losses actually incurred or suffered
by the Indemnitee in connection therewith. If the Indemnitee is not wholly
successful in such Proceeding but is successful, on the merits or otherwise,
as to one or more but less than all claims, issues or matters in such
Proceeding, the Corporation shall indemnify the Indemnitee, against Losses
actually incurred or suffered by the Indemnitee in connection with each
successfully resolved claim, issue or matter. In any review or Proceeding to
determine such extent of indemnification, the Corporation shall bear the
burden of proving any lack of success and which amounts sought in indemnity
are allocable to claims, issues or matters which were not successfully
resolved. For purposes of this Section 3 and without limitation, the
termination of any such claim, issue or matter by dismissal with or without
prejudice shall be deemed to be a successful resolution as to such claim,
issue or matter.
Section 4. Procedure. (a) Any indemnification under Sections 1
and 2 of this Article VI (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the Indemnitee is proper (except that the right of the
Indemnitee to receive payments pursuant to Section 5 of this Article VI shall
not be subject to this Section 4) in the circumstances because the Indemnitee
has met the applicable standard of conduct. Such determination shall be made
promptly, but in no event later than 60 days after receipt by the Corporation
of the Indemnitee's written request for indemnification. The Secretary of the
Corporation shall, promptly upon receipt of the Indemnitee's request for
indemnification, advise the Board of Directors that the Indemnitee has made
such request for indemnification.
(b) The entitlement of the Indemnitee to indemnification shall be
determined in the specific case (1) by the Board of Directors by a majority
vote of the directors who are not parties to such Proceeding, even though
less than a quorum (the "Disinterested Directors"), or (2) if there are no
Disinterested Directors, or if such Disinterested Directors so direct, by
independent legal counsel, or (3) by the stockholders.
(c) In the event the determination of entitlement is to be made by
independent legal counsel, such independent legal counsel shall be selected
by the Board of Directors and approved by the Indemnitee. Upon failure of
the Board of Directors to so select such independent legal counsel or upon
failure of the Indemnitee to so approve, such independent legal counsel shall
be selected by the American Arbitration Association in New York, New York or
such other person as such Association shall designate to make such selection.
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(d) If the Board of Directors or independent legal counsel shall
have determined that the Indemnitee is not entitled to indemnification to the
full extent of the Indemnitee's request, the Indemnitee shall have the right
to seek entitlement to indemnification in accordance with the procedures set
forth in Section 6 of this Article VI.
(e) If the person or persons empowered pursuant to Section 4(b) of
this Article VI to make a determination with respect to entitlement to
indemnification shall have failed to make the requested determination within
60 days after receipt by the Corporation of such request, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and the Indemnitee shall be absolutely entitled to such indemnification,
absent (i) misrepresentation by the Indemnitee of a material fact in the
request for indemnification or (ii) a final judicial determination that all
or any part of such indemnification is expressly prohibited by law.
(f) The termination of any proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, adversely affect the rights of the
Indemnitee to indemnification hereunder except as may be specifically
provided herein, or create a presumption that the Indemnitee did not act in
good faith and in a manner which the Indemnitee reasonably believed to be in
or not opposed to the best interests of the Corporation or create a
presumption that (with respect to any criminal action or proceeding) the
Indemnitee had reasonable cause to believe that the Indemnitee's conduct was
unlawful.
(g) For purposes of any determination of good faith hereunder, the
Indemnitee shall be deemed to have acted in good faith if the Indemnitee's
action is based on the records or books of account of the Corporation or an
affiliate, including financial statements, or on information supplied to the
Indemnitee by the officers of the Corporation or an affiliate in the course
of their duties, or on the advice of legal counsel for the Corporation or an
affiliate or on information or records given or reports made to the
Corporation or an affiliate by an independent certified public accountant or
by an appraiser or other expert selected with reasonable care to the
Corporation or an affiliate. The Corporation shall have the burden of
establishing the absence of good faith. The provisions of this Section 4(g)
of this Article VI shall not be deemed to be exclusive or to limit in any way
the other circumstances in which the Indemnitee may be deemed to have met the
applicable standard of conduct set forth in these Amended and Restated
By-Laws.
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(h) The knowledge and/or actions, or failure to act, of any other
director, officer, agent or employee of the Corporation or an affiliate shall
not be imputed to the Indemnitee for purposes of determining the right to
indemnification under these Amended and Restated By-Laws.
Section 5. Advances for Expenses and Costs. All expenses
(including attorneys' fees) incurred by or on behalf of the Indemnitee (or
reasonably expected by the Indemnitee to be incurred by the Indemnitee within
three months) in connection with any Proceeding shall be paid by the
Corporation in advance of the final disposition of such Proceeding within
twenty days after the receipt by the Corporation of a statement or statements
from the Indemnitee requesting from time to time such advance or advances
whether or not a determination to indemnify has been made under Section 4 of
this Article VI. The Indemnitee's entitlement to such advancement of
expenses shall include those incurred in connection with any Proceeding by
the Indemnitee seeking an adjudication or award in arbitration pursuant to
these Amended and Restated By-Laws. The financial ability of an Indemnitee
to repay an advance shall not be a prerequisite to the making of such
advance. Such statement or statements shall reasonably evidence such
expenses incurred (or reasonably expected to be incurred) by the Indemnitee
in connection therewith and shall include or be accompanied by a written
undertaking by or on behalf of the Indemnitee to repay such amount if it
shall ultimately be determined that the Indemnitee is not entitled to be
indemnified therefor pursuant to the terms of this Article VI.
Section 6. Remedies in Cases of Determination Not to Indemnify
or to Advance Expenses. (a) In the event that (i) a determination is made
that the Indemnitee is not entitled to indemnification hereunder, (ii) advances
are not made pursuant to Section 5 of this Article VI or (iii) payment has
not been timely made following a determination of entitlement to
indemnification pursuant to Section 4 of this Article VI, the Indemnitee
shall be entitled to seek a final adjudication either through an arbitration
proceeding or in an appropriate court of the State of Delaware or any other
court of competent jurisdiction of the Indemnitee's entitlement to such
indemnification or advance.
(b) In the event a determination has been made in accordance with
the procedures set forth in Section 4 of this Article VI, in whole or in
part, that the Indemnitee is not entitled to indemnification, any judicial
proceeding or arbitration referred to in paragraph (a) of this Section 6
shall be de novo and the Indemnitee shall not be prejudiced by reason of any
such prior determination that the Indemnitee is not entitled to
indemnification, and the Corporation shall bear the burdens of proof
specified in Sections 3 and 4 of this Article VI in such proceeding.
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(c) If a determination is made or deemed to have been made
pursuant to the terms of Sections 4 or 6 of this Article VI that the
Indemnitee is entitled to indemnification, the Corporation shall be bound by
such determination in any judicial proceeding or arbitration in the absence
of (i) a misrepresentation of a material fact by the Indemnitee or (ii) a
final judicial determination that all or any part of such indemnification is
expressly prohibited by law.
(d) To the extent deemed appropriate by the court, interest shall
be paid by the Corporation to the Indemnitee at a reasonable interest rate
for amounts which the Corporation indemnifies or is obliged to indemnify the
Indemnitee for the period commencing with the date on which the Indemnitee
requested indemnification (or reimbursement or advancement of expenses) and
ending with the date on which such payment is made to the Indemnitee by the
Corporation.
Section 7. Rights Non-Exclusive. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other
Sections of this Article VI shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any law, by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
Section 8. Insurance. The Corporation shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan,
against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such person's status as such,
whether or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article VI.
Section 9. Definition of Corporation. For purposes of this
Article VI, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent
of a constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise,
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including service with respect to an employee benefit plan, shall stand in
the same position under this Article VI with respect to the resulting or
surviving corporation as such person would have with respect to such
constituent corporation if its separate existence had continued.
Section 10. Other Definitions. For purposes of this Article VI,
references to "fines" shall include any excise taxes assessed on a person
with respect to any employee benefit plan; and references to "serving at the
request of the Corporation" shall include any service as a director, officer,
employee or agent of the corporation which imposes duties on, or involves
services by, such director, officer, employee, or agent with respect to an
employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner such person reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VI.
Section 11. Survival of Rights. The indemnification and
advancement of expenses provided by, or granted pursuant to this Article VI
shall, unless otherwise provided when authorized or ratified, continue as to
a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such
a person. No amendment, alteration, rescission or replacement of these
Amended and Restated By-Laws or any provision hereof shall be effective as to
an Indemnitee with respect to any action taken or omitted by such Indemnitee
in Indemnitee's position with the Corporation or any other entity which the
Indemnitee is or was serving at the request of the Corporation prior to such
amendment, alteration, rescission or replacement.
Section 12. Indemnification of Employees and Agents of the
Corporation. The Corporation may, by action of the Board of Directors from
time to time, grant rights to indemnification and advancement of expenses to
employees and agents of the Corporation with the same scope and effect as the
provisions of this Article VI with respect to the indemnification of
directors and officers of the Corporation.
Section 13. Savings Clause . If this Article VI or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify each person
entitled to indemnification under the first paragraph of this Article VI as
to all losses actually and reasonably incurred or suffered by such person and
for which indemnification is available to such person pursuant to this
Article VI to the full extent permitted
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by any applicable portion of this Article VI that shall not have been
invalidated and to the full extent permitted by applicable law.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Subject to the provisions of statute and
the Certificate of Incorporation, dividends upon the shares of capital stock
of the Corporation may be declared by the Board of Directors at any regular
or special meeting. Dividends may be paid in cash, in property or in shares
of stock of the Corporation, unless otherwise provided by statute or the
Certificate of Incorporation.
Section 2. Reserves. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors may, from time to time, in its absolute
discretion, think proper as a reserve or reserves to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors may think
conducive to the interests of the Corporation. The Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
Section 3. Seal. The seal of the Corporation shall be in such
form as shall be approved by the Board of Directors.
Section 4. Fiscal Year. The fiscal year of the Corporation
shall be fixed, and once fixed, may thereafter be changed, by resolution of
the Board of Directors.
Section 5. Checks, Notes, Drafts, Etc. All checks, notes,
drafts or other orders for the payment of money of the Corporation shall be
signed, endorsed or accepted in the name of the Corporation by such officer,
officers, person or persons as from time to time may be designated by the
Board of Directors or by an officer or officers authorized by the Board of
Directors to make such designation.
Section 6. Execution of Contracts, Deeds, Etc. The Board of
Directors may authorize any officer or officers, agent or agents, in the name
and on behalf of the Corporation to enter into or execute and deliver any and
all deeds, bonds, mortgages, contracts and other obligations or instruments,
and such authority may be general or confined to specific instances.
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Section 7. Voting of Stock in Other Corporations. Unless
otherwise provided by resolution of the Board of Directors, the Chairman of
the Board or the President, from time to time, may (or may appoint one or
more attorneys or agents to) cast the votes which the Corporation may be
entitled to cast as a shareholder or otherwise in any other corporation, any
of whose shares or securities may be held by the Corporation, at meetings of
the holders of the shares or other securities of such other corporation. In
the event one or more attorneys or agents are appointed, the Chairman of the
Board or the President may instruct the person or persons so appointed as to
the manner of casting such votes or giving such consent. The Chairman of the
Board or the President may, or may instruct the attorneys or agents appointed
to, execute or cause to be executed in the name and on behalf of the
Corporation and under its seal or otherwise, such written proxies, consents,
waivers or other instruments as may be necessary or proper in the
circumstances.
ARTICLE VIII
AMENDMENTS
These Amended and Restated By-Laws may be repealed, altered,
amended or rescinded in whole or in part, or new By-Laws may be adopted by
either the affirmative vote of the holders of at least a majority of the
voting power of all of the issued and outstanding shares of capital stock of
the Corporation entitled to vote thereon or by the Board of Directors.
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- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
among
TCIVG-GIC, Inc.,
NDTC Technology, Inc.
and
General Instrument Corporation
Dated as of June 17, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS AND TERMS . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.1 SPECIFIC DEFINITIONS . . . . . . . . . . . . . . . . . . .1
SECTION 1.2 OTHER TERMS. . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE II
TRANSFER OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
SECTION 2.1 TRANSFER OF ASSETS . . . . . . . . . . . . . . . . . . . .9
SECTION 2.2 GROSS REVENUE DEFICIENCY AMOUNT. . . . . . . . . . . . . .9
SECTION 2.3 EXCLUDED ASSETS. . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.4 ASSUMPTION OF LIABILITIES. . . . . . . . . . . . . . . . 11
SECTION 2.5 EXCLUDED LIABILITIES . . . . . . . . . . . . . . . . . . 11
SECTION 2.6 CONSIDERATION. . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.7 CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.8 DELIVERIES BY GI . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.9 DELIVERIES BY TCI. . . . . . . . . . . . . . . . . . . . 12
SECTION 2.10 ALLOCATION OF PURCHASE PRICE; DISCOUNT . . . . . . . . . 13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TCI . . . . . . . . . . . . . . . . . 13
SECTION 3.1 ORGANIZATION AND QUALIFICATION . . . . . . . . . . . . . 13
SECTION 3.2 CORPORATE AUTHORIZATION. . . . . . . . . . . . . . . . . 13
SECTION 3.3 CONSENTS AND APPROVALS . . . . . . . . . . . . . . . . . 14
SECTION 3.4 NON-CONTRAVENTION. . . . . . . . . . . . . . . . . . . . 14
SECTION 3.5 BINDING EFFECT . . . . . . . . . . . . . . . . . . . . . 14
SECTION 3.6 FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . 14
SECTION 3.7 LITIGATION AND CLAIMS. . . . . . . . . . . . . . . . . . 14
SECTION 3.8 ASSIGNED CONTRACTS . . . . . . . . . . . . . . . . . . . 15
SECTION 3.9 TITLE TO PROPERTY. . . . . . . . . . . . . . . . . . . . 15
SECTION 3.10 FINDER'S FEES. . . . . . . . . . . . . . . . . . . . . . 15
SECTION 3.11 INVESTMENT INTENT. . . . . . . . . . . . . . . . . . . . 15
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GI. . . . . . . . . . . . . . . . . . 16
SECTION 4.1 ORGANIZATION AND QUALIFICATION . . . . . . . . . . . . . 16
-i-
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SECTION 4.2 CORPORATE AUTHORIZATION. . . . . . . . . . . . . . . . . 16
SECTION 4.3 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . 16
SECTION 4.4 CONSENTS AND APPROVALS . . . . . . . . . . . . . . . . . 17
SECTION 4.5 NON-CONTRAVENTION. . . . . . . . . . . . . . . . . . . . 17
SECTION 4.6 SEC REPORTS; FINANCIAL STATEMENTS. . . . . . . . . . . . 17
SECTION 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS . . . . . . . . . . 18
SECTION 4.8 BINDING EFFECT . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4.9 FINDERS' FEES. . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4.10 RIGHTS AGREEMENT . . . . . . . . . . . . . . . . . . . . 18
SECTION 4.11 EQUITY PERCENTAGE. . . . . . . . . . . . . . . . . . . . 18
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 5.1 ACCESS . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 5.2 CONTINUED PROVISION OF ADDRESSABLE SET-TOP SERVICES. . . 19
SECTION 5.3 REASONABLE EFFORTS; GOOD FAITH . . . . . . . . . . . . . 19
SECTION 5.4 TRANSFER TAXES . . . . . . . . . . . . . . . . . . . . . 19
SECTION 5.5 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . 19
SECTION 5.6 GI'S ACCESS. . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 5.7 BULK TRANSFER LAWS . . . . . . . . . . . . . . . . . . . 20
SECTION 5.8 NOTICE OF DEVELOPMENTS . . . . . . . . . . . . . . . . . 20
SECTION 5.9 STOCKHOLDERS MEETING . . . . . . . . . . . . . . . . . . 20
SECTION 5.10 TRANSFERS TO COMPETITORS . . . . . . . . . . . . . . . . 20
SECTION 5.11 RIGHTS IN THE EVENT OF A PUBLIC OFFERING . . . . . . . . 20
SECTION 5.12 REGISTRATION RIGHTS. . . . . . . . . . . . . . . . . . . 21
SECTION 5.13 ANTI-DILUTION PROTECTION . . . . . . . . . . . . . . . . 31
SECTION 5.14 RESTRICTIONS ON TRANSFERABILITY OF SHARES. . . . . . . . 31
SECTION 5.15 NO PUBLIC ANNOUNCEMENT . . . . . . . . . . . . . . . . . 33
SECTION 5.16 SEC REPORTS. . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.17 HSR ACT FILING . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.18 MFN. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VI
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 6.1 CONDITIONS TO THE OBLIGATIONS OF GI. . . . . . . . . . . 34
SECTION 6.2 CONDITIONS TO THE OBLIGATIONS OF TCI AND NDTC. . . . . . 35
ARTICLE VII
SURVIVAL; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 7.1 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . 35
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SECTION 7.2 INDEMNIFICATION BY GI. . . . . . . . . . . . . . . . . . 36
SECTION 7.3 INDEMNIFICATION BY TCI AND NDTC. . . . . . . . . . . . . 36
SECTION 7.4 INDEMNIFICATION PROCEDURES . . . . . . . . . . . . . . . 36
SECTION 7.5 LIMITATION OF LIABILITY. . . . . . . . . . . . . . . . . 37
ARTICLE VIII
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 8.1 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 8.2 EFFECT OF TERMINATION. . . . . . . . . . . . . . . . . . 38
ARTICLE IX
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 9.1 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 9.2 AMENDMENT; WAIVER. . . . . . . . . . . . . . . . . . . . 39
SECTION 9.3 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 9.4 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . 39
SECTION 9.5 FULFILLMENT OF OBLIGATIONS . . . . . . . . . . . . . . . 39
SECTION 9.6 PARTIES IN INTEREST. . . . . . . . . . . . . . . . . . . 40
SECTION 9.7 RETURN OF INFORMATION. . . . . . . . . . . . . . . . . . 40
SECTION 9.8 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 9.9 SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 9.10 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . 40
SECTION 9.11 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 9.12 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 9.13 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . 40
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SCHEDULES
Schedule 1.1(b) Fixtures and Equipment
EXHIBITS
A Agreement Regarding Addressable Set-Top Services
B Agreement Regarding HITS Signals
C License Agreement
D Promissory Note
E Services Agreement
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of June 17, 1998,
among TCIVG-GIC, Inc. ("TCI"), a Colorado corporation, NDTC Technology, Inc., a
Colorado corporation ("NDTC") and General Instrument Corporation, a Delaware
corporation formerly known as NextLevel Systems, Inc. ("GI").
W I T N E S S E T H:
WHEREAS, the parties hereto and certain of their Affiliates have entered
into a series of agreements, including (i) a Digital Terminal Purchase
Agreement, dated as of December 16, 1997 (the "PURCHASE AGREEMENT") and (ii) a
Warrant Issuance Agreement, dated as of December 16, 1997 (the "WARRANT ISSUANCE
AGREEMENT");
WHEREAS, the parties hereto desire that TCI sell to GI, and GI purchase
from TCI, the Transferred Assets and that GI and NDTC enter into licenses and
service agreements related thereto, all as more fully set forth herein;
WHEREAS, the consideration for the transactions contemplated by this
Agreement is based on the price of the Common Stock as of December 16, 1997, the
date on which National Digital Television Center, Inc. and GI entered into a
Memorandum of Agreement with respect to the transactions contemplated by this
Agreement (the "MEMORANDUM OF AGREEMENT");
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, and subject to and on the terms and conditions herein set
forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
SECTION 1.1 SPECIFIC DEFINITIONS. As used in this Agreement, the
following terms shall have the meanings set forth or as referenced below:
"ACCESS AND CONTROL BUSINESS" shall mean all aspects of the business, as
hereafter conducted by GI or its Affiliates from time to time, of providing
access and control or authorization services that use any part of the technology
or intellectual property that is licensed to GI pursuant to the License
Agreement (or sublicensed by GI in accordance with the terms of the License
Agreement), without regard to where such services are provided, including,
without limitation, the business of providing Addressable Set-Top Services.
Without limiting the foregoing, Access and Control Business includes the
authorization and deauthorization of the receipt of programming signals
(including, without limitation, signals hereafter provided by HITS as part of
its programming transport business) or other signals, including data signals, by
set-top boxes and other devices, whether such set-top boxes or other devices are
stand alone devices or are integrated into a television
<PAGE>
set or other device such as a personal computer or game machine. The Access and
Control Business also includes the sale and downloading by GI of the headend
management software that it licenses from NDTC.
"ADDRESSABLE SET-TOP SERVICES" means "Set-Top Authorization Services,"
"IPPV Services" and "HMS Download Services." "Set-Top Authorization Services"
means the authorization and/or deauthorization of the receipt of the signal(s)
of specified programming services or other signals by means of analog or digital
set-top converter boxes or other devices in subscriber households or locations.
"IPPV Services" means the collection and processing of information regarding
impulse pay-per-view purchases by subscribers for the purpose of billing
subscribers for those purchases. "HMS Download Services" means the downloading
of headend management software that GI licenses from NDTC into equipment at
headend or other reception sites.
"AFFILIATE" shall mean, with respect to a specified Person, another Person
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with the Person specified.
"AGREEMENT" shall mean this Asset Purchase Agreement, as it may from time
to time be amended, supplemented or restated.
"AGREEMENT REGARDING ADDRESSABLE SET-TOP SERVICES" shall mean the agreement
of the same name in the form of EXHIBIT A, as it may from time to time be
amended, supplemented or restated.
"AGREEMENT REGARDING HITS SIGNALS" shall mean the agreement of the same
name in the form of EXHIBIT B, as it may from time to time be amended,
supplemented or restated.
"ANCILLARY AGREEMENTS" shall mean the Agreement Regarding Addressable
Set-Top Services, the Agreement Regarding HITS Signals and the Services
Agreement.
"ASSIGNED CONTRACTS" shall mean (i) all agreements in effect as of the
Closing Date between TCI or its Affiliates and operators of cable television
systems or other multichannel video programming distribution systems with
respect to the receipt by such operators of Addressable Set-Top Services and
(ii) all maintenance agreements that relate to the Fixtures and Equipment.
"ASSUMED LIABILITIES" shall have the meaning set forth in Section 2.4.
"BENEFIT PLANS" shall mean each and all "employee benefit plans" as defined
in Section 3(3) of ERISA, maintained or contributed to by TCI or in which TCI
participates or participated and that provides benefits to employees of TCI or
their spouses or covered dependents, including (i) any such plans that are
"employee welfare benefit plans" as defined in Section 3(1) of ERISA and (ii)
any such plans that are "employee pension benefit plans" as defined in Section
3(2) of ERISA.
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"BUSINESS DAY" shall mean any day other than Saturday, Sunday or a day on
which banking institutions in Denver, Colorado or New York City are authorized
or obligated by Law to close.
"CHANGE IN CONTROL OF GI" shall mean: (i) the acquisition by a Person
(including its Affiliates) or by a "group" ("group" being used in this
definition within the meaning of Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder), in each case that is not engaged as one
of its principal lines of business in manufacturing consumer electronics, of (a)
beneficial ownership ("beneficial ownership" being used in this definition
within the meaning of Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder) of securities of GI representing 20% or more
of the voting power of the outstanding voting securities of GI, or (b) assets of
GI representing 20% or more of the aggregate fair market value of all of the
assets of GI immediately prior to such sale or purchase, in each case in one
transaction or a series of related transactions (it being agreed, however, that
any sale to or purchase by a Person of part or all of the assets of, or
telephony business conducted by, NextLevel Communications L.P. or its successors
(or GI's interest therein) shall not constitute a Change in Control); (ii) the
acquisition by a Person (including its Affiliates) or by a "group," in each case
that is engaged as one of its principal lines of business in manufacturing
consumer electronics, of (a) beneficial ownership of securities of GI
representing 35% or more of the voting power of the outstanding voting
securities of GI or (b) assets of GI representing 35% or more of the aggregate
fair market value of all of the assets of GI immediately prior to such sale or
purchase, in each case in one transaction or a series of related transactions
(it being agreed, however, that any sale to or purchase by a Person of part or
all of the assets of, or telephony business conducted by, NextLevel
Communications L.P. or its successors (or GI's interest therein) shall not
constitute a Change in Control); (iii) a merger, consolidation or other
reorganization involving GI pursuant to which beneficial ownership of securities
representing 20% or more of the voting power of the outstanding voting
securities of the merged, consolidated or reorganized entity are held by a
Person (including its Affiliates) or by a group, in each case that is not
engaged as one of its principal lines of business in manufacturing consumer
electronics and that did not have beneficial ownership of securities
representing at least 20% of the voting power of the outstanding voting
securities of GI immediately prior to such transaction; or (iv) a merger,
consolidation or other reorganization involving GI pursuant to which beneficial
ownership of securities representing 35% or more of the voting power of the
outstanding voting securities of the merged, consolidated or reorganized entity
are held by a Person (including its Affiliates) or by a group, in each case that
is engaged as one of its principal lines of business in manufacturing consumer
electronics and that did not have beneficial ownership of securities
representing at least 35% of the voting power of the outstanding voting
securities of GI immediately prior to such transaction. For purposes of the
foregoing, (i) any determination of fair market value shall be conclusively made
by GI and shall be evidenced by a certificate of two of its officers and (ii)
"outstanding voting securities" shall mean all voting securities of GI
outstanding at the time of determination (assuming conversion of all outstanding
convertible securities of GI that are convertible within 60 days following the
date of determination and assuming exercise of all outstanding Rights to
purchase securities of GI that are exercisable within 60 days following the date
of determination, other than employee options and Rights under the Rights
Agreement).
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"CLAIM NOTICE" shall have the meaning set forth in SECTION 7.4.
"CLOSING" shall mean the closing of the transactions contemplated by this
Agreement.
"CLOSING DATE" shall have the meaning set forth in SECTION 2.7.
"CLOSING PRICE" of a share of Common Stock on any Trading Day means the
last reported sales price, regular way, for such Trading Day as reported on the
New York Stock Exchange.
"COMMISSION" shall mean the Securities Exchange Commission.
"COMMON STOCK" shall mean the common stock, par value $.01 per share, of
GI.
"COMPETITOR" shall have the meaning set forth in the Warrant Issuance
Agreement.
"CONSIDERATION" shall have the meaning set forth in SECTION 2.6.
"ENCUMBRANCES" shall mean liens, charges, encumbrances, security interests,
options, or any other restrictions or third party rights.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"EXCLUDED ASSETS" shall have the meaning set forth in SECTION 2.3.
"EXCLUDED LIABILITIES" shall have the meaning set forth in SECTION 2.5.
"FAIR MARKET VALUE" shall mean (i), as to any Registrable Securities which
are shares of Common Stock, (x) the number of such shares proposed to be sold
times (y) the average daily Closing Prices of the Common Stock for the period of
30 consecutive Trading Days commencing 45 Trading Days prior to the date of the
initial request for registration, and (ii), as to any other Registrable
Securities, the fair market value of such securities, as determined in good
faith by the board of directors of GI.
"FIXTURES AND EQUIPMENT" shall mean the items listed in SCHEDULE 1.1(B).
"GAAP" shall mean United States generally accepted accounting principles.
"GI" shall have the meaning set forth in the first paragraph of this
Agreement.
"GI INDEMNIFIED PARTIES" shall have the meaning set forth in SECTION 7.3.
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"GOVERNMENTAL ENTITY" shall mean any government or any agency, bureau,
board, commission, court, department, office, political subdivision, tribunal or
other instrumentality of any government, whether federal, state or local,
domestic or foreign.
"GROSS REVENUE DEFICIENCY AMOUNT" shall mean with respect to calendar years
1998 through 2006, the amount, if any, by which the actual Gross Revenues for
such year are less than the Minimum Gross Revenue Amount for such year.
"GROSS REVENUES" shall mean an amount equal to the gross revenues derived
by GI and its Affiliates from or related to the Access and Control Business as
conducted in the United States of America (including its territories and
possessions) and Canada; provided, that for purposes of calculating Gross
Revenues, GI or its Affiliates will be deemed to have received at least
twenty-five cents per month for each analog or digital set-top box or other
device that is authorized or deauthorized by or on behalf of GI or its
Affiliates in connection with the operation by GI or its Affiliates of an Access
and Control Business. If the amount received by GI or its Affiliates with
respect to the authorization or deauthorization of a set-top box or other device
is greater than twenty-five cents per month, the actual amount received by GI or
its Affiliates shall be used in calculating Gross Revenues.
"HITS" shall mean Headend In The Sky, Inc., a Colorado corporation.
"HSR ACT" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"HOLDERS" shall have the meaning set forth in the Warrant Issuance
Agreement.
"INDEMNIFIED PARTIES" shall have the meaning set forth in SECTION 7.3.
"INDEMNIFYING PARTY" shall have the meaning set forth in SECTION 7.4.
"INTELLECTUAL PROPERTY" shall mean all intellectual property rights of NDTC
and its Affiliates, including: trademarks, service marks, brand names,
certification marks, trade dress, assumed names, trade names and other
indications of origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any jurisdiction to
register, the foregoing, including any extension, modification or renewal of any
such registration or application; inventions, discoveries and ideas, whether
patentable or not in any jurisdiction; patents, applications for patents
(including, without limitation, divisions, continuations, continuations in-part
and renewal applications), and any renewals, extensions or reissues thereof, in
any jurisdiction; computer software (including software, data and related
documentation); non-public information, trade secrets, know-how (including,
without limitation, research and development, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings and specifications) and confidential information and rights in any
jurisdiction to limit the use or disclosure thereof by any Person; writings and
other works, whether copyrightable or not in any
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jurisdiction; registrations or applications for registration of copyrights in
any jurisdiction, and any renewals or extensions thereof; any similar
intellectual property or proprietary rights; and any claims or causes of action
arising out of or related to any infringement or misappropriation of any of the
foregoing.
"LAW" shall mean all laws, statutes and ordinances and all regulations,
rules and other pronouncements of Governmental Entities having the effect of law
of the United States, any foreign country, or any domestic or foreign state,
province, commonwealth, city, country, municipality, territory, protectorate,
possession or similar instrumentality, or any Governmental Entity thereof.
"LICENSE AGREEMENT" shall mean the license to specified Intellectual
Property, in the form of EXHIBIT C.
"LITIGATION" shall have the meaning set forth in SECTION 3.7.
"LOSSES" shall have the meaning set forth in SECTION 7.2.
"MANUALS AND WARRANTIES" shall mean originals or copies of all operating
manuals and warranties relating to the Fixtures and Equipment.
"MATERIAL ADVERSE EFFECT" shall mean an effect that would, following
Closing, be materially adverse to the business, prospects, assets, liabilities,
condition (financial or otherwise) or results of operations of GI's Access and
Control Business taken as a whole.
"MEMORANDUM OF AGREEMENT" shall have the meaning set forth in the fourth
paragraph of this Agreement.
"MINIMUM GROSS REVENUE AMOUNT" with respect to a given calendar year shall
be as set forth below:
Year Minimum Gross Revenue Amount
---- ----------------------------
1998 $5,429,557 (prorated as specified below)
1999 $8,958,092
2000 $18,633,912
2001 $33,062,223
2002 $44,434,942
2003 through 2006 $36,793,902
The Minimum Gross Revenue Amount for calendar year 1998 will be prorated based
on the number of calendar days remaining in 1998 as of the Closing Date,
calculated on the basis of a 365 day year.
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"NDTC" shall have the meaning set forth in the first paragraph of this
Agreement.
"NDTC INDEMNIFIED PARTIES" shall have the meaning set forth in SECTION 7.2.
"NOTE" shall mean a promissory note in the form attached hereto as EXHIBIT
D.
"NOTICE" shall have the meaning set forth in SECTION 9.1.
"NOTICE PERIOD" shall have the meaning set forth in SECTION 7.4.
"ORDER" shall mean any ruling, decree, rule, judgment, order or injunction
of any Governmental Entity.
"PARTIES" shall mean TCI, NDTC and GI.
"PERMITTED ENCUMBRANCES" shall have the meaning set forth in SECTION
3.9(B).
"PERSON" shall mean any natural person, corporation, business trust, joint
venture, association, company, partnership, limited liability company or other
entity, or any government or any agency or political subdivision thereof.
"PURCHASE AGREEMENT" shall have the meaning set forth in the second
paragraph of this Agreement.
"REGISTRABLE SECURITIES" shall mean any Shares. As to any particular
Registrable Securities once issued, such securities shall cease to be
Registrable Securities when (i) a registration statement with respect to the
sale of such securities shall have become effective under the Securities Act and
such securities shall have been disposed of in accordance with such registration
statement, (ii) such securities shall have been distributed to the public
pursuant to Rule 144 (or any successor provision) under the Securities Act,
(iii) such securities shall have been otherwise transferred, new certificates
for them not bearing a legend restricting further transfer shall have been
delivered by GI and subsequent disposition of them shall not require
registration or qualification of them under the Securities Act, or (iv) such
securities shall have ceased to be outstanding.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance with SECTION 5.12, including, without limitation,
(i) all Commission and stock exchange or National Association of Securities
Dealers, Inc. registration, filing fees and listing expenses, (ii) all fees and
expenses of complying with securities or blue sky laws (including reasonable
fees and disbursements of counsel for any underwriters in connection with blue
sky qualification of any Shares, (iii) all printing, messenger and delivery
expenses, (iv) the fees and disbursements of counsel for GI and of its
independent public accountants, including the expenses of any special audits
and/or "cold comfort" letters required by or incident to such performance and
compliance, (v) the fees and disbursements of counsel retained in connection
with such registration by Holders of the Shares
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being registered, and (vi) any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities, including the fees and
expenses of any special experts retained in connection with the requested
registration.
"RELATED TO" shall mean primarily related to, or used or held for use or
intended to be used primarily in connection with.
"RIGHTS" has the meaning specified in SECTION 4.11.
"RIGHTS AGREEMENT" shall mean the Rights Agreement, dated as of June 12,
1997, as amended, between GI and ChaseMellon Shareholder Services, L.L.C., as
rights agent.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"SERVICES AGREEMENT" shall mean the Master Service Agreement, in the form
of EXHIBIT E, pursuant to which NDTC will provide certain services to GI in
respect of its Access and Control Business following the Closing.
"SHARES" shall mean the shares of Common Stock received as the
Consideration hereunder and any shares of capital stock of GI that are received
after Closing in respect of such shares as a result of a stock split or dividend
by, or a reorganization of, GI.
"STOCKHOLDERS MEETING" shall have the meaning set forth in the Warrant
Issuance Agreement.
"TAXES" shall mean all federal, state, local or foreign taxes, including
but not limited to income, gross receipts, windfall profits, value added,
severance, property, production, sales, use, license, excise, franchise,
employment, withholding or similar taxes, together with any interest, additions
or penalties with respect thereto and any interest in respect of such additions
or penalties.
"TCI, ET. AL." shall mean Tele-Communications, Inc. ("TCI") and any Person
in which TCI, directly or indirectly, owns at least twenty percent (20%) of the
outstanding equity interests.
"TRADING DAY" means a day on which the New York Stock Exchange is open for
the transaction of business (unless such trading shall have been suspended for
the entire day).
"TRANSFERRED ASSETS" shall have the meaning set forth in SECTION 2.1.
"TRANSFER TAXES" shall have the meaning set forth in SECTION 5.4.
"TVN" shall mean TVN Entertainment Corporation.
"TVN AGREEMENT" shall mean the Service and License Agreement entered into
as of June 9, 1997 between NDTC and TVN.
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"WARRANTHOLDER" shall have the meaning set forth in the Warrant Issuance
Agreement.
"WARRANT ISSUANCE AGREEMENT " shall have the meaning set forth in the
second paragraph of this Agreement.
"WARRANT SHARES" shall have the meaning set forth in the Warrant Issuance
Agreement.
SECTION 1.2 OTHER TERMS Other terms may be defined elsewhere in the
text of this Agreement and, unless otherwise indicated, shall have such meaning
throughout this Agreement.
SECTION 1.3 OTHER DEFINITIONAL PROVISIONS (a) The words "hereof",
"herein", and "hereunder" and words of similar import, when used in this
Agreement, shall refer to this Agreement as a whole and not to any particular
provision of this Agreement.
(b) The terms defined in the singular shall have a comparable meaning when
used in the plural, and vice versa.
(c) The words "including" or "includes" when used in this Agreement shall
be construed without limitation.
ARTICLE II
TRANSFER OF ASSETS
SECTION 2.1 TRANSFER OF ASSETS On the terms and subject to the
conditions set forth herein, at the Closing, TCI agrees to sell, convey,
transfer, assign and deliver to GI, and GI agrees to purchase and acquire from
TCI, free and clear of Encumbrances other than Permitted Encumbrances, all of
TCI's direct or indirect right, title and interest, in and to the Fixtures and
Equipment, all Manuals and Warranties, and the Assigned Contracts (collectively,
the "TRANSFERRED ASSETS").
SECTION 2.2 GROSS REVENUE DEFICIENCY AMOUNT; MAXIMUM GROSS REVENUE
AMOUNT
(a) On the terms and subject to the conditions set forth herein, after the
Closing, TCI shall pay to GI, in immediately available funds, the Gross Revenue
Deficiency Amount (if any) for each of calendar years 1998 through 2006 as
follows. GI shall deliver to TCI within 45 Business Days after the end of each
of calendar years 1998 through 2006, a certificate signed by the chief financial
officer of GI that sets forth Gross Revenues for the preceding calendar year and
GI's calculation of the Gross Revenue Deficiency Amount, if any, for such year,
such certificate to be accompanied by supporting documentation for the
calculations in such certificate. Within ten Business Days following its
receipt of such certificate, TCI will either pay to GI, in immediately available
funds, the Gross Revenue Deficiency Amount, if any, reflected in such
certificate or notify GI in writing that it disagrees with GI's calculation of
the Gross Revenue Deficiency Amount. If TCI notifies GI that it disagrees with
GI's calculation, TCI and GI shall negotiate in good faith to
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reach agreement on the disputed calculation within ten Business Days following
TCI's notice to GI, and TCI shall promptly pay to GI, in immediately available
funds, any agreed upon Gross Revenue Deficiency Amount upon such agreement. GI
agrees to use all reasonable commercial efforts following Closing and through
December 31, 2006 to sell Addressable Set-Top Services. TCI's obligation to pay
the Gross Revenue Deficiency Amount shall not apply in any particular year if GI
discontinues a substantial portion of its Access and Control Business at any
time following Closing and such discontinuation directly results in such Gross
Revenue Deficiency Amount.
(b) If TCI transfers more than 60% of the Shares following Closing, TCI
will assign its obligations under SECTION 2.2(A) to an Affiliate of TCI that is
reasonably acceptable to GI, and such entity shall assume TCI's obligations
under SECTION 2.2(A) pursuant to an assumption agreement reasonably satisfactory
to GI.
(c) GI and TCI and its Affiliates intend that Gross Revenues for calendar
years 2003 through 2011 derived from the sale of GI's Addressable Set-Top
Services to TCI, et. al. will not exceed the following amounts: Year 2003:
$37,982,031; Year 2004: $39,195,740; Year 2005: $40,435,475; Year 2006:
$42,052,894; Year 2007: $43,735,010; Year 2008: $45,484,411; Year 2009:
$47,303,787; Year 2010: $49,195,938; Year 2011: $51,163,776 (such Gross
Revenues derived from TCI, et. al. being referred to herein as "Gross Revenues
from TCI"). GI shall deliver to TCI within 45 business days after the end of
each of calendar years 2003 through 2011, a certificate signed by the chief
financial officer of GI that sets forth Gross Revenues from TCI for the
preceding calendar year, such certificate to be accompanied by supporting
documentation for the calculations in such certificate. If Gross Revenues from
TCI exceeds the amount specified above for a given year, the amount of the
excess shall be paid to NDTC pursuant to the Services Agreement with respect to
any year (or portion thereof) for which the Services Agreement is in effect and
shall be paid to TCI with respect to any year (or portion thereof) for which the
Services Agreement is not in effect. Any payment due to TCI hereunder shall be
paid by GI within 45 business days following the end of each applicable calendar
year.
(d) GI agrees that it will keep and maintain in accordance with generally
accepted accounting principles, accurate books and records with respect to Gross
Revenues and Gross Revenues from TCI and will require any other Person whose
revenues are included in Gross Revenues or Gross Revenues from TCI to maintain
such books and records. GI shall make such books and records available to TCI
or its designees upon reasonable notice for inspection and audit during normal
business hours at GI's offices, any such audit to be performed at TCI's expense
unless the audit reveals an under calculation by GI of Gross Revenues or Gross
Revenues from TCI by 5% or more in which case GI shall reimburse TCI for its
costs and expenses in conducting such audit.
SECTION 2.3 EXCLUDED ASSETS Notwithstanding anything herein to the
contrary, from and after the Closing, TCI and its Affiliates shall retain all of
their direct and indirect right, title and interest in and to, and there shall
be excluded from the conveyance, assignment, transfer or delivery to GI
hereunder, all assets of TCI or its Affiliates not specifically included in the
Transferred Assets, including, without limitation, the Intellectual Property
(collectively, the "EXCLUDED ASSETS").
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SECTION 2.4 ASSUMPTION OF LIABILITIES.
(a) On the terms and subject to the conditions set forth herein, at the
Closing, GI agrees to assume and discharge or perform when due, all liabilities,
obligations and commitments of TCI or its Affiliates under the Assigned
Contracts assigned or otherwise transferred to GI, arising on or after the
Closing Date (the "ASSUMED LIABILITIES").
(b) From and after the Closing, GI also agrees that it will provide
Set-Top Authorization Services (as defined in the TVN Agreement) to TVN in
accordance with the terms of the TVN Agreement for so long as TVN has not
exercised its rights thereunder to use the technology licensed to it to provide
Set-Top Authorization Services itself. From and after the Closing, NDTC shall
direct TVN to make the payments provided for in Section 5 of such agreement to
GI for so long as GI is providing the Set-Top Authorization Services to TVN.
SECTION 2.5 EXCLUDED LIABILITIES. Notwithstanding any other provision
of this Agreement, GI shall not and does not assume, agree to pay, perform or
discharge, or otherwise have any liability or responsibility for any liability
or obligation of TCI or its Affiliates not included in the Assumed Liabilities,
regardless of whether such liability or obligation is fixed or contingent,
asserted or unasserted, and whether arising prior to, on or after the Closing
Date (collectively, the "EXCLUDED LIABILITIES"). Without limiting the
generality of the foregoing, the Excluded Liabilities shall include:
(a) All liabilities arising out of or relating to the Excluded Assets;
(b) All liabilities for Taxes imposed with respect to the taxable periods,
or portions thereof, ending on or before the Closing Date;
(c) All indebtedness for money borrowed;
(d) All liabilities or obligations arising from any Litigation,
investigation or other proceeding pending or threatened in respect of
TCI or its business or any of its Affiliates, directors or officers;
(e) All liabilities or obligations of TCI or any TCI Benefit Plan with
respect to any of TCI's current or former employees, directors,
consultants or advisors whether arising prior to, on or after the
Closing Date, including, but not limited to, (A) liabilities and
obligations under any TCI Benefit Plan, (B) liabilities and
obligations in respect of any payroll Taxes, (C) liabilities and
obligations arising from any employee or employment related
Litigation, (D) liabilities and obligations in respect of any
collective bargaining agreement to which TCI is or was a party and (E)
liabilities and obligations in respect of any severance, bonus or
vacation pay agreements or arrangements; and
(f) All liabilities relating to the Transferred Assets that arose prior to
Closing.
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SECTION 2.6 CONSIDERATION. On the terms and subject to the conditions
set forth herein, GI agrees to transfer and deliver, free and clear of all
Encumbrances, 21,356,000 shares of newly issued Common Stock (as the same may be
adjusted pursuant to the terms of this Agreement, the "CONSIDERATION").
SECTION 2.7 CLOSING The Closing shall take place at a mutually
agreeable location at 10:00 A.M., on the second Business Day following the date
on which any applicable waiting periods under the HSR Act shall have expired and
all other conditions to the obligations of the Parties have been fulfilled or
waived by the Party entitled to the benefit of such conditions, or at such other
time as the Parties hereto may mutually agree. The date on which the Closing
occurs is called the "CLOSING DATE".
SECTION 2.8 DELIVERIES BY GI. At the Closing, GI shall deliver to TCI
the following:
(a) newly issued certificate(s) representing the Consideration, free and
clear of all Encumbrances;
(b) such instruments of assumption and other instruments or documents, in
form and substance reasonably acceptable to TCI, as may be necessary
to effect GI's assumption of the Assumed Liabilities;
(c) a correct and complete copy of GI's Amended and Restated Certificate
of Incorporation;
(d) an opinion of in-house counsel to GI with respect to the issuance of
the Consideration, dated the Closing Date, in form and substance
reasonably satisfactory to TCI;
(e) such other instruments and documents, in form and substance reasonably
acceptable to TCI, as may be necessary to effect the Closing;
(f) a duly executed original of each of the Ancillary Agreements; and
(g) a duly executed original of the License Agreement.
SECTION 2.9 DELIVERIES BY TCI. At the Closing, TCI shall deliver to GI
the following:
(a) bills of sale and any other customary instruments of sale and
conveyance, in form and substance reasonably acceptable to GI,
transferring to GI all Transferred Assets;
(b) assignments, in form and substance reasonably acceptable to GI,
assigning to GI all Assigned Contracts included in the Transferred
Assets;
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(c) the duly executed Note;
(d) such other instruments and documents, in form and substance reasonably
acceptable to GI, as may be necessary to effect the Closing;
(e) a duly executed original of each of the Ancillary Agreements; and
(f) an original of the License Agreement, duly executed by NDTC.
SECTION 2.10 ALLOCATION OF PURCHASE PRICE; DISCOUNT. GI and TCI agree
that the Consideration will be allocated to the Transferred Assets and the
License Agreement for all purposes (including Tax and financial accounting)
pursuant to an allocation schedule to be agreed upon by GI and TCI within 15
Business Days following Closing (the "Allocation Schedule"). GI and TCI will
file all Tax returns and information reports in a manner consistent with the
Allocation Schedule. In addition, GI and TCI agree that, solely for purposes of
Tax reporting, the Closing Date stock market price of the Common Stock will be
discounted by 35% and all Tax returns and information reports filed by them will
be consistent with and reflect such discount. Promptly following Closing, TCI
will deliver a valuation report to GI that supports such discount.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF TCI
Each of TCI and NDTC severally represents and warrants to GI with respect
to itself and its own assets and operations as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. Each of TCI and NDTC is a
corporation duly organized, validly existing and in good standing under the Laws
of the jurisdiction of its incorporation and TCI has all requisite corporate
power and authority to own and operate the Transferred Assets and to carry on
its business as currently conducted. Each of TCI and NDTC is duly qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction where the ownership or operation of the Transferred Assets or the
conduct of its business requires such qualification, except where the failure to
be so qualified or in good standing, as the case may be, individually or in the
aggregate, would not have a Material Adverse Effect. Each of TCI and NDTC is,
directly or indirectly, a wholly-owned subsidiary of Tele-Communications, Inc.
SECTION 3.2 CORPORATE AUTHORIZATION. Each of TCI and NDTC has full
corporate power and authority to execute and deliver this Agreement, the Note
and each of the Ancillary Agreements to which it is a party, and to perform its
obligations hereunder and thereunder. The execution, delivery and performance
by TCI and NDTC of this Agreement, the Note and each of the Ancillary Agreements
to which it is a party have been duly and validly authorized and no additional
corporate authorization or consent is required in connection with the execution,
delivery and performance by either of them of this Agreement, the Note or the
Ancillary Agreements to which it is a party.
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SECTION 3.3 CONSENTS AND APPROVALS. Except for applicable requirements
of the HSR Act, if any, and except with respect to consents required under any
Assigned Contract, no consent, approval, waiver, expiration of waiting period or
authorization is required to be obtained by TCI, NDTC or any of their
Affiliates, and no notice or filing is required to be given by TCI, NDTC or any
of their Affiliates to, or made by TCI, NDTC or any of their Affiliates with,
any Governmental Entity or other Person in connection with the execution,
delivery and performance by them of this Agreement, the Note and the Ancillary
Agreements to which they are party, other than in all cases where the failure to
obtain such consent, approval, waiver or authorization, or to give or make such
notice of filing, individually or in the aggregate, would not have a Material
Adverse Effect.
SECTION 3.4 NON-CONTRAVENTION. The execution, delivery and performance
by TCI and NDTC of this Agreement, the Note and each of the Ancillary Agreements
to which it is party, and the consummation of the transactions contemplated
hereby and thereby, does not and will not (whether after the filing of notice or
the lapse of time or both) (i) violate any provision of the charter, by-laws or
other organizational documents of TCI or NDTC, (ii) subject to obtaining the
consents referred to in SECTION 3.3, conflict with, or result in the breach of,
or constitute a default under, or result in the termination, cancellation or
acceleration of any right or obligation of TCI or NDTC under, or to a loss of
any benefit to which TCI or NDTC is entitled under, any Assigned Contract or
result in the creation of any Encumbrance upon any of the Transferred Assets, or
(iii) assuming the consents, approvals, waivers, authorizations, notices and
filings in SECTION 3.3 and SECTION 4.4 are obtained or made or given, as the
case may be, violate or result in a breach of or constitute a default under any
Law or Order to which TCI or NDTC is subject, including any Governmental
Authorization, other than in the cases of clauses (ii) and (iii), any violation,
breach, default or Encumbrance that, individually or in the aggregate, would not
have a Material Adverse Effect.
SECTION 3.5 BINDING EFFECT. This Agreement constitutes, and the Note
and each of the Ancillary Agreements when executed and delivered by the parties
thereto will constitute, a valid and legally binding obligation of TCI and NDTC
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles.
SECTION 3.6 FINANCIAL INFORMATION. Exhibit A to the Memorandum of
Agreement was prepared in good faith on a reasonable basis; and TCI believes
that the underlying assumptions provide a reasonable basis for the forecasts
contained therein. Notwithstanding the foregoing, TCI does not represent that
GI's Access and Control Business will achieve the results set forth on Exhibit A
to the Memorandum of Agreement and GI acknowledges that actual results may
materially differ from such results.
SECTION 3.7 LITIGATION AND CLAIMS. There is no civil, criminal or
administrative action, suit, demand, claim, hearing, proceeding or investigation
(collectively, "LITIGATION") pending or, to the knowledge of TCI, threatened,
involving its provision of Addressable Set-Top Services or any of the
Transferred Assets.
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SECTION 3.8 ASSIGNED CONTRACTS. Immediately prior to the Closing Date,
TCI will deliver to GI a complete list of the Assigned Contracts, together with
true and complete copies thereof. Each Assigned Contract is a valid and binding
agreement of TCI or its Affiliates and is in full force and effect.
SECTION 3.9 TITLE TO PROPERTY. (a) Except to the extent that certain
items are to be provided by NDTC pursuant to the Services Agreement and except
with respect to the Third Party Licenses (as defined in the License Agreement),
the Transferred Assets and the License Agreement constitute all the assets,
properties and rights that are necessary for GI to provide Addressable Set-Top
Services following Closing in all material respects as currently provided by
TCI. The properties, machinery and equipment included in the Transferred Assets
are in good operating condition, taking into account the age of such properties,
machinery and equipment and ordinary wear and tear.
(b) TCI has title to the personal property included in the Transferred
Assets free and clear of all Encumbrances, except (i) liens for Taxes,
assessments and other governmental charges not yet due and payable or due but
not delinquent or being contested in good faith by appropriate proceedings and
(ii) mechanics', workmen's, repairmen's, warehousemen's, carriers' or other like
liens arising or incurred in the ordinary course of business, original purchase
price conditional sales contracts and equipment leases with third parties
entered into in the ordinary course of business (all items included in (i) and
(ii) are referred to collectively herein as the "PERMITTED ENCUMBRANCES").
SECTION 3.10 FINDER'S FEES. There is no investment banker, broker,
finder or other intermediary that has been retained by or is authorized to act
on behalf of TCI or any of its Affiliates who might be entitled to any fee or
commission from TCI or any of its Affiliates in connection with the transactions
contemplated by this Agreement.
SECTION 3.11 INVESTMENT INTENT. TCI acknowledges that the shares of
capital stock issuable as the Consideration hereunder have not been registered
under the Securities Act, or under any state or foreign securities laws. TCI is
purchasing such shares solely for investment with no present intention to
distribute any of such shares to any person, and TCI will not sell or otherwise
dispose of any of such shares, except in compliance with the registration
requirements or exemption provisions under the Securities Act and the rules and
regulations promulgated thereunder, and any other applicable securities laws.
TCI is acquiring such shares solely for its own account and not with a view to a
sale or distribution thereof in violation of any securities laws. TCI
acknowledges that it has received, or has had access to, all information which
it considers necessary or advisable to enable it to make a decision concerning
its purchase of such shares, provided that the foregoing shall not limit or
otherwise affect the rights or remedies of TCI hereunder with respect to the
breach of any representations, warranties, covenants or agreements of GI
contained herein.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF GI
GI represents and warrants to TCI and NDTC as follows:
SECTION 4.1 ORGANIZATION AND QUALIFICATION. GI is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware and has all requisite corporate power and authority to own or lease all
of its properties and assets and to carry on its business as currently
conducted. GI is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the conduct of its business
requires such qualification, except where the failure to be so qualified or in
good standing, as the case may be, individually or in the aggregate, would not
have a material adverse effect on its business, financial condition or results
of operations.
SECTION 4.2 CORPORATE AUTHORIZATION. GI has full corporate power and
authority to execute and deliver this Agreement and each of the Ancillary
Agreements, and to perform its obligations hereunder and thereunder. The
execution, delivery and performance by GI of this Agreement and each of the
Ancillary Agreements have been duly and validly authorized and no additional
corporate authorization or consent is required in connection with the execution,
delivery and performance by GI of this Agreement and each of the Ancillary
Agreements.
SECTION 4.3 CAPITALIZATION. (a) The authorized capital stock of GI
consists of 400,000,000 shares of Common Stock, and 20,000,000 shares of
preferred stock, par value $.01 per share, issuable in series ("PREFERRED
STOCK"), of which no series have been issued. The rights, privileges and
preferences of the Common Stock and Preferred Stock are as stated in GI's
Amended and Restated Certificate of Incorporation. As of May 31, 1998, there
are issued and outstanding 151,410,786 shares of Common Stock, no shares of
Preferred Stock and no other shares of capital stock. All issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, and were issued in compliance with all
applicable state and federal securities laws. As of the date of this Agreement,
there are no outstanding options, warrants or other rights to purchase or
otherwise acquire equity securities of GI, securities convertible into or
exchangeable for equity securities of GI, options, warrants or other rights to
purchase or otherwise acquire any such equity securities or convertible or
exchangeable securities, or agreements to issue or grant any of the foregoing,
other than pursuant to employee benefit plans of GI, the Rights Agreement, a
proposed agreement with Sony Corporation of America or its affiliate pursuant to
which the Company may issue up to 7,500,000 shares of Common Stock, and warrant
agreements between GI and certain cable television multiple system operators
(including the Warrant Issuance Agreement ) pursuant to which up to 28,715,960
shares of Common Stock may be issued.
(b) All shares of capital stock issuable as the Consideration hereunder
(i) are duly authorized in GI's Amended and Restated Certificate of
Incorporation, (ii) have been duly authorized to be issued by GI's Board of
Directors and (iii) will, upon transfer and delivery of the consideration
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therefor, be duly and validly issued, fully paid and nonassessable and free of
Encumbrances. GI has delivered to TCI a true and complete copy of its Amended
and Restated Certificate of Incorporation, as in effect on the date hereof.
SECTION 4.4 CONSENTS AND APPROVALS. Except for approval by the board of
directors of GI and applicable requirements of the HSR Act, the Securities Act,
the Exchange Act , the New York Stock Exchange and state securities laws, if
any, no consent, approval, waiver, expiration of waiting period or authorization
is required to be obtained by GI from, and no notice or filing is required to be
given by GI or any of its Affiliates to, or made by GI or any of its Affiliates
with, any Governmental Entity or other Person in connection with the execution,
delivery and performance by GI of this Agreement and each of the Ancillary
Agreements, other than in all cases those the failure of which to obtain, give
or make would not, individually or in the aggregate, have a material adverse
effect on the business, financial condition or results of operations of GI or
materially impair or delay the ability of GI to effect the Closing.
SECTION 4.5 NON-CONTRAVENTION. The execution, delivery and performance
by GI of this Agreement and each of the Ancillary Agreements, and the
consummation of the transactions contemplated hereby and thereby, does not and
will not (whether after the filing of notice or the lapse of time or both) (i)
violate any provision of GI's Amended and Restated Certificate of Incorporation
or By-laws or (ii) assuming the consents, approvals, waivers, authorizations,
notices and filings in SECTION 3.3 and SECTION 4.4 are obtained or made or
given, as the case may be, violate or result in a breach of or constitute a
default under any Law or Order to which GI is subject, other than a violation,
breach, default or Encumbrance that, individually or in the aggregate, would not
have a material adverse effect on the business, financial condition or results
of operations of GI.
SECTION 4.6 SEC REPORTS; FINANCIAL STATEMENTS. (a) Since July 25, 1997,
GI has filed all forms, reports, statements and other documents (such filings by
GI are collectively referred to as the "SEC REPORTS"), required to be filed by
it with the Commission, except where the failure to file any such forms,
reports, statements and other documents would not, individually or in the
aggregate, have a material adverse effect on the business, financial condition
or results of operations of GI. The SEC Reports, including all SEC Reports
filed after the date of this Agreement and prior to the Closing Date, (i) were
or will be prepared in all material respects in accordance with the requirements
of the Securities Act and the Exchange Act, as the case may be, and the rules
and regulations of the Commission thereunder applicable to such SEC Reports at
the time of filing thereof and (ii) did not at the time they were filed, or will
not at the time they are filed, contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in the SEC Reports, including all SEC
Reports filed after the date of this Agreement and prior to the Closing Date (i)
have been or will be prepared in accordance with the published rules and
regulations of the Commission and GAAP applicable at the time of filing
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thereof, applied on a consistent basis throughout the periods involved (except
(A) to the extent required by changes in GAAP and (B) as may be indicated in the
notes thereto) and (ii) fairly present, or will fairly present, in all material
respects the consolidated financial position of GI and its Subsidiaries as of
the respective dates thereof and the consolidated results of operations and cash
flows for the periods indicated (including reasonable estimates of normal and
recurring year-end adjustments), except that (x) any unaudited interim financial
statements were or will be subject to normal and recurring year-end adjustments,
and (y) any pro forma financial statements contained in such consolidated
financial statements are not necessarily indicative of the consolidated
financial position of GI and its Subsidiaries, as of the respective dates
thereof and the consolidated results of operations and cash flows for the
periods indicated.
(c) GI has delivered to TCI in the form filed with the SEC, complete
copies of all SEC Reports filed prior to the date of this Agreement.
SECTION 4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31,
1997, except as set forth in the SEC Reports or in GI's press releases delivered
to TCI or in connection with transactions contemplated by this Agreement, no
event has occurred which has had or would have, individually or in the
aggregate, a material adverse effect on the business, financial condition or
results of operations of GI, other than events that generally affect GI's
industry.
SECTION 4.8 BINDING EFFECT. This Agreement constitutes, and each of the
Ancillary Agreements when executed and delivered by the parties thereto will
constitute, a valid and legally binding obligation of GI enforceable in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
SECTION 4.9 FINDERS' FEES. Except for the GI's retention of Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Lazard Freres & Co., LLC, there
is no investment banker, broker, finder or other intermediary that has been
retained by or is authorized to act on behalf of GI or any of its Affiliates who
might be entitled to any fee or commission from GI or any of its Affiliates in
connection with the transactions contemplated by this Agreement.
SECTION 4.10 RIGHTS AGREEMENT. Neither the consummation of the
transactions contemplated by this Agreement nor the consummation of the
transactions contemplated by the Warrant Issuance Agreement or the Purchase
Agreement triggers a characterization of TCI as an "Acquiring Person" within
the meaning of the Rights Agreement.
SECTION 4.11 EQUITY PERCENTAGE. As of the date hereof, the Consideration
represents at least 10% of the fully diluted equity securities of GI on an
as-issued basis, assuming exercise, conversion or exchange of all outstanding
options, warrants or other rights to purchase or otherwise acquire equity
securities of GI, securities convertible into or exchangeable for equity
securities of GI, options, warrants or other rights to purchase or otherwise
acquire any convertible or exchangeable securities of GI ("RIGHTS") (other than
Rights issuable under the Rights Agreement)
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and all Rights issuable in connection with the Transaction (as defined in the
Warrant Issuance Agreement).
ARTICLE V
COVENANTS
SECTION 5.1 ACCESS. Prior to the Closing, TCI shall permit GI and its
representatives to have full access, during regular business hours and upon
reasonable advance notice, to the Transferred Assets and its personnel involved
in TCI's provision of Addressable Set-Top Services, subject to reasonable rules
and regulations of TCI, and shall furnish, or cause to be furnished, to GI, any
financial and operating data and other information (including Tax records) that
is available with respect to the Transferred Assets as GI shall from time to
time reasonably request; provided, that the foregoing will not require TCI to
permit any inspection, or to disclose any information, that in the reasonable
judgment of TCI would result in the disclosure of any trade secrets or
confidential information of third parties or violate any of its obligations to
third parties with respect to confidentiality; provided, however, that upon
request by GI, TCI shall use its commercially reasonable efforts to obtain
consents from third parties to permit such inspections.
SECTION 5.2 CONTINUED PROVISION OF ADDRESSABLE SET-TOP SERVICES. Except
as may otherwise be contemplated by this Agreement or as GI may consent to in
writing, from the date hereof and until the Closing, TCI shall (i) provide
Addressable Set-Top Services only in the ordinary course consistent with past
practice; (ii) use its reasonable best efforts to preserve intact the
Transferred Assets; (iii) maintain the Transferred Assets in good operating
condition and repair to enable it to provide Addressable Set-Top Services in the
manner in which they are currently provided; and (iv) continue its existing
insurance policies (or comparable insurance) in full force and effect with
responsible companies.
SECTION 5.3 REASONABLE EFFORTS; GOOD FAITH. The Parties shall cooperate
and use their respective reasonable efforts to fulfill the conditions precedent
to the other Party's obligations hereunder, including but not limited to,
securing as promptly as practicable all consents, approvals, waivers and
authorizations required in connection with the transactions contemplated hereby
and shall otherwise use their reasonable efforts to cause the consummation of
such transactions in accordance with the terms and conditions hereof.
SECTION 5.4 TRANSFER TAXES. All excise, sales, use, transfer (including
real property transfer), stamp, documentary, filing, recordation and other
similar taxes that may be imposed or assessed as the result of the transactions
effected pursuant to this Agreement, (the "TRANSFER TAXES"), shall be borne
equally by TCI and GI.
SECTION 5.5 FURTHER ASSURANCES. At any time after the Closing Date, TCI
and GI shall promptly execute, acknowledge and deliver any other assurances or
documents reasonably requested
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by TCI and GI, as the case may be, and necessary for TCI and GI, as the case may
be, to satisfy its respective obligations hereunder or obtain the benefits
contemplated hereby.
SECTION 5.6 GI'S ACCESS. For a period of five years from the Closing
Date, TCI shall provide GI with reasonable access to its personnel and
independent accountants and advisors, and to such of its and their data and work
papers that relate to, and is not otherwise available to GI with respect to,
TCI's provision of Addressable Set-Top Services, that is reasonably required to
enable GI to comply with applicable U.S. securities laws or to comply with any
court order applicable to GI; PROVIDED, HOWEVER, that GI shall reimburse TCI for
its reasonable out-of-pocket expenses incurred in connection with performing its
obligations under this SECTION 5.6 and provided further that if GI is required
to provide audited financial statements with respect to TCI's provision of
Addressable Set-Top Services prior to Closing, such financial statements shall
be audited by an auditor selected by TCI and reasonably acceptable to GI.
SECTION 5.7 BULK TRANSFER LAWS. GI hereby waives compliance by TCI with
the provisions of any so-called "bulk transfer law" of any jurisdiction in
connection with the transfer of the Transferred Assets to GI.
SECTION 5.8 NOTICE OF DEVELOPMENTS. From the date hereof and until the
Closing, each Party shall give prompt written Notice to the other Party of any
breach or potential breach of any of the representations and warranties made by
such Party in this Agreement of which it has knowledge or of any facts that may
have a Material Adverse Effect. No disclosure pursuant to this SECTION 5.8,
however, shall be deemed to amend the various Schedules to this Agreement or to
prevent or cure any misrepresentation or any breach of any warranty, covenant or
agreement made by either Party herein.
SECTION 5.9 STOCKHOLDERS MEETING. TCI agrees to vote, at the
Stockholders Meeting, if any, all shares of Common Stock then owned by it in the
manner required of the Warrantholder under Section 10(d) of the Warrant Issuance
Agreement.
SECTION 5.10 TRANSFERS TO COMPETITORS. TCI shall not knowingly sell,
transfer, pledge, hypothecate, assign or otherwise dispose of any Shares to a
Competitor at any time prior to the earlier of December 31, 2002 or the date on
which there is a Change in Control of GI without first complying with procedures
identical to the provisions of Sections 7 and 8(d) of the Warrant Issuance
Agreement applicable to transfers by the Warrantholder of Warrant Shares.
Notwithstanding the foregoing, if a Competitor makes a "tender offer" (within
the meaning of the Exchange Act) for any Shares, TCI shall be permitted to
tender its Shares or a portion thereof in connection with such tender offer.
SECTION 5.11 RIGHTS IN THE EVENT OF A PUBLIC OFFERING. In the event that
at any time prior to December 31, 2005, TCI desires to sell any of the Shares in
a registered public offering for cash, TCI shall first offer such Shares for
sale to GI in accordance with procedures identical to the provisions of Section
8 of the Warrant Issuance Agreement applicable to any such sale by the
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Warrantholder of Warrant Shares; PROVIDED, that references in such Section 8 to
Section 19 will be deemed to refer to SECTION 5.12 of this Agreement.
SECTION 5.12 REGISTRATION RIGHTS.
(a) DEMAND REGISTRATION RIGHTS.
(i) At any time and from time to time after the date hereof, TCI and
any transferee of Registrable Securities who has agreed to succeed to the
rights and obligations of the transferor of such securities under this
SECTION 5.12 by executing an instrument in form and substance reasonably
acceptable to GI (the "TRANSFEREES"; and together with TCI, the "HOLDERS")
shall have the right to request GI to effect the registration under the
Securities Act of all or part of their Registrable Securities. Holders
shall exercise such right by giving of a notice stating (A) the number of
Registrable Securities to be included in such registration statement and
(B) Holder's intended method of distribution (which may include an
underwritten offering). Upon receipt by GI of any such request, GI shall
promptly give notice of such proposed registration to all Holders who hold
Registrable Securities and thereupon shall, as expeditiously as possible,
use reasonable efforts to effect the registration under the Securities Act
of:
(A) all Registrable Securities that GI has been requested to
register pursuant to clause (i) of this SECTION 5.12(A); and
(B) all other Registrable Securities that Holders have, within
20 days after GI has given such notice, requested GI to register;
all to the extent requisite to permit the sale or other disposition by the
Holders of the Registrable Securities so to be registered.
(ii) If the managing underwriter, selected pursuant to SECTION
5.12(I)(A) of the public offering to be effected pursuant to a registration
statement filed pursuant to clause (i) of this SECTION 5.12(A) of any
Registrable Securities shall advise GI in writing (with a copy to each
holder of Registrable Securities requesting registration) that, in its
opinion, the number of securities requested to be included in such
registration (including securities of GI that are not Registrable
Securities) exceeds the number that can be sold in such offering without
having an adverse effect on such offering, GI will include in such
registration to the extent of the number that GI is so advised can be sold
in such offering:
(A) FIRST, Registrable Securities requested to be included in
such registration by Holders pro rata based on the number of shares to
be included; and
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(B) SECOND, other securities of GI proposed to be included
pursuant to SECTION 5.12(A)(VIII) in such registration, in accordance
with the priorities, if any, then existing among GI and the holders of
such other securities.
(iii) The Holders requesting inclusion in a registration statement
under this SECTION 5.12(A) may withdraw from any requested registration
pursuant to this SECTION 5.12(A) by giving written notice to GI prior to
the date an underwriting agreement is executed or such registration
statement becomes effective; PROVIDED, HOWEVER, that for a period of three
months after such withdrawal, such Holders may not request any registration
pursuant to this SECTION 5.12(A), unless (A) such Holders pay GI for its
out-of-pocket expenses relating to such registration, (B) the registration
statement had not been filed within 90 days of the initial request for
registration pursuant to SECTION 5.12(A)(I) or had not become effective
within 120 days of such request or (C) GI otherwise failed to comply with
its obligations under this SECTION 5.12 with respect to such registration.
(iv) GI shall not be required to effect more than a total of three
effective registrations under this SECTION 5.12(A) . Notwithstanding the
foregoing, if the Holders withdraw from an offering after the registration
statement for the shares to be offered thereby has become effective due to
the occurrence of any of the events set forth in SECTIONS 5.12(C)(VI),
(VII) OR (VIII), then such registration shall not be counted as an
effective registration for purposes of this SECTION 5.12(A)(IV).
(v) GI shall not be required to effect a registration pursuant to
this SECTION 5.12(A) unless the offering includes Registrable Securities
having a Fair Market Value of at least $10 million in the aggregate.
(vi) GI shall not be required to effect any registration within six
(6) months of the effective date of any other registration under this
SECTION 5.12(A).
(vii) If the managing underwriter in an underwritten offering has
not limited the number of Registrable Securities to be underwritten, then
GI may include securities for its own account or for the account of others
in such registration statement and underwriting if the managing underwriter
so agrees and if the number of Registrable Securities held by Holders which
would otherwise have been included in such registration statement and
underwriting will not thereby be limited. The inclusion of such shares
shall be on the same terms as the registration of Registrable Securities
held by the Holders. In the event that the managing underwriter excludes
some of the securities to be registered, the securities to be sold for the
account of GI and any other holders shall be excluded in their entirety
prior to the exclusion of any Registrable Securities of the Holders.
(b) "PIGGYBACK" REGISTRATIONS. If GI at any time proposes to register any
of its securities under the Securities Act (other than pursuant to Section
5.12(A)) on a registration statement on Form S-1, S-2 or S-3 ) or on any other
form upon which may be registered securities similar to the
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Registrable Securities for sale to the general public except Form S-4 and Form
S-8, GI will at each such time give prompt notice to the Holders of its
intention to do so setting forth the date on which GI proposes to file such
registration statement, which date shall be no earlier than 30 days from the
date of such notice, and advising the Holders of their night to have Registrable
Securities included therein. Upon the written request of the Holders given to
GI not less than 5 days prior to the proposed filing date of such registration
statement set forth in such notice, GI will use reasonable best efforts to cause
each of the Registrable Securities that GI has been requested to register by the
Holders to be registered under the Securities Act. If the securities to be so
registered for sale include securities to be sold for the account of GI and to
be distributed by or through a firm of underwriters of recognized standing under
underwriting terms appropriate for such transaction, then the Registrable
Securities shall also be included in such underwriting, PROVIDED that if, in the
reasonable written opinion of the managing underwriter or underwriters, the
total amount of such securities to be so registered, when added to such
Registrable Securities, will exceed the maximum amount of GI's securities that
can be marketed (i) at a price reasonably related to their then current market
value, or (ii) without otherwise materially and adversely affecting the entire
offering, GI will include in such registration to the extent of the number which
GI is so advised can be sold in such offering securities determined as follows:
(i) if such registration as initially proposed by GI was solely a
primary registration of its securities:
(A) FIRST, the securities proposed by GI to be sold for its own
account,
(B) SECOND, any Registrable Securities requested to be included
in such registration pro rata among the Holders of such Registrable
Securities and the holders of such other shares of Common Stock on the
basis of the number of Registrable Securities and other shares of
Common Stock requested to be included by each such holder, and
(C) THIRD, any other securities of GI proposed to be included in
such registration statement in accordance with the provisions, if any,
then existing among the holders of such securities, and
(ii) if such registration as initially proposed by GI was in whole or
in part requested by holders of securities of GI, other than Holders of
Registrable Securities, pursuant to demand registration nights,
(A) FIRST, such securities held by the holders initiating such
registration, pro rata among the holders thereof, on the basis agreed
upon by such holders and GI,
(B) SECOND, Registrable Securities requested to be included in
such registration pro rata among the Holders of such Registrable
Securities and the holders of such other shares of Common Stock on the
basis of the number of Registrable
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Securities and other shares of Common Stock requested to be included
by each such holder, and
(C) THIRD, any securities of GI proposed to be included in such
registration statement in accordance with the priorities, if any, then
existing among the holders of such securities.
To the extent that the managing underwriter in an underwritten offering
pursuant to this SECTION 5.12(B) determines that the public sale or other
distribution of any Registrable Securities, shares of Common Stock or other
securities of GI other than those included in such underwritten offering should
be delayed following the effective date of such registration statement, the
Holders agree to enter, together with and on the same terms as GI and any other
holders of securities included in such registration statement, into an agreement
not to sell any other Registrable Securities, shares of Common Stock or other
securities of GI during such period following the effective date of such
registration statement as the managing underwriter reasonably determines is
necessary in connection with such underwritten offering, which period shall in
no event exceed 180 days following the effective date of such registration
statement.
The Holders requesting inclusion in a registration statement under this
SECTION 5.12(B) may withdraw from any requested registration pursuant to this
SECTION 5.12(B) by giving written notice to GI prior to the date an underwriting
agreement is executed or such registration statement becomes effective.
(c) GI'S OBLIGATIONS IN REGISTRATION. If and whenever GI is obligated by
the provisions of this SECTION 5.12 to use reasonable best efforts to effect the
registration of any Registrable Securities under the Securities Act, GI will:
(i) prepare and file with the Commission, as expeditiously as
possible within 90 days after the initial request from holders to register
such Registrable Securities, a registration statement with respect to such
Registrable Securities and use reasonable best efforts to cause such
registration statement to become effective within 180 days after such
initial request and to remain effective; PROVIDED, HOWEVER, that GI shall
not be required to keep such registration statement effective, or to
prepare and file any amendments or supplements thereto, later than the
earlier of (x) such time as all Registrable Securities have been sold and
(y) 5:00 P.M., New York City time, on the last business day of the sixth
month following the date on which such registration statement becomes
effective under the Securities Act or such longer period during which the
Commission requires that such registration statement be kept effective with
respect to any of the Registrable Securities so registered;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with provisions of the
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Securities Act with respect to the disposition of all Registrable
Securities covered by such registration statement whenever the Holders for
whom such Registrable Securities are registered or are to be registered
shall desire to dispose of the same, subject, however, to the proviso
contained in the immediately preceding clause (i);
(iii) furnish each Holder for whom such Registrable Securities are
registered or are to be registered such numbers of copies of each
registration statement and printed prospectus, including a preliminary
prospectus and any amendments or supplements thereto, in conformity with
the requirements of the Securities Act, and such other documents and
information as such Holder may reasonably request in order to facilitate
the disposition of such Registrable Securities;
(iv) use reasonable best efforts to register or qualify the
Registrable Securities covered by such registration statement under such
other securities or blue sky laws of such jurisdictions as each Holder
shall reasonably request, and do any and all other acts and things that may
be necessary or advisable to enable such Holder to consummate the
disposition in such jurisdictions of such Registrable Securities except
that GI shall not for any purpose be required to (A) qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this clause (iv) be obligated to be so
qualified, (B) subject itself to taxation in any such jurisdiction or (C)
consent to general service of process in any such jurisdiction unless GI is
already subject to general service of process in such jurisdiction;
(v) furnish to the Holders for whom such Registrable Securities are
registered or are to be registered at the time of the disposition of such
Registrable Securities by such Holders a signed copy of an opinion of
counsel for GI reasonably acceptable to such holders as to such matters as
such holders may reasonably request and substantially to the effect that, a
registration statement covering such Registrable Securities has been filed
with the Commission under the Securities Act and has been made effective by
order of the Commission; said registration statement and the prospectus
contained therein comply as to form in all material respects with the
requirements of the Securities Act and, based upon such investigation and
inquiry as said counsel deems necessary or appropriate, nothing has come to
said counsel's attention that would cause it to believe that either said
registration statement or said prospectus contains an untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein (in the case of said
prospectus, in the light of the circumstances under which they were made)
not misleading; said counsel knows of no legal or governmental proceedings
required to be described in said prospectus that are not described as
required, or of my contract or documents of a character required to be
described in said registration statement or said prospectus or to be filed
as an exhibit to said registration statement or to be incorporated by
reference therein that is not described and filed as required; no stop
order has been issued by the Commission suspending the effectiveness of
such registration statement and that, to the best of such counsel's
knowledge, no proceedings for the issuance of such a stop order are
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threatened or contemplated; and the applicable provisions of the securities
or blue sky laws of each state in which GI shall be required, pursuant to
clause (iv) of this SECTION 5.12(C), to register or qualify such
Registrable Securities, have been compiled with, assuming the accuracy and
completeness of the information furnished to such counsel with respect to
each filing relating to such laws; it being understood that said counsel
may rely, as to all factual matters and financial data treated therein, on
certificates of GI (copies of which shall be delivered to such Holders),
and as to all questions of the laws of each state in which GI shall be so
required to register or qualify such Registrable Securities, on the opinion
of counsel from such state reasonably acceptable to such Holders, copies of
which shall be delivered to such Holders;
(vi) immediately notify each Holder of Registrable Securities covered
by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made, and at the request
of any such Holder promptly prepare and furnish to such Holder a reasonable
number of copies of a supplement to or an amendment of such prospectus as
may be necessary so that, as thereafter delivered to the purchasers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made;
(vii) advise each Holder of Registrable Securities covered by such
registration statement, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such Registration Statement or the
initiation or threatening of any proceeding for that purpose; and use its
reasonable best efforts to comply with all applicable rules and regulations
of the Commission, and make generally available to the seller of
Registrable Securities covered by such Registration Statement, earnings
statements satisfying the provisions of Section 11(a) of the Securities
Act, no later than forty-five (45) days after the end of any twelve (12)
month period (or ninety (90) days, if such period is a fiscal year) (a)
commencing at the end of any fiscal quarter in which Securities are sold to
underwriters in an underwritten offering, or (b) if not sold to
underwriters in such an offering, beginning with the first day of the month
of GI's first fiscal quarter commencing after the effective date of a
registration statement;
(viii) permit any holder holding Registrable Securities covered by
such registration statement or prospectus to withdraw their Registrable
Securities from such registration statement or prospectus if such Holder
has informed GI that it reasonably believes that such amendment or
supplement does not comply in all material respects with the requirements
of the Securities Act or the rules and regulations thereunder, after having
been furnished with a copy thereof at least five (5) business days prior to
the filing thereof;
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(ix) enter into such customary agreements (including an underwriting
agreement in customary form, if applicable) and take all such other actions
as holders of a majority of the Registrable Securities being sold or the
underwriters retained by such Holders, if any, reasonably request in order
to expedite or facilitate the disposition of such Registrable Securities,
including customary opinions and indemnification and lock-up agreements;
(x) if requested by the managing underwriters or a Holder of
Registrable Securities being sold in connection with an underwritten
offering, promptly incorporate in a prospectus supplement or post-effective
amendment such information as the managing underwriters and the holders of
a majority of the Registrable Securities being sold agree should be
included therein relating to the plan of distribution with respect to such
Registrable Securities including, without limitation, information with
respect to the securities being sold to such underwriters, the purchase
piece being paid therefor by such underwriters and with respect to any
other terms of the underwritten offering of the Registrable Securities to
be sold in such offering; and make all required filings of such prospectus
supplement or post-effective amendment as soon as notified of the matters
to be incorporated in such prospectus supplement or post-effective
amendment;
(xi) list such Registrable Securities on any securities exchange on
which the Common Stock is then listed, if such Registrable Securities are
not already so listed and if such listing is then permitted under the rules
of such exchange, and provide a transfer agent and registrar for such
Registrable Securities covered by such registration statement not later
than the effective date of such registration statement; and
(xii) obtain a CUSIP number for all Registrable Securities (unless
already obtained) not later than the effective date of such registration
statement.
The period of time that GI is obligated to keep any registration
statement effective, or to prepare and file any amendments or supplements
thereto, pursuant to Section 5.12(C)(I) shall be extended by the number of
days that any such Holder is unable to sell Registrable Securities due to
the matters discussed in SECTIONS 5.12(C)(VI) AND (VII) above.
(d) PAYMENT OF REGISTRATION EXPENSES. GI shall pay all Registration
Expenses in connection with each registration pursuant to this SECTION 5.12.
(e) INFORMATION FROM HOLDERS. Notices and requests delivered by TCI to GI
pursuant to this SECTION 5.12 shall contain the information required by SECTION
5.12(A)(I).
(f) INDEMNIFICATION.
(i) INDEMNIFICATION BY GI. In the event of any registration under
the Securities Act of any Registrable Securities pursuant to this SECTION
5.12, GI hereby agrees to indemnify and hold harmless the Holders, their
respective agents, directors and officers, each
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other person, if any, who controls (within the meaning of the Securities
Act) the Holders and each other person (including underwriters) who
participates in the offering of such Registrable Securities, against any
losses, claims, damages or liabilities, to the extent that such losses,
claims, damages or liabilities (or proceedings in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement, on the
effective date thereof, under which such Registrable Securities were
registered under the Securities Act, in any preliminary prospectus or final
prospectus contained therein or in any amendment or supplement to any
preliminary prospectus or final prospectus (if used during the period GI is
required to keep such registration statement current in any such case), or
arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by GI of the
Securities Act or state securities or blue sky laws and relating to action
or inaction required of GI in connection with the registration or
qualification of securities under such laws and will reimburse such
Holders, such agents, directors and officers and each such controlling
person or participating person (including underwriters) for any legal or
any other expenses reasonably incurred by such Holders, such agents,
directors and officers or such controlling person or participating person
(including underwriters) in connection with investigating or defending any
such loss, claim, damage, liability or proceeding, PROVIDED, that GI will
not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, said preliminary or final prospectus or said
amendment or supplement in reliance upon and in conformity with written
information furnished to GI by an instrument duly executed by such Holder
or such controlling or participating person (including underwriters), as
the case may be, specifically for use in the preparation of such
registration statement; and PROVIDED, FURTHER, that, with respect to any
untrue statement or omission or alleged untrue statement or omission made
in any preliminary prospectus, GI will not be liable to any holder to the
extent that any loss, claim, damage, liability or expense results from the
fact that a current copy of the final prospectus was not sent or given to
the Person asserting any such loss, claim, damage, liability or expense at
or prior to the written confirmation of the sale of the Registrable
Securities concerned to such Person if it is determined that it was the
responsibility of such Holder to provide such Person with a current copy of
the final prospectus and such current copy of the final prospectus was
provided to such Holders and would have cured the defect giving rise to
such loss, claim, damage, liability or expense.
(ii) INDEMNIFICATION BY THE HOLDERS. The Holders, each individually
and not jointly, agree to indemnify and hold harmless GI, its respective
agents, directors and officers, each other person, if any, who controls
(within the meaning of the Securities Act) GI and each other person
(including underwriters) who participates in the offering of such
Registrable Securities, against all losses, claims, damages and liabilities
to which GI, may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities arise out of or are
based upon any untrue statement of any material fact
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contained in any such registration statement, on the effective date
thereof, under which such Registrable Securities were registered under the
Securities Act, in any preliminary prospectus or final prospectus contained
therein or in any amendment or supplement to any preliminary prospectus or
final prospectus (if used during the period GI is required to keep such
registration statement current in any such case), or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, but only if and to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such
statement or omission made in such registration statement, said preliminary
or final prospectus or said amendment or supplement in reliance upon and in
conformity with written information furnished to GI by an instrument duly
executed by the Holders or such underwriter, as the case may be, and
specifically stated to be for use in the preparation of such registration
statement.
(iii) NOTICES OF CLAIMS, ETC. Each party entitled to be
indemnified pursuant to SECTION 5.12(F)(I) OR (II) above, promptly but not
later than 30 days after its receipt of notice of the commencement of any
action against it in respect of which indemnity may be sought from any
indemnifying party pursuant to this SECTION 5.12(F), shall notify such
indemnifying party in writing of the commencement thereof. In case any
such action shall be brought against any indemnified party and it shall
notify such indemnifying party of the commencement thereof, such
indemnifying party will be entitled to participate therein and, to the
extent that it may wish, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and such indemnified party may
participate in such defense, which participation by the indemnified party
shall be at its expense unless (i) the employment of counsel by such
indemnified party has been authorized by the indemnifying party, (ii) the
indemnified party shall have been advised by its counsel in writing that
there is a conflict of interest between the indemnifying party and the
indemnified party in the conduct of the defense of such action (in which
case the indemnifying party shall not have the right to direct the defense
of such action on behalf of the indemnified party) or (iii) the
indemnifying party shall not in fact have employed counsel to assure the
defense of such action, in each of which cases the fees and expenses of the
indemnified party's counsel shall be at the expense of the indemnifying
party. The failure of any such indemnified party to give notice as
provided herein shall not relieve such indemnifying party of its
obligations under this SECTION 5.12(F) unless such failure to give notice
shall materially adversely affect such indemnifying party in the defense of
any such claim or any such litigation. With respect to any claim or
litigation the defense of which is being conducted by such indemnifying
party, no indemnified party shall, except with the consent of such
indemnifying party, consent to entry of any judgment or enter into any
settlement of any claim as to which indemnity may be sought. No
indemnifying party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim
or litigation.
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(iv) CONTRIBUTION. To the extent that the undertaking to indemnity,
pay and hold harmless set forth in paragraphs (i) and (ii) of this SECTION
5.12(F) may be unenforceable because it is violative of any law or public
policy, each party that would have been required to provide the indemnity
shall contribute the maximum portion which it is permitted to pay and
satisfy under applicable law, to the payment and satisfaction of all
indemnified liabilities incurred by each party entitled to indemnification
under this SECTION 5.12(F); provided that in no event shall a Holder of
Registrable Securities be required to contribute an amount greater than the
dollar amount of net proceeds received by such holder upon the sale of such
Registrable Securities.
(g) EXCHANGE OF CERTIFICATES. As soon as possible after the effectiveness
of any registration statement under the Securities Act pursuant to this SECTION
5.12, GI will deliver to the Holders of any Shares so registered, upon demand of
the Holders and their delivery to GI of a certificate or certificates
representing such Shares bearing the legend set forth in SECTION 5.13, a new
certificate or certificates representing such Shares but not bearing such
legend.
(h) OBLIGATIONS OF THE HOLDERS. The Holders agree:
(i) that upon receipt of any notice from GI of the happening of any
event of the kind described in SECTION 5.12(C)(VI), the Holders will
forthwith discontinue its disposition of Registrable Securities pursuant to
the registration statement relating to such Registrable Securities until
its receipt of the copies of the supplemented or amended prospectus
contemplated by SECTION 5.12(C)(VI) and, if so directed by GI, will use it
reasonable best efforts to deliver to GI (at GI's expense) all copies,
other than permanent file copies, then in such Holder's possession of the
prospectus relating to such Registrable Securities current at the time of
receipt of such notice, and
(ii) that they will immediately notify GI at any time when a
prospectus relating to the registration of such Registrable Securities is
required to be delivered under the Securities Act, of the happening of any
event as a result of which information previously furnished by such Holder
to GI in writing specifically for inclusion in such prospectus contains an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were
made.
(i) UNDERWRITTEN REGISTRATION. (A) If any of the Registrable Securities
covered by a registration pursuant to SECTION 5.12(A) are to be sold in an
underwritten offering, the investment banker or investment bankers and manager
or managers that will administer the offering will be selected by the Holders of
a majority in Fair Market Value of such Registrable Securities included in such
offering. No Person may participate in any such underwritten registration
hereunder unless such Person (a) agrees to sell its Registrable Securities, GI
Common Stock or other securities of GI on the basis provided in an underwriting
agreement provided by the Holders of a majority in Fair Market Value of the
Registrable Securities to be sold in such underwritten offering and (b)
completes
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and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
(B) If any of the Registrable Securities covered by a registration
pursuant to SECTION 5.12(B) are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the holders of a majority in Fair
Market Value of securities being registered. No Holder may participate in any
such underwritten registration hereunder unless such Holder (a) agrees to sell
its Registrable Securities on the basis provided in an underwriting agreement
approved by GI or the holders of a majority in Fair Market Value of the
securities being registered and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
(j) EXCHANGE ACT COMPLIANCE. The Company shall comply with all of the
reporting requirements of the Exchange Act and shall comply with all other
public information reporting requirements of the Commission which are conditions
to the availability of Rule 144 for the sale of Registrable Securities. GI
shall cooperate with each Holder in supplying such information as may be
necessary for such Holder to complete and file any information reporting forms
presently or hereafter required by the Commission as a condition to the
availability of Rule 144.
SECTION 5.13 ANTI-DILUTION PROTECTION. The Parties agree that if, after
the date of this Agreement and prior to the Closing Date, GI shall take any of
the actions described in Section 17(b), (c), (d) or (i) of the Warrant Issuance
Agreement, the number of shares of Common Stock issuable as the Consideration
hereunder shall be appropriately adjusted to achieve the same result as the
adjustments set forth in such Sections of the Warrant Issuance Agreement.
SECTION 5.14 RESTRICTIONS ON TRANSFERABILITY OF SHARES. Notwithstanding
any provisions contained in this Agreement to the contrary, the Shares shall not
be transferable except upon the conditions specified in this SECTION 5.14 and
SECTIONS 5.9 and 5.10, which conditions are intended, among other things, to
ensure compliance with the provisions of the Securities Act in respect of the
transfer of the Shares. TCI agrees that it will not (i) transfer any Shares
prior to delivery to GI of the opinion of counsel (which opinion shall be
reasonably satisfactory to GI) referred to in, and to the effect described in,
clause (i) of SECTION 5.14(B), or until registration of such Shares under the
Securities Act has become effective, or (ii) transfer any Shares without
compliance with SECTIONS 5.9 and 5.10. TCI agrees that such opinion of counsel
must be reasonably satisfactory to GI. For a period of three years beginning on
the Closing Date, TCI agrees that it will not transfer the Shares or any shares
of capital stock of GI received upon conversion, or in respect of, the Shares
other than (i) to an Affiliate of TCI which agrees to be bound by the same
restrictions as TCI or (ii) pursuant to an Order. Notwithstanding the
foregoing, (x) the three year transfer restriction set forth in this SECTION
5.14 shall terminate upon a Change in Control of GI and (y) if there is a
"tender offer" (within the meaning of the Exchange Act) that applies to the
Shares, TCI may transfer its Shares in connection with such tender offer.
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(a) RESTRICTIVE LEGEND; TCI'S REPRESENTATION. Unless and until otherwise
permitted by this SECTION 5.14, each certificate representing Shares, and any
certificate issued at any time upon transfer of, or in exchange for or
replacement of, any certificate bearing the legend set forth below shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE
WITH THE REQUIREMENTS OF OR AN EXEMPTION UNDER SUCH ACT. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF AN ASSET PURCHASE AGREEMENT DATED AS OF JUNE 17,
1998, BY AND BETWEEN THE HOLDER AND GENERAL INSTRUMENT CORPORATION.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
SECRETARY OF GENERAL INSTRUMENT CORPORATION."
TCI and each holder of Shares by its acceptance of such security further
understands that such security may bear a legend as contemplated by this SECTION
5.14.
(b) STATEMENT OF INTENTION TO TRANSFER; OPINION OF COUNSEL. TCI, by its
acceptance of this Agreement, agrees that prior to any transfer of any Shares,
TCI will deliver to GI a notice of such proposed transfer and a signed copy of
the opinion of TCI's counsel reasonably satisfactory to GI as to the necessity
or non-necessity for registration under the Securities Act in connection with
such transfer.
(i) If, in the opinion of TCI's counsel (which opinion shall be
reasonably satisfactory to GI), the proposed transfer of any Shares may be
effected without registration under the Securities Act of such Shares, then TCI
shall be entitled to transfer such Shares in accordance with the intended method
of disposition specified in the notice delivered by TCI to GI, subject to
compliance with the provisions of SECTION 5.10 of this Agreement.
(ii) Notwithstanding the foregoing provisions of this SECTION 5.14(B),
no opinion of any counsel need be furnished (x) in the event of any proposed
transfer of any Shares to an institutional investor who is an "accredited
investor" as defined in Regulation D promulgated under the Securities Act and
which transfer is otherwise exempt from the registration requirements of the
Securities Act or (y) in the event of any proposed transfer of Shares in
connection with a registration under the Securities Act.
(c) TERMINATION OF RESTRICTIONS. Notwithstanding the foregoing provisions
of this SECTION 5.14, the restrictions imposed by this SECTION 5.14 upon the
transferability of the Shares shall cease and terminate as to any particular
Shares when, (i) such Shares shall have been effectively registered under the
Securities Act and sold by TCI in accordance with such registration or (ii) in
the opinion
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of counsel for the holder of such Shares, if such opinion is reasonably
satisfactory in form and substance to GI, such restrictions are no longer
required in order to ensure compliance with the Securities Act. If and whenever
the restrictions imposed by this SECTION 5.14 and by SECTION 5.10 shall
terminate as to a Share as hereinabove provided, TCI may and GI shall, as
promptly as practicable upon the request of TCI and at GI's expense, cause to be
stamped or otherwise imprinted upon the certificates representing such Shares a
legend in substantially the following form:
"The restrictions on transferability of this [THESE] [SECURITIES]
terminated on _________, and are of no further force or effect."
All certificates issued upon transfer, division or combination of, or in
substitution for, any Shares entitled to bear such legend shall have a similar
legend endorsed thereon. Whenever the restrictions imposed by this SECTION 5.14
shall terminate as to any Shares, as hereinabove provided, TCI shall be entitled
to receive from GI without expense, a new certificate representing such Shares
not bearing the restrictive legend set forth in Subsection (a) of this SECTION
5.14.
SECTION 5.15 NO PUBLIC ANNOUNCEMENT. Neither Party hereto shall make any
public announcement concerning the transactions contemplated by this Agreement
without the prior approval of the other Party, which approval shall not be
unreasonably withheld. Notwithstanding the foregoing, in the event any such
public announcement is required by law to be made by the Party proposing to make
the same, such Party shall consult in good faith with the other Party before the
making of such public announcement.
SECTION 5.16 SEC REPORTS. GI will promptly deliver to TCI copies of all
forms, reports, statements and other documents filed by it with the Commission
after the date of this Agreement.
SECTION 5.17 HSR ACT FILING. As soon as practicable but in any event no
later than 10 days after the date of this Agreement, GI and TCI will each
complete and file, or cause to be completed and filed, any notification and
report required to be filed under the HSR Act with respect to the transactions
contemplated by this Agreement and each such filing shall request early
termination of the waiting period imposed by the HSR Act. The parties shall use
their commercially reasonable efforts to respond as promptly as reasonably
practicable to any inquiries received from the Federal Trade Commission (the
"FTC") and the Antitrust Division of the Department of Justice (the "Antitrust
Division") for additional information or documentation and to respond as
promptly as reasonably practicable to all inquiries and requests received from
any other Governmental Authority in connection with antitrust matters. The
parties shall use their respective commercially reasonable efforts to overcome
any objections which may be raised by the FTC, the Antitrust Division or any
other Governmental Authority having jurisdiction over antitrust matters. Each
of the parties will coordinate with the other party with respect to its filings
and will cooperate to prevent inconsistencies between their respective filings
and will furnish to each other such necessary information and reasonable
assistance as the other may reasonably request in connection with its
preparation of necessary filings or submissions under the HSR Act.
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SECTION 5.18 MFN. GI agrees that if it gives or offers, or has given or
offered, to any third party any term or condition with respect to the receipt by
such party of Addressable Set-Top Services which is more favorable to such third
party than TCI, et. al. are then receiving from GI, including, without
limitation, price and any other economic or non-economic term, provision,
covenant or consideration (a "More Favorable Provision"), GI will promptly offer
such More Favorable Provision to TCI, et. al. for the same amount of time that
such More Favorable Provision is or was available to such third party. A More
Favorable Provision shall include any pertinent term, provision, covenant or
consideration, regardless of whether there is a term, provision, covenant or
consideration concerning the subject matter of such More Favorable Provision in
this Agreement or whether such term, provision, covenant or consideration
relates to all of such third party's set-tops or less than all. GI agrees to
provide to TCI a written certification on each annual anniversary date of this
Agreement, signed by a duly authorized officer of GI, stating that GI has
satisfied its obligations under this Section 5.18.
ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.1 CONDITIONS TO THE OBLIGATIONS OF GI. The obligation of GI
to effect the Closing is subject to the satisfaction (or waiver) prior to the
Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The representations and
warranties of TCI, NDTC and their Affiliates set forth in this Agreement and the
Ancillary Agreements shall be true and correct in all material respects as of
the Closing Date with the same force and effect as if such representations and
warranties had been made at and as of the Closing Date, all of the covenants and
agreements set forth in this Agreement and the Ancillary Agreements to be
complied with or performed by TCI, NDTC or their Affiliates at or prior to the
Closing shall have been complied with and performed, and TCI shall have
delivered to GI a certificate of an authorized officer, in form and substance
reasonably satisfactory to GI, certifying that the conditions set forth in
SECTION 6.1(A) have been satisfied.
(b) NO LAW OR ORDER, ETC. No Law shall have been enacted and no Order
shall have been issued (and no such Order shall be in effect) that would, nor
shall any Litigation by any Governmental Entity be pending or threatened that,
if adversely determined, would (a) prevent consummation of any of the
transactions contemplated by this Agreement or the Ancillary Agreements, (b)
cause any of the transactions contemplated by this Agreement or the Ancillary
Agreements to be rescinded following consummation, or (c) affect adversely the
ability of GI to operate its Access and Control Business or own the Transferred
Assets.
(c) NECESSARY CONSENTS. Any applicable waiting period under the HSR Act
shall have terminated or expired, and the Parties shall have received all other
authorizations, consents and approvals of Governmental Entities and other
parties, in form and substance satisfactory to GI and
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TCI, that are required for the consummation of the transactions contemplated
hereby. In addition, GI shall have obtained board of director approval of this
Agreement and the transactions contemplated hereby.
(d) ANCILLARY AGREEMENTS. TCI, NDTC or their Affiliates shall have
executed and delivered the Ancillary Agreements and made the other deliveries
specified in SECTION 2.8.
SECTION 6.2 CONDITIONS TO THE OBLIGATIONS OF TCI AND NDTC. The
obligations of TCI and NDTC to effect the Closing is subject to the satisfaction
(or waiver) prior to the Closing of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The representations and
warranties of GI set forth in this Agreement and the Ancillary Agreements shall
be true and correct in all material respects as of the Closing Date, with the
same force and effect as if such representations and warranties had been made at
and as of the Closing Date, all of the covenants and agreements set forth in
this Agreement and the Ancillary Agreements to be complied with or performed by
GI at or prior to the Closing shall have been complied with and performed in all
material respects, and GI shall have delivered to TCI and NDTC a certificate of
an authorized officer, in form and substance reasonably satisfactory to TCI,
certifying that the conditions set forth in SECTION 6.2(A) have been satisfied.
(b) NO LAW OR ORDER, ETC. No Law shall have been enacted and no Order
shall have been issued (and no such Order shall be in effect) that would, nor
shall any Litigation by any Governmental Entity be pending or threatened that,
if adversely determined, would (a) prevent consummation of any of the
transactions contemplated by this Agreement or the Ancillary Agreements, or (b)
cause any of the transactions contemplated by this Agreement or the Ancillary
Agreements to be rescinded following consummation, or (c) affect adversely the
ability of TCI to own the Consideration.
(c) NECESSARY CONSENTS. Any applicable waiting period under the HSR Act
shall have terminated or expired, and the Parties shall have received all other
authorizations, consents and approvals of Governmental Entities and other
parties, in form and substance satisfactory to GI and TCI, that are required for
the consummation of the transactions contemplated hereby.
(d) ANCILLARY AGREEMENTS. GI shall have executed and delivered the
Ancillary Agreements and made the other deliveries specified in SECTION 2.7.
(e) SHARE LISTING. The shares of capital stock to be issued as the
Consideration shall have been listed for trading, subject to official notice of
issuance, on the New York Stock Exchange or such other exchange or quotation
system on which the Common Stock is then listed or traded.
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ARTICLE VII
SURVIVAL; INDEMNIFICATION
SECTION 7.1 SURVIVAL. The representations and warranties of GI, TCI and
NDTC contained in this Agreement shall survive the Closing for the period set
forth in this SECTION 7.1. All of the representations and warranties of GI, TCI
and NDTC contained in this Agreement shall survive and terminate upon expiration
of twelve months after the Closing Date; IT BEING UNDERSTOOD that in the event
Notice of any claim for indemnification under SECTION 7.2(I) or SECTION 7.3(I)
hereof shall have been given (within the meaning of SECTION 9.1) within the
applicable survival period, the representations and warranties that are the
subject of such indemnification claim shall survive until such time as such
claim is finally resolved. Neither GI, TCI nor NDTC shall have any
indemnification obligation with respect to any indemnification claim made for
breach of a representation or warranty contained in this Agreement if such claim
is made after the end of the applicable survival period.
SECTION 7.2 INDEMNIFICATION BY GI. GI hereby agrees that it shall
indemnify, defend and hold harmless TCI, NDTC, their Affiliates, and, if
applicable, their respective directors, officers, shareholders, partners,
attorneys, accountants, agents and employees and their heirs, successors and
assigns (the "NDTC INDEMNIFIED PARTIES") from, against and in respect of any
damages, claims, losses, charges, actions, suits, proceedings, deficiencies,
interest, penalties, and reasonable costs and expenses (including without
limitation reasonable attorneys' fees, removal costs, remediation costs, closure
costs, fines, penalties and expenses of investigation and ongoing monitoring)
(collectively, "LOSSES") imposed on, sustained, incurred or suffered by or
asserted against any of the NDTC Indemnified Parties, directly or indirectly
relating to or arising out of (i) any breach of any representation or warranty
made by GI contained in this Agreement, (ii) the breach of any covenant or
agreement of GI contained in this Agreement, or (iii) any matter with respect to
the Transferred Assets or GI's Access and Control Business that relates to the
period after Closing other than those matters arising out of a breach by TCI,
NDTC or their Affiliates of their respective obligations under any Ancillary
Agreement.
SECTION 7.3 INDEMNIFICATION BY TCI AND NDTC. Each of TCI and NDTC
hereby severally agrees that it shall defend and hold harmless GI, its
Affiliates and, if applicable, their respective directors, officers,
shareholders, partners, attorneys, accountants, agents and employees and their
heirs, successors and assigns (the "GI INDEMNIFIED PARTIES"; collectively with
the NDTC Indemnified Parties, the "INDEMNIFIED PARTIES") from, against and in
respect of any Losses imposed on, sustained, incurred or suffered by or asserted
against any of the GI Indemnified Parties, directly or indirectly relating to or
arising out of (i) any breach of any representation or warranty made by such
party contained in this Agreement, (ii) in the case of TCI, all Excluded
Liabilities, (iii) the breach of any covenant or agreement of such party
contained in this Agreement and (iv) in the case of TCI, the failure of TCI or
any of its Affiliates to comply with the provisions of the "bulk transfer" or
similar Laws of any jurisdiction (including any so-called "tax bulk sales
provisions") in connection with the transactions contemplated by this Agreement.
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SECTION 7.4 INDEMNIFICATION PROCEDURES. With respect to third party
claims other than those relating to Taxes, all claims for indemnification by any
Indemnified Party hereunder shall be asserted and resolved as set forth in this
SECTION 7.4. In the event that any written claim or demand for which an
indemnifying party, TCI, NDTC or GI, as the case may be (an "INDEMNIFYING
PARTY"), would be liable to any Indemnified Party hereunder is asserted against
or sought to be collected from any Indemnified Party by a third party, such
Indemnified Party shall promptly, but in no event more than 30 days following
such Indemnified Party's receipt of such claim or demand, notify the
Indemnifying Party of such claim or demand and the amount or the estimated
amount thereof to the extent then feasible (which estimate shall not be
conclusive of the final amount of such claim and demand) (the "CLAIM NOTICE");
PROVIDED, HOWEVER, that if the Claim Notice has been given within any applicable
survival period, failure to notify the Indemnifying Party within such 30-day
period shall relieve the Indemnifying Party of its indemnification obligation
only to the extent that the Indemnifying Party is actually prejudiced thereby.
The Indemnifying Party shall have 30 days from the effective date of the Claim
Notice under SECTION 9.1 (the "NOTICE PERIOD") to notify the Indemnified Party
(a) whether or not the Indemnifying Party disputes the liability of the
Indemnifying Party to the Indemnified Party hereunder with respect to such claim
or demand and (b) whether or not it desires to defend the Indemnified Party
against such claim or demand. All costs and expenses incurred by the
Indemnifying Party in defending such claim or demand shall be a liability of,
and shall be paid by, the Indemnifying Party. Except as hereinafter provided,
in the event that the Indemnifying Party notifies the Indemnified Party within
the Notice Period that it desires to defend the Indemnified Party against such
claim or demand, the Indemnifying Party shall have the right, and shall use its
reasonable efforts, to defend the Indemnified Party by appropriate proceedings
and shall have the sole power to direct and control such defense. If any
Indemnified Party desires to participate in any such defense it may do so at its
sole cost and expense. Neither the Indemnifying Party nor the Indemnified Party
shall settle a claim or demand without the consent of the other party (which
consent will not be unreasonably withheld or delayed). If the Indemnifying
Party elects not to defend the Indemnified Party against such claim or demand,
whether by not giving the Indemnified Party timely Notice as provided above or
otherwise, then the amount of any such claim or demand, or, if the same be
contested by the Indemnified Party, then that portion thereof as to which such
defense is unsuccessful (and the reasonable costs and expenses pertaining to
such defense) shall be the liability of the Indemnifying Party hereunder. To
the extent the Indemnifying Party shall direct, control or participate in the
defense or settlement of any third party claim or demand, the Indemnified Party
will give the Indemnifying Party and its counsel access to, during normal
business hours, the relevant business records and other documents, and shall
permit them to consult with the employees and counsel of the Indemnified Party.
Regardless of which Person assumes control of the defense of any claim, each
party shall cooperate in the defense thereof.
SECTION 7.5 LIMITATION OF LIABILITY. Notwithstanding any contrary
provision of this Agreement, neither TCI nor NDTC shall be liable to GI and GI
shall not be liable to TCI or NDTC, for any amounts representing their or their
customers' respective loss of profits, loss of business or indirect special,
exemplary, consequential, or punitive damages, whether the basis of the
liability is breach of contract, tort (including negligence and strict
liability), statutes, or any other legal theory.
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ARTICLE VIII
TERMINATION
SECTION 8.1 TERMINATION. This Agreement may be terminated:
(a) at any time prior to the Closing by agreement of GI and TCI; or
(b) at any time prior to the Closing by either GI or TCI, by giving
written Notice of such termination to the other Party, if the Closing shall not
have occurred on or prior to the date that is one year after the date of this
Agreement; PROVIDED THAT the terminating Party is not then in material breach of
its obligations under this Agreement in a manner which has contributed to the
failure of the Closing to have occurred by such date; or
(c) at any time prior to the Closing by either GI or TCI if there shall be
in effect any Law or non-appealable final Order of any Governmental Entity
having competent jurisdiction that prevents the consummation of the Closing; or
(d) by TCI at any time after June 26, 1998 if GI does not notify TCI in
writing on or before such date that it has obtained board of director approval
of this Agreement and the transactions contemplated hereby and that such
approval is no longer a condition to GI's obligations hereunder; provided that
once such notice is given by GI, TCI's right to terminate pursuant to this
Section 8.1(d) shall end.
SECTION 8.2 EFFECT OF TERMINATION. In the event of the termination of
this Agreement in accordance with SECTION 8.1 hereof, this Agreement shall
thereafter become void and have no effect, and no Party shall have any liability
to the other Party or their respective Affiliates, directors, officers or
employees, except for the obligations of the Parties contained in this SECTION
8.2 and in Sections 9.7 and 9.8 and except that nothing herein will relieve any
Party from liability for any breach of this Agreement prior to such termination.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 NOTICES. All notices, consents, requests, waivers or other
communications required or permitted under this Agreement (each a "NOTICE")
shall be in writing and shall be sufficiently given (a) if hand delivered, (b)
if sent by nationally recognized overnight courier, (c) if sent by registered or
certified mail, postage prepaid, return receipt requested, or (d) if sent by
telecopier, provided that the telecopier delivery is promptly followed by a
telephone confirmation thereof, in each case addressed as follows:
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if to TCI or NDTC: c/o National Digital Television Center, Inc.
4100 East Dry Creek Road
Littleton, Colorado 80122
Telephone: (303) 486-3815
Telecopy: (303) 486-3890
Attn: David Beddow, Senior Vice President
with a copy to: Tele-Communications, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Telephone: (303) 267-5500
Telecopy: (303) 488-3207
Attn: Legal Department
if to GI: General Instrument Corporation
101 Tournament Drive
Horsham, Pennsylvania 19044
Telephone: (215) 323-1000
Telecopy: (215) 323-1293
Attn: Robert A. Scott
Vice President - Legal
with a copy to: Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Telephone: (212) 859-8000
Telecopy: (212) 859-4000
Attn: Lois Herzeca
or such other address as shall be furnished by any of the Parties in a Notice.
Any Notice shall be deemed given upon receipt.
SECTION 9.2 AMENDMENT; WAIVER. Any provision of this Agreement may be
amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by the Parties, or in the case of a waiver,
by the Party against whom the waiver is to be effective. No failure or delay by
any Party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. The rights and remedies herein provided shall be cumulative and not
exclusive of any rights or remedies provided by law.
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SECTION 9.3 ASSIGNMENT. No Party to this Agreement may assign any of it
rights or obligations under this Agreement without the prior written consent of
the other Party; provided, that GI may assign its rights and obligations
hereunder (other than the obligation to issue Common Stock) (i) to any
wholly-owned subsidiary of GI or (ii) to a purchaser of substantially all of
GI's assets and TCI and NDTC may each assign its rights and obligations
hereunder to any Affiliate of such party or to any entity to whom TCI hereafter
transfers the Transferred Assets; provided, however, that no such assignment
shall relieve the assignor from liability hereunder. Any attempted assignment
in contravention hereof shall be null and void. The foregoing shall not be
deemed to modify the restrictions on transfer of the Shares set forth in Article
V.
SECTION 9.4 ENTIRE AGREEMENT. This Agreement (including all Schedules
and Exhibits hereto), the Ancillary Agreements and the Warrant Issuance
Agreement contain the entire agreement between the Parties with respect to the
subject matter hereof and supersedes all prior agreements and understandings,
oral or written, with respect to such matters.
SECTION 9.5 FULFILLMENT OF OBLIGATIONS. Any obligation of any Party to
any other Party under this Agreement or any of the Ancillary Agreements, which
obligation is performed, satisfied or fulfilled by an Affiliate of such Party,
shall be deemed to have been performed, satisfied or fulfilled by the such
Party.
SECTION 9.6 PARTIES IN INTEREST. This Agreement shall inure to the
benefit of and be binding upon the Parties and their respective successors and
permitted assigns. Except as expressly provided in ARTICLE VII with respect to
Indemnified Parties, and except with respect to the provisions of Section 5.18
being enforceable by TCI, et. al, nothing in this Agreement, express or implied,
is intended to confer upon any Person other than the Parties or their successors
or permitted assigns, any rights or remedies under or by reason of this
Agreement.
SECTION 9.7 RETURN OF INFORMATION. If for any reason whatsoever the
transactions contemplated by this Agreement are not consummated, GI shall
promptly return to TCI all information regarding its provision of Addressable
Set-Top Services furnished to it by TCI or its affiliates, agents, employees, or
representatives (including all copies, if any, thereof), and shall not use or
disclose the information contained therein for any purpose or make such
information available to any other Person.
SECTION 9.8 EXPENSES. Except as otherwise expressly provided in this
Agreement, regardless whether the transactions contemplated by this Agreement
are consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by the Party
incurring such expenses.
SECTION 9.9 SCHEDULES. The disclosure of any matter in any schedule to
this Agreement shall be deemed to be a disclosure for all purposes of this
Agreement to which such matter is evident from the face of the Schedule.
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SECTION 9.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF DELAWARE
WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREUNDER.
SECTION 9.11 COUNTERPARTS. This Agreement may be executed with
counterpart signature pages or in one or more counterparts, all of which shall
be one and the same Agreement, and shall become effective when one or more
counterparts have been signed by each of the Parties and delivered to all the
Parties.
SECTION 9.12 HEADINGS. The heading references herein and the table of
contents hereto are for convenience purposes only, do no constitute a part of
this Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
SECTION 9.13 SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any provision shall
not affect the validity or enforceability of the other provisions hereof. If
any provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons, or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
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IN WITNESS WHEREOF, the parties have executed or caused this Agreement to
be executed as of the date first written above.
TCI:
TCIVG-GIC, INC.
By: /s/ Larry E. Romrell
-------------------------------
Name:
Title:
NDTC:
NDTC TECHNOLOGY, INC.
By: /s/ David D. Beddow
-------------------------------
Name:
Title:
GI:
GENERAL INSTRUMENT CORPORATION
By: /s/ Edward D. Breen
-------------------------------
Name:
Title:
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Exhibit 10.2
LICENSE AGREEMENT
This License Agreement ("License") is made on July 17, 1998 by and between
NDTC Technology, Inc., a Colorado corporation ("Licensor"), and General
Instrument Corporation, a Delaware corporation ("Licensee"). Licensor and
Licensee sometimes are referred to collectively in this License as "parties" and
each individually as a "party."
RECITALS
Licensor's Affiliate and Licensee are parties to that certain Asset
Purchase Agreement dated June 17, 1998 ("Asset Purchase Agreement"). The
execution and delivery of this License is a condition to the consummation of the
transactions contemplated by the Asset Purchase Agreement.
AGREEMENT
In consideration of the mutual covenants and promises stated in this
License and for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
1.1 GENERAL DEFINITIONS. Unless expressly stated otherwise in this
License, capitalized terms have the meaning accorded them by the Asset Purchase
Agreement.
1.2 SPECIFIC DEFINITIONS. As used in this License, the following terms
have the
following meanings:
1.2.1 "AFFILIATE" means with respect to a specified Person, another
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with the Person
specified.
1.2.2 "DERIVATIVE WORKS" means any work based on or incorporating the
Software and/or documentation relating thereto, including, but not limited to,
translations, abridgements, condensations, improvements, updates, enhancements,
or any other form in which the Software may be recast, transformed or adapted,
any new material, information or data relating to and derived from the Software,
the preparation, use and/or distribution of which in the absence of this License
or other authorization from the owner, would constitute infringement under
applicable laws.
1.2.3 "DOMESTIC TERRITORY" means the United States of America and Canada.
1.2.4 "END-USER DEVICE" means a unit of receiving, or receiving and
<PAGE>
transmitting, equipment possessed by a consumer which is a termination node of a
network. Without limitation, examples of End-User Devices are or may be cable
television converters, satellite receivers, integrated receiver decoders,
pay-per-view modules, personal computers, television sets, telephones, personal
data assistants and other types of equipment, which may contain microprocessors
and may be programmable, and which may combine the functionality of one or more
of the foregoing.
1.2.5 "ENHANCEMENTS" means modifications, additions or substitutions,
other than Maintenance Modifications, made by Licensor to Executable Code or the
Licensed Documentation, that accomplish incidental, performance, structural, or
functional improvements.
1.2.6 "EXECUTABLE CODE" means a series of one or more instructions
executable after suitable processing by a computer or other programmable
machine, without compilation or assembly.
1.2.7 "EXECUTABLE CODE" means executable code of the Software including
executable code for the Enhancements and Maintenance Modifications.
1.2.8 "HITS" means Headend in the Sky-Registered Trademark-, a registered
trademark of Licensor.
1.2.9 "INTERNATIONAL TERRITORY" means the entire world other than the
Domestic Territory.
1.2.10 "LICENSEE DERIVATIVE WORKS" means Derivative works created by
Licensee and/or its employees, agents or contractors.
1.2.11 "LICENSED DOCUMENTATION" means any textual and graphic materials
related to the Executable Code and delivered to Licensee under this License.
1.2.12 "MAINTENANCE MODIFICATIONS" means modifications, updates, or
revisions made by Licensor to the Executable Code, the Licensed Documentation or
any of them, that correct errors, support new releases of operating systems, or
support new models of input-output devices with which any of such Executable
Code is designed to operate.
1.2.13 "MASTER SERVICE AGREEMENT" means the agreement of the same name
entered into by Licensor and Licensee and dated July 17, 1998 pursuant to which
Licensor will provide certain services to manage the Access and Control Business
of Licensee.
1.2.14 "PERSON" means any natural person, corporation, business, trust,
joint venture, association, company, partnership, limited liability company or
other entity, or any government or any agency or political subdivision thereof.
2
<PAGE>
1.2.15 "SOFTWARE" means the HITS Control Programs, the HITS Support
Programs and the HITS Other programs listed in Schedule 1 to this License.
1.2.16 "SOURCE CODE"means a series of instructions or statements in an
English-like high-level computer language or in a relatively low-level language
such as the assembly language for a particular processor.
1.2.17 "SOURCE CODE" means source code for the Software including source
code for Enhancements and Maintenance Modifications.
1.2.18 "SOURCE CODE DOCUMENTATION" means the materials which Licensor
provides for use with the Source Code.
1.2.19 "TECHNOLOGY" means the Software, the Executable Code, the Licensed
Documentation, the Source Code, the Source Code Documentation, the Enhancements
and Maintenance Modifications.
1.2.20 "TERM" means the term of this License as set forth in Section 4.1.
1.2.21 "TVN" means TVN Entertainment Corporation.
1.2.22 "TVN LICENSE" means the Service and License Agreement entered into
as of June 9, 1997 between Licensor and TVN.
1.2.23 "THIRD PARTY APPLICATIONS" means the third party applications
software programs listed in Schedule 1 to this License.
1.2.24 "THIRD PARTY LICENSES" means the licenses between Licensee and
various third parties in respect of the Third Party Applications which are
necessary to enable Licensee to use the Software.
2. GRANT OF RIGHTS.
2.1 EXECUTABLE CODE LICENSE.
2.1.1 Subject to the terms, conditions and restrictions stated in this
License, Licensor grants to Licensee, without the right to sublicense (apart
from rights granted under Sections 2.1.3 and 2.1.4 hereof): (a) an exclusive
(save as to Licensor, Licensor's Affiliates and TVN (whose rights are those set
forth in the TVN License)), royalty-free right to use the Executable Code and
the Licensed Documentation in the International Territory and in the
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Domestic Territory for the purpose of Licensee engaging in the service of
authorizing End-User Devices as part of the Access and Control Business; (b) a
non-exclusive, royalty-free right to use the Executable Code and Additional
Licensed Documentation in the International Territory and in the Domestic
Territory for the purpose of Licensee engaging in the Access and Control
Business; it being understood and agreed that the rights retained by Licensor
and Licensor's Affiliates pursuant to this Section 2.1.1 shall not include the
right to license a third party (other than Licensee and TVN to the extent set
forth in the TVN License) to use the Executable Code and the Licensed
Documentation for the purpose of authorizing consumers to utilize End-User
Devices.
2.1.2 Subject to Section 2.1.3 and 2.1.4, the licenses granted in Section
2.1.1 are solely for Licensee's use and not for use with, for or on behalf of
any third party (other than in connection with Licensee performing End-User
Device authorization services for third parties or Licensee performing the
services of the Access and Control Business).
2.1.3 Licensee may sublicense the Executable Code as incorporated into a
computing device for use as part of that device by cable system operators and/or
end-users who are receiving access and control services from Licensee, provided
that Licensee requires that each such cable system operator or end-user, as the
case may be, enter into an agreement containing language previously approved by
Licensor, which approval shall not be unreasonably withheld or delayed, which
affords reasonable protection to Licensor's rights in the Executable Code.
2.1.4 Subject to Licensor's prior written consent, which approval shall
not be unreasonably withheld or delayed, and subject to Section 2.1.6, Licensee
may sublicense the Executable Code and the Licensed Documentation on the terms
of Section 2.1.1 to a joint venture partner of Licensee in connection with the
business of the joint venture conducted in the International Territory. As a
condition of giving its consent, Licensor may require that the joint venture
partner enter into an agreement for the benefit of Licensor under which the
joint venture partner agrees to be bound by the terms of this License and which
otherwise affords Licensor reasonable protection of its rights, such agreement
to be reasonably acceptable to Licensor.
2.1.5 Licensee may sublicense the Executable Code to any or all of the
following wholly-owned subsidiaries of Licensee for use in the Access and
Control Business, provided that each such sublicensee shall enter into an
agreement for Licensor's benefit agreeing to be bound by the terms of this
License and providing that the sublicense shall terminate in the event that the
sublicensee is no longer wholly-owned by Licensee:
(i) Access Control Center, Inc.;
(ii) DBS Services, Inc.;
(iii) General Instrument Authorization Services, Inc.; and
(iv) General Instrument (Canada), Inc.
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2.1.6 Licensee may not export the Executable Code or the Licensed
Documentation, in whole or in part, or any copies thereof, out of the Domestic
Territory without Licensor's prior written consent, which consent shall not be
unreasonably withheld or delayed. As a condition of giving that consent
Licensor may impose restrictions on the geographic location of any export, may
require Licensee to comply with security arrangements and may impose other
requirements that Licensor believes are reasonably necessary for the protection
of Licensor's rights in the Executable Code and the Licensed Documentation, and
that may be necessary to ensure compliance with U.S. export laws.
2.2 COPIES. Licensee (or a permitted sublicensee under Sections 2.1.3,
2.1.4 or 2.1.5 hereof) may make copies of the Licensed Documentation that
accompanies the Executable Code in support of Licensee's authorized use of the
Executable Code. Licensee may also make such copies of the Executable Code as
are necessary for Licensee (or a permitted sublicensee under Sections 2.1.3 or
2.1.4 hereof) to use the Executable Code in accordance with this License.
Licensee may not decompile, disassemble, reverse engineer, copy, create a
derivative work, or otherwise use, reproduce, modify, or distribute the
Executable Code except as stated in this License.
2.3 OTHER REQUIRED SOFTWARE AND AUTHORIZATIONS. This License does not
include any sublicense of or other right with respect to any of the Third Party
Applications. Licensee acknowledges that (i) hardware and software other than
the Software will be required in order for the Licensee to be able to use the
Software in accordance with Section 2.1, and (ii) the authorization of certain
third parties may be necessary for Licensee's use of the Third Party
Applications. Licensee shall be responsible for obtaining licenses for its use
of the Third Party Applications on or before August 31, 1998. Licensor shall
reasonably cooperate with Licensee in Licensee's securing such licenses for
Third Party Applications. In addition, Licensor and Licensee will jointly
approach Oracle with respect to negotiating such licenses that Licensee may
require from Oracle for the Third Party Applications and negotiating a separate
agreement for support of such licenses by Oracle for the benefit of Licensee.
Licensor and Licensee will use their reasonable commercial efforts to complete
the agreements with Oracle on or before August 31, 1998.
2.4 SOURCE CODE LICENSE.
2.4.1 Subject to the terms, conditions and restrictions stated in this
License, Licensor grants to Licensee: (a) an exclusive (save as to Licensor,
Licensor's Affiliates and TVN (whose rights are set forth in the TVN License)),
royalty-free license (without the right to sublicense) to use the Source Code,
including all machine readable programs, program listings and the Source Code
Documentation in the Domestic Territory and the International Territory for the
purpose of Licensee engaging in the service of authorizing End-User Devices as
part of the Access and Control Business; and (b) a non-exclusive, royalty-free
license (without the right to
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sublicense) to use the Source Code, including all machine readable programs,
program listings and the Source Code Documentation in the Domestic Territory and
the International Territory for the purpose of Licensee engaging in the Access
and Control Business; it being understood and agreed that the rights retained by
Licensor and Licensor's Affiliates pursuant to this Section 2.4.1. shall not
include the right to license a third party (other than Licensee and TVN to the
extent set forth in the TVN License) to use the Source Code and the Source Code
Documentation for the purpose of authorizing consumers to utilize End-User
Devices.
2.4.2 Licensee shall use the Source Code only for its own use. The
licenses granted in Section 2.4.1 and 2.4.4 do not grant to Licensee any right
to use the Source Code with or for or on behalf of any third party (other than
in connection with Licensee performing End-User Device authorization services
for third parties or Licensee performing the services of the Access and Control
Business).
2.4.3 Licensee may make copies of the Source Code and the Source Code
Documentation, only to the extent necessary to enable Licensee to exercise its
rights under Sections 2.4.1 and 2.4.4 provided that:
(a) Licensee places any copies in a secure location, notifies Licensor in
writing within 5 business days of making the copy of the address of the
location, and does not move the copy from that location without notifying
Licensor in writing of the new location within 5 business days of the move;
(b) Licensee does not export the Source Code or the Source Code
Documentation, in whole or in part, or any copy thereof out of the Domestic
Territory without Licensor's prior written consent. As a condition of
giving that consent Licensor may impose restrictions on the geographic
location of any export, may require Licensee to comply with security
arrangements and may impose other requirements which Licensor believes are
reasonably necessary for the protection of Licensor's rights in the Source
Code and the Source Code Documentation and that may be necessary to ensure
compliance with U.S. export laws.
2.4.4 Subject to the terms, conditions and restrictions stated in this
License, Licensor grants to Licensee, a non-exclusive, royalty-free license,
without the right to sublicense, to modify the Source Code and the Source Code
Documentation to create Derivative Works for use by the Licensee in the Access
and Control Business.
2.4.5 Licensor retains all rights in the Source Code and the Software and
the right of modification granted in Section 2.4.4 does not modify any of such
rights. Notwithstanding the foregoing, Licensee shall be the sole owner of the
Licensee Derivative Works. Licensee hereby grants to Licensor a non-exclusive,
irrevocable, royalty free license,
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with the right to sublicense to Licensor's Affiliates, to use, reproduce and
modify the Licensee Derivative Works. Licensee agrees to execute (in recordable
form where appropriate) any instruments and/or documents as Licensor may
reasonably request to give effect to this Section 2.4.5 and Section 2.4.7.
2.4.6 Licensor will deliver to Licensee the Source Code and the Source
Code Documentation in a form agreed by the Parties.
2.4.7 Licensee shall cause all modifications to the Source Code to be
fully and completely documented and shall within six (6) weeks after creation of
the modification deposit a copy of the documentation together with a copy of the
modification with Licensor at the address listed for Licensor in Section 9
hereof.
2.5 TITLE. Apart from rights expressly granted under this License,
title and all ownership and proprietary rights to the Technology (including
without limitation copyright, patent and trade secret rights) in all its
expressions shall remain in Licensor, and Licensee shall take no action
inconsistent with such title, ownership and proprietary rights. The original
and any copies of the Technology or any part thereof which are made by Licensee
shall be the property of Licensor.
2.6 LIMITATION. Unless expressly stated otherwise in the License,
Licensee shall not permit any other person or entity to make any use of the
Technology whatsoever.
2.7 PROPRIETARY NOTICES. Licensee shall not remove any copyright
notices, trademark notices or other proprietary legends of Licensor contained in
or on the Technology.
2.8 SECURITY. Licensee shall insure that the Technology, any copies of
thereof, and any information and materials relating to the Technology in the
custody of Licensee shall be protected at all times from unauthorized access or
use by a third party, or misuse, damage or destruction by any person.
3. DELIVERY, INSTALLATION, TRAINING AND MAINTENANCE.
3.1 DELIVERY. On or before commencement of the Term, Licensor will
furnish to Licensee one copy of each of the Executable Code and the Licensed
Documentation.
3.2 TRAINING.
(a) Unless otherwise provided in the Master Service Agreement,
Licensor will provide up to sixteen (16) staff hours of training to
Licensee's nominated personnel at no charge to Licensee in respect
of (i) the Technology as originally delivered to
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Licensee and (ii) each Enhancement. At the request of Licensee,
Licensor will provide additional training at $200 per staff hour.
(b) Licensee will provide up to sixteen (16) staff hours of
training to Licensor's nominated personnel at no charge to Licensor
in respect of each of Licensee's Derivative Works. At the request
of Licensor, Licensee will provide additional training at $200 per
staff hour.
3.3 DOCUMENTATION. Licensor will furnish to Licensee one copy of the
documentation listed in Schedule 2 to this License.
3.4 MAINTENANCE AND ENHANCEMENTS. During the Term, Licensor shall
deliver to Licensee Enhancements and Maintenance Modifications if, as and when
such Enhancements and Maintenance Modifications are developed by Licensor.
Licensee shall use the Enhancements and the Maintenance Modifications in
accordance with Section 2. Except as may be provided in the Master Service
Agreement, Licensor shall have no obligation to deliver any other Enhancements
or modifications to or versions or releases of the Software.
4. TERM AND TERMINATION
4.1 TERM AND TERMINATION. This License shall become effective on the
Closing Date and shall continue for a period of twenty (20) years, unless
earlier terminated in accordance with this Section 4. Termination is permitted
for material breach of this License, upon thirty (30) days written notice to the
other party and an opportunity to cure within such thirty (30) day period. In
addition, Licensee may terminate this License for convenience by providing
thirty (30) days prior written notice to Licensor.
4.2 INSOLVENCY OF LICENSEE OR LICENSOR. This License shall terminate
automatically upon the happening of any of the following events:
(a) The filing by Licensee of a voluntary petition in bankruptcy
or an assignment for the benefit of creditors; or
(b) The filing against the Licensee of an involuntary petition
in bankruptcy unless such petition is dismissed within ninety (90)
days of filing;
This License shall not terminate upon the bankruptcy of Licensor.
4.3 EFFECT OF TERMINATION. Upon termination of this License for any
reason, Licensee's rights under this License shall cease, and Licensee shall
immediately:
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(a) Return to Licensor all copies of the Technology or any of it, and
all information relating to the Technology, however embodied, to
Licensor, except information related to Licensee's own technology
or Licensee's Derivative Works;
(b) Permanently destroy or disable all copies of the Technology in
Licensee's possession or control; and
(c) Provide Licensor with a written statement certifying that Licensee
has complied with the foregoing obligations, all rights and
licenses.
4.4 NO LIABILITY FOR EXPIRATION OR LAWFUL TERMINATION. Neither party
shall have the right to recover damages or to indemnification of any nature,
whether by way of lost profits, expenditures for promotion, payment for goodwill
or otherwise, made in connection with the business contemplated by this License,
due to the permitted or lawful termination of this License. EACH PARTY WAIVES
AND RELEASES THE OTHER FROM ANY CLAIM TO COMPENSATION OR INDEMNITY FOR
TERMINATION OF THE BUSINESS RELATIONSHIP CONTEMPLATED BY THIS LICENSE UNLESS
TERMINATION IS IN MATERIAL BREACH OF THIS LICENSE.
5. CONFIDENTIAL INFORMATION.
5.1 PROPRIETARY INFORMATION. Licensee acknowledges that the Technology
is confidential proprietary information belonging to Licensor which embodies
substantial trade secrets of Licensor and Licensee will take all reasonable
steps to maintain its confidential proprietary nature. Licensee will not
disclose the Technology or any portion thereof, to any third party without
Licensor's prior written consent. The foregoing restriction shall not apply
with respect to any information which (i) is expressly permitted by this License
to be disclosed; (ii) is or becomes generally available to the public through
any means other than by breach by the Licensee of its obligations under the
License; (iii) was in the possession of Licensee as of the date of this License
as evidenced by written records in Licensee's possession as at such date; (iv)
is disclosed in order to comply with an order of a court or governmental agency
of competent jurisdiction, provided that Licensee gives to Licensor immediate
notice of such order and cooperates with Licensor in using all reasonable
efforts to obtain an appropriate protective order or equivalent; (v) is
independently developed or formulated by Licensee without use of the Technology
as evidenced by written records in Licensee's possession.
5.2 REMEDIES. Licensor and Licensee each acknowledge that disclosure
or use of the Technology or Licensee Derivative Works in violation of Sections 2
or 5 of this License would cause irreparable harm to Licensor and Licensee for
which monetary damages may be difficult to ascertain or an inadequate remedy.
Each party therefore acknowledges that the other party will
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have the right, in addition to its other rights and remedies, to seek and obtain
injunctive relief for any violation of Sections 2 or 5 of this License.
6. REPRESENTATIONS AND WARRANTY
6.1 LICENSOR REPRESENTATIONS. Licensor warrants and represents to
Licensee that:
6.1.1 It is duly organized, validly existing and in good standing
under the laws of each jurisdiction in which its activities require such
qualification;
6.1.2 The execution, delivery and performance of this License have
been duly authorized by all necessary corporate action and this License
constitutes the legal, valid and binding obligation of Licensor, enforceable in
accordance with its terms against Licensor except as such enforceability may be
affected by bankruptcy, reorganization, insolvency, moratorium or laws affecting
creditors' rights generally or by general principles of equity;
6.1.3 It has full corporate power and authority to enter into this
License and to perform its obligations hereunder;
6.1.4 It is the sole owner of the Technology or otherwise has
authority to grant the rights licensed hereunder to Licensee;
6.1.5 The execution and delivery of this License, and the
performance by Licensor of its obligations hereunder, will not violate, breach,
conflict with or cause a default under any law, rule, regulation, order,
agreement or instrument to which Licensor is a party or by which it is bound, or
of Licensor's constituent documents;
6.1.6 No consent, approval or authorization of any person is
needed in order for Licensor to perform its obligations pursuant to this
License; and
6.1.7 Listed in Schedule 1 is a true, correct and complete list of
all Third Party Licenses which are necessary under Section 2.1 for the
effectiveness of the licenses granted thereunder.
6.1.8 Each employee, consultant or agent of Licensor who is
developing or who will develop Technology for Licensor is or will be (as the
case may be) obligated by contract to assign to Licensor all of such Technology.
6.2 LICENSEE REPRESENTATIONS. Licensee warrants and represents to
Licensor that:
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6.2.1 It is duly organized, validly existing and in good standing
under the laws of each jurisdiction in which its activities require such
qualification;
6.2.2 The execution, delivery and performance of this License have
been duly authorized by all necessary corporate action and this License
constitutes the legal, valid and binding obligation of Licensee, enforceable in
accordance with its terms against Licensee except as such enforceability may be
affected by bankruptcy, reorganization, insolvency, moratorium or laws affecting
creditors' rights generally or by general principles of equity;
6.2.3 It has full corporate power and authority to enter into this
License and to perform its obligations hereunder;
6.2.4 The execution and delivery of this License, and the
performance by Licensee of its obligations hereunder, will not violate, breach,
conflict with or cause a default under any law, rule, regulation, order,
agreement or instrument to which Licensee is a party or by which it is bound, or
of Licensee's constituent documents;
6.2.5 No consent, approval or authorization of any person is
needed in order for Licensee to perform its obligations pursuant to this
License; and
6.2.6 Each employee, consultant or agent of Licensor who is
developing or who will develop the Licensee Derivative Works for Licensee is or
will be (as the case may be) obligated by contract to assign to Licensee all of
such Licensee Derivative Works.
6.2.7 The entities listed in Section 2.1.5 are wholly-owned
subsidiaries of Licensee.
6.3 LIMITED WARRANTY. Licensor represents and warrants that the
media, if any, on which the Technology is recorded will be free from defects in
materials and workmanship for a period of ninety (90) days after delivery.
Licensor's sole liability with respect to breach of this warranty is to replace
the defective media.
6.4 GENERAL DISCLAIMER. EXCEPT AS SPECIFIED IN THIS LICENSE, THE
TECHNOLOGY AND LICENSEE DERIVATIVE WORKS ARE PROVIDED "AS IS" AND ALL OTHER
REPRESENTATIONS AND WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF THE
TECHNOLOGY, ARE HEREBY DISCLAIMED. LICENSOR SHALL HAVE NO LIABILITY WHATSOEVER
IN RELATION TO THE LICENSEE DERIVATIVE WORKS. SUBJECT TO SECTION 7.5, LICENSEE
SHALL HAVE NO LIABILITY WHATSOEVER IN RELATION TO THE TECHNOLOGY.
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6.5 LIMITATION. The limited warranty set forth in Section 6.3 is
expressly subject to Section 6.6.
6.6 LIMITATION OF LIABILITY. EXCEPT FOR DAMAGES PAYABLE TO A THIRD
PARTY FOR WHICH A PARTY IS REQUIRED TO INDEMNIFY ANOTHER PARTY PURSUANT TO
SECTIONS 7.2 AND 7.5 HEREOF OR A BREACH OF SECTIONS 2 OR 5 HEREOF, IN NO EVENT
WILL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL
OR PUNITIVE DAMAGES IN CONNECTION WITH OR ARISING OUT OF THIS LICENSE
(INCLUDING LOSS OF PROFITS, USE, DATA, OR OTHER ECONOMIC ADVANTAGE), NO MATTER
WHAT THEORY OF LIABILITY, EVEN IF EITHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OR PROBABILITY OF SUCH DAMAGES, FURTHER, LIABILITY FOR SUCH DAMAGES
SHALL BE EXCLUDED, EVEN IF THE EXCLUSIVE REMEDIES PROVIDED FOR IN THIS LICENSE
FAIL OF THEIR ESSENTIAL PURPOSE.
The provisions of this Section 6.6 allocate the risks under this License
between Licensor and Licensee and the parties have relied upon the limitations
set forth herein in determining whether to enter into this License.
7. LIMITED INDEMNITY.
7.1 PRE-RELEASE. The parties acknowledge that the Technology may be in
pre-release form and that Licensor shall not be liable for any defects or
deficiencies in the Technology, process or design created by, with or in
connection with the Technology whether or not such defects and/or document
deficiencies are caused, in whole or in part, by defects or deficiencies in the
design or implementation of the Technology or Licensed Documentation. Upon
first commercial release of the Technology by Licensor, Licensor will provide to
Licensee a limited indemnity as described in Sections 7.2 and 7.3 below.
7.2 INDEMNITY. Licensor shall indemnify and hold harmless Licensee and
its permitted sublicensees against any claim that the use by Licensee or its
permitted sublicensees of the Technology violates the U.S. patent, copyright or
trade secret rights of any third party, provided that Licensee: (i) provides
notice of the claim promptly to Licensor; (ii) gives Licensor sole control of
the defense and settlement of the claim; (iii) provides to Licensor, at
Licensor's expense, all available information, assistance and authority to
defend; and (iv) has not compromised or settled such proceeding without
Licensor's prior written consent. The indemnity set forth in this Section 7.2
shall not apply in any situation where the claim relates to (x) any technology
or intellectual property incorporated in the Technology or used in the
development of the Technology which technology or intellectual property is
licensed by Licensee to Licensor or any Affiliate of Licensor under any
agreement, (y) the modification of the Technology by Licensee or (z) the use of
the Technology together with other hardware or software not
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previously approved by Licensor, but only to the extent that the claim is based
on such combined use.
7.3 REMEDIATION. Should the Technology, or any portion thereof
become, or in Licensor's opinion be likely to become, the subject of a claim of
infringement for which indemnity is provided under Section 7.2, Licensor shall,
in addition to the obligations specified in Section 7.2, as Licensee's sole and
exclusive remedy, elect to: (i) obtain for Licensee the right to use such
Technology; (ii) replace or modify the Technology so that it becomes
non-infringing; or if alternatives (i) or (ii) are not commercially practicable;
(iii) accept the return of the Technology and reimburse to Licensee the costs
incurred in returning the Technology (provided that in such event, Licensee
agrees to use reasonable efforts to minimize such costs by deactivating such
Technology from a central facility to the extent reasonably possible).
7.4 LIMITATION. THIS SECTION 7 STATES THE ENTIRE LIABILITY OF LICENSOR
WITH RESPECT TO INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS BY THE
TECHNOLOGY, LICENSOR SHALL HAVE NO OTHER LIABILITY WITH RESPECT TO INFRINGEMENT
OF INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY AS A RESULT OF USE, LICENSE,
OR SALE OF TECHNOLOGY OR TOOLS.
7.5 INDEMNITY BY LICENSEE. Except for claims for which Licensor is
obligated to indemnify Licensee under Section 7.2, Licensee shall defend, at
Licensee's expense, any and all claims brought against Licensor by third
parties, and shall pay all damages awarded by a court of competent jurisdiction,
or such settlement amount negotiated by Licensee, arising out of or in
connection with (a) Licensee's use, reproduction, modification or distribution
of the Technology or the Licensee Derivative Works or any of them or (b)
Licensee's failure to obtain the Third Party Licenses. Licensee's obligation to
provide indemnification under this Section 7.5 shall arise provided that
Licensor: (i) provides notice of the claim promptly to Licensee; (ii) gives
Licensee sole control of the defense and settlement of the claim; (iii) provides
to Licensee, at Licensee's expense, all available information, assistance and
authority to defend; and (iv) has not compromised or settled such proceeding
without Licensee's prior written consent.
8. ATTORNEYS' FEES AND COSTS. If any suit is brought or an attorney retained
to collect any money due under this License, or to collect a judgment for breach
of this License, the prevailing party shall be entitled to recover, in addition
to any other remedy, reimbursement for attorneys' fees, court costs,
investigation costs and other related expenses incurred in connection therewith.
9. NOTICE. All notices, requests, demands and other communications called
for or contemplated hereunder will be in writing and will be deemed to have been
duly given if delivered when deposited in the United States mail, first class
postage prepaid, addressed as follows, or to any other address of which a party
gives notice to the other:
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If to Licensor to:
NDTC Technology, Inc.
4100 East Dry Creek Road
Littleton, CO 80122
Attn: David Beddow
with a copy to:
Tele-Communications, Inc.
5619 DTC Parkway
Englewood, CO 80111
Attn: Legal Department
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If to Licensee to:
General Instrument Corporation
101 Tournament Drive
Horsham, PA 19044
Attn: Robert A. Scott, Esq.
Vice President- Legal
10. AUDIT
In furtherance of Licensor's rights hereunder, Licensor may, at Licensor's
initial expense and without notice to Licensee but during Licensee's normal
business hours, enter upon any of Licensee's premises to audit Licensee's
compliance with the terms of this License. In the event that Licensor
discovers, during the course of such audit, that License has materially violated
any of the terms of this License, then in addition to all other remedies
available to Licensor, Licensee shall be responsible for payment of all costs of
such audit.
11. MISCELLANEOUS
11.1 MODIFICATION. This License may not be modified other than by a
written amendment executed by each of the parties hereto.
11.2 GOVERNING LAW. This License shall be construed in accordance with
the laws of the State of Colorado and of the United States.
11.3 SEVERABILITY. If any provision or part thereof in this License is
held invalid, illegal or unenforceable for any reason, the remainder of this
License will nonetheless remain in full force and effect.
11.4 TAXES. Licensee shall pay any and all sales, use, excise or other
taxes (other than taxes measured on the gross income of Licensor) assessed or
payable by reason of or with respect to this License.
11.5 BINDING AGREEMENT. This License will benefit and be binding upon
the parties hereto and their respective heirs, representatives, successors and
permitted assigns.
11.6 HEADINGS. The headings in this License are for purpose of
reference only and shall not be construed as part of this License.
11.7 ENTIRE AGREEMENT. This License and, to the extent terms are
incorporated from such agreements or reference is made thereto, the Asset
Purchase Agreement and the Master
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Service Agreement constitute the entire understanding and agreement of the
parties hereto with respect to the licensing of the Technology and supersede all
prior agreements and understandings, written or oral, among any of the parties
with respect to such subject matter.
11.8 TRANSFER RESTRICTIONS. Licensee may not assign any of its rights
or delegate any of its duties under this License without Licensor's prior
written consent. Any attempted assignment or delegation without consent shall
be null and void. Licensor may assign its rights and delegate its duties under
this License without Licensee's consent, provided, however, that (i) Licensee's
consent shall be required in the case of a direct assignment to a competitor of
Licensee in the Access and Control Business, and (ii) Licensee's consent shall
be required in connection with a sale of the stock of Licensor to a competitor
of Licensee in the Access and Control Business or a merger of Licensor with a
competitor of Licensee in the Access and Control Business, unless such direct
assignment, sale of stock or merger of Licensor is part of a larger transaction
that involves other Affiliates of Licensor.
11.9 U.S. GOVERNMENT RESTRICTED RIGHTS. The Technology is provided to
Licensee with Restricted Rights. Use, duplication or disclosure of the
Technology to, by or on behalf of the U.S. Government, its agencies and/or
instrumentalities (the "Government") is subject to the restrictions stated in
subparagraph (c)(1)(ii) or the Rights in Technical Data and Computer Software
clause at DFARS 252.227-7013, or subparagraphs (c)(1) and (2) of the Commercial
Computer Software --- Restricted Rights at 48 CFR 52.227-19, and/or the
particular department or agency regulations or rules which provide Licensor with
protection equivalent to or greater than such cited clauses and subparagraphs.
Licensee shall comply with all requirements of the Government to obtain such
Restricted Rights protection. The manufacturer of the Technology is National
Digital Television Center, Inc., 4100 East Dry Creek Road, Littleton, Colorado
80122.
11.10 COMPLIANCE WITH LAWS. The Technology is subject to U.S. export
control laws, including the U.S. Export Administration Act and its associated
regulations, and may be subject to export or import regulations in other
countries. Licensee agrees to comply strictly with all such regulations and
acknowledges that it has the responsibility to obtain such licenses to export,
re-export or import the Technology, Documentation or Product(s) as may be
required after delivery of the Technology to Licensee. Licensee shall make
reasonable efforts to notify and inform its employees having access to the
Technology of Licensee's obligation to comply with the requirements stated in
this Section 11.10.
11.11 SURVIVAL. The parties' rights and obligations under Sections
2.4.5, 2.4.7, 4, 5, 6.6,7, 8, 9, 10 and 11 shall survive expiration or
termination of this License.
11.12 NO WAIVER. The failure of either party to enforce a provision of
this License shall not be deemed a waiver of that provision.
16
<PAGE>
11.13 DISCLAIMER OF FRANCHISE. The relationship created hereby is that
of licensor and licensee and the parties acknowledge and agree that nothing
herein shall be deemed to constitute Licensee as a franchisee of Licensor.
Licensee hereby waives the benefit of any state or federal statues dealing with
the establishment and regulation of franchises.
11.14 RELATIONSHIP OF THE PARTIES. It is expressly understood that the
parties intend by this License to establish the relationship of independent
contractors, and do not intend to undertake the relationship of principal and
agent or to create a joint venture or partnership between themselves or their
respective successors in interest. Neither party shall have any authority to
create or assume, in the name of or on behalf of the other party any obligation,
expressed or implied, nor to act or purport to act as an agent or legally
empowered representative of the other party hereto for any purpose whatsoever.
11.15 FORCE MAJEURE. Neither party will be in default or otherwise
liable for any delay in or failure of its performance under this License where
such delay or failure arises by reason of any Act of God, acts of the common
enemy, the elements, electrical storms, earthquake, floods, fires or other
natural disasters, epidemics, quarantine restrictions, national emergency or
war, sabotage, acts, acts of governmental authority, willful or criminal
misconduct of third parties, strikes, failure or delay in transportation,
freight embargoes or other causes beyond its control ("Force Majeure"); provided
that financial inability does not constitute an event of Force Majeure.
17
<PAGE>
The parties have caused this License to be executed by their duly
authorized representatives or officers as of the date first above written.
LICENSOR: LICENSEE:
NDTC TECHNOLOGY, INC., GENERAL INSTRUMENT CORPORATION,
a Colorado corporation a Delaware corporation
By: /s/ David D. Beddow By: /s/ Richard C. Smith
---------------------------- ------------------------------
Title: Vice President Title: Executive Vice President
------------------------- ---------------------------
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GENERAL INSTRUMENT CORPORATION FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 82,854
<SECURITIES> 25,659
<RECEIVABLES> 326,120
<ALLOWANCES> (3,120)
<INVENTORY> 261,031
<CURRENT-ASSETS> 828,150
<PP&E> 487,019
<DEPRECIATION> (260,101)
<TOTAL-ASSETS> 1,693,269
<CURRENT-LIABILITIES> 374,773
<BONDS> 0
0
0
<COMMON> 1,517
<OTHER-SE> 1,248,791
<TOTAL-LIABILITY-AND-EQUITY> 1,693,269
<SALES> 905,425
<TOTAL-REVENUES> 905,425
<CGS> 671,316
<TOTAL-COSTS> 671,316
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,264)
<INCOME-PRETAX> (44,019)
<INCOME-TAX> 14,090
<INCOME-CONTINUING> (29,929)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,929)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
<PAGE>
EXHIBIT 99
GENERAL INSTRUMENT CORPORATION
EXHIBIT 99 -- FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. The Company's Form 10-K, the Company's
Annual Report to Stockholders, any Form 10-Q or Form 8-K of the Company, or any
other oral or written statements made by or on behalf of the Company, may
include forward-looking statements which reflect the Company's current views
with respect to future events and financial performance. These forward-looking
statements are identified by their use of such terms and phrases as "intends,"
"intend," "intended," "goal," "estimate," "estimates," "expects," "expect,"
"expected," "project," "projects," "projected," "projections," "plans,"
"anticipates," "anticipated," "should," "designed to," "foreseeable future,"
"believe," "believes," and "scheduled" and similar expressions. These
forward-looking statements are subject to certain uncertainties and other
factors that could cause actual results to differ materially from such
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date the statement was
made. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
The actual results of the Company may differ significantly from the results
discussed in forward-looking statements. Factors that might cause such a
difference include, but are not limited to: uncertainties relating to general
political, economic and competitive conditions in the United States and other
markets where the Company operates; uncertainties relating to government and
regulatory policies; uncertainties relating to customer plans and commitments;
the Company's dependence on the cable television industry and cable television
spending; signal security; the pricing and availability of equipment, materials
and inventories; technological developments; the competitive environment in
which the Company operates; changes in the financial markets relating to the
Company's capital structure and cost of capital; the uncertainties inherent in
international operations and foreign currency fluctuations; authoritative
generally accepted accounting principles or policy changes from such
standard-setting bodies as the Financial Accounting Standards Board and the
Securities Exchange Commission; and the factors set forth below.
FACTORS RELATING TO THE DISTRIBUTION
In a transaction that was consummated on July 28, 1997, the former General
Instrument Corporation (the "Distributing Company") (i) transferred all the
assets and liabilities relating to the manufacture and sale of broadband
communications products used in the cable television, satellite, and
telecommunications industries to the Company (which was then named "NextLevel
Systems, Inc." and was a wholly-owned subsidiary
<PAGE>
of the Distributing Company) and transferred all the assets and liabilities
relating to the manufacture and sale of coaxial, fiber optic and other
electric cable used in the cable television, satellite and other industries
to its wholly-owned subsidiary CommScope, Inc. ("CommScope") and (ii) then
distributed all of the outstanding shares of capital stock of each of the
Company and CommScope to its stockholders on a pro rata basis as a dividend
(the "Distribution"). Immediately following the Distribution, the
Distributing Company changed its corporate name to "General Semiconductor,
Inc." ("General Semiconductor"). Effective February 2, 1998, the Company
changed its corporate name from "NextLevel Systems, Inc." to "General
Instrument Corporation."
The Distribution Agreement, dated as of June 12, 1997, among the Company,
CommScope and the Distributing Company (the "Distribution Agreement") and
certain other agreements executed in connection with the Distribution
(collectively, the "Ancillary Agreements") allocate among the Company,
CommScope, and General Semiconductor and their respective subsidiaries
responsibility for various indebtedness, liabilities and obligations. It is
possible that a court would disregard this contractual allocation of
indebtedness, liabilities and obligations among the parties and require the
Company or its subsidiaries to assume responsibility for obligations allocated
to another party, particularly if such other party were to refuse or was unable
to pay or perform any of its allocated obligations.
Pursuant to the Distribution Agreement and certain of the Ancillary
Agreements, the Company has agreed to indemnify the other parties (and certain
related persons) from and after consummation of the Distribution with respect to
certain indebtedness, liabilities and obligations, which indemnification
obligations could be significant.
Although the Distributing Company has received a favorable ruling from the
Internal Revenue Service, if the Distribution were not to qualify as a tax free
spin-off (either because of the nature of the Distribution or because of events
occurring after the Distribution) under Section 355 of the Internal Revenue Code
of 1986, as amended, then, in general, a corporate tax would be payable by the
consolidated group of which the Distributing Company was the common parent based
upon the difference between the fair market value of the stock distributed and
the Distributing Company's adjusted basis in such stock. The corporate level
tax would be payable by General Semiconductor and could substantially exceed the
net worth of General Semiconductor. However, under certain circumstances, the
Company and CommScope have agreed to indemnify General Semiconductor for such
tax liability. In addition, under the consolidated return rules, each member of
the consolidated group (including the Company and CommScope) is severally liable
for such tax liability.
CERTAIN RESTRICTIONS UNDER CREDIT FACILITIES
The Credit Agreement dated as of July 23, 1997, as amended, among the
Company, certain banks, and The Chase Manhattan Bank, as Administrative Agent,
contains certain restrictive financial and operating covenants, including, among
others,
<PAGE>
requirements that the Company satisfy certain financial ratios. The failure of
the Company to satisfy such covenants could cause the Company to be unable to
borrow under the Credit Agreement and would cause the Company to seek
alternative sources of working capital financing and, depending upon the
Company's financial condition at such time, could have a material adverse effect
on the operations and financial condition of the Company.
DEPENDENCE OF THE COMPANY ON THE CABLE TELEVISION
INDUSTRY AND CABLE TELEVISION CAPITAL SPENDING
The majority of the Company's revenues come from sales of systems and
equipment to the cable television industry. Demand for these products depends
primarily on capital spending by cable television system operators for
constructing, rebuilding or upgrading their systems. The amount of this capital
spending, and, therefore the Company's sales and profitability, may be affected
by a variety of factors, including general economic conditions, the continuing
trend of cable system consolidation within the industry, the financial condition
of domestic cable television system operators and their access to financing,
competition from direct-to-home ("DTH"), satellite, wireless television
providers and telephone companies offering video programming, technological
developments that impact the deployment of equipment and new legislation and
regulations affecting the equipment used by cable television system operators
and their customers. There can be no assurance that cable television capital
spending will increase from historical levels or that existing levels of cable
television capital spending will be maintained.
Although the domestic cable television industry is comprised of
thousands of cable systems, a small number of cable television multiple
system operators ("MSO's") own a majority of cable television systems and
account for a significant portion of the capital expenditures made by cable
television system operators. The loss of business from a significant MSO
could have a material adverse effect on the business of the Company.
THE IMPACT OF REGULATION AND GOVERNMENT ACTION
In recent years, cable television capital spending has been affected by new
legislation and regulation, on the federal, state and local level, and many
aspects of such regulation are currently the subject of judicial proceedings and
administrative or legislative proposals. During 1993 and 1994, the Federal
Communications Commission (the "FCC") adopted rules under the Cable Television
Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"),
regulating rates that cable television operators may charge for lower tiers of
service and generally not regulating the rates for higher tiers of service. In
1996, the Telecommunications Act of 1996 (the "Telecom Act") was enacted to
eliminate certain governmental barriers to competition among local and long
distance telephone, cable television, broadcasting and wireless services. The
FCC is continuing its implementation of the Telecom Act which, when fully
implemented, may significantly impact the communications industry and alter
federal, state and local laws and regulations regarding the provision of cable
and telephony
<PAGE>
services. Among other things, the Telecom Act eliminates substantially all
restrictions on the entry of telephone companies and certain public utilities
into the cable television business. Telephone companies may now enter the cable
television business as traditional cable operators, as common carrier conduits
for programming supplied by others, as operators of wireless distribution
systems, or as hybrid common carrier/cable operator providers of programming on
so-called "open video systems." The economic impact of the 1992 Cable Act, the
Telecom Act and the rules thereunder on the cable television industry and the
Company is still uncertain.
On June 24, 1998, the FCC released a Report and Order entitled IN THE
MATTER OF IMPLEMENTATION OF SECTION 304 OF THE TELECOMMUNICATIONS ACT OF 1996 -
COMMERCIAL AVAILABILITY OF NAVIGATION DEVICES (the "Retail Sales Order"), which
promulgates rules providing for the commercial availability of navigation
devices, including set-top devices and other consumer equipment, used to receive
video signals and other services from multichannel video programming
distributors ("MVPDs"), including cable television system operators. The Retail
Sales Order mandates that (i) subscribers have a right to attach any compatible
navigation device to an MVPD system regardless of its source and (ii) service
providers are prohibited from taking actions which would prevent navigation
devices that do not perform conditional access functions from being made
available by retailers, manufacturers, or other affiliated vendors. To
accomplish subscribers' right to attach, the FCC has ordered that (i) MVPDs must
provide technical information concerning interface parameters necessary to
permit navigation devices to operate with their systems; (ii) MVPDs must
separate out security functions from non-security functions by July 1, 2000; and
(iii) after January 1, 2005, MVPDs may not provide new navigation devices for
sale, lease or use that perform both conditional access functions and other
functions in a single integrated device.
Unless modified or overturned, the Retail Sales Order will require set-top
device manufacturers, such as the Company, to develop a separate security module
to be available for sale to other manufacturers who want to build set-top
devices, as well as ultimately prevent the Company from offering set-top devices
in which the security and non-security functions are integrated. In addition,
the Retail Sales Order may require the Company to offer its set-top devices
through retail distribution channels, an area in which the Company has limited
experience. The competitive impact of the Retail Sales Order is still
uncertain, and there can be no assurance that the Company will be able to
compete successfully with other consumer electronics manufacturers interested in
manufacturing set-top devices, many of which have greater resources and retail
sales experience than the Company.
In February 1998, PRIMESTAR, the nation's second largest provider of
satellite television entertainment, entered into agreements with the Company,
pursuant to which the Company will manufacture integrated receiver decoders
("IRDs") for PRIMESTAR's planned high power retail and wholesale service.
Offering a high-power service would enable PRIMESTAR to provide expanded channel
capacity and smaller receiving dishes to its subscribers. As the result of a
pending Department of Justice proceeding seeking to
<PAGE>
block PRIMESTAR's acquisition of high-powered satellites from American Sky
Broadcasting LLC ("ASkyB"), there is uncertainty concerning PRIMESTAR's
ability to provide this proposed service. There can be no assurance that
PRIMESTAR will ultimately gain governmental approval to acquire the ASkyB
assets or that it will be able to secure another high-powered orbital slot,
and accordingly, there can be no assurance that the Company will realize the
benefits of its agreement with PRIMESTAR.
There can be no assurance that future legislation, regulations or
government action will not have a material adverse effect on the operations and
financial condition of the Company.
TELECOMMUNICATIONS INDUSTRY COMPETITION AND TECHNOLOGICAL
CHANGES AFFECTING THE COMPANY
The Company will be significantly affected by the competition among cable
television system operators, satellite television providers and telephone
companies to provide video, voice and data/Internet services. In particular,
although cable television operators have historically provided television
services to the majority of U.S. households, DTH satellite television has
attracted a growing number of subscribers and the regional telephone companies
have begun to offer competing cable and wireless cable services. This
competitive environment is characterized by rapid technological changes,
particularly with respect to developments in digital compression and broadband
access technology.
The Company believes that, as a result of its development of new products
based on emerging technologies and the diversity of its product offerings, it is
well positioned to supply each of the cable, satellite and telephone markets.
The future success of the Company, however, will be dependent on its ability to
market and deploy these new products successfully and to continue to develop and
timely exploit new technologies and market opportunities both in the United
States and internationally. There can be no assurance that the Company will be
able to continue to successfully introduce new products and technologies, that
it will be able to deploy them successfully on a large-scale basis or that its
technologies and products will achieve significant market acceptance. The
future success of the Company will also be dependent on the ability of cable and
satellite television operators to successfully market the services provided by
the Company's advanced digital terminals to their customers. Further, there can
be no assurance that the development of products using new technologies or the
increased deployment of new products will not have an adverse impact on sales by
the Company of certain of its other products. In addition, because of the
competitive environment and the nature of the Company's business, there have
been and may continue to be claims by third parties asserting their
intellectual property rights and challenging the Company's ability to deploy new
technologies.
<PAGE>
COMPETITION
The Company's products and services compete with those of a substantial
number of foreign and domestic companies, some with greater resources, financial
or otherwise, than the Company, and the rapid technological changes occurring in
the Company's markets are expected to lead to the entry of new competitors. The
Company's ability to anticipate technological changes and to introduce enhanced
products on a timely basis will be a significant factor in the Company's ability
to expand and remain competitive. Existing competitors' actions and new
entrants may have an adverse impact on the Company's sales and profitability.
For a discussion of competitive factors in regards to retail consumer electronic
manufacturers see "The Impact of Regulation and Government Action". The Company
believes that it enjoys a strong competitive position because of its large
installed cable television equipment base, its strong relationships with the
major cable television system operators, its technological leadership and new
product development capabilities, and the likely need for compatibility of new
technologies with currently installed systems. There can be no assurance,
however, that competitors will not be able to develop systems compatible with,
or that are alternatives to, the Company's proprietary technology or systems.
INTERNATIONAL OPERATIONS; FOREIGN CURRENCY RISKS
U.S. broadband system designs and equipment are being employed in
international markets, where cable television penetration is low. In
addition, the Company is developing new products to address international
market opportunities. However, the impact of the economic crises in Asia and
Latin America has significantly affected the Company's results in these
markets. There can be no assurance that international markets will rebound to
historical levels or that such markets will continue to develop or that the
Company will receive additional contracts to supply systems and equipment in
international markets.
International shipments of certain of the Company's products require
export licenses issued by the U.S. Department of Commerce prior to shipment
in accordance with U.S. export control regulations. The Company has made a
voluntary disclosure to the U.S. Department of Commerce with respect to a
number of violations by the Company of these export control regulations.
While the Company does not expect these violations to have a material adverse
effect on the Company's operations or financial condition, there can be no
assurance that these violations will not result in the imposition of
sanctions or restrictions on the Company.
A significant portion of the Company's products are manufactured or
assembled in Taiwan and Mexico. In addition, the Company's operations are
expanding into new international markets. These foreign operations are subject
to the usual risks inherent in situating operations abroad, including risks with
respect to currency exchange rates, economic and political destabilization,
restrictive actions by foreign governments, nationalizations, the laws and
policies of the United States affecting trade, foreign
<PAGE>
investment and loans, and foreign tax laws. The Company's cost-competitive
status relative to other competitors could be adversely affected if the New
Taiwan dollar or another relevant currency appreciates relative to the U.S.
dollar.
ENVIRONMENT
The Company is subject to various federal, state, local and foreign laws and
regulations governing the use, discharge and disposal of hazardous materials.
The Company's manufacturing facilities are believed to be in substantial
compliance with current laws and regulations. Compliance with current laws and
regulations has not had and is not expected to have a material adverse effect on
the Company's financial condition.
The Company's present and past facilities have been in operation for many
years, and over that time in the course of those operations, such facilities
have used substances which are or might be considered hazardous, and the Company
has generated and disposed of wastes which are or might be considered hazardous.
Therefore, it is possible that additional environmental issues may arise in the
future, which the Company cannot now predict.