<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GENERAL INSTRUMENT CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 36-4134221
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
</TABLE>
------------------------
101 TOURNAMENT DRIVE
HORSHAM, PENNSYLVANIA 19044
(215) 323-1000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
------------------------------
ROBERT A. SCOTT, ESQ.
SENIOR VICE PRESIDENT, LEGAL AND SECRETARY
GENERAL INSTRUMENT CORPORATION
101 TOURNAMENT DRIVE
HORSHAM, PENNSYLVANIA 19044
(215) 323-1000
(Name, address, including zip code, and telephone number, including area code,
of Agent for Service)
------------------------------
COPIES OF ALL COMMUNICATIONS, INCLUDING COMMUNICATIONS SENT TO AGENT FOR
SERVICE, SHOULD BE SENT TO:
<TABLE>
<S> <C>
LOIS HERZECA, ESQ. ROBERT E. BUCKHOLZ, JR., ESQ.
FRIED, FRANK, HARRIS, SHRIVER & SULLIVAN & CROMWELL
JACOBSON 125 Broad Street
One New York Plaza New York, New York 10004-2498
New York, New York 10004 (212) 558-4000
(212) 859-8000
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF MAXIMUM MAXIMUM
SHARES AGGREGATE AGGREGATE AMOUNT OF
TO BE AMOUNT TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED UNIT (2) PRICE (2) FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value (1) 21,708,665 shares $25.9375 $563,068,498 $166,105.00
</TABLE>
(1) This registration statement covers (i) the distribution of 11,547,008 shares
by Instrument Partners to its partners and the resale of some of those
shares by certain of its partners as Selling Stockholders and (ii) the sale
of 10,161,657 shares by another Selling Stockholder.
(2) Estimated in accordance with Rule 457 of Regulation C under the Securities
Act of 1933, as amended, solely for the purpose of determining the
registration fee. The above calculation is based on the average of the high
and low sale prices of the Common Stock reported by the New York Stock
Exchange on August 21, 1998.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement covers (i) the distribution of 11,547,008 shares
of Common Stock, par value $.01 per share ("Common Stock"), of General
Instrument Corporation, a Delaware corporation, by Instrument Partners to its
partners and the resale of some of those shares by certain of its partners as
Selling Stockholders and (ii) the sale of 10,161,657 shares of Common Stock by
another Selling Stockholder. The same Prospectus is being used with respect to
both the distribution and the sale of shares by the Selling Stockholders.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 26, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
17,000,000 SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
All the shares of Common Stock offered are being sold by the Selling
Stockholders. See "Selling Stockholders". The Company will not receive any of
the proceeds from the sale of the shares.
The last reported sale price of the Common Stock, which is listed under the
symbol "GIC", on the New York Stock Exchange on August 25, 1998 was $28.25 per
share. See "Price Range of Common Stock and Dividend Policy".
SEE "RISK FACTORS" ON PAGE 11 FOR CERTAIN CONSIDERATIONS RELEVANT TO AN
INVESTMENT IN THE COMMON STOCK.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO SELLING
OFFERING PRICE DISCOUNT (1) STOCKHOLDERS (2)
-------------- ------------- -------------------
<S> <C> <C> <C>
Per Share.................................................... $ $ $
Total (3).................................................... $ $ $
</TABLE>
- ------------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933.
(2) Estimated expenses of $900,000 are payable by the Company.
(3) The Selling Stockholders have granted the Underwriters an option for 30 days
to purchase up to an additional 2,550,000 shares at the initial public
offering price per share, less the underwriting discount, solely to cover
over-allotments. If such option is exercised in full, the total initial
public offering price, underwriting discount and proceeds to Selling
Stockholders will be $ , $ and $ , respectively. See
"Underwriting".
------------------------
The shares offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the
certificates for the shares will be ready for delivery in New York, New York, on
or about , 1998 against payment therefor in immediately available
funds.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
LAZARD FRERES & CO. LLC
------------------------
The date of this Prospectus is , 1998.
<PAGE>
[Pictures depicting certain of the Company's digital network systems
products and certain television images.]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE
COMMON STOCK AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
2
<PAGE>
AVAILABLE INFORMATION
General Instrument Corporation (the "Company") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, files reports, proxy
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information, as well as the
Registration Statement and the consolidated financial statements, schedules and
exhibits thereto, may be inspected and copied at the offices of the Commission
at 450 Fifth Street, N.W., Washington D.C. 20549 and at the following regional
offices of the Commission: 7 World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material or any part thereof may also be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington D.C. 20549 at prescribed rates. The Commission also maintains a Web
site (http://www.sec.gov) from which such reports, proxy statements and other
information concerning the Company may be obtained. The Common Stock is traded
on the New York Stock Exchange ("NYSE") and such reports and other information
may also be inspected at the offices of the NYSE, 20 Broad Street, New York, NY
10005.
The Company has filed with the Commission in Washington, D.C. a Registration
Statement (of which this Prospectus is a part and which term shall encompass any
amendments thereto) on Form S-3 under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the Common Stock offered hereby (the
"Offering"). This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto, certain
portions of which have been omitted as permitted by the rules and regulations of
the Commission. Statements contained herein concerning the provisions of any
document are not necessarily complete; reference is made to the exhibits of the
Registration Statement for a more complete description of the matters involved,
and each such statement shall be deemed qualified in its entirety by such
reference. For further information pertaining to the shares offered hereby and
to the Company, reference is made to the Registration Statement, including the
consolidated financial statements, schedules and exhibits filed as a part
thereof or incorporated therein by reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, and all documents incorporated by reference
therein, filed by the Company with the Commission pursuant to the Exchange Act
are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
2. The Company's Current Report on Form 8-K, dated February 2, 1998;
3. The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 1998 and June 30, 1998, respectively;
4. The description of the Company's Common Stock set forth in its
Registration Statement on Form 8-A, dated April 24, 1997, as amended; and
5. All other documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of
this Prospectus and prior to the termination of the offering covered by
this Prospectus will be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing of such
documents.
The Company will provide, without charge, to each person to whom this
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the information that has been or may be incorporated by reference
in this Prospectus, other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference into such documents). Such requests
should be
3
<PAGE>
directed to the Secretary, General Instrument Corporation, 101 Tournament Drive,
Horsham, PA 19044 (telephone (215) 323-1000).
------------------------
Any statement contained herein or in a document all or a portion thereof
which is incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document or portion thereof which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified shall not be deemed to constitute a part of this Prospectus except as
so modified, and any statement so superseded shall not be deemed to constitute
part of this Prospectus.
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Registration Statement contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 which reflect,
among other things, the Company's current views with respect to its prospects,
its future performance and future events, all of which are subject to risks and
uncertainties. 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".
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 the forward-looking statements. Factors that might cause such a
difference include (i) the factors discussed under "Risk Factors", (ii) the
factors discussed under "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and (iii) the following factors:
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; and authoritative generally accepted accounting
principles or policy changes from such standard-setting bodies as the Financial
Accounting Standards Board and the Commission.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
detailed information and consolidated financial statements and notes thereto
appearing elsewhere in this Prospectus or incorporated by reference herein. On
July 25, 1997, the Company was spun off (the "Distribution") from its former
parent company, General Instrument Corporation (the "Distributing Company"),
under the name "NextLevel Systems, Inc.", through a distribution of the
Company's common stock, par value $.01 per share (the "Common Stock"), to the
stockholders of the Distributing Company. 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". Unless the context otherwise requires, references to
the "Company" or "General Instrument" include General Instrument Corporation and
its direct or indirect subsidiaries and the business of the Company as conducted
by the Distributing Company prior to the Distribution.
THE COMPANY
OVERVIEW
The Company is a leading worldwide provider of integrated and interactive
broadband access solutions and, with its strategic partners and customers, is
advancing the convergence of the Internet, telecommunications and video
entertainment industries. The Company is the world's leading supplier of digital
and analog set-top terminals and 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
television systems for programmers, direct-to-home ("DTH") satellite networks
and private networks for business communications. Through its limited
partnership interest in Next Level Communications, L.P. (the "Partnership"), the
Company provides next-generation broadband telephony network solutions with the
Partnership's NLevel(3)-Registered Trademark- Switched Digital Access System
("NLevel(3)").
BUSINESS STRATEGY
The Company's strategy is to use its technological leadership in providing
secure broadband systems and equipment to enhance its leading position in its
traditional markets while expanding into new markets. This strategy is based on
the belief that (i) consumers in the United States and international markets
will continue to demonstrate an increasing demand for new information and
entertainment services and (ii) content and service providers will continue to
create new bandwidth-intensive video, voice and data applications. The Company's
management believes that these factors will generate a continuing need for
systems and equipment with greater capacity for all networks and architectures.
DEMAND FOR SYSTEMS AND EQUIPMENT SUPPORTING NEW BANDWIDTH INTENSIVE APPLICATIONS
The Company expects the market for systems and equipment supporting new
bandwidth intensive applications to grow significantly as a result of the
availability of new information and entertainment services for consumers.
- CABLE SYSTEM UPGRADES. Cable operators are upgrading their systems to
provide for two-way capabilities and additional capacity in order to provide
advanced services such as Internet access, video-on-demand ("VOD") and
telephony. The cable infrastructure, with its high capacity access into the
home, is regarded as an attractive network for the delivery of advanced
communication and entertainment services. The Company believes that the
commercialization of advanced broadband systems and equipment, which provide for
greatly expanded channel capacity and programming options, improved quality and
security of signal transmission and the capability of delivering enhanced
features and
5
<PAGE>
services, presents a significant opportunity for the Company. Recent
developments in the cable and telecommunications industries, including the
announcement of a proposed merger between AT&T Corporation ("AT&T") and
Tele-Communications, Inc. ("TCI"), Microsoft Corporation's ("Microsoft") $1
billion investment in Comcast Cable Communications, Inc. ("Comcast"), and the
purchase of Marcus Cable and Charter Communications, Inc. ("Charter") by Paul
Allen, a founder of Microsoft, are expected to accelerate cable system operator
spending for these advanced broadband systems to facilitate the offering of
advanced services.
- TELEPHONY DEVELOPMENTS. At the same time cable operators are upgrading
their systems to offer advanced services, Regional Bell Operating Companies and
other telecommunications companies are also seeking a cost-effective way to
deliver standard telephony and advanced services to the home, including
high-speed data/Internet, distance learning and video services. The Company
believes that this presents a significant opportunity for suppliers, such as the
Partnership, which provide integrated broadband access systems that enable these
services from a single access platform.
THE COMPANY'S MARKET LEADERSHIP
The Company has a leading position in providing systems and equipment to the
broadband communications market. Currently, the Company is a leading supplier to
16 of the 20 largest cable television multiple systems operators ("MSOs") in the
United States and believes that it has supplied a majority of the addressable
systems in use by cable television operators in the United States and abroad.
- LEADER OF COMMERCIALIZATION OF DIGITAL BROADBAND SYSTEMS. The Company is
the leading supplier of interactive digital cable television systems. Through
June 30, 1998, the Company had shipped approximately 600 digital cable
television head-end systems, passing approximately 28 million homes, and over
1.4 million two-way interactive digital cable television set-top terminals to
broadband system operators. The Company has entered into definitive agreements,
with an estimated value of $4.5 billion, to supply approximately 15 million
digital set-top terminals to leading North American cable operators, with a
collective subscriber base of over 46 million, over the next three to five
years.
During the second half of 1998 and during 1999, the Company expects to
introduce new two-way interactive set-top terminal models, including terminals
targeted at European and other international cable operators and a high-end
terminal that incorporates a built-in Data-Over-Cable-Service/Interoperability
Specification ("DOCSIS")-compliant cable modem, Internet protocols ("IP") and a
unique triple tuner architecture that will ultimately enable consumers to watch
television, surf the World Wide Web and talk on the telephone simultaneously.
- THE WORLD LEADER IN ANALOG ADDRESSABILITY. The Company is the world's
leading provider of addressable analog set-top systems. The Company's latest
two-way interactive advanced analog terminal provides cable operators with
Internet access, interactive programming guides, CD-quality music, near
video-on-demand ("NVOD"), supplemental sports and entertainment information and
local information-on-demand.
- NEXT GENERATION TELEPHONY. The Partnership, in which the Company has an
89% limited partnership interest, is a leading provider of the next generation
of integrated full service digital loop carrier ("DLC") and fiber-to-the-curb
("FTTC") systems for the delivery of telephony, video and data for local
telephone companies. The Partnership's product, NLevel(3), is designed to permit
the cost effective delivery of a suite of standard telephony and advanced
services, including high-speed data/Internet, distance learning, VOD and video
telephony, to the home from a single access platform. In July 1998, the
Partnership was selected to supply DLC and FTTC systems to U S West
Communications ("U S West") for the delivery of broadband video, high-speed
data/Internet, and basic telephone services. The Company has also contracted to
supply U S West with 450,000 broadband xDSL access lines and to
6
<PAGE>
supply Bell Atlantic Corporation ("Bell Atlantic") with 1,000,000 lines of
telephone service. The Partnership is currently deploying its NLevel(3) products
pursuant to these contracts.
STRATEGIC PARTNER AND CUSTOMER RELATIONSHIPS
The Company recently entered into several strategic relationships, including
equity investments in the Company by large MSOs, which are expected to provide a
strong foundation for future business development and to reinforce the Company's
position as a leading provider of the next generation of broadband
communications equipment and systems.
- CABLE CUSTOMER EQUITY OWNERSHIP. The Company has issued warrants to
purchase approximately 29 million shares of Common Stock to leading North
American cable system operators. These warrants were issued in connection with
the definitive agreements to supply approximately 15 million digital set-top
terminals to such operators. Included among the cable operators entitled to
exercise the warrants upon the purchase of set-top terminals from the Company
are TCI, Time Warner Cable ("Time Warner"), MediaOne of Delaware, Inc.
("MediaOne"), Comcast, Cox Communications, Inc. ("Cox"), Adelphia Communication
Corporation ("Adelphia"), Shaw Communications, Inc. ("Shaw"), Jones Intercable,
Inc. ("Jones") and Charter.
- SET-TOP AUTHORIZATION SERVICES. The Company issued 21,356,000 shares of
its Common Stock to an affiliate of TCI in connection with the Company's
acquisition of the set-top authorization services business that controls the
receipt of cable programming services delivered to subscribers by TCI's Headend
In The Sky-Registered Trademark-. The Company now provides national
authorization services throughout the United States to TCI, its affiliates and
other operators, many with relatively small individual systems that could not
otherwise justify the initial capital investment required to launch a local
digital headend computer control system.
- SONY CORPORATION. The Company has announced plans to enter into a
strategic alliance with Sony Corporation ("Sony") to jointly develop digital
television technologies for cable television devices and high definition
television ("HDTV") products. In addition, the Company plans to incorporate
Sony's Home Network architecture into its advanced digital set-top terminals.
Sony has also agreed to purchase 7.5 million newly issued shares of Common Stock
at a purchase price of $25.00 per share. These transactions are all subject to
the completion of definitive agreements.
- CISCO SYSTEMS, INC. In anticipation of mass distribution of standardized
cable modems, the Company has entered into a working relationship with Cisco
Systems, Inc. ("Cisco Systems") to develop an interoperable DOCSIS-compliant
two-way cable modem network using the Company's cable modems.
- STRATEGIC INVESTMENTS. The Company has made investments in certain
companies that it believes bring strategic value in support of the Company's
business strategy. These investments include an approximately 5% interest in
Broadcom Corporation, a leading developer of highly integrated silicon solutions
that enable broadband transmission of video and high-speed data, and a 7.6%
interest in Wink Communications, Inc., a provider of an enhanced television
broadcasting system that adds interactivity and electronic commerce
opportunities to traditional television programming and advertising.
SELLING STOCKHOLDERS
All of the shares of Common Stock being offered are being sold by certain
stockholders of the Company (collectively, the "Selling Stockholders"). Two
partnerships formed by affiliates of Forstmann Little & Co. ("Forstmann Little")
currently own an aggregate of 21,708,665 shares of Common Stock (approximately
12.5% of the outstanding shares of Common Stock as of July 31, 1998). Prior to
the closing of the Offering, one of such partnerships will distribute (the "FL
Distribution") 11,547,008 shares of Common Stock to the general and limited
partners of such partnership in accordance with the terms
7
<PAGE>
of its partnership agreement. The shares of Common Stock to be sold in the
Offering consist of shares owned by one of the partnerships and shares received
by certain of the partners in the other partnership in the FL Distribution.
Following the consummation of the Offering, the partnerships will no longer own
any shares of Common Stock of the Company. See "Selling Stockholders".
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Selling
Stockholders............................... 17,000,000 shares
Common Stock to be outstanding after the
Offering................................... 173,238,021 shares (1)(2)
Use of proceeds.............................. The Company will not receive any of the
proceeds from the sale of the Common Stock.
See "Use of Proceeds".
NYSE symbol.................................. GIC
</TABLE>
The Company has agreed to repurchase from the Selling Stockholders 2,550,000
shares of Common Stock, less any shares of Common Stock sold pursuant to the
Underwriters' over-allotment option, at a price per share equal to the net
proceeds per share to the Selling Stockholders in the Offering (the "Company
Repurchase").
- ------------------------
1. Based on 173,238,021 shares outstanding on July 31, 1998; does not
include (i) 12,708,622 shares issuable upon the exercise of employee stock
options outstanding as of July 31, 1998, (ii) 28,715,960 shares issuable
pursuant to outstanding warrants issued to certain cable television system
operators, which warrants are not currently exercisable and (iii) 7,500,000
shares expected to be issued to Sony. See "Business--Strategic Partner and
Customer Relationships".
2. Assumes that the Underwriters' over-allotment option is exercised in full
by the Underwriters and that the Company Repurchase does not occur.
RISK FACTORS
Prospective purchasers of the Common Stock should carefully consider the
factors set forth under "Risk Factors" as well as the other information set
forth or incorporated by reference in this Prospectus.
8
<PAGE>
SUMMARY FINANCIAL DATA
The summary consolidated financial data set forth below should be read in
conjunction with the Company's consolidated financial statements and the related
notes thereto, which are included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997 and the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998 and are incorporated herein by
reference, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The consolidated
financial data as of and for the six months ended June 30, 1998 and 1997 are
derived from the unaudited consolidated financial statements of the Company, and
in the opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, except for those charges discussed under "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
necessary for a fair presentation of its financial condition and results of
operations as of such dates and for such periods. The results for the six months
ended June 30, 1998 are not necessarily indicative of the results that may be
expected for the full year. The consolidated financial data as of and for each
of the four years ended December 31, 1997 are derived from the Company's audited
consolidated financial statements. The consolidated financial data for the year
ended December 31, 1993 are derived from unaudited consolidated financial
statements of the Company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 (A) 1997 (B) 1997 (C) 1996 (D) 1995 (E) 1994 (F) 1993
--------- ------------- -------------- ----------- ----------- ----------- ---------
<CAPTION>
(IN THOUSANDS, UNLESS OTHERWISE NOTED, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales........... $ 905,425 $ 858,431 $ 1,764,088 $ 1,755,585 $ 1,532,595 $ 1,275,307 $ 782,960
Cost of sales....... 671,316 627,299 1,336,482 1,349,815 1,079,916 877,667 528,719
--------- ------------- -------------- ----------- ----------- ----------- ---------
Gross profit........ 234,109 231,132 427,606 405,770 452,679 397,640 254,241
Operating expenses:
Selling, general
and
administrative.. 101,768 94,644(g) 215,404(g) 174,432 138,209 102,753 87,389
Research and
development..... 158,169 100,675 207,826 198,071 137,930 104,795 67,610
Purchased
in-process
technology...... -- -- -- -- 139,860 -- --
NLC litigation
costs........... -- -- -- 141,000 -- -- --
Amortization of
excess of cost
over fair value
of net assets
acquired........ 7,123 7,118 14,571 14,278 14,418 14,931 15,027
--------- ------------- -------------- ----------- ----------- ----------- ---------
Operating income
(loss)............ (32,951) 28,695 (10,195) (122,011) 22,262 175,161 84,215
Other income
(expense)--net.... (9,804) (1,853) 5,766 (1,427) (1,737) 1,380 8,944
Interest
expense--net...... (1,264) (13,511)(h) (5,210)(h) (25,970) (22,933) (27,337) (35,026)
--------- ------------- -------------- ----------- ----------- ----------- ---------
Income (loss) before
income taxes and
cumulative effect
of changes in
accounting
principles........ (44,019) 13,331 (9,639) (149,408) (2,408) 149,204 58,133
Cumulative effect of
changes in
accounting
principles........ -- -- -- -- -- (1,445) 216
Benefit (provision)
for income taxes.. 14,090 (7,965) (6,474) 53,098 6,614 (26,710) (8,493)
--------- ------------- -------------- ----------- ----------- ----------- ---------
Net income (loss)... $ (29,929) $ 5,366 $ (16,113) $ (96,310) $ 4,206 $ 121,049 $ 49,856
--------- ------------- -------------- ----------- ----------- ----------- ---------
--------- ------------- -------------- ----------- ----------- ----------- ---------
Loss per share --
basic and
diluted........... $ (0.20)
Pro forma earnings
(loss) per
share (i)......... $ 0.04 $ (0.11) $ (0.65)
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
1998 1997
----------- ----------------
<S> <C> <C>
(IN THOUSANDS, UNLESS
OTHERWISE NOTED)
BALANCE SHEET DATA:
Cash.............................................................................. $ 82,854 $ 35,225
Total assets...................................................................... 1,693,269 1,675,353
Debt.............................................................................. -- --
Stockholders' equity.............................................................. 1,250,308 1,214,811
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
9
<PAGE>
(FOOTNOTES FROM PREVIOUS PAGE)
- ------------------------------
(a) Includes charges of $124 million ($79 million net-of-tax) which consist of
costs related to the closure of various facilities, including the Company's
satellite television manufacturing facility in Puerto Rico, severance and
other employee separation costs, the write-down of certain assets to their
estimated net realizable values and a $75 million charge to fully reserve
for an advance made to the Partnership.
(b) Includes charges of $24 million ($18 million net-of-tax) reflecting
restructuring costs related to dividing the Distributing Company's Taiwan
operations between the Company and General Semiconductor and costs directly
related to the Distribution.
(c) Includes charges of $110 million ($79 million net-of-tax) reflecting
restructuring and other charges primarily related to the closure of various
facilities, including the Company's satellite television manufacturing
facility in Puerto Rico, severance and other employee separation costs, the
write-down of certain assets to their estimated net realizable values and
costs related to dividing the Distributing Company's Taiwan operations
between the Company and General Semiconductor.
(d) Includes charges of $226 million ($145 million net-of-tax) reflecting Next
Level Communications, a California corporation ("NLC"), litigation costs and
other charges primarily related to the transition to the Company's
next-generation digital products and the write-down of certain assets to
their estimated net realizable values.
(e) Includes a charge of $140 million ($90 million net-of-tax) for purchased
in-process technology in connection with the acquisition of NLC.
(f) Includes an income tax benefit of $31 million, as a result of a reduction
in a valuation allowance related to domestic deferred income tax assets.
(g) On a pro forma basis, selling, general and administrative expenses would be
increased by $4 million for the six months ended June 30, 1997 and the year
ended December 31, 1997 to eliminate the allocation of corporate expenses to
CommScope, Inc. ("CommScope") and General Semiconductor, as such costs
subsequent to the Distribution were no longer allocable.
(h) For the periods prior to the Distribution, interest expense -- net includes
an allocation of interest expense from the Distributing Company which was
allocated based upon the Company's net assets as a percentage of the total
net assets of the Distributing Company. On a pro forma basis, interest
expense would be reduced by $10 million and $11 million for the six months
ended June 30, 1997 and the year ended December 31, 1997, respectively, to
eliminate the aforementioned interest allocation and provide for interest
expense on a net debt level of $100 million as of January 1, 1997.
(i) Prior to the Distribution, the Company did not have its own capital
structure, and pro forma per share information has been presented only for
the years ended December 31, 1997 and 1996 and the six months ended June 30,
1997. The pro forma earnings (loss) per share was calculated by dividing the
net income (loss) by the pro forma weighted-average number of shares
outstanding. The pro forma weighted-average number of shares outstanding
used for the year ended December 31, 1996 and the six months ended June 30,
1997 equaled the number of common shares issued and common equivalent
shares, if dilutive, existing on the date of the Distribution, and for the
year ended December 31, 1997, included the number of common shares issued on
the date of the Distribution plus the actual share activity during the
period subsequent to the Distribution.
10
<PAGE>
RISK FACTORS
In addition to the matters described in the documents incorporated by
reference herein, the following risk factors should be considered by prospective
purchasers of the Common Stock offered hereby:
FACTORS RELATING TO THE DISTRIBUTION
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 (which
was then named "NextLevel Systems, Inc." and was a wholly-owned subsidiary 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 and (ii) then distributed all of the
outstanding shares of capital stock of each of the Company and CommScope to its
stockholders in the Distribution. Immediately following the Distribution, the
Distributing Company changed its corporate name to "General Semiconductor,
Inc.". 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.
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
11
<PAGE>
within the industry, the financial condition of domestic cable television system
operators and their access to financing, competition from 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 MSOs 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 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
12
<PAGE>
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 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 a result of a pending
Department of Justice proceeding seeking to 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 telephony 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.
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
13
<PAGE>
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 regarding 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 MSOs, 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 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.
CERTAIN RESTRICTIONS UNDER CREDIT FACILITIES
The Credit Agreement dated as of July 23, 1997, as amended (the "Credit
Agreement"), among the Company, certain banks, and The Chase Manhattan Bank, as
Administrative Agent, contains certain restrictive financial and operating
covenants, including, among others, 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.
14
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of shares of
Common Stock by the Selling Stockholders.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock has been listed on the NYSE since July 28, 1997 and
currently trades under the symbol "GIC". The following sets forth the high and
low sale prices for the Common Stock as reported on the NYSE Composite Tape for
the periods indicated.
<TABLE>
<CAPTION>
COMMON
STOCK PRICE
RANGE
-------------
<S> <C> <C>
HIGH LOW
----- -----
1997
Third Quarter (beginning July 24).............................................. $ 211/2 $ 16
Fourth Quarter................................................................. $ 191/8 $ 125/8
1998
First Quarter.................................................................. $ 22 $ 167/16
Second Quarter................................................................. $ 283/4 $ 193/4
Third Quarter (through August 25).............................................. $ 291/2 $ 247/8
</TABLE>
For a recent sale price for the Common Stock, see the cover page of this
Prospectus.
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying such dividends in the foreseeable future. The Credit Agreement
limits the ability of the Company to pay cash dividends to its stockholders. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources". Any determination to pay cash
dividends in the future will be at the discretion of the Company's Board of
Directors and will depend upon the Company's results of operations, financial
condition, contractual restrictions and other factors deemed relevant at that
time by the Company's Board of Directors.
15
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company and its subsidiaries as of June 30, 1998. This table should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto, incorporated herein by reference, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998(1)
-----------------
<S> <C>
(IN THOUSANDS)
Cash..................................................................... $ 82,854
-----------------
-----------------
Total debt............................................................... $ --
-----------------
-----------------
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
shares issued (2)...................................................... 1,517
Additional paid-in capital............................................... 1,282,428
Accumulated deficit...................................................... (49,165)
Accumulated other comprehensive income, net of taxes of $9,129........... 15,530
Less--Treasury stock, at cost, 6,134 shares of Common Stock.............. (2)
-----------------
Total stockholders' equity............................................. 1,250,308
-----------------
Total capitalization................................................... $ 1,250,308
-----------------
-----------------
</TABLE>
- ------------------------
(1) If the Company Repurchase is consummated in full, on a pro forma basis at
June 30, 1998, cash would be $10,816 and total stockholders' equity and
total capitalization would be $1,178,270, assuming a purchase price of
$28.25 per share, the closing price of the Common Stock on August 25, 1998.
(2) Does not include 21,356,000 shares of Common Stock issued in July 1998 in
connection with an acquisition. See "Business--Business Units--Digital
Network Systems".
16
<PAGE>
SELECTED FINANCIAL DATA
The selected consolidated financial data set forth below should be read in
conjunction with the Company's consolidated financial statements and the related
notes thereto, which are included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997 and the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998 and are incorporated herein by
reference, and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The consolidated
financial data as of and for the six months ended June 30, 1998 and 1997 are
derived from the unaudited consolidated financial statements of the Company, and
in the opinion of management, reflect all adjustments, consisting only of normal
recurring adjustments, except for those charges discussed under "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
necessary for a fair presentation of its financial condition and results of
operations as of such dates and for such periods. The results for the six months
ended June 30, 1998 are not necessarily indicative of the results that may be
expected for the full year. The consolidated financial data as of and for each
of the four years ended December 31, 1997 are derived from the Company's audited
consolidated financial statements. The consolidated financial data as of and for
the year ended December 31, 1993 are derived from unaudited consolidated
financial statements of the Company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------- ----------------------------------------------------------------------------
1998 (A) 1997 (B) 1997 (C) 1996 (D) 1995 (E) 1994 (F) 1993
--------- ------------- -------------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, UNLESS OTHERWISE NOTED, EXCEPT PER SHARE DATA)
STATEMENT OF
OPERATIONS DATA:
Net sales........... $ 905,425 $ 858,431 $ 1,764,088 $ 1,755,585 $ 1,532,595 $ 1,275,307 $ 782,960
Cost of sales....... 671,316 627,299 1,336,482 1,349,815 1,079,916 877,667 528,719
--------- ------------- -------------- ----------- ----------- ----------- ---------
Gross profit........ 234,109 231,132 427,606 405,770 452,679 397,640 254,241
Operating expenses:
Selling, general
and
administrative... 101,768 94,644(g) 215,404(g) 174,432 138,209 102,753 87,389
Research and
development..... 158,169 100,675 207,826 198,071 137,930 104,795 67,610
Purchased
in-process
technology...... -- -- -- -- 139,860 -- --
NLC litigation
costs........... -- -- -- 141,000 -- -- --
Amortization of
excess of cost
over fair value
of net assets
acquired........ 7,123 7,118 14,571 14,278 14,418 14,931 15,027
--------- ------------- -------------- ----------- ----------- ----------- ---------
Operating income
(loss)............ (32,951) 28,695 (10,195) (122,011) 22,262 175,161 84,215
Other income
(expense)--net.... (9,804) (1,853) 5,766 (1,427) (1,737) 1,380 8,944
Interest
expense--net...... (1,264) (13,511)(h) (5,210)(h) (25,970) (22,933) (27,337) (35,026)
--------- ------------- -------------- ----------- ----------- ----------- ---------
Income (loss) before
income taxes and
cumulative effect
of changes in
accounting
principles........ (44,019) 13,331 (9,639) (149,408) (2,408) 149,204 58,133
Cumulative effect of
changes in
accounting
principles........ -- -- -- -- -- (1,445) 216
Benefit (provision)
for income
taxes............. 14,090 (7,965) (6,474) 53,098 6,614 (26,710) (8,493)
--------- ------------- -------------- ----------- ----------- ----------- ---------
Net income (loss)... $ (29,929) $ 5,366 $ (16,113) $ (96,310) $ 4,206 $ 121,049 $ 49,856
--------- ------------- -------------- ----------- ----------- ----------- ---------
--------- ------------- -------------- ----------- ----------- ----------- ---------
Loss per share --
basic and
diluted........... $ (0.20)
Pro forma earnings
(loss) per share
(i)............... $ 0.04 $ (0.11) $ (0.65)
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
---------------------- ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
BALANCE SHEET DATA:
Cash (j).................................. $ 82,854 $ -- $ 35,225 $ -- $ -- $ -- $ --
Total assets.............................. 1,693,269 1,654,127 1,675,353 1,629,736 1,354,338 1,199,002 969,635
Debt (j).................................. -- -- -- -- -- -- --
Other non-current liabilities............. 62,525 205,639 65,730 188,045 75,125 77,890 103,293
Stockholders' equity...................... 1,250,308 1,084,452 1,214,811 1,051,174 926,168 763,895 629,016
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
17
<PAGE>
(FOOTNOTES FROM PREVIOUS PAGE)
- ------------------------------
(a) Includes charges of $124 million ($79 million net-of-tax) which consist of
costs related to the closure of various facilities, including the Company's
satellite television manufacturing facility in Puerto Rico, severance and
other employee separation costs, the write-down of certain assets to their
estimated net realizable values and a $75 million charge to fully reserve
for an advance made to the Partnership.
(b) Includes charges of $24 million ($18 million net-of-tax) reflecting
restructuring costs related to dividing the Distributing Company's Taiwan
operations between the Company and General Semiconductor and costs directly
related to the Distribution.
(c) Includes charges of $110 million ($79 million net-of-tax) reflecting
restructuring and other charges primarily related to the closure of various
facilities, including the Company's satellite television manufacturing
facility in Puerto Rico, severance and other employee separation costs, the
write-down of certain assets to their estimated net realizable values and
costs related to dividing the Distributing Company's Taiwan operations
between the Company and General Semiconductor.
(d) Includes charges of $226 million ($145 million net-of-tax) reflecting NLC's
litigation costs and other charges primarily related to the transition to
the Company's next-generation digital products and the write-down of certain
assets to their estimated net realizable values.
(e) Includes a charge of $140 million ($90 million net-of-tax) for purchased
in-process technology in connection with the acquisition of NLC.
(f) Includes an income tax benefit of $31 million, as a result of a reduction
in a valuation allowance related to domestic deferred income tax assets.
(g) On a pro forma basis, selling, general and administrative expenses would be
increased by $4 million for the six months ended June 30, 1997 and the year
ended December 31, 1997 to eliminate the allocation of corporate expenses to
CommScope and General Semiconductor, as such costs subsequent to the
Distribution were no longer allocable.
(h) For the periods prior to the Distribution, interest expense -- net includes
an allocation of interest expense from the Distributing Company which was
allocated based upon the Company's net assets as a percentage of the total
net assets of the Distributing Company. On a pro forma basis, interest
expense would be reduced by $10 million and $11 million for the six months
ended June 30, 1997 and the year ended December 31, 1997, respectively, to
eliminate the aforementioned interest allocation and provide for interest
expense on a net debt level of $100 million as of January 1, 1997.
(i) Prior to the Distribution, the Company did not have its own capital
structure, and pro forma per share information has been presented only for
the years ended December 31, 1997 and 1996 and the six months ended June 30,
1997. The pro forma earnings (loss) per share was calculated by dividing the
net income (loss) by the pro forma weighted-average number of shares
outstanding. The pro forma weighted-average number of shares outstanding
used for the year ended December 31, 1996 and the six months ended June 30,
1997 equaled the number of common shares issued and common equivalent
shares, if dilutive, existing on the date of the Distribution, and for the
year ended December 31, 1997, included the number of common shares issued on
the date of the Distribution plus the actual share activity during the
period subsequent to the Distribution.
(j) Prior to the Distribution, 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. Accordingly, for the dates presented prior to the
Distribution, no cash or debt balances existed.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS INCORPORATED BY REFERENCE IN THIS PROSPECTUS.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
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.
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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 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 and 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 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 Note (as defined below
under "--Liquidity and Capital Resources"). 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, which includes the BROADBAND TECHNOLOGIES, INC. V. GENERAL INSTRUMENT
CORP. settlement 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 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 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.
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INCOME TAXES. Through the date of the Distribution, 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 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.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1997 WITH THE YEAR ENDED DECEMBER 31,
1996
NET SALES. Net sales for the year ended December 31, 1997 were $1,764
million compared to $1,756 million for the year ended December 31, 1996. Net
sales in 1997 when compared to 1996 reflect higher sales of digital cable
television systems and interactive advanced analog television systems, offset by
lower sales of basic analog cable television systems, cable transmission network
systems, digital satellite receivers and private/commercial network satellite
systems. Analog and digital products represented 58% and 42%, respectively, of
total sales in 1997 compared to 67% and 33%, respectively, of total sales in
1996.
Worldwide broadband sales (consisting of digital and analog cable and
wireless television systems and transmission network systems) increased $112
million, or 10%, to $1,293 million in 1997 primarily as a result of increased
U.S. sales volumes of digital cable television terminals and headends and CFT
advanced analog cable television terminals, partially offset by lower sales of
basic analog cable and transmission network systems. These sales reflect the
increasing commitment of U.S. 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. International broadband sales increased $11 million, or 3%, to $403
million in 1997 and represented 31% of worldwide broadband sales in 1997
compared to 33% in 1996. Worldwide satellite sales of $462 million for the year
ended December 31, 1997 decreased $113 million, or 20%, from 1996 primarily as a
result of lower sales volumes of digital satellite receivers to PRIMESTAR.
International satellite sales increased $41 million, or 59%, to $110 million in
1997, primarily as a result of higher Canadian sales. International satellite
sales represented 24% of worldwide satellite sales in 1997 compared to 12% in
1996. NLC's sales were $9 million in 1997.
GROSS PROFIT. Gross profit increased $22 million, or 5%, to $428 million in
1997 from $406 million in 1996 and was 24% of sales in 1997 compared to 23% in
1996. Gross profit for the year ended December 31, 1997 was reduced by $84
million of charges primarily related to the closure of the Company's Puerto Rico
satellite manufacturing facility, employee costs related to dividing the
Distributing Company's Taiwan operations between the Company and General
Semiconductor and the write-down of inventories to their estimated net
realizable values. Gross profit for the year ended December 31, 1996 was reduced
by $71 million of charges primarily related to the write-down of inventories to
their estimated net realizable values and the accrual of upgrade and product
warranty liabilities in connection with the transition to the Company's
next-generation digital products. The higher gross profit and gross profit
margin in 1997 resulted from higher production volumes and ongoing cost
reduction programs on digital and advanced analog products.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expense was $215 million in 1997
compared to $174 million in 1996 and was 12% of sales in 1997 compared to 10% in
1996. SG&A expense for the year ended December 31, 1997 included $28 million of
charges related to severance and other employee separation costs, costs
associated with the closure of various facilities and legal and other
professional fees incurred in connection with the Distribution, partially offset
by a $5 million credit related to the collection of certain receivables
previously considered to be uncollectible. SG&A expense in 1996 included $14
million of charges primarily related to employee separation costs due to the
Distributing
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Company's plan to separate into three independent companies, the write-down of
various fixed assets to their estimated net realizable values and the settlement
of a litigation matter. SG&A base spending was also greater in 1997 than in 1996
as a result of increased marketing and field support for NLC's NLevel(3)
telephony system and the Company's digital video broadcasting ("DVB") compliant
digital satellite products and increased sales force, field support and
marketing in international cable and satellite television markets.
RESEARCH AND DEVELOPMENT. R&D expense increased $10 million, or 5%, to $208
million in 1997 from $198 million in 1996 and was 12% of sales in 1997 compared
to 11% in 1996. R&D expense for the year ended December 31, 1997 included $9
million of charges primarily related to the write-down of certain assets used in
R&D activities to their estimated net realizable values. R&D spending in 1997
reflects: the continued development of next-generation products, including
high-speed data systems for cable and telephone networks, switched-digital
access systems for fiber and twisted-pair networks, as well as the modification
of existing products for international markets; the continued development of
enhanced addressable analog terminals and advanced digital systems for cable and
satellite television distribution; and product development and international
expansion through strategic alliances. In addition, in 1997, the Company
remained focused on reducing costs and enhancing the features of its digital
cable and satellite television systems.
OTHER INCOME (EXPENSE)--NET. Other income of $6 million for the year ended
December 31, 1997 predominately reflects net investment gains, primarily from
the sale of a portion of the Company's investment in Ciena Corporation.
INTEREST INCOME (EXPENSE)--NET. Net interest expense represents an
allocation of interest expense from the Distributing Company based upon the
Company's net assets as a percentage of the total net assets of the Distributing
Company through July 25, 1997, the date of the Distribution. Net interest
expense allocated to the Company was $15 million for the year ended December 31,
1997 compared to $26 million in 1996. Subsequent to July 25, 1997, net interest
income primarily represents actual interest earned on the Company's net cash
balance and the net reversal of accrued interest subsequent to receiving a
revised final judgment in the suit brought against NLC and the founders of NLC
by DSC Communications Corporation and DSC Technologies Corporation.
On a pro forma basis, interest income was $6 million in 1997 compared to
interest expense of $8 million in 1996.
INCOME TAXES. Through the date of the Distribution, income taxes were
determined as if the Company had filed separate tax returns under its then
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 for income taxes of $6
million and a benefit for income taxes of $53 million for the years ended
December 31, 1997 and 1996, respectively. Excluding the restructuring and other
net charges recorded in 1997 and 1996, the effective tax rates were 38% and 36%,
respectively. The higher effective rate in 1997 resulted from a higher provision
for state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Prior to the Distribution, 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 Distribution, $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
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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 and 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's Credit Agreement 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 will purchase 7.5 million new shares of Common Stock
of the Company for $188 million. See "Business--Strategic Partner and Customer
Relationships--Sony Corporation".
In January 1998, the Company transferred the net assets, principally
technology, and the management and workforce of NLC to the 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 a Partnership note (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. The Company has agreed to make an additional $50
million equity investment in the Partnership, expected to occur on or after
November 1, 1998, to fund the Partnership's growth and assist the Partnership in
meeting its forecasted working capital requirements.
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.
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NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
SEGMENT REPORTING--In June 1997, Statement of Financial Accounting Standard
("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
Financial Accounting Standards Board ("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 revise only 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 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.
FOREIGN EXCHANGE AND 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
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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.
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.
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BUSINESS
The Company is a leading worldwide provider of integrated and interactive
broadband access solutions and, with its strategic partners and customers, is
advancing the convergence of the Internet, telecommunications and video
entertainment industries. The Company is the world's leading supplier of digital
and analog set-top terminals and 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
television systems for programmers, DTH satellite networks and private networks
for business communications. Through its limited partnership interest in the
Partnership, the Company provides next-generation broadband telephony network
solutions with the Partnership's NLevel(3)-Registered Trademark- Switched
Digital Access System. The Company's principal executive offices are located at
101 Tournament Drive, Horsham, Pennsylvania 19044 and the telephone number of
the Company, at such offices, is (215) 323-1000.
BUSINESS STRATEGY
The Company's strategy is to use its technological leadership in providing
secure broadband systems and equipment to enhance its leading position in its
traditional markets while expanding into new markets. This strategy is based on
the belief that (i) consumers in the United States and international markets
will continue to demonstrate an increasing demand for new information and
entertainment services and (ii) content and service providers will continue to
create new bandwidth-intensive video, voice and data applications. The Company's
management believes that these factors will generate a continuing need for
systems and equipment with greater capacity for all networks and architectures.
DEMAND FOR SYSTEMS AND EQUIPMENT SUPPORTING NEW BANDWIDTH INTENSIVE APPLICATIONS
The Company expects the market for systems and equipment supporting new
bandwidth intensive applications to grow significantly as a result of the
availability of new information and entertainment services for consumers.
- CABLE SYSTEM UPGRADES. Cable operators are upgrading their systems to
provide for two-way capabilities and additional capacity in order to provide
advanced services such as Internet access, VOD and telephony. The cable
infrastructure, with its high capacity access into the home, is regarded as an
attractive network for the delivery of advanced communication and entertainment
services. The Company believes that the commercialization of advanced broadband
systems and equipment, which provide for greatly expanded channel capacity and
programming options, improved quality and security of signal transmission and
the capability of delivering enhanced features and services, presents a
significant opportunity for the Company. Recent developments in the cable and
telecommunications industries, including the announcement of a proposed merger
between AT&T and TCI, Microsoft's $1 billion investment in Comcast, and the
purchase of Marcus Cable and Charter by Paul Allen, a founder of Microsoft, are
expected to accelerate cable systems operator spending for these advanced
broadband systems to facilitate the offering of advanced services.
- TELEPHONY DEVELOPMENTS. At the same time as cable operators are upgrading
their systems to offer advanced services, Regional Bell Operating Companies and
other telecommunications companies are also seeking a cost-effective way to
deliver standard telephony and advanced services to the home, including
high-speed data/Internet, distance learning and video services. The Company
believes that this presents a significant opportunity for suppliers, such as the
Partnership, which provide integrated broadband access systems that enable these
services from a single access platform.
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THE COMPANY'S MARKET LEADERSHIP
The Company has a leading position in providing systems and equipment to the
broadband communications market. Currently, the Company is a leading supplier to
16 of the 20 largest MSOs in the United States and believes that it has supplied
a majority of the addressable systems in use by cable television operators in
the United States and abroad.
- LEADER OF COMMERCIALIZATION OF DIGITAL BROADBAND SYSTEMS. The Company is
the leading supplier of interactive digital cable television systems. Through
June 30, 1998, the Company had shipped approximately 600 digital cable
television head-end systems, passing approximately 28 million homes, and over
1.4 million two-way interactive digital cable television set-top terminals to
broadband system operators. The Company has entered into definitive agreements,
with an estimated value of $4.5 billion, to supply approximately 15 million
digital set-top terminals to leading North American cable operators, with a
collective subscriber base of over 46 million, over the next three to five
years.
During the second half of 1998 and during 1999, the Company expects to
introduce new two-way interactive set-top terminal models, including terminals
targeted at European and other international cable operators and a high-end
terminal that incorporates a built-in DOCSIS-compliant cable modem, IP and a
unique triple tuner architecture that will ultimately enable consumers to watch
television, surf the World Wide Web and talk on the telephone simultaneously.
- THE WORLD LEADER IN ANALOG ADDRESSABILITY. The Company is the world's
leading provider of addressable analog set-top systems. The Company's latest
two-way interactive advanced analog terminal provides cable operators with
Internet access, interactive programming guides, CD-quality music, NVOD,
supplemental sports and entertainment information and local
information-on-demand.
- NEXT GENERATION TELEPHONY. The Partnership, in which the Company has an
89% limited partnership interest, is a leading provider of the next generation
of integrated full service DLC and FTTC systems for the delivery of telephony,
video and data for local telephone companies. The Partnership's product,
NLevel(3), is designed to permit the cost effective delivery of a suite of
standard telephony and advanced services, including high-speed data/Internet,
distance learning, VOD and video telephony, to the home from a single access
platform. In July 1998, the Partnership was selected to supply DLC and FTTC
systems to U S West for the delivery of broadband video, high-speed
data/Internet, and basic telephone services. The Company has also contracted to
supply U S West with 450,000 broadband xDSL access lines and to supply Bell
Atlantic with 1,000,000 lines of telephone service. The Partnership is currently
deploying its NLevel(3) products pursuant to these contracts.
STRATEGIC PARTNER AND CUSTOMER RELATIONSHIPS
The Company recently entered into several strategic relationships, including
equity investments in the Company by large MSOs, which are expected to provide a
strong foundation for future business development and to reinforce the Company's
position as a leading provider of the next generation of broadband
communications equipment and systems.
- CABLE CUSTOMER EQUITY OWNERSHIP. The Company has issued warrants to
purchase approximately 29 million shares of Common Stock to leading North
American cable system operators. These warrants were issued in connection with
the definitive agreements to supply approximately 15 million digital set-top
terminals to such operators. Included among the cable operators entitled to
exercise the warrants upon the purchase of set-top terminals from the Company
are TCI, Time Warner, MediaOne, Comcast, Cox, Adelphia, Shaw, Jones and Charter.
- SET-TOP AUTHORIZATION SERVICES. The Company issued 21,356,000 shares of
its Common Stock to an affiliate of TCI in connection with the Company's
acquisition of the set-top authorization services business that controls the
receipt of cable programming services delivered to subscribers by TCI's Headend
In The Sky. The Company now provides national authorization services throughout
the United
27
<PAGE>
States to TCI, its affiliates and other operators, many with relatively small
individual systems that could not otherwise justify the initial capital
investment required to launch a local digital headend computer control system.
- SONY CORPORATION. The Company has announced plans to enter into a
strategic alliance with Sony to jointly develop digital television technologies
for cable television devices and HDTV products. In addition, the Company plans
to incorporate Sony's Home Network architecture into its advanced digital
set-top terminals. Sony has also agreed to purchase 7.5 million newly issued
shares of Common Stock at a purchase price of $25.00 per share. These
transactions are all subject to the completion of definitive agreements.
- CISCO SYSTEMS, INC. In anticipation of mass distribution of standardized
cable modems, the Company has entered into a working relationship with Cisco
Systems to develop an interoperable DOCSIS-compliant two-way cable modem network
using the Company's cable modems.
- STRATEGIC INVESTMENTS. The Company has made investments in certain
companies that it believes bring strategic value in support of the Company's
business strategy. These investments include an approximately 5% interest in
Broadcom Corporation, a leading developer of highly integrated silicon solutions
that enable broadband transmission of video and high-speed data, and a 7.6%
interest in Wink Communications, Inc., a provider of an enhanced television
broadcasting system that adds interactivity and electronic commerce
opportunities to traditional television programming and advertising.
BUSINESS UNITS
The Company is presently organized into four strategic business units:
Digital Network Systems, Advanced Network Systems, Transmission Network Systems
and Satellite Data Network Systems.
DIGITAL NETWORK SYSTEMS. The Company is the world's leading supplier of
secure interactive digital cable television delivery systems. The principal
products of this business unit are: (i) individual network elements, including
consumer set-top terminals and various video, audio and data processing
equipment used in cable operators' headends; (ii) computer equipment, software
and services for securing programming content, downloading software applications
to consumer set-top terminals, authorizing individual subscriber services,
enabling network management and providing interfaces to cable operators' billing
systems; and (iii) system integration services for the custom assembly and test
of Company and third-party hardware and software elements.
North American cable operators began deploying commercial services using the
Company's interactive digital delivery systems in 1996. As of June 30, 1998, the
Company had shipped approximately 600 digital headend systems throughout North
America, passing approximately 28 million homes, and over 1.4 million digital
cable and wireless set-top terminals. In addition, the Company's digital
business is in the early stages of expanding into regions beyond North America
such as Europe, the Middle East, Asia/Pacific and Latin America.
Digital compression technology allows cable operators to provide 6 to 12
times the number of programs per traditional channel slot than is possible using
analog technology. Initial cable operator demand for the Company's digital
products has been the result of the cable operators' ability to offer additional
pay-per-view and other programming choices enabled by such digital compression
technology, the high quality of digital video/audio, electronic program guides
and the potential to offer a wide range of new interactive applications. Several
cable operators are now performing trials of some of these new interactive
applications such as true VOD, Internet access and e-mail. The Company's digital
products are designed with an open architecture so that these new interactive
software applications being developed by a number of third parties can be
downloaded over the cable network to set-top terminals already installed in
consumer homes.
28
<PAGE>
All of the Company's digital cable set-top terminals utilize the digital
transport stream and decode video compliant with the Motion Picture Experts
Group 2 ("MPEG-2") international standard and demodulate
Quadrature-Amplitute-Modulated signals compliant with International
Telecommunications Union international standards. The terminals and delivery
systems also use standards-based interactive communications protocols and the
Company's proprietary access control technology marketed under the
DigiCipher-Registered Trademark- II and MediaCipher-TM- brand names, as well as
decode Dolby Digital-Registered Trademark- audio. As of June 30, 1998, the
Company's digital terminal shipments have consisted of its DCT-1000 and DCT-1200
model cable terminals and DWT-1000 model wireless terminals. All of these
set-top products are two-way terminals capable of real-time, interactive
operation using either a built-in RF return modem or optional telephone return
modem. Additionally, all of these set-top products are compatible with the
existing installed base of the Company's set-top products. Such compatability
enhances security, reduces operating costs and improves bandwidth utilization.
The Company expects to introduce new two-way interactive set-top terminal
models during the second half of 1998 and during 1999. The DVi-2000 model, which
includes DVB-compliant technologies such as Musicam-Registered Trademark- audio
decoding, is targeted at European and other international cable operators. The
DCT-2000 model is an evolution of the DCT-1000 and DCT-1200 product line that
includes a faster microprocessor, enhanced graphics and expanded application
memory. The DCT-5000+ model is a high-end terminal that incorporates a built-in
DOCSIS compliant cable modem, IP and a unique triple tuner architecture that
ultimately will enable consumers to watch television, surf the World Wide Web
and talk on a telephone simultaneously.
The Company has completed definitive agreements with leading North American
cable operators to supply approximately 15 million digital set-top terminals,
consistent with the cable industry's OpenCable initiative, over the next three
to five years, with an estimated value of $4.5 billion. The Company has issued
warrants to purchase approximately 29 million shares of the Company's Common
Stock to these cable operators in connection with such agreements. Included
among the cable operators entitled to purchase set-top terminals from the
Company under these agreements are TCI, Time Warner, MediaOne, Comcast, Cox,
Adelphia, Shaw, Jones, Charter, Suburban Cable Company, Intermedia Cable and
Bresnan Communications Company, with a collective subscriber base of over 46
million.
In July 1998, the Company completed its acquisition from affiliates of TCI
of certain physical assets and a license of associated intellectual property to
enable it to provide the set-top authorization services that control the receipt
of cable programming services delivered to subscribers by TCI's Headend In The
Sky. The Company issued 21,356,000 shares of its Common Stock to an affiliate of
TCI in exchange for this acquisition. The Company now provides national
authorization services throughout the United States to TCI, its affiliates and
other operators, many with relatively small individual systems that could not
otherwise justify the initial capital investment required to launch a local
digital headend computer control system. The Company continues to supply its
internally developed DAC-6000 model controller for local and regional
authorization systems solutions for individual operators with larger individual
subscriber bases.
ADVANCED NETWORK SYSTEMS. The Company is the world's leading provider of
addressable analog set-top systems which enable cable operator control and
subscriber access to a number of advanced entertainment services and features.
The principal products of this business unit are consumer set-top terminals and
the associated central office headend computer and processing equipment. Use of
these addressable systems enables operators to provide a suite of service
offerings, from pay-per-view and multiple tiers of programming services, through
advanced video, audio and data entertainment services.
Beginning in early 1995, the Company began shipping its latest generation
CFT system, the CFT2200 interactive advanced analog system, adding a new level
of service offering to the prior analog platforms. The CFT2200 two-way
interactive advanced analog terminal provides cable operators with
29
<PAGE>
the most complete set of functionality available today over an analog platform,
including Internet access, interactive programming guides, CD-quality music,
NVOD, supplemental sports and entertainment information and local
information-on-demand. The Company shipped approximately 1.6 million CFT
advanced analog terminals for the six months ended June 30, 1998 and
approximately 3.2 million CFT advanced analog terminals for the year ended
December 31, 1997.
The Company provides addressable analog set-top systems throughout the
world, and is the market leader in North and South America, Europe, and Asia
with the CFT advanced platform. Market share in the U.S. analog addressable
market has exceeded 50% for the last several years, both in the traditional and
advanced product segments. While management expects that the Company's advanced
analog cable products will continue to meet cable and wireless operator demands
worldwide for several years, due to the anticipated increased availability and
use of digital cable products, the Company expects that demand in North America
for its traditional analog cable products will continue to decline.
TRANSMISSION NETWORK SYSTEMS. The Company's transmission products provide
end-to-end solutions that enable the transformation of the traditional cable
television network to a two-way, fiber-rich, high speed voice/video/data
network. Transmission products include headend signal processing equipment,
distribution amplifiers, fiber optic transmission equipment and passive
components for wired television distribution systems.
The Company's management expects cable television operators in the United
States and abroad to continue to upgrade their basic networks and invest in new
system capacity primarily to compete with other television programming sources,
such as DTH, as well as to capitalize on the rapid growth in demand for
high-speed Internet access. Further opportunities exist internationally where
cable penetration is low and demand for both entertainment and high speed
internet access is growing.
SATELLITE DATA NETWORK SYSTEMS. The Company is a leading provider of
digital satellite television systems for programmers, DTH satellite network
providers and private networks for business communications and distance
learning. It offers a broad product line of digital compression and transmission
systems including MPEG-2, DVB and Advanced Television Systems Committee
compliant solutions. The Company is also a leader in the development of
high-speed data networks.
DIGITAL AND ANALOG SATELLITE PRODUCTS. The Company designs, manufactures
and sells analog and digital satellite uplink and downlink products for
commercial and consumer use. Using the Company's DigiCipher II digital
technology, commercial customers are able to compress their video, audio and
data transmissions resulting in significant cost savings over traditional analog
transmission. The Company also offers state-of-the-art network management and
access control products and services allowing program packagers to efficiently
and cost-effectively manage customer transactions and securely transmit their
programming to only authorized end-users. The Company is the leading
manufacturer of access control and scrambling and descrambling equipment used by
television programmers for the satellite distribution of proprietary
programming.
The Company is the sole supplier of digital satellite receivers and digital
satellite encoders to DTH provider PRIMESTAR and a leading supplier of digital
satellite encoders for DTH provider DIRECTV-Registered Trademark-. The Company
is also a leading supplier of digital satellite systems to private networks for
such applications as business communications and distance learning.
The analog satellite products of the Company are the exclusive systems for
the distribution of encrypted C-band (large dish) satellite-delivered
programming to cable television operators and large-diameter backyard satellite
dish owners. Sales of analog consumer descramblers have declined, as expected,
to minimal levels over the past two years, and are expected to continue to
decline as a result of the availability of competing digital satellite video
services. The Company introduced its first digital descramblers for the backyard
C-band market in 1997. This product, called 4DTV-Registered Trademark-, allows
C-band dish owners to take advantage of the wealth of digital programming now
being transmitted by satellite. There
30
<PAGE>
can be no assurance, however, as to the degree of market acceptance of this new
product. To date, significant quantities of 4DTV have not been shipped.
HIGH SPEED DATA NETWORKS. The Company's management believes that the rapid
growth in personal computer ownership and, in particular, usage of on-line and
Internet access services, has created a demand for increased data transmission
speeds. The Company's high-speed cable modem is capable of delivering
information through the cable television network at speeds significantly faster
than a traditional telephone modem, while delivering instructions and other
information upstream from the consumer over telephone lines. The Company has
become the first company to market cable modems with a major national computer
retailer--CompUSA. In addition, in anticipation of mass distribution of
standardized cable modems, the Company has entered into a working relationship
with Cisco Systems to develop an interoperable DOCSIS-compliant two-way cable
modem network using the Company's cable modems.
NEXT LEVEL COMMUNICATIONS, L.P.
The Partnership is a leading provider of next-generation integrated full
service DLC and FTTC systems for the delivery of telephony, video and data for
local telephone companies, including Bell Atlantic and U S West. The
Partnership's product, NLevel(3), is designed to permit the cost effective
delivery of a suite of standard telephony and advanced services, including
high-speed data/Internet, distance learning, VOD and video telephony, to the
home from a single access platform.
In the fourth quarter of 1996, NLC entered into an agreement with a
subsidiary of NYNEX Corporation, now Bell Atlantic, pursuant to which the
Partnership will supply its NLevel(3) system for one million lines of telephone
service in metropolitan New York City and Boston. Initial deployment for the
greater Boston area began in the first quarter of 1997. Bell Atlantic also has
options to extend its deployment of the NLevel(3) system to up to five million
lines. In the third quarter of 1997 NLC entered into an agreement with U S West,
pursuant to which the Partnership will supply its NLevel(3) system for 450,000
lines of broadband xDSL access. In addition, in July 1998, U S West selected the
Partnership to supply DLC and FTTC systems for the delivery of broadband video,
high-speed data/Internet, and basic telephone services.
In January 1998, the Company transferred the business of NLC, including its
net assets, principally technology, and its management and workforce to the
Partnership in exchange for approximately an 89% limited partnership interest
(subject to additional dilution). An entity controlled by Spencer Trask & Co.,
the operating general partner, acquired approximately an 11% interest in the
Partnership and has the potential to acquire up to an additional 11% in the
future. Pursuant to an agreement entered into in July 1998, the Company has
agreed to make an additional $50 million equity investment in the Partnership,
expected to occur on or after November 1, 1998, which will increase its limited
partnership interest to more than 90%. 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.
31
<PAGE>
MANAGEMENT
BOARD OF DIRECTORS OF THE COMPANY
Set forth below, in alphabetical order, are the persons who currently serve
as directors of the Company, each of whom has served since the Distribution.
Theodore J. Forstmann intends to resign as a director in conjunction with, and
prior to the consummation of, the Offering.
<TABLE>
<CAPTION>
TERM
NAME AGE EXPIRES POSITION
- ----------------------------------- --- ----------- -----------------------------------
<S> <C> <C> <C>
Edward D. Breen.................... 42 2001 Chairman of the Board, President
and
Chief Executive Officer
John Seely Brown................... 58 1999 Director
Frank M. Drendel................... 53 1999 Director
Lynn Forester...................... 44 1999 Director
Theodore J. Forstmann.............. 58 2000 Director
Alex J. Mandl...................... 54 2001 Director
J. Tracy O'Rourke.................. 63 2000 Director
</TABLE>
Edward D. Breen became Chairman of the Board, President and Chief Executive
Officer of the Company in December 1997, after having served as Acting Chief
Executive Officer and President since October 1997. He was President of the
Distributing Company's Broadband Networks Group from February 1996 and Vice
President of the Distributing Company from November 1994 until July 1997. He
continued in such positions for the Company through October 1997. He was
Executive Vice President, Terrestrial Systems of the Distributing Company from
October 1994 to January 1996 and Senior Vice President of Sales of the
Distributing Company from June 1988 to October 1994. He is a director of
CommScope.
John Seely Brown was a director of the Distributing Company from July 1993
to July 1997. He has been Chief Scientist of Xerox Corporation ("Xerox") since
1992 and Corporate Vice President of Xerox since 1990. He is also the director
of the Xerox Palo Alto Research Center. He is a Fellow of the American
Association for Artificial Intelligence and a member of the National Academy of
Education. He is a director of Corning, Inc. and Varian Associates, Inc.
Frank M. Drendel was a director of the Distributing Company from March 1992
until July 1997 and was a director of General Instrument Corporation of
Delaware, Inc. ("GI Delaware"), a subsidiary of the Distributing Company, and
its predecessors from 1987 to March 1992. He has served as Chairman and Chief
Executive Officer of CommScope since July 1997, Chairman and President of
CommScope, Inc. of North Carolina ("CommScope NC") from 1986 to July 1997, and
Chief Executive Officer of CommScope NC since 1976.
Lynn Forester was a director of the Distributing Company from February 1995
until July 1997. She has been President and Chief Executive Officer of FirstMark
Holdings, Inc. since 1984. From 1989 to December 1994, she was Chairman and
Chief Executive Officer of TPI Communications International, Inc., a radio
common carrier and paging company. She is a director of Gulfstream Aerospace
Corporation and Vice Chairman of the Corporate Commission on Educational
Technology.
Theodore J. Forstmann was a director of GI Delaware from August 1990 to
March 1992, and was a director of the Distributing Company from March 1992 until
July 1997. He has been a General Partner of FLC Partnership, L.P., the General
Partner of Forstmann Little, since he co-founded Forstmann Little in 1978. He is
Chairman of the Board of Gulfstream Aerospace Corporation.
Alex J. Mandl was a director of the Distributing Company from December 1996
until July 1997. Mr. Mandl is Chairman and Chief Executive Officer of Teligent,
Inc. He was Chairman and Chief Executive Officer of Associated Communications,
the predecessor of Teligent, Inc., from September 1996 until
32
<PAGE>
June 1997; Mr. Mandl served with AT&T, as President and Chief Operating Officer
from January 1996 to August 1996; from 1993 to 1995, as Executive Vice President
of AT&T and Chief Executive Officer of AT&T Communications Services Group; and
from 1991 to 1993, as Chief Financial Officer and Group Executive of AT&T. He is
a director of Warner-Lambert Company, Carnegie Hall and WETA-TV-FM Washington.
J. Tracy O'Rourke was a director of GI Delaware from September 1990 to March
1992, and was a director of the Distributing Company from March 1992 until July
1997. He has been Chairman and Chief Executive Officer of Varian Associates,
Inc., a manufacturer of health care systems, semiconductor manufacturing
equipment and analytical instruments, since 1990. He is a director of National
Semiconductor Corp.
EXECUTIVE OFFICERS
Set forth below are the persons who currently serve as executive officers of
the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Edward D. Breen....................... 42 Chairman of the Board, President and Chief
Executive Officer
Robert D. Cromack..................... 55 Senior Vice President, Manufacturing and
Procurement
Scott A. Crum......................... 42 Senior Vice President, Administration and
Employee Resources
Thomas J. Lynch....................... 43 Senior Vice President and General Manager,
Satellite Data Network Systems
Daniel M. Moloney..................... 39 Senior Vice President and General Manager,
Advanced Network Systems
Eric M. Pillmore...................... 45 Senior Vice President, Finance and Chief
Financial Officer
G. Bickley Remmey, III................ 39 Senior Vice President and General Manager,
Transmission Network Systems
David E. Robinson..................... 39 Senior Vice President and General Manager,
Digital Network Systems
Geoffrey S. Roman..................... 46 Executive Vice President
Marc E. Rothman....................... 33 Vice President and Controller
Robert A. Scott....................... 48 Senior Vice President, Legal and Secretary
Richard C. Smith...................... 53 Executive Vice President and Treasurer
Keith A. Zar.......................... 44 Senior Vice President and General Counsel
</TABLE>
Edward D. Breen became Chairman of the Board, President and Chief Executive
Officer of the Company in December 1997, after having served as Acting Chief
Executive Officer and President since October 1997. He has held various
positions with the Company and the Distributing Company since 1978.
Robert D. Cromack became Senior Vice President, Manufacturing and
Procurement of the Company in October 1997 and was elected as an executive
officer in such position in April 1998. He has held various positions with the
Company and the Distributing Company since 1966.
Scott A. Crum became Senior Vice President, Administration and Employee
Resources of the Company in April 1998, and from December 1997 to April 1998 he
was Vice President, Administration and Employee Resources of the Company. He has
held various positions with the Company and the Distributing Company since 1995.
33
<PAGE>
Thomas J. Lynch became Senior Vice President and General Manager, Satellite
Data Network Systems of the Company in April 1998. He was Vice President and
General Manager, Satellite Data Networks Systems of the Company from October
1997 to April 1998. He has held various positions with the Company and the
Distributing Company since 1982.
Daniel M. Moloney became Senior Vice President and General Manager, Advanced
Network Systems of the Company in April 1998. He became Vice President and
General Manager, Advanced Network Systems of the Distributing Company's Advanced
Network Systems business unit in August 1995 and continued in that position with
the Company after the Distribution until April 1998. He has held various
positions with the Company and the Distributing Company since 1983.
Eric M. Pillmore became Senior Vice President, Finance and Chief Financial
Officer of the Company in April 1988, and from December 1997 to April 1998 he
was Acting Chief Financial Officer and Vice President, Finance of the Company.
Previously, he was Vice President, Finance of the Communications division of the
Distributing Company from the time he joined the Distributing Company in 1996
until December 1997.
G. Bickley Remmey, III became Senior Vice President and General Manager,
Transmission Network Systems of the Company in April 1998. He became Vice
President and General Manager, Transmission Network Systems business unit of the
Company in October 1997. He has held various positions with the Company and the
Distributing Company since 1987.
David E. Robinson became Senior Vice President and General Manager, Digital
Network Systems of the Company in April 1998. He became Vice President and
General Manager, Digital Network Systems of the Distributing Company's Digital
Network Systems business unit in November 1995 and continued in that position
with the Company after the Distribution until April 1998. He has held various
positions with the Company and the Distributing Company from 1983 to 1993 and
since 1995.
Geoffrey S. Roman became Executive Vice President of the Company in April
1998, and from July 1997 to April 1998 he was Vice President of the Company. He
has held various positions with the Company and the Distributing Company since
1982.
Marc E. Rothman became Vice President and Controller of the Company in July
1998. He became Deputy Corporate Controller when he joined the Distributing
Company in February 1995 and continued in that position with the Company after
the Distribution until July 1998.
Robert A. Scott became Senior Vice President, Legal and Secretary of the
Company in April 1998, and from December 1997 to April 1998 he was Vice
President, Legal and Secretary of the Company. He has held various positions
with the Company and the Distributing Company since 1992.
Richard C. Smith became Executive Vice President and Treasurer of the
Company in April 1998, and from July 1997 to April 1998 he was Vice President,
Business Development and Treasurer of the Company. He has held various positions
with the Company and the Distributing Company since 1983.
Keith A. Zar became Senior Vice President and General Counsel of the Company
in April 1998, and from July 1997 to April 1998 he was Vice President and
General Counsel of the Company. Previously, he was Assistant General Counsel
from the time he joined the Distributing Company in 1993 until July 1997.
34
<PAGE>
SELLING STOCKHOLDERS
Forstmann Little & Co. Subordinated Debt and Equity Management Buyout
Partnership-IV ("MBO-IV") and Instrument Partners, two partnerships formed by
affiliates of Forstmann Little, currently own an aggregate of 21,708,665 shares
of Common Stock (approximately 12.5% of the outstanding shares of Common Stock
as of July 31, 1998). Prior to the closing of the Offering, Instrument Partners
will consummate the FL Distribution, by distributing 11,547,008 shares of Common
Stock to its individual partners, in accordance with the terms of its
partnership agreement. The shares of Common Stock to be sold in this Offering
consist of shares owned by MBO-IV and shares received in the FL Distribution by
certain partners of Instrument Partners or their subsequent distributees.
Following the consummation of the Offering, MBO-IV and Instrument Partners will
no longer own any shares of Common Stock of the Company.
The Company has entered into an agreement, dated , 1998, with the
Selling Stockholders pursuant to which it has agreed to repurchase from the
Selling Stockholders 2,550,000 shares of Common Stock, less the amount of any
shares sold pursuant to the Underwriters' over-allotment option, at a price per
share equal to the net proceeds per share to the Selling Stockholders in the
Offering.
The following table sets forth certain information as of July 15, 1998
regarding the beneficial ownership of Common Stock (i) immediately prior to the
consummation of the Offering (assuming the FL Distribution had occurred), and
(ii) as adjusted to reflect the sale of the shares of Common Stock pursuant to
the Offering by each Selling Stockholder participating in the Offering. Except
as otherwise indicated, the persons or entities listed below have sole voting
and investment power with respect to all shares of Common Stock beneficially
owned by them, except to the extent such power may be shared with a spouse. None
of the Selling Stockholders has held a position or office or had a material
relationship with the Company since the Distribution other than as a result of
the ownership of shares of Common Stock or interests in MBO-IV or Instrument
Partners.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY PERCENTAGE NUMBER OF BENEFICIALLY
OWNED BEFORE BEFORE THE SHARES BEING OWNED AFTER
NAME THE OFFERING(1) OFFERING(1)(2) OFFERED(1)(3) THE OFFERING(1)
- ---------------------------------------- ------------------- ------------------- --------------- -------------------
<S> <C> <C> <C> <C>
MBO-IV.................................. 10,161,657 5.9% 10,161,657 --
Bankers Trust Company as Trustee for the
GTE Service Corporation Plans for
Employees' Pensions(5)................ 228,397 * 228,397 --
Boston Safe Deposit and Trust Company as
Trustee for the Employee Retirement
Income Plan Trust of Minnesota Mining
and Manufacturing Company(5).......... 721,019 * 228,397 492,622
Citibank F.S.B., solely as Directed
Trustee of the Delta Master
Trust(5).............................. 423,397 * 228,397 195,000
General Electric Pension Trust(5)....... 2,349,794 1.4 2,283,966 65,828
Kodak Retirement Income Plan(5)......... 228,397 * 228,397 --
Leeway & Co. c/o State Street Bank &
Trust Company(5)...................... 276,376 * 274,076 2,300
New York State Common Retirement
Fund(5)............................... 685,190 * 685,190 --
<CAPTION>
PERCENTAGE
AFTER THE
NAME OFFERING (1)(2)(4)
- ---------------------------------------- ---------------------
<S> <C>
MBO-IV.................................. --
Bankers Trust Company as Trustee for the
GTE Service Corporation Plans for
Employees' Pensions(5)................ --
Boston Safe Deposit and Trust Company as
Trustee for the Employee Retirement
Income Plan Trust of Minnesota Mining
and Manufacturing Company(5).......... *
Citibank F.S.B., solely as Directed
Trustee of the Delta Master
Trust(5).............................. *
General Electric Pension Trust(5)....... --
Kodak Retirement Income Plan(5)......... --
Leeway & Co. c/o State Street Bank &
Trust Company(5)...................... *
New York State Common Retirement
Fund(5)............................... --
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY PERCENTAGE NUMBER OF BENEFICIALLY
OWNED BEFORE BEFORE THE SHARES BEING OWNED AFTER
NAME THE OFFERING(1) OFFERING(1)(2) OFFERED(1)(3) THE OFFERING(1)
- ---------------------------------------- ------------------- ------------------- --------------- -------------------
<S> <C> <C> <C> <C>
Northern Trust Company as Trustee for
the TI Employees Pension Trust(5)..... 228,397 * 228,397 --
State of Wisconsin Investment
Board(5).............................. 528,397 * 228,397 300,000
United Technologies Corporation Master
Retirement Trust(5)................... 182,718 * 182,718 --
Additional Selling Stockholders
receiving shares in the FL
Distribution (approximately 50
persons), each of whom is selling less
than shares in the Offering and
will beneficially own less than 1% of
the outstanding Common Stock after the
Offering(5)........................... 6,750,676 3.9% 4,592,011 2,158,665
<CAPTION>
PERCENTAGE
AFTER THE
NAME OFFERING (1)(2)(4)
- ---------------------------------------- ---------------------
<S> <C>
Northern Trust Company as Trustee for
the TI Employees Pension Trust(5)..... --
State of Wisconsin Investment
Board(5).............................. *
United Technologies Corporation Master
Retirement Trust(5)................... --
Additional Selling Stockholders
receiving shares in the FL
Distribution (approximately 50
persons), each of whom is selling less
than shares in the Offering and
will beneficially own less than 1% of
the outstanding Common Stock after the
Offering(5)........................... 1.2%
</TABLE>
- --------------------------
* The percentage of shares of Common Stock beneficially owned does not exceed
one percent of the outstanding shares of Common Stock.
(1) For purposes of this table, a person or group of persons is deemed to have
"beneficial ownership" of any shares of Common Stock that such person or
persons has the right to acquire within 60 days following July 15, 1998. For
purposes of computing the percentage of outstanding shares of Common Stock
held by each person or group of persons named above, any shares which such
person or persons has or have the right to acquire within 60 days following
July 15, 1998 are deemed to be outstanding, but are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Based on 173,238,021 shares outstanding on July 31, 1998.
(3) Assumes that the Underwriters' over-allotment option is exercised in full by
the Underwriters or that the Company Repurchase occurs.
(4) Assumes that the Underwriters' over-allotment option is exercised in full by
the Underwriters and that the Company Repurchase does not occur.
(5) All shares numbers and percentages are estimated and will be determined at
the time of the FL Distribution.
36
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Pursuant to the Restated Certificate of Incorporation of the Company, the
authorized capital stock of the Company consists of (i) 400,000,000 shares of
Common Stock, of which 173,238,021 shares were issued and outstanding as of July
31, 1998 and (ii) 20,000,000 shares of preferred stock, $.01 par value per share
("Preferred Stock"), none of which were issued and outstanding as of such date.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share owned of
record on all matters submitted to a vote of stockholders. There are no
cumulative voting rights. Accordingly, the holders of a majority of the shares
voting for the election of directors can elect all the directors if they choose
to do so, subject to any voting rights of holders of Preferred Stock to elect
directors. Subject to the preferential rights of any outstanding series of
Preferred Stock, and to any restrictions on payment of dividends imposed by the
Credit Agreement, the holders of Common Stock will be entitled to such dividends
as may be declared from time to time by the Board from funds legally available
therefor, and will be entitled, after payment of all prior claims, to receive
PRO RATA all assets of the Company upon the liquidation, dissolution or winding
up of the Company. Holders of Common Stock have no redemption or conversion
rights or preemptive rights to purchase or subscribe for securities of the
Company. Certain provisions of the Certificate of Incorporation and By-Laws of
the Company have the effect of making more difficult an acquisition of control
of the Company in a transaction not approved by the Board of Directors.
PREFERRED STOCK
The authorized capital stock of the Company includes 20,000,000 shares of
Preferred Stock, none of which are currently issued or outstanding. The Board is
authorized to divide the Preferred Stock into series and, with respect to each
series, to determine the preferences and rights and the qualifications,
limitations or restrictions thereof, including the dividend rights, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
sinking fund provisions, the number of shares constituting the series and the
designation of such series. The Board could, without stockholder approval, issue
Preferred Stock with voting and other rights that could adversely affect the
voting power of the holders of Common Stock and which could have certain
antitakeover effects.
In connection with the Rights Plan (as defined below), the Board has
authorized 400,000 shares of Series A Junior Participating Preferred Stock (the
"Series A Preferred"). No shares of Series A Preferred are outstanding. For a
description of the rights, powers and preferences of the Series A Preferred, see
"--Rights Plan."
RIGHTS PLAN
On June 10, 1997, the Board adopted a stockholder rights plan (the "Rights
Plan") pursuant to which one right (collectively, the "Rights") to purchase one
one-thousandth of a share of Series A Preferred would be distributed as a
dividend for each outstanding share of Common Stock at a purchase price of
$85.00 per one one-thousandth of a share of Series A Preferred, subject to
adjustment. The Rights are issuable on the terms and subject to the conditions
set forth in the Rights Plan. The Rights will expire no later than on the tenth
anniversary of the adoption of the Rights Plan in 2007. The Rights will be
exercisable on the earlier to occur of (i) the first date of public announcement
that a person or "group" (other than FLC Entities (as defined below) to the
extent FLC Entities, individually or as a group, beneficially own no more than
20% of the then outstanding Common Stock) has acquired beneficial ownership of
15% or more of the outstanding Common Stock (except pursuant to a Permitted
Offer, as defined in the Rights Plan) (an "Acquiring Person"); and (ii) ten
business days (or such later date as the Board may determine) following the
commencement of, or announcement of an intention to commence,
37
<PAGE>
a tender offer or exchange offer the consummation of which would result in a
person or group becoming an Acquiring Person. On December 16, 1997, in
connection with the transactions (the "Transaction") between affiliates of TCI
and the Company, the Rights Plan was amended to provide that, for so long as (i)
TCI and its subsidiaries do not acquire beneficial ownership of any Common Stock
other than pursuant to the Transaction, or (ii) after giving effect to the
acquisition of the beneficial ownership of any Common Stock by TCI or a
subsidiary of TCI other than pursuant to the Transaction, the shares of Common
Stock beneficially owned by TCI and its subsidiaries in the aggregate do not
exceed 35% of the then outstanding shares of Common Stock, TCI and its
subsidiaries shall not constitute an Acquiring Person for purposes of the Rights
Plan. "FLC Entities" means Instrument Partners, MBO-IV, Theodore J. Forstmann,
Nicholas C. Forstmann, Wm. Brian Little, Steven B. Klinsky, Sandra J. Horbach,
Winston W. Hutchins and Thomas H. Lister and their affiliates and associates who
or which are considered as one person and references to the FLC Entities include
any or all such persons.
If any person or group becomes an Acquiring Person or commences a tender
offer upon consummation of which such person or group would become an Acquiring
Person, each Right not owned by such Acquiring Person or certain related parties
would entitle its holder to purchase, at the Right's then current exercise
price, shares of Common Stock, or, in the discretion of the Board, the number of
one one-thousandths of a share of Series A Preferred having a value of twice the
Right's exercise price. In addition, if, after a person or group becomes an
Acquiring Person, the Company is involved in a merger or other business
combination transaction in which the holders of all of the outstanding Common
Stock immediately prior to the consummation of the transaction are not the
holders of the surviving corporation's voting power or more than 50% of the
Company's assets or earning power is sold or transferred, each Right will
entitle its holder to purchase common shares of the acquiring company having a
value equal to two times the Right's then current exercise price.
The purchase price payable, and the shares issuable, upon exercise of the
Rights will be subject to adjustment from time to time as specified in the
Rights Plan. The Company will generally be entitled to redeem the Rights in
whole, but not in part, at $0.01 per Right at any time prior to the earlier to
occur of (i) a person becoming an Acquiring Person or (ii) expiration of the
Rights.
Shares of Series A Preferred purchasable upon exercise of the Rights will
not be redeemable. Each Share of Series A Preferred will be entitled to a
minimum preferential quarterly dividend payment of $10.00 per share but, if
greater, will be entitled to an aggregate dividend per share of 1,000 times the
dividend declared per share of Common Stock. In the event of liquidation of the
Company, the holders of Series A Preferred will be entitled to a minimum
preferential liquidation payment of $100.00, provided that they will be entitled
to an aggregate payment per share of at least 1,000 times the aggregate payment
made per share of Common Stock. Each share of Series A Preferred will have one
thousand votes, voting together with the Common Stock. These rights are
protected by customary antidilution provisions. In the event that the amount of
accrued and unpaid dividends on the Series A Preferred is equivalent to at least
six full quarterly dividends, the holders of the Series A Preferred will have
the right, voting as a class, to elect two directors in addition to the
directors elected by the holders of Common Stock until all dividends in default
on the Series A Preferred have been paid in full and dividends for the current
dividend period declared and funds therefor set apart.
TRANSFER AGENT
The Transfer Agent for the Common Stock is ChaseMellon Shareholder Services,
L.L.C.
38
<PAGE>
VALIDITY OF COMMON STOCK
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Fried, Frank, Harris, Shriver & Jacobson (a partnership
including professional corporations), One New York Plaza, New York, New York
10004-1980, and for the Underwriters by Sullivan & Cromwell, 125 Broad Street,
New York, New York 10004. Fried, Frank, Harris, Shriver & Jacobson renders legal
services to Forstmann Little on a regular basis.
EXPERTS
The consolidated financial statements and the related financial statement
schedule, incorporated in this Prospectus by reference from the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports, which
are incorporated herein by reference and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
39
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Selling Stockholders have agreed to sell to each of the Underwriters named
below, and each of such Underwriters, for whom Goldman, Sachs & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Lazard Freres & Co. LLC are
acting as representatives, has severally agreed to purchase from the Selling
Stockholders, the respective number of shares of Common Stock set forth opposite
its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITERS COMMON STOCK
- ----------------------------------------------------------- -------------------
<S> <C>
Goldman, Sachs & Co........................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................
Lazard Freres & Co. LLC....................................
-------------------
Total.................................................. 17,000,000
-------------------
-------------------
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
The Selling Stockholders have granted the Underwriters an option exercisable
for 30 days after the date of this Prospectus to purchase, at the initial public
offering price per share less any underwriting discount as set forth on the
cover page of this Prospectus, up to an aggregate of 2,550,000 additional shares
of Common Stock to cover over-allotments, if any. If the Underwriters exercise
their over-allotment option, the Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares to be purchased by each of them, as shown in the foregoing
table, bears to the 17,000,000 shares of Common Stock offered.
The Company and the Selling Stockholders have agreed that, during the period
beginning from the date of this Prospectus and continuing to and including the
date 90 days after the date of the Prospectus, they will not offer, sell,
contract to sell or otherwise dispose of any securities of the Company which are
substantially similar to the shares of Common Stock or which are convertible
into or exchangeable for securities which are substantially similar to the
shares of Common Stock without the prior written consent of the representatives,
except for the shares of Common Stock offered in connection with the Offering,
certain permitted transactions by the Company and certain permitted transfers by
the Selling Stockholders who would agree to abide by the foregoing restrictions.
The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act.
In connection with the Offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the Common Stock; and syndicate short positions involve
the sale by the Underwriters of a greater number of shares of Common Stock than
they are required to purchase from the Selling Stockholders in the Offering. The
Underwriters also may impose a penalty bid, whereby selling
U-1
<PAGE>
concessions allowed to syndicate members or other broker-dealers in respect of
the Common Stock sold in the Offering for their account may be reclaimed by the
syndicate if such shares of Common Stock are repurchased by the syndicate in
stabilizing or covering transactions. These activities may stabilize, maintain
or otherwise affect the market price of the Common Stock which may be higher
than the price that might otherwise prevail in the open market, and these
activities, if commenced, may be discontinued at any time. These transactions
may be effected on the NYSE, in the over-the-counter market or otherwise.
U-2
<PAGE>
[Pictures depicting certain of the Company's analog set-top terminals
and certain television screen images.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL, OR THE SOLICITATION OF AN OFFER TO BUY,
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................. 3
Incorporation of Certain Documents by
Reference........................... 3
Prospectus Summary.................... 5
Risk Factors.......................... 11
Use of Proceeds....................... 15
Price Range of Common Stock and
Dividend Policy..................... 15
Capitalization........................ 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 26
Management............................ 32
Selling Stockholders.................. 35
Description of Capital Stock.......... 37
Validity of Common Stock.............. 39
Experts............................... 39
Underwriting.......................... U-1
</TABLE>
17,000,000 SHARES
GENERAL INSTRUMENT
CORPORATION
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
------------------------
[LOGO]
------------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
LAZARD FRERES & CO. LLC
REPRESENTATIVES OF THE UNDERWRITERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is an itemized statement of expenses of the Company in
connection with the offering of the Common Stock being registered hereby, other
than underwriting discounts and commissions. All of the expenses are estimated,
except for the registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............. $ 166,105
NASD fees (actual).............................................. 30,500
Transfer agent and registrar fee and expenses................... 18,250
Accounting fees and expenses.................................... 75,000
Legal fees and expenses......................................... 400,000
Blue Sky expenses and counsel fees.............................. 5,000
Printing and engraving expenses................................. 160,000
Miscellaneous................................................... 45,145
----------
Total........................................................... $ 900,000
----------
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify directors and officers as well as other
employees and individuals against expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement in connection with specified
actions, suits, or proceedings whether civil, criminal, administrative, or
investigative, other than action by or in the right of the corporation (a
"derivative action"), if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. A similar standard is
applicable in the case of derivative actions, except that indemnification only
extends to expenses (including attorneys' fees) incurred in connection with the
defense or settlement of such action, and the statute requires court approval
before there can be any indemnification where the person seeking indemnification
has been found liable to the corporation. The statute provides that it is not
exclusive of other indemnification that may be granted by a corporation's
charter, by-laws, disinterested director vote, stockholder vote, agreement, or
otherwise.
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability for (i) any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) payment of unlawful dividends or unlawful
stock purchases or redemptions, or (iv) any transaction from which the director
derived an improper personal benefit.
Article Sixth of the Restated Certificate of Incorporation of the Company
provides that directors of the Company shall not, to the fullest extent
permitted by the DGCL, be liable to the Company or any of its stockholders for
monetary damages for any breach of fiduciary duty as director. The Certificate
of Incorporation of the Company also provides that if the DGCL is amended to
permit further elimination or
II-1
<PAGE>
limitation of the personal liability of directors, then the liability of the
directors of the Company shall be eliminated or limited to the fullest extent
permitted by the DGCL as so amended.
The Company has entered into agreements to indemnify its directors and
officers in addition to the indemnification provided for in its Restated
Certificate of Incorporation and Amended and Restated
By-Laws. These agreements, among other things, indemnify the Company's directors
and officers to the fullest extent permitted by Delaware law for certain
expenses (including attorneys' fees), liabilities, judgments, fines and
settlement amounts incurred by such person arising out of or in connection with
such person's service as a director or officer of the Company or an affiliate of
the Company.
The Company will maintain directors' and officers' liability insurance which
will provide for payment, on behalf of the directors and officers thereof and
its subsidiaries, of certain losses of such persons (other than matters
uninsurable under law) arising from claims, including claims arising under the
Securities Act, for acts or omissions by such persons while acting as directors
or officers thereof and/or its subsidiaries, as the case may be.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
--------------- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1 -- Form of Underwriting Agreement
4.1* -- Restated Certificate of Incorporation of the Company
4.2* -- Certificate of Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock
4.3* -- Amended and Restated By-Laws of the Company
4.4** -- Rights Agreement, dated as of June 12, 1997 between the Company and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent (the "Rights Agreement"), which
includes, as Exhibit B thereto, the Form of Right Certificate and as Exhibit C
thereto, the Summary of Rights to Purchase Preferred Shares
4.5*** -- Amendment, dated as of December 16, 1997, to the Rights Agreement
4.6**** -- Form of Warrant Issuance Agreement
4.7 -- Specimen form of the Company's Common Stock Certificate
5 -- Opinion of Fried, Frank, Harris, Shriver & Jacobson as to the validity of the
securities being registered
10 -- Form of Stock Disposition Agreement
23.1 -- Consent of Fried, Frank, Harris, Shriver & Jacobson (included in
Exhibit 5)
23.2 -- Independent Auditors' Consent of Deloitte & Touche LLP
24 -- Power of Attorney (included on signature page)
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C> <C>
------------------------
* Incorporated herein by reference from the Company's Quarterly Report on Form
10-Q for the period ended June 30, 1998 (File No. 001-12925)
** Incorporated herein by reference from the Company's Registration Statement on
Form 8-A, filed with the Commission on June 30, 1997 (File No. 001-12925)
*** Incorporated herein by reference from the Company's Current Report on Form
8-K dated as of December 17, 1997 (File No. 001-12925)
**** Incorporated herein by reference from the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (File No. 001-12925)
</TABLE>
All supporting schedules have been omitted either because they are not
required or the information required to be set forth therein is included in the
financial statements or in the notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that the undertakings set forth in paragraphs (1)(i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
II-3
<PAGE>
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunder duly
authorized, in the City of Horsham, State of Pennsylvania, on August 24, 1998.
GENERAL INSTRUMENT CORPORATION
BY: /S/ EDWARD D. BREEN
-----------------------------------------
Edward D. Breen
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Edward D. Breen and Robert A. Scott, and each or
any of them, his or her true and lawful attorneys-in-fact and agents, each
acting alone, with full powers of substitution and resubstitution, for such
person and in his or her name, place and stead, in any and all capacities, to
sign any and all amendments (including post-effective amendments) to this
registration statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as might or could be done in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
or her substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITY IN WHICH SIGNED DATE
- ------------------------------ --------------------------- -------------------
Chairman of the Board,
/s/ EDWARD D. BREEN President and Chief
- ------------------------------ Executive Officer August 24, 1998
Edward D. Breen (Principal Executive
Officer)
Senior Vice President,
/s/ ERIC M. PILLMORE Finance and Chief
- ------------------------------ Financial Officer August 24, 1998
Eric M. Pillmore (Principal Financial
Officer)
/s/ MARC E. ROTHMAN Vice President and
- ------------------------------ Controller (Principal August 24, 1998
Marc E. Rothman Accounting Officer)
/s/ JOHN SEELY BROWN Director
- ------------------------------ August 24, 1998
John Seely Brown
/s/ FRANK M. DRENDEL Director
- ------------------------------ August 24, 1998
Frank M. Drendel
/s/ LYNN FORESTER Director
- ------------------------------ August 24, 1998
Lynn Forester
/s/ THEODORE J. FORSTMANN Director
- ------------------------------ August 24, 1998
Theodore J. Forstmann
/s/ ALEX J. MANDL Director
- ------------------------------ August 24, 1998
Alex J. Mandl
/s/ J. TRACY O'ROURKE Director
- ------------------------------ August 24, 1998
J. Tracy O'Rourke
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE
- --------------- ----------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
1 -- Form of Underwriting Agreement
4.1* -- Restated Certificate of Incorporation of the Company
4.2* -- Certificate of Designation, Preferences and Rights of Series A Junior Participating
Preferred Stock
4.3* -- Amended and Restated By-Laws of the Company
4.4** -- Rights Agreement, dated as of June 12, 1997 between the Company and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent (the "Rights Agreement"), which
includes, as Exhibit B thereto, the Form of Right Certificate and as Exhibit C
thereto, the Summary of Rights to Purchase Preferred Shares
4.5*** -- Amendment, dated as of December 16, 1997, to the Rights Agreement
4.6**** -- Form of Warrant Issuance Agreement
4.7 -- Specimen form of the Company's Common Stock Certificate
5 -- Opinion of Fried, Frank, Harris, Shriver & Jacobson as to the validity of the
securities being registered
10 -- Form of Stock Disposition Agreement
23.1 -- Consent of Fried, Frank, Harris, Shriver & Jacobson (included
in Exhibit 5)
23.2 -- Independent Auditors' Consent of Deloitte & Touche LLP
24 -- Power of Attorney (included on signature page)
</TABLE>
- ------------------------
* Incorporated herein by reference from the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1998 (File No. 001-12925)
** Incorporated herein by reference from the Company's Registration Statement
on Form 8-A, filed with the Commission on June 30, 1997 (File No.
001-12925)
*** Incorporated herein by reference from the Company's Current Report on Form
8-K dated as of December 17, 1997 (File No. 001-12925)
**** Incorporated herein by reference from the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1997 (File No. 001-12925)
<PAGE>
EXHIBIT 1
General Instrument Corporation
Common Stock
(par value $.01 per share)
------------
Form of
Underwriting Agreement
----------------------
, 19
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Goldman, Sachs & Co.,
Lazard Freres & Co., LLC,
Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Certain stockholders named in Schedule II hereto (the "Selling
Stockholders") of General Instrument Corporation, a corporation incorporated
under the laws of the State of Delaware (the "Company"), propose, subject to the
terms and conditions stated herein, to sell to the Underwriters named in
Schedule I hereto (the "Underwriters") an aggregate of _________ shares (the
"Firm Shares") and, at the election of the Underwriters, up to __________
additional shares (the "Optional Shares") of Common Stock, par value $.01 per
share ("Stock"), of the Company (the Firm Shares and the Optional Shares which
the Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called the "Shares").
1. (a) The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(i) A registration statement on Form S-3 (File No. 333-______) (the
"Initial Registration Statement") in respect of the Shares has been
filed with the Securities and Exchange Commission (the "Commission");
the Initial Registration Statement and any post-effective amendment
thereto, each in the form heretofore delivered to you, and, excluding
exhibits thereto but including all documents incorporated by reference
in the prospectus contained therein, to you for each of the other
Underwriters, have been declared effective by the Commission in such
form; other than a registration statement, if any, increasing the size
of the offering (a "Rule 462(b) Registration Statement"), filed
pursuant to Rule 462(b) under the Securities Act of 1933, as amended
(the "Act"), which became effective upon filing, no other document with
respect to the Initial Registration Statement or document incorporated
by reference therein has heretofore been filed with the Commission; and
no stop order suspending the effectiveness of the Initial Registration
Statement, any post-effective amendment thereto or the Rule 462(b)
Registration Statement, if any, has been issued and no proceeding for
that purpose has been initiated or threatened by the Commission (any
preliminary prospectus included in the Initial Registration Statement
or filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act is hereinafter called a
"Preliminary Prospectus"; the various parts
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of the Initial Registration Statement and the Rule 462(b) Registration
Statement, if any, including all exhibits thereto and including (A) the
information contained in the form of final prospectus filed with the
Commission pursuant to Rule 424(b) under the Act in accordance with
Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to
be part of the Initial Registration Statement at the time it was
declared effective or such part of the Rule 462(b) Registration
Statement, if any, became or hereafter becomes effective and (B) the
documents incorporated by reference in the prospectus contained in the
Initial Registration Statement at the time such part of the Initial
Registration Statement became effective, each as amended at the time
such part of the Initial Registration Statement became effective, are
hereinafter collectively called the "Registration Statement"; such
final prospectus, in the form first filed pursuant to Rule 424(b) under
the Act, is hereinafter called the "Prospectus"; any reference herein
to any Preliminary Prospectus or the Prospectus shall be deemed to
refer to and include the documents incorporated by reference therein
pursuant to Item 12 of Form S-3 under the Act, as of the date of such
Preliminary Prospectus or Prospectus, as the case may be; any reference
to any amendment or supplement to any Preliminary Prospectus or the
Prospectus shall be deemed to refer to and include any documents filed
after the date of such Preliminary Prospectus or Prospectus, as the
case may be, under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and incorporated by reference in such Preliminary
Prospectus or Prospectus, as the case may be; and any reference to any
amendment to the Registration Statement shall be deemed to refer to and
include any annual report of the Company filed pursuant to Section
13(a) or 15(d) of the Exchange Act after the effective date of the
Initial Registration Statement that is incorporated by reference in the
Registration Statement;
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each such Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations
of the Commission thereunder, and did not contain 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, in the
light of the circumstances under which they were made, not misleading;
provided, however, that this representation and warranty shall not
apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein or
by a Selling Stockholder expressly for use in the preparation of the
answers therein to Item 7 of Form S-3;
(iii) The documents incorporated by reference in the Prospectus,
when they became effective or were filed with the Commission, as the
case may be, conformed in all material respects to the requirements of
the Act or the Exchange Act, as applicable, and the rules and
regulations of the Commission thereunder, and none of such documents,
when they became effective or were filed with the Commission, as the
case may be, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and any
further documents so filed and incorporated by reference in the
Prospectus or any further amendment or supplement thereto will, when
such documents become effective or are filed with the Commission, as
the case may be, will conform in all material respects to the
requirements of the Act or the Exchange Act, as applicable, and the
rules and regulations of the Commission thereunder and will not contain
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; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information furnished in writing
to the Company by an Underwriter through Goldman, Sachs & Co. expressly
for use therein;
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(iv) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements
of the Act and the rules and regulations of the Commission thereunder
and do not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the
applicable filing date as to the Prospectus and any amendment or
supplement thereto, contain 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; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter
through Goldman, Sachs & Co. expressly for use therein or by a Selling
Stockholder expressly for use in the preparation of the answers therein
to Item 7 of Form S-3;
(v) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included or
incorporated by reference in the Prospectus any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the
capital stock or long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development that
may reasonably be expected to involve a prospective material adverse
change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus;
(vi) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all
liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such
property and do not interfere in any material respect with the use made
and proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere in any material respect with the use made
and proposed to be made of such property and buildings by the Company
and its subsidiaries;
(vii) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus, and
has been duly qualified as a foreign corporation for the transaction of
business and is in good standing under the laws of each other
jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no
material liability or disability by reason of the failure to be so
qualified in any such jurisdiction;
(viii) The Company has no material subsidiaries; provided that, for
purposes of this clause (viii), the term "material subsidiary" shall
mean a "significant subsidiary", as such term is defined in Rule 1-02
of Regulation S-X;
(ix) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description of the Stock
contained in the Prospectus; and all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and (except
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for directors' qualifying shares) are owned directly or indirectly by
the Company, free and clear of all liens, encumbrances, equities or
claims, except as provided under the Credit Agreement (as defined in
the Prospectus);
(x) The compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions herein contemplated
will not conflict with or result in a breach or violation of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its subsidiaries
is subject, which conflict, breach, violation or default would have, or
may reasonably be expected to have, a material adverse effect on the
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, taken as a whole, nor
will such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of the Company or any statute
or any order, rule or regulation of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries or
any of their properties; and no consent, approval, authorization,
order, registration or qualification of or with any such court or
governmental agency or body is required for the sale of the Shares or
the consummation by the Company of the transactions contemplated by
this Agreement, except the registration under the Act of the Shares and
such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities or Blue Sky
laws in connection with the purchase and distribution of the Shares by
the Underwriters;
(xi) Other than as set forth or contemplated in the Prospectus
(including information incorporated therein), there are no legal or
governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any
of its subsidiaries is the subject which would individually or in the
aggregate have, or may reasonably be expected to have, a material
adverse effect on the current or future consolidated financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries taken as a whole; and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated
by governmental authorities or threatened by others;
(xii) Deloitte & Touche LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder; and
(xiii) The Company and its subsidiaries own or possess, or own or
possess adequate licenses or other rights to use, all patents and
trademarks used in connection with the businesses conducted by them as
described in the Prospectus, other than such patents, trademarks or
licenses with respect to which the failure to own or possess, or to own
or possess adequate licenses or other rights to use in connection with
the businesses conducted by the Company and its subsidiaries as
described in the Prospectus, individually or considered together with
all such other failures, may not reasonably be expected to have, a
material adverse effect on the consolidated financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole; and neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict
with (and knows of no such infringement of or conflict with) asserted
rights of others with respect to any such patents, trademarks or
licenses of the Company, which infringement or conflict, individually
or considered together with all other such infringements and conflicts,
would have, or may reasonably be expected to have, a material adverse
effect on the consolidated financial position, stockholders' equity or
results of operations of the Company and its subsidiaries, taken as a
whole.
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(b) Each of the Selling Stockholders (including MBO-IV) severally
represents and warrants to, and agrees with, each of the Underwriters and the
Company that:
(i) All consents, approvals, authorizations and orders necessary for
the execution and delivery by such Selling Stockholder of this
Agreement and the Powers of Attorney and the Custody Agreements
hereinafter referred to, and for the sale and delivery of the Shares to
be sold by such Selling Stockholder hereunder, have been obtained; and
such Selling Stockholder has full right, power and authority to enter
into this Agreement, its Power of Attorney and its Custody Agreement
and to sell, assign, transfer and deliver the Shares to be sold by such
Selling Stockholder hereunder;
(ii)The sale of the Shares to be sold by such Selling Stockholder
hereunder and the compliance by such Selling Stockholder with all of
the provisions of this Agreement, its Power of Attorney and its Custody
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation
of any of the terms or provisions of, or constitute a default under,
any statute, indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder is bound or to which any of
the property or assets of such Selling Stockholder is subject, nor will
such action result in any violation of the provisions of the
Certificate of Incorporation or By-laws of such Selling Stockholder if
such Selling Stockholder is a corporation, the Partnership Agreement of
such Selling Stockholder if such Selling Stockholder is a partnership
or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over such Selling
Stockholder or the property of such Selling Stockholder;
(iii)Immediately prior to each Time of Delivery (as defined in
Section 4 hereof), such Selling Stockholder will have good and valid
title to the Shares to be sold by such Selling Stockholder hereunder,
free and clear of all liens, encumbrances, equities or claims, except
for those arising under this Agreement, its Custody Agreement and its
Power of Attorney; and, upon payment therefor and the delivery to the
Depository Trust Company ("DTC") or its agent of the Shares registered
in the name of Cede & Co. or such other nominee designated by DTC, both
as provided for herein, and the crediting of the Shares to the
Underwriters' accounts with DTC, Cede & Co. or such other nominee
designated by DTC will be a "protected purchaser" of the Shares (as
defined in Section 8-303 of the Uniform Commercial Code as in effect in
the State of New York (the "UCC")), the Underwriters will acquire a
valid "security entitlement" (within the meaning of Section 8-501 of
the UCC) to the Shares, and no action based on an "adverse claim" (as
defined in Section 8-102 of the UCC) may be asserted against the
Underwriters with respect to such security entitlement (assuming that
the Underwriters are without notice of any such adverse claim);
(iv) During the period beginning from the date hereof and continuing
to and including the date 90 days after the date of the Prospectus, not
to offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than any transfers to (A) any spouse, parent, child,
brother or sister of such Selling Stockholder, or any issue of the
foregoing (including for this purpose persons legally adopted into the
line of descent), (B) a trust established solely for the benefit of
such Selling Stockholder or any spouse, parent, child, brother or
sister of such Selling Stockholder, or for the benefit of any issue of
the foregoing, (C) any corporation or partnership which is controlled
by such Selling Stockholder, or by any spouse, parent, child, brother
or sister of such Selling Stockholder, or by any issue of the
foregoing, (D) any charitable organization or not-for-profit
corporation or, (E) if such Selling Stockholder is a partnership,
its partners and other than any transfers in connection with sales
by such Selling Stockholder in the open market of shares of Stock, or
such substantially similar securities, that were acquired by such
Selling Stockholder in the open market; provided, however, that prior
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to each such transfer such transferee shall have entered into a letter
agreement with the Underwriters agreeing to abide by the restrictions
contained in this clause (iv));
(v) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares;
(vi)To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto are made in reliance upon and in
conformity with written information furnished to the Company by such
Selling Stockholder expressly for use therein, such Preliminary
Prospectus and the Registration Statement did, and the Prospectus and
any further amendments or supplements to the Registration Statement and
the Prospectus, when they become effective or are filed with the
Commission, as the case may be, will, conform in all material respects
to the requirements of the Act and the rules and regulations of the
Commission thereunder and will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading;
(vii) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Tax Equity and Fiscal
Responsibility Act of 1982 with respect to the transactions herein
contemplated, such Selling Stockholder will deliver to you prior to or
at the First Time of Delivery (as defined in Section 4 hereof) a
properly completed and executed United States Treasury Department Form
W-9 (or other applicable form or statement specified by Treasury
Department regulations in lieu thereof);
(viii) Either (A) certificates in negotiable form representing all
of the Shares to be sold by such Selling Stockholder hereunder have
been placed in custody under a Custody Agreement, or (B) an Effective
Notice (as defined in the Custody Agreement) has been delivered to the
Custodian (as defined below) irrevocably authorizing the Custodian to
sell hereunder all of the Shares distributed to such Selling
Stockholder by Instrument Partners, a New York limited partnership
("Instrument Partners"), prior to the First Time of Delivery, all as
set forth in the Custody Agreement in the form heretofore furnished to
you (the "Custody Agreement"), duly executed and delivered by such
Selling Stockholder to ChaseMellon Shareholder Services, L.L.C., as
custodian (the "Custodian"), and such Selling Stockholder has duly
executed and delivered a Power of Attorney, in the form heretofore
furnished to you (the "Power of Attorney"), appointing the person
indicated in Schedule II hereto as such Selling Stockholder's
attorney-in-fact (the "Attorney-in-Fact") with authority to execute and
deliver this Agreement on behalf of such Selling Stockholder, to
determine the purchase price to be paid by the Underwriters to the
Selling Stockholders as provided in Section 2 hereof, to authorize the
delivery of the Shares to be sold by such Selling Stockholder hereunder
and otherwise to act on behalf of such Selling Stockholder in
connection with the transactions contemplated by this Agreement and its
Custody Agreement; and
(ix)The Shares (A) represented by the certificates held in custody
for such Selling Stockholder under the Custody Agreement or (B) the
subject of the Effective Notice are subject to the interests of the
Underwriters hereunder; the arrangements made by such Selling
Stockholder for such custody, and the appointment by such Selling
Stockholder of the Attorney-in-Fact by such Selling Stockholder's Power
of Attorney, are to that extent irrevocable; the obligations of the
Selling Stockholders hereunder shall not be terminated by operation of
law, whether by the death or incapacity of any individual Selling
Stockholder or, in the case of an estate or trust, by the death or
incapacity of any executor or trustee or the termination of such estate
or trust, or in the case of a partnership or corporation, by the
dissolution of such partnership or corporation, or by the
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occurrence of any other event; if any individual Selling Stockholder or
any such executor or trustee should die or become incapacitated, or if
any such estate or trust should be terminated, or if any such
partnership or corporation should be dissolved, or if any other such
event should occur, before the delivery of the Shares hereunder,
certificates representing the Shares shall be delivered by or on behalf
of the Selling Stockholders in accordance with the terms and conditions
of this Agreement and of the various Custody Agreements; and actions
taken by the Attorney-in-Fact pursuant to the Powers of Attorney shall
be as valid as if such death, incapacity, termination, dissolution or
other event had not occurred, regardless of whether or not the
Custodian, the Attorney-in-Fact, or any of them, shall have received
notice of such death, incapacity, termination, dissolution or other
event.
(c) MBO-IV represents and warrants to, and agrees with, each of the
Underwriters and the Company that MBO-IV has good and valid title to the Shares
to be sold by MBO-IV hereunder, free and clear of all liens, encumbrances,
equities or claims, except for those arising under this Agreement, its Custody
Agreement and its Power of Attorney.
2. Subject to the terms and conditions herein set forth, (a) each of
the Selling Stockholders agrees, severally and not jointly, to sell to each of
the Underwriters, and each of the Underwriters agrees, severally and not
jointly, to purchase from each of the Selling Stockholders, at a purchase price
per share of $_____, the number of Firm Shares (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying the aggregate number of
Firm Shares to be sold by each of the Selling Stockholders as set forth opposite
their respective names in Schedule II hereto by a fraction, the numerator of
which is the aggregate number of Firm Shares to be purchased by such Underwriter
as set forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the aggregate number of Firm Shares to be purchased by
all of the Underwriters from all of the Selling Stockholders hereunder and, (b)
in the event and to the extent that the Underwriters shall exercise the election
to purchase Optional Shares as provided below, each of the Selling Stockholders
agrees, severally and not jointly, to sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from each of
the Selling Stockholders, at the purchase price per share set forth in clause
(a) of this Section 2, that portion of the number of Optional Shares as to which
such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of Optional
Shares by a fraction the numerator of which is the maximum number of Optional
Shares which such Underwriter is entitled to purchase as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the maximum number of Optional Shares that all of the Underwriters are entitled
to purchase hereunder.
The Selling Stockholders, as and to the extent indicated in Schedule II
hereto, hereby grant, severally and not jointly, to the Underwriters the right
to purchase at their election up to _____ Optional Shares, at the purchase price
per share set forth in the paragraph above, for the sole purpose of covering
over-allotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares shall be made in proportion to the number of Optional Shares to
be sold by each Selling Stockholder. Any such election to purchase Optional
Shares may be exercised only by written notice from you to the Attorney-in-Fact,
given within a period of 30 calendar days after the date of this Agreement and
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Attorney-in-Fact otherwise agree in writing,
earlier than two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request
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upon at least forty-eight hours' prior notice to the Selling Stockholders shall
be delivered by or on behalf of the Selling Stockholders to Goldman, Sachs &
Co., through the facilities of DTC, for the account of such Underwriter, against
payment by or on behalf of such Underwriter of the purchase price therefor by
wire transfer of Federal (same-day) funds to the account specified by the
Custodian to Goldman, Sachs & Co. at least forty-eight hours in advance. The
Company will cause the certificates representing the Shares to be made available
for checking and packaging at least twenty-four hours prior to the Time of
Delivery (as defined below) with respect thereto at the office of DTC or its
designated custodian (the "Designated Office"). The time and date of such
delivery and payment shall be, with respect to the Firm Shares, 9:30 a.m., New
York time, on ______, 19__ or such other time and date as Goldman, Sachs & Co.
and the Selling Stockholders may agree upon in writing, and, with respect to the
Optional Shares, 9:30 a.m., New York time, on the date specified by Goldman,
Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the
Underwriters' election to purchase such Optional Shares, or such other time and
date as Goldman, Sachs & Co. and the Selling Stockholders may agree upon in
writing. Such time and date for delivery of the Firm Shares is herein called the
"First Time of Delivery", such time and date for delivery of the Optional
Shares, if not the First Time of Delivery, is herein called the "Second Time of
Delivery", and each such time and date for delivery is herein called a "Time of
Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(l) hereof, will be delivered at the offices of Sullivan &
Cromwell, 125 Broad Street, New York, New York 10004 (the "Closing Location"),
and the Shares will be delivered at the Designated Office, all at such Time of
Delivery. A meeting will be held at the Closing Location at 5:00 p.m., New York
City time, on the New York Business Day next preceding such Time of Delivery, at
which meeting the final drafts of the documents to be delivered pursuant to the
preceding sentence will be available for review by the parties hereto. For the
purposes of this Section 4, "New York Business Day" shall mean each Monday,
Tuesday, Wednesday, Thursday and Friday which is not a day on which banking
institutions in New York are generally authorized or obligated by law or
executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than
the Commission's close of business on the second business day following
the execution and delivery of this Agreement, or, if applicable, such
earlier time as may be required by Rule 430A(a)(3) under the Act; to
make no further amendment or any supplement to the Registration
Statement or Prospectus prior to the last Time of Delivery which shall
be reasonably disapproved by you promptly after reasonable notice
thereof; to advise you, promptly after it receives notice thereof, of
the time when any amendment to the Registration Statement has been
filed or becomes effective or any supplement to the Prospectus or any
amended Prospectus has been filed and to furnish you with copies
thereof; to file promptly all reports and any definitive proxy or
information statements required to be filed by the Company with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of the Prospectus and for so long
as the delivery of a prospectus is required in connection with the
offering or sale of the Shares; to advise you, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction,
of the initiation or threatening of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for
additional information; and, in the event of the issuance of any stop
order or of any order preventing or suspending the use of any
Preliminary Prospectus or prospectus or suspending any such
qualification, promptly to use its best efforts to obtain the
withdrawal of such order;
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(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under
the securities laws of such jurisdictions as you may request and to
comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary
to complete the distribution of the Shares; provided that, in
connection therewith, the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process
in any jurisdiction;
(c) Prior to 10:00 A.M., New York City time, on the New York
Business Day next succeeding the date of this Agreement and from time
to time, to furnish the Underwriters with copies of the Prospectus in
New York City in such quantities as you may reasonably request, and, if
the delivery of a prospectus is required at any time prior to the
expiration of nine months after the time of issue of the Prospectus in
connection with the offering or sale of the Shares and if at such time
any events shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not misleading,
or, if for any other reason it shall be necessary during such period to
amend or supplement the Prospectus or to file under the Exchange Act
any document incorporated by reference in the Prospectus in order to
comply with the Act or the Exchange Act, to notify you and upon your
request to file such document and to prepare and furnish without charge
to each Underwriter and to any dealer in securities as many copies as
you may from time to time reasonably request of an amended Prospectus
or a supplement to the Prospectus which will correct such statement or
omission or effect such compliance, and in case any Underwriter is
required to deliver a prospectus in connection with sales of any of the
Shares at any time nine months or more after the time of issue of the
Prospectus, upon your request but at the expense of such Underwriter,
to prepare and deliver to such Underwriter as many copies as you may
request of an amended or supplemented Prospectus complying with Section
10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earning statement of the Company and its
subsidiaries (which need not be audited) complying with Section 11(a)
of the Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 90 days after the date of the Prospectus, not
to offer, sell, contract to sell or otherwise dispose of, except as
provided hereunder, any securities of the Company that are
substantially similar to the Shares, including but not limited to any
securities that are convertible into or exchangeable for, or that
represent the right to receive, Stock or any such substantially similar
securities (other than pursuant to (i) a proposed transaction with Sony
Corporation of America and its affiliates as described in the
Registration Statement, (ii) privately negotiated transactions (not
involving a public offering) which include or relate to
business-related arrangements, or (iii) employee stock option plans
existing on, or upon the conversion or exchange of convertible or
exchangeable securities, or upon the exercise of warrants, outstanding
as of, the date of this Agreement), without your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the
Company and its consolidated subsidiaries certified by independent
public accountants);
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or
other communications (financial or other) furnished to
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stockholders, and to deliver to you, (i) as soon as they are available,
copies of any reports and financial statements furnished to or filed
with the Commission or any national securities exchange on which any
class of securities of the Company is listed and (ii) such additional
information concerning the business and financial condition of the
Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of
the Company and its subsidiaries are consolidated in reports furnished
to its stockholders generally or to the Commission); and
(h) If the Company elects to rely upon Rule 462(b), the Company
shall file a Rule 462(b) Registration Statement with the Commission in
compliance with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on
the date of this Agreement, and the Company shall at the time of filing
either pay to the Commission the filing fee for the Rule 462(b)
Registration Statement or give irrevocable instructions for the payment
of such fee pursuant to Rule 111(b) under the Act.
6. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (a) the fees,
disbursements and expenses of the Company's counsel and accountants and the
Selling Stockholders' counsel in connection with the registration of the Shares
under the Act and all other expenses in connection with the preparation,
printing and filing of the Registration Statement, any Preliminary Prospectus
and the Prospectus and amendments and supplements thereto and the mailing and
delivering of copies thereof to the Underwriters and dealers; (b) the cost of
printing or producing any Agreement among Underwriters, this Agreement, the Blue
Sky Memorandum and any other documents in connection with the offering,
purchase, sale and delivery of the Shares; (c) all expenses in connection with
the qualification of the Shares for offering and sale under state securities
laws as provided in Section 5(b) hereof, including the fees and disbursements of
counsel for the Underwriters in connection with such qualification and in
connection with the Blue Sky survey; (d) all fees and expenses in connection
with listing the Shares on the New York Stock Exchange, Inc. (the "Exchange");
(e) the filing fees incident to, and the fees and disbursements of counsel for
the Underwriters in connection with, securing any required review by the
National Association of Securities Dealers, Inc. of the terms of the sale of the
Shares; (f) the cost of preparing stock certificates; (g) the cost and charges
of any transfer agent or registrar; (h) the fees and expenses of the
Attorney-in-Fact and the Custodian; (i) all expenses and taxes incident to the
sale and delivery of the Shares to be sold by the Selling Stockholders to the
Underwriters hereunder, except as provided below; and (j) all other costs and
expenses incident to the performance of its obligations or the Selling
Stockholders' obligations hereunder which are not otherwise specifically
provided for in this Section 6. In connection with clause (i) of the preceding
sentence, the Underwriters agree to pay New York State stock transfer tax, and
the Company agrees to reimburse the Underwriters for associated carrying costs
if such tax payment is not rebated on the day of payment and for any portion of
such tax payment not rebated. It is understood, however, that, except as
provided in this Section 6, and Sections 8 and 11 hereof, the Underwriters will
pay all of their own costs and expenses, including the fees of their counsel,
stock transfer taxes on resale of any of the Shares by them, and any advertising
expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to
be delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company and of the Selling Stockholders herein are, at and as of such Time
of Delivery, true and correct, the condition that the Company and the Selling
Stockholders shall have performed all of its and their obligations hereunder
theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed
for such filing by the rules and regulations under the Act and in
accordance with Section 5(a) hereof; if the Company has elected to rely
upon Rule 462(b), the Rule 462(b) Registration Statement shall have
become effective by 10:00 P.M., Washington, D.C. time, on the date of
this Agreement; no stop order suspending the
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<PAGE>
effectiveness of the Registration Statement or any part thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such written opinion or opinions (a draft of each such
opinion is attached as Annex I(a)(i) and I(a)(ii), respectively,
hereto), dated such Time of Delivery, with respect to the incorporation
of the Company, the validity of the Shares being delivered at such Time
of Delivery, the Registration Statement, the Prospectus and as such
other related matters as you may reasonably request, and such counsel
shall have received such papers and information as they may reasonably
request to enable them to pass upon such matters;
(c) Robert Scott, Senior Vice President, Legal of the Company, shall
have furnished to you his written opinion (a draft of such opinion is
attached as Annex I(b) hereto), dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that:
(i) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each jurisdiction in which it owns or
leases properties, or conducts any business, so as to require
such qualification, or is subject to no material liability or
disability by reason of failure to be so qualified in any such
jurisdiction (such counsel being entitled to rely in respect of
the opinion in this clause (i) upon opinions of local counsel and
in respect of matters of fact upon certificates of officers of
the Company; provided that such counsel shall state that he
believes that both you and he are justified in relying upon such
opinions and certificates);
(ii)The Company and its subsidiaries have good and marketable
title in fee simple to all real property owned by them, in each
case free and clear of all liens, encumbrances and defects except
such as are described in the Prospectus or such as do not
materially affect the value of such property and do not interfere
in any material respect with the use made and proposed to be made
of such property by the Company and its subsidiaries; and any
real property and buildings held under lease by the Company and
its subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and
do not interfere in any material respect with the use made and
proposed to be made of such property and buildings by the Company
and its subsidiaries (in giving the opinion in this clause (ii),
such counsel may state that no examination of record titles for
the purpose of such opinion has been made, and that he is relying
upon a general review of the titles of the Company and its
subsidiaries, upon opinions of local counsel and abstracts,
reports and policies of title companies rendered or issued at or
subsequent to the time of acquisition of such property by the
Company or its subsidiaries, upon opinions of counsel to the
lessors of such property and, in respect of matters of fact, upon
certificates of officers of the Company or its subsidiaries;
provided that such counsel shall state that he believes that both
you and he are justified in relying upon such opinions,
abstracts, reports, policies and certificates);
(iii)To the best of such counsel's knowledge and other than
as set forth or incorporated by reference in the Prospectus,
there are no legal or governmental proceedings pending to which
the Company or any of its subsidiaries is a party or of which any
property of the Company or any of its subsidiaries is the subject
which, individually or in the aggregate, would have, or may
reasonably be expected to have, a material adverse effect on the
current or future consolidated financial position stockholders'
equity or results of operations of the Company and its
subsidiaries; and, to the best of such counsel's knowledge, no
such
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proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(iv) The compliance by the Company with all of the provisions
of this Agreement and the consummation of the transactions herein
contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel
to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which
any of the property or assets of the Company or any of its
subsidiaries is subject and which is material to the Company and
its subsidiaries, nor will such action result in any violation of
the provisions of the Certificate of Incorporation or By-laws of
the Company or any statute or any order, rule or regulation known
to such counsel of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries
or any of their properties;
(v) No consent, approval, authorization or order of or with
any court or governmental agency or body of the Commonwealth of
Pennsylvania or the United States of America is required to be
obtained by the Company for the sale of the Securities or the
consummation by the Company of the transactions contemplated by
the Underwriting Agreement, except such as have been obtained
under the Act and such as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution
of the Securities by the Underwriters;
(vi) The documents incorporated by reference in the Prospectus
or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial
statements, related schedules and other financial data included
or incorporated by reference therein, as to which such counsel
need express no opinion), when they became effective or were
filed with the Commission, as the case may be, appeared on their
face to be responsive as to form in all material respects with
the requirements of the Act or the Exchange Act, as applicable,
and the rules and regulations of the Commission thereunder; and
he has no reason to believe that any of such documents, when such
documents became effective or were so filed, as the case may be,
contained, in the case of a registration statement which became
effective under the Act, an untrue statement of a material fact,
or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or,
in the case of other documents which were filed under the
Exchange Act with the Commission, an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made when such documents were
so filed, not misleading; and
(vii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company
prior to such Time of Delivery (other than the financial
statements, related schedules and other financial data included
or incorporated by reference therein, as to which such counsel
need express no opinion) as of their respective effective or
issue dates, appear on their face to be responsive as to form in
all material respects with the requirements of the Act and the
rules and regulations thereunder; he has no reason to believe
that, as of its effective date, the Registration Statement or any
further amendment thereto made by the Company prior to such Time
of Delivery (other than the financial statements, related
schedules and other financial data included or incorporated by
reference therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that,
as of its date, the Prospectus or any further amendment or
supplement thereto made by the Company prior
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<PAGE>
to such Time of Delivery (other than the financial statements,
related schedules and other financial data included or
incorporated by reference therein, as to which such counsel need
express no opinion) contain an untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which
they were made, not misleading or that, as of such Time of
Delivery, either the Registration Statement or the Prospectus or
any further amendment or supplement thereto made by the Company
prior to such Time of Delivery (other than the financial
statements, related schedules and other financial data included
or incorporated by reference therein, as to which such counsel
need express no opinion) contains an untrue statement of a
material fact or omits to state a material fact necessary to make
the statements therein, in light of the circumstances under which
they were made, not misleading.
In rendering such opinions, such counsel may state that he
expresses no opinion as to the laws of any jurisdiction other than the
laws of the United States of America and the laws of the Commonwealth
of Pennsylvania and, to the extent relevant, the General Corporation
Law of the State of Delaware.
(d) Fried, Frank, Harris, Shriver & Jacobson, counsel for the
Company, shall have furnished to you their written opinion (a draft of
such opinion is attached as Annex I(c) hereto), dated such Time of
Delivery, in form and substance satisfactory to you, to the effect
that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own its
properties and conduct its business as described in the
Prospectus;
(ii)The Company has an authorized capitalization as set forth
in the Prospectus, and all of the issued shares of capital stock
of the Company (including the Shares being sold at such Time of
Delivery) have been duly and validly authorized and issued and
are fully paid and non-assessable; and the Shares conform as to
legal matters to the description of the Stock contained in the
Prospectus;
(iii) This Agreement has been duly authorized, executed and
delivered by the Company;
(iv) The documents incorporated by reference in the Prospectus
or any further amendment or supplement thereto made by the
Company prior to such Time of Delivery (other than the financial
statements, related schedules and other financial data included
or incorporated by reference therein, as to which such counsel
need express no opinion), when they became effective or were
filed with the Commission, as the case may be, appeared on their
face to be responsive as to form in all material respects with
the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder; and
(v) The Registration Statement and the Prospectus (other than
the financial statements, related schedules and other financial
data included or incorporated by reference therein, as to which
such counsel need express no opinion) as of their respective
effective or issue dates, appeared on their face to be responsive
as to form in all material respects with the requirements of the
Act and the rules and regulations thereunder; no facts have come
to their attention that caused them to believe that, as of its
effective date, the Registration Statement or any further
amendments thereto made by the Company prior to such Time of
Delivery contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. They
express no view or belief, however, with respect to financial
statements and related notes and schedules and other financial
data included in or incorporated by reference in or omitted from
the Registration Statement. Also, no facts have come to their
attention that caused them to believe that the Prospectus, as of
its date, or any further amendments or
13
<PAGE>
supplements thereto made by the Company prior to such Time of
Delivery contained an untrue statement of a material fact or
omitted to state a material fact necessary to make the statements
therein, in light of the circumstances in which they were made,
not misleading, and no facts have come to their attention that
caused them to believe that the Prospectus, at such Time of
Delivery, or any further amendments thereto made by the Company
prior to such Time of Delivery, contains an untrue statement of a
material fact or omits to state a material fact necessary to make
the statements therein, in light of the circumstances in which
they were made, not misleading.
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction other than the
laws of the State of New York, the Federal laws of the United States
and the General Corporation Law of the State of Delaware;
(e) Fried, Frank, Harris, Shriver & Jacobson, counsel for each of
the Selling Stockholders, shall have furnished to you their written
opinion with respect to Forstmann Little & Co. Subordinated Debt and
Equity Management Buyout Partnership-IV ("MBO-IV"), which is a Selling
Stockholder (a draft of such opinion is attached as Annex I(d) hereto),
dated such Time of Delivery, in form and substance satisfactory to you,
to the effect that:
(i) The Power of Attorney and Custody Agreement have been
duly executed and delivered by MBO-IV and constitute valid and
binding agreements of MBO-IV in accordance with their terms,
subject as to enforcement to (A) applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or
other similar laws affecting creditors' rights generally and (B)
general principles of equity (whether considered in a proceeding
at law or in equity);
(ii) This Agreement has been duly executed and delivered by
or on behalf of MBO-IV; and the sale of the Shares to be sold by
MBO-IV pursuant to this Agreement and the compliance by MBO-IV
with all of the provisions of this Agreement, the Power of
Attorney and the Custody Agreement, and the consummation of the
transactions herein and therein contemplated will not conflict
with or result in a breach or violation of any terms or
provisions of, or constitute a default under, any statute of the
State of New York or the United States of America, any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument identified to such counsel by the general partner of
MBO-IV to which MBO-IV is a party or by which MBO-IV is bound or
to which any of the property or assets of MBO-IV is subject, or
the Partnership Agreement of MBO-IV, or any order, rule or
regulation identified to such counsel by the general partner of
MBO-IV of any court or governmental agency or body of the State
of New York or the United States of America having jurisdiction
over MBO-IV or the property of MBO-IV;
(iii) No consent, approval, authorization or order of any
court or governmental agency or body of the State of New York or
the United States of America is required for the consummation of
the transactions contemplated by this Agreement in connection
with the Shares to be sold by MBO-IV pursuant to this Agreement,
except such as have been obtained under the Act and such as may
be required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the
Underwriters; and
(iv) Assuming that the Underwriters purchase the Shares to be
sold by MBO-IV to the Underwriters at such Time of Delivery for
value and without notice of any "adverse claim" (as defined in
Section 8-102 of the UCC), upon the crediting of the
Underwriters' accounts with such Shares in the records of DTC,
Cede & Co. or such other nominee designated by DTC will acquire
all rights that MBO-IV had in the Shares and will be a "protected
purchaser" of such Shares (as defined in Section 8-303 of the
UCC), the Underwriters will acquire a valid "security
entitlement" (within the meaning of Section 8-501 of the UCC) to
such Shares, and
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<PAGE>
no action based on an "adverse claim" (as defined in Section
8-102 of the UCC) may be asserted against the Underwriters with
respect to such security entitlement;
(f) Fried, Frank, Harris, Shriver & Jacobson, counsel for each of
the Selling Stockholders, shall have furnished to you their written
opinion with respect to each of the Selling Stockholders other than
MBO-IV (the "Other Selling Stockholders") (a draft of such opinion is
attached as Annex I(e) hereto), dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that:
Assuming that the Underwriters purchase the Shares to be sold
by the Other Selling Stockholders to the Underwriters at such
Time of Delivery for value and without notice of any "adverse
claim" (as defined in Section 8-102 of the UCC), upon the
crediting of the Underwriters' accounts with such Shares in the
records of DTC, Cede & Co. or such other nominee designated by
DTC will acquire all rights that the Other Selling Stockholders
had in the Shares and will be a "protected purchaser" of such
Shares (as defined in Section 8- 303 of the UCC), the
Underwriters will acquire a valid "security entitlement" (within
the meaning of Section 8-501 of the UCC) to such Shares, and no
action based on an "adverse claim" (as defined in Section 8-102
of the UCC) may be asserted against the Underwriters with respect
to such security entitlement;
In rendering such opinion, such counsel may assume that (i) each
Other Selling Stockholder has duly executed and delivered a Power of
Attorney and a Custody Agreement and that such Power of Attorney and
Custody Agreement constitute valid and binding agreements of such Other
Selling Stockholder in accordance with their terms and (ii) this
Agreement has been duly executed and delivered by or on behalf of such
Selling Stockholder.
(g) The respective General Counsel of each of the Selling
Stockholders identified on Schedule III hereto shall have furnished to
you his or her written opinion with respect to such Selling
Stockholder, dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) A Power of Attorney and a Custody Agreement have been
duly executed and delivered by such Selling Stockholder and
constitute valid and binding agreements of such Selling
Stockholder in accordance with their terms, subject as to
enforcement to (A) applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar
laws affecting creditors' rights generally and (B) general
principles of equity (whether considered in a proceeding at law
or in equity);
(ii) This Agreement has been duly executed and delivered by
or on behalf of such Selling Stockholder; and the sale of the
Shares to be sold by such Selling Stockholder hereunder and the
compliance by such Selling Stockholder with all of the provisions
of this Agreement, the Power of Attorney and the Custody
Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach
or violation of any terms or provisions of, or constitute a
default under, any statute of the state of incorporation or
formation of such Selling Stockholder or the United States of
America, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument identified after due inquiry to
such counsel to which such Selling Stockholder is a party or by
which such Selling Stockholder is bound or to which any of the
property or assets of such Selling Stockholder is subject, or the
Certificate of Incorporation, By-laws or Partnership Agreement of
such Selling Stockholder, or any order, rule or regulation
identified after due inquiry to such counsel of any court or
governmental agency or body of the state of incorporation or
formation of such Selling Stockholder or the United States of
America having jurisdiction over such Selling Stockholder or the
property of such Selling Stockholder;
15
<PAGE>
(iii) No consent, approval, authorization or order of any
court or governmental agency or body of the state of
incorporation or formation of such Selling Stockholder or the
United States of America is required for the consummation of the
transactions contemplated by this Agreement in connection with
the Shares to be sold by such Selling Stockholder hereunder,
except such as have been obtained under the Act and such as may
be required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the
Underwriters; and
(iv) Assuming that the Underwriters purchase the Shares to be
sold by such Selling Stockholder to the Underwriters at such Time
of Delivery for value and without notice of any "adverse claim"
(as defined in Section 8-102 of the UCC), upon the crediting of
the Underwriters' accounts with such Shares in the records of
DTC, Cede & Co. or such other nominee designated by DTC will
acquire all rights that such Selling Stockholder had in the
Shares and will be a "protected purchaser" of such Shares (as
defined in Section 8-303 of the UCC), the Underwriters will
acquire a valid "security entitlement" (within the meaning of
Section 8-501 of the UCC) to such Shares, and no action based on
an "adverse claim" (as defined in Section 8-102 of the UCC) may
be asserted against the Underwriters with respect to such
security entitlement;
(h) On the date of the Prospectus at a time prior to the execution
of this Agreement, at 9:30 a.m., New York City time, on the effective
date of any post-effective amendment to the Registration Statement
filed subsequent to the date of this Agreement and also at each Time of
Delivery, Deloitte & Touche LLP shall have furnished to you a letter or
letters, dated the respective dates of delivery thereof, in form and
substance satisfactory to you, to the effect set forth in Annex II
hereto (the executed copy of the letter delivered prior to the
execution of this Agreement is attached as Annex II(a) hereto and a
draft of the form of letter to be delivered on the effective date of
any post-effective amendment to the Registration Statement and as of
each Time of Delivery is attached as Annex II(b) hereto);
(i)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included or incorporated by reference in the Prospectus any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus, and (ii) since the
respective dates as of which information is given in the Prospectus
there shall not have been any change in the capital stock or long-term
debt of the Company or any of its subsidiaries or any change, or any
development that may be reasonably expected to involve a prospective
change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in any such case described in
clause (i) or (ii), is in the judgment of the Representatives so
material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares being
delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(j) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the Exchange; (ii) a suspension or material
limitation in trading in the Company's securities on the Exchange;
(iii) a general moratorium on commercial banking activities declared by
either Federal or New York State authorities; or (iv) the outbreak or
escalation of hostilities involving the United States or the
declaration by the United States of a national emergency or war, if the
effect of any such event specified in this clause (iv) in the judgment
of Goldman, Sachs & Co., as representatives of the various
Underwriters, makes it impracticable or inadvisable to proceed with the
public offering or
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the delivery of the Shares being delivered at such Time of Delivery on
the terms and in the manner contemplated in the Prospectus;
(k) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New
York Business Day next succeeding the date of this Agreement; and
(l) The Company and the Selling Stockholders shall have furnished or
caused to be furnished to you at such Time of Delivery certificates of
officers of the Company and of the Selling Stockholders, respectively,
satisfactory to you as to the accuracy of the representations and
warranties of the Company and the Selling Stockholders, respectively,
herein at and as of such Time of Delivery, as to the performance by the
Company and the Selling Stockholders of all of their respective
obligations hereunder to be performed at or prior to such Time of
Delivery, and as to such other matters as you may reasonably request,
and the Company shall have furnished or caused to be furnished
certificates as to the matters set forth in subsections (a) and (i) of
this Section.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, 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, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall 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 any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through you expressly for use therein; and provided, further, that the Company
shall not be liable to any Underwriter under the indemnity agreement in this
subsection (a) with respect to any Preliminary Prospectus to the extent that any
such loss, claim, damage or liability of such Underwriter results from the fact
that such Underwriter sold Shares to a person as to whom it shall be established
that there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the Prospectus or of the Prospectus as then amended or
supplemented in any case where such delivery is required by the Act if the
Company has previously furnished copies thereof in sufficient quantity to such
Underwriter and the loss, claim, damage or liability of such Underwriter results
from an untrue statement or omission of a material fact contained in the
Preliminary Prospectus which was identified in writing at such time to such
Underwriter and corrected in the Prospectus or in the Prospectus as then amended
or supplemented.
(b) MBO-IV (the "Indemnifying Stockholder"), in proportion to the number of
Shares to be sold by it hereunder, will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, 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, and will reimburse each Underwriter for
any legal or other expenses reasonably incurred by such Underwriter in
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Indemnifying Stockholder
shall not be liable in any such case to the extent
17
<PAGE>
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 any Preliminary Prospectus, the Registration Statement or the Prospectus
or any such amendment or supplement in reliance upon or in conformity with
written information furnished to the Company by any Underwriter through you
expressly for use therein; and provided, further, that the Indemnifying
Stockholder shall not be liable to any Underwriter under the indemnity agreement
in this subsection (b) with respect to any Preliminary Prospectus to the extent
that any such loss, claim, damage or liability of such Underwriter results from
the fact that such Underwriter sold Shares to a person as to whom it shall be
established that there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Prospectus or of the Prospectus as then
amended or supplemented in any case where such delivery is required by the Act
if the Company or the Indemnifying Stockholder have previously furnished copies
thereof in sufficient quantity to such Underwriter and the loss, claim, damage
or liability of such Underwriter results from an untrue statement or omission of
a material fact contained in the Preliminary Prospectus which was identified in
writing at such time to such Underwriter and corrected in the Prospectus or in
the Prospectus as then amended or supplemented. Notwithstanding the provisions
of this subsection (b), the Indemnifying Stockholder shall not be required to
pay an amount in excess of the gross proceeds received by it from the Shares
sold by it hereunder.
(c) Each of the Selling Stockholders, severally in proportion to the number
of Shares to be sold by such Selling Stockholder hereunder, will indemnify and
hold harmless the Company and each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, 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, and will
reimburse each Underwriter for any legal or other expenses reasonably incurred
by such Underwriter in connection with investigating or defending any such
action or claim as such expenses are incurred, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company by such Selling Stockholder expressly for use therein; provided,
however, that the Selling Stockholders shall not be liable to any Underwriter
under the indemnity agreement in this subsection (c) with respect to any
Preliminary Prospectus to the extent that any such loss, claim, damage or
liability of such Underwriter results from the fact that such Underwriter sold
Shares to a person as to whom it shall be established that there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the
Prospectus or of the Prospectus as then amended or supplemented in any case
where such delivery is required by the Act if the Company or the Selling
Stockholders have previously furnished copies thereof in sufficient quantity to
such Underwriter and the loss, claim, damage or liability of such Underwriter
results from an untrue statement or omission of a material fact contained in the
Preliminary Prospectus which was identified in writing at such time to such
Underwriter and corrected in the Prospectus or in the Prospectus as then amended
or supplemented. Notwithstanding the provisions of this subsection (c), no
Selling Stockholder shall be required to pay an amount in excess of the gross
proceeds received by such Selling Stockholder from the Shares sold by it
hereunder.
(d) Each Underwriter will indemnify and hold harmless the Company and each
Selling Stockholder against any losses, claims, damages or liabilities to which
the Company or such Selling Stockholder may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the
18
<PAGE>
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through Goldman, Sachs
& Co. expressly for use therein; and will reimburse the Company and each Selling
Stockholder for any legal or other expenses reasonably incurred by the Company
or such Selling Stockholder in connection with investigating or defending any
such action or claim as such expenses are incurred.
(e) Promptly after receipt by an indemnified party under subsection (a),
(b), (c) or (d) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party (who
shall not, except with the consent of the indemnified party, be counsel to the
indemnifying party), and, after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party under such
subsection for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation.
(f) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a), (b),
(c) or (d) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Selling Stockholders on the one hand and the
Underwriters on the other from the offering of the Shares. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (e) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Selling Stockholders on the one hand and the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in respect
thereof), as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Stockholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering of the Shares purchased under this
Agreement (before deducting expenses) received by the Selling Stockholders bear
to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Stockholders on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, each of the Selling Stockholders and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this subsection (f)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection (f). The amount paid or payable by an indemnified
19
<PAGE>
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (f) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (f), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, and no Selling Stockholder shall be
required to contribute, in the aggregate, any amount in excess of the gross
proceeds received by such Selling Stockholder from the Shares sold by it
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (f) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(g) The obligations of the Company, the Indemnifying Stockholder and the
Selling Stockholders under this Section 8 shall be in addition to any liability
which the Company, the Indemnifying Stockholder and the respective Selling
Stockholders may otherwise have and shall extend, upon the same terms and
conditions, to each person, if any, who controls any Underwriter within the
meaning of the Act; and the obligations of the Underwriters under this Section 8
shall be in addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to each
officer and director of the Company, to each partner of any Selling Stockholder
that is a partnership and to each person, if any, who controls the Company or
any Selling Stockholder within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Selling Stockholders shall be entitled to a further period of
thirty-six hours within which to procure another party or other parties
satisfactory to you to purchase such Shares on such terms. In the event that,
within the respective prescribed periods, you notify the Selling Stockholders
that you have so arranged for the purchase of such Shares, or the Selling
Stockholders notify you that they have so arranged for the purchase of such
Shares, you or the Selling Stockholders shall have the right to postpone a Time
of Delivery for a period of not more than seven days, in order to effect
whatever changes may thereby be made necessary in the Registration Statement or
the Prospectus, or in any other documents or arrangements, and the Company
agrees to file promptly any amendments to the Registration Statement or the
Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Stockholders as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, then the
Selling Stockholders shall have the right to require each non-defaulting
Underwriter to purchase the number of Shares which such Underwriter agreed to
purchase hereunder at such Time of Delivery and, in addition, to require each
non-defaulting Underwriter to purchase its pro rata share (based on the number
of Shares which such Underwriter agreed to purchase hereunder) of the Shares of
such defaulting Underwriter or Underwriters for which such arrangements have not
been made; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Selling
Stockholders as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the
20
<PAGE>
aggregate number of all of the Shares to be purchased at such Time of Delivery,
or if the Selling Stockholders shall not exercise the right described in
subsection (b) above to require non-defaulting Underwriters to purchase Shares
of a defaulting Underwriter or Underwriters, then this Agreement (or, with
respect to the Second Time of Delivery, the obligations of the Underwriters to
purchase and of the Selling Stockholders to sell the Optional Shares) shall
thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company or the Selling Stockholders, except for the expenses
to be borne by the Company, the Selling Stockholders and the Underwriters as
provided in Section 6 hereof and the indemnity and contribution agreements in
Section 8 hereof; but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. The respective indemnities, agreements, representations, warranties and
other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement, shall remain in full force and effect,
regardless of any investigation (or any statement as to the results thereof)
made by or on behalf of any Underwriter or any controlling person of any
Underwriter, or the Company, or any of the Selling Stockholders, or any officer
or director or controlling person of the Company, or any controlling person of
any Selling Stockholder, or any partner of any Selling Stockholder that is a
partnership, and shall survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
neither the Company nor the Selling Stockholders shall then be under any
liability to any Underwriter except as provided in Sections 6 and 8 hereof; but,
if for any other reason any Shares are not delivered by or on behalf of the
Selling Stockholders as provided herein, each of the Selling Stockholders pro
rata (based on the number of Shares to be sold by such Selling Stockholder
hereunder) will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
purchase, sale and delivery of the Shares not so delivered, but the Company and
the Selling Stockholders shall then be under no further liability to any
Underwriter in respect of the Shares not so delivered except as provided in
Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you; and in all dealings with any Selling Stockholder hereunder, you
and the Company shall be entitled to act and rely upon any statement, request,
notice or agreement on behalf of such Selling Stockholder made or given by the
Attorney-in-Fact for such Selling Stockholder.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives at 32 Old Slip, 9th Floor,
New York, New York 10004, Attention: Registration Department; if to any Selling
Stockholder shall be delivered or sent by mail, telex or facsimile transmission
to such Selling Stockholder's Attorney-in-Fact at its address set forth in
Schedule II hereto; and if to the Company shall be delivered or sent by mail,
telex or facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 8(e) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire or telex constituting such
Questionnaire, which address will be supplied to the Company or the Selling
Stockholders by you on request. Any such statements, requests, notices or
agreements shall take effect upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and the Selling Stockholders and, to the
extent provided in Sections 8 and 10 hereof, the officers and directors of the
Company, each partner of any Selling Stockholder that is a partnership and each
person who controls the Company, any Selling Stockholder or any Underwriter, and
their respective heirs, executors, administrators, successors and assigns, and
no other person shall acquire or have any
21
<PAGE>
right under or by virtue of this Agreement. No purchaser of any of the Shares
from any Underwriter shall be deemed a successor or assign by reason merely of
such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us five counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement among each of the Underwriters, the Company and
each of the Selling Stockholders. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is pursuant to the authority set
forth in a form of Agreement among Underwriters, the form of which shall be
submitted to the Company and the Selling Stockholders for examination, upon
request, but without warranty on your part as to the authority of the signers
thereof.
22
<PAGE>
Any person executing and delivering this Agreement as Attorney-in-Fact for
a Selling Stockholder represents by so doing that he has been duly appointed as
Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing and
binding Power of Attorney which authorizes such Attorney-in-Fact to take such
action.
Very truly yours,
GENERAL INSTRUMENT CORPORATION
By:
--------------------------------------
Name:
Title:
THE SELLING STOCKHOLDERS
NAMED IN SCHEDULE II HERETO
By:
--------------------------------------
As Attorney-in-Fact acting on behalf of
each of the Selling Stockholders named
in Schedule II to this Agreement
Accepted as of the date hereof
in New York, New York:
GOLDMAN, SACHS & CO.
LAZARD FRERES & CO., LLC
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By:
-------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
23
<PAGE>
Exhibit 4.7
[Form of common stock certificate of
General Instrument Corporation]
NUMBER COMMON STOCK
GI SHARES
INCORPORATED UNDER GENERAL SEE REVERSE SIDE FOR
THE LAWS OF THE STATE INSTRUMENT CERTAIN DEFINITIONS
OF DELAWARE CORPORATION
THIS CERTIFICATE IS
TRANSFERABLE IN NEW
YORK, N.Y. AND
RIDGEFIELD PARK, N.J.
THIS CERTIFIES that CUSIP 370120 10 7
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE,
OF
GENERAL INSTRUMENT CORPORATION
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This certificate
is not valid unless countersigned and registered by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its authorized officers.
Dated:
<PAGE>
General Instrument
/s/ Robert A. Scott Corporation /s/ Edward D. Breen
- -------------------- ---------------------
SECRETARY CORPORATE CHAIRMAN OF THE BOARD
SEAL
1997
DELAWARE
*
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
BY TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
2
<PAGE>
[Form of reverse of common stock certificate of General Instrument Corporation]
General Instrument Corporation
The Corporation will furnish without charge of each stockholder who so
requests, the powers, 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. Such request should be sent to the Secretary of the Corporation at its
home office, or to its Transfer Agent named on the face of this certificate.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT--____ Custodian ______
(Cust) (Minor)
TEN ENT -- as tenants by the under Uniform Gifts to Minors
entireties Act __________________
(State)
JT TEN -- as joint tenants with right of
survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above
list.
For value received, __________________________ hereby sell, assign and
transfer unto
3
<PAGE>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------------------------------
- -----------------------------------------------------------
- ---------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
____________________________________________________________shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________Attorney to
transfer the said stock on the books of the within named Corporation with full
power of substitution in the premises.
Dated_______________________
4
<PAGE>
------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- ------------------------------------
THE SIGNATURE(S) SHOULD BE
GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between General Instrument
Corporation and ChaseMellon Shareholder Services, L.L.C., dated as of June 12,
1997, as amended (the "Rights Agreement"), the terms of which are hereby
incorporated herein by reference and a copy of which is on file at the principal
executive offices of General Instrument Corporation. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will be
evidenced by separate certificates and will no longer be evidenced by this
certificate. General Instrument Corporation will mail to the holder of this
certificate a copy of the Rights Agreement without charge after receipt of a
written request therefor from such holder. Under certain circumstances set forth
in the Rights Agreement, Rights issued to, or held by, any Person who is, was or
becomes an Acquiring Person or an Affiliate or Associate thereof (as defined in
the Rights Agreement) and certain related persons, whether currently held by or
on behalf of such Person or by any subsequent holder, may become null and void.
5
<PAGE>
Exhibit 5
[Fried, Frank, Harris, Shriver & Jacobson Letterhead]
212-859-8076
August 26, 1998 (FAX: 212-859-8587)
General Instrument Corporation
101 Tournament Drive
Horsham, Pennsylvania 19044
RE: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel for General Instrument
Corporation, a Delaware corporation (the "Company"), in connection with the
underwritten public offering (the "Offering") by certain of the Company's
stockholders of shares (the "Shares") of common stock, par value $.01 per share
(the "Common Stock") of the Company, including Shares that may be offered and
sold upon the exercise of an over-allotment option granted to the underwriters.
The Shares are to be offered to the public pursuant to an underwriting agreement
among the Company, the selling stockholders named therein, and Goldman, Sachs &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Lazard Freres & Co.
LLC, as representatives of the underwriters (the "Underwriting Agreement").
With your permission, all assumptions and statements of
reliance herein have been made without any independent investigation or
verification on our part except to the extent otherwise expressly stated, and we
express no opinion with respect to the subject matter or accuracy of such
assumptions or items relied upon.
In connection with this opinion, we have (i) investigated such
questions of law, (ii) examined originals or certified, conformed or
reproduction copies of such agreements, instruments, documents and records of
the Company, such certificates of public officials and such other documents, and
(iii) received such information from officers and representatives of the Company
as we have deemed necessary or appropriate for the purposes of this opinion. In
all examinations, we have assumed the legal capacity of all natural persons
executing documents, the genuineness of all signatures, the authenticity of
original and certified documents and the conformity to original or certified
copies of all copies submitted to us as conformed or reproduction copies. As to
various
<PAGE>
General Instrument Corporation
August 26, 1998
questions of fact relevant to the opinions expressed herein, we have relied
upon, and assume the accuracy of, representations and warranties contained in
the documents and certificates and oral or written statements and other
information of or from representatives of the Company and others and assume
compliance on the part of all parties to the documents with their covenants and
agreements contained therein.
Based upon the foregoing and subject to the limitations,
qualifications and assumptions set forth herein, we are of the opinion that the
Shares are duly authorized, validly issued, fully paid and non-assessable.
The opinion expressed herein is limited to the General
Corporation Law of the State of Delaware, as currently in effect.
We hereby consent to the filing of this opinion as an exhibit
to the Registration Statement and to the reference to this firm under the
caption "Validity of Common Stock" in the Prospectus forming part of the
Registration Statement. In giving such consent, we do not hereby admit that we
are in the category of such persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/ Lois Herzeca
---------------------------------
Lois Herzeca
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EXHIBIT 10
FORM OF
STOCK DISPOSITION AGREEMENT
Stock Disposition Agreement, dated as of September ___, 1998 (this
"Agreement"), among General Instrument Corporation, a Delaware corporation (the
"Company"), Forstmann Little & Co. Subordinated Debt and Equity Management
Buyout Partnership-IV, a New York limited partnership ("MBO-IV"), and the
individual selling stockholders listed on Schedule A hereto (the "Individual
Selling Stockholders" and, together with MBO-IV, the "Selling Stockholders").
WHEREAS, the Company has filed a registration statement with the Securities
and Exchange Commission relating to an underwritten public offering (the
"Offering") of shares of the Company's common stock, par value $.01 per share
(the "Common Stock"); and
WHEREAS, each of MBO-IV and the Individual Selling Stockholders have granted
to the underwriters in the Offering (the "Underwriters") an over-allotment
option to purchase such number of shares of Common Stock as are set forth
opposite their respective names on Schedule A hereto (collectively, the "Offered
Shares"); and
WHEREAS, the Company desires to purchase from the Selling Stockholders, and
the Selling Stockholders desire to sell to the Company, all or a portion of the
Offered Shares.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein, and on the terms and subject to the conditions set forth
herein, the parties hereto, each representing to the others that its execution,
delivery and performance of this Agreement has been fully and duly authorized,
agree as follows:
SECTION 1 - DEFINITIONS
1.1 Specific Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
"Business Day" - any day other than a Saturday, a Sunday or a day on
which banks in New York City are authorized or obligated by law or executive
order to close.
"Closing" - the closing of the purchase and sale of the Purchase Shares
(as defined in Section 2.1 hereof).
"Closing Date" - the date on which the Closing occurs.
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"Governmental Entity" - any federal, state or local judicial,
legislative, executive or regulatory authority.
1.2 Other Terms. Other terms are defined elsewhere in this Agreement and,
unless otherwise indicated, shall have such meanings throughout this Agreement.
SECTION 2 - PURCHASE AND SALE
2.1 Purchase and Sale of Purchase Shares. On the terms and subject to the
conditions set forth herein, at the Closing, each Selling Stockholder agrees to
sell and transfer to the Company, and the Company agrees to purchase from such
Selling Stockholder, such Selling Stockholder's Offered Shares, less any shares
of Common Stock sold pursuant to the over-allotment option granted to the
Underwriters in the Offering (the number of Offered Shares to be purchased by
the Company being referred to as the "Purchase Shares"), at a purchase price per
share equal to the per share proceeds (net of underwriting discounts and
commissions) to the Selling Stockholders for the shares sold in the Offering
(the "Purchase Price"). The Purchase Shares shall not be purchased or sold
pursuant to this Agreement unless the Offering is consummated.
2.2 Closing; Delivery and Payment.
(a) The Closing shall take place at the offices of Fried, Frank,
Harris, Shriver & Jacobson, One New York Plaza, New York, New York
or at such other place as the Selling Stockholders (through their
Attorney-in-Fact) and the Company shall agree as soon as
practicable, and in any event within five Business Days, after the
earlier of (i) the expiration of the 30-day period during which
the Underwriters have the right to exercise their over-allotment
option, without such options having been exercised, and (ii) the
receipt by the Company of written notice from Goldman, Sachs & Co.
(on behalf of the Underwriters) that the Underwriters have either
elected not to exercise their over-allotment option or have
purchased only a portion (but not all) of the shares subject to
their over-allotment option. It is understood and agreed that if
their Underwriters exercise their over-allotment option in full,
the Company will have no obligation to purchase, and the Selling
Stockholders will have no obligation to sell, any Offered Shares
pursuant to this Agreement.
(b) On the Closing Date, each Selling Stockholder shall deliver to the
Company certificates representing such Selling Stockholder's
Purchase Shares duly endorsed and in form for transfer to the
Company, and the Company shall pay to each Selling Stockholder the
Purchase Price for each Purchase Share sold by such Selling
Stockholder in immediately available funds to the
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accounts designated by the Selling Stockholders in respect of
proceeds from the Offering.
SECTION 3 - REPRESENTATIONS AND WARRANTIES
3.1 By the Parties. Each Selling Stockholder represents and warrants as to
itself to the Company, and the Company represents and warrants as to itself to
the Selling Stockholders, as follows:
(a) It has all necessary authority for the execution, delivery and
performance of this Agreement by it; it has duly executed and
delivered this Agreement; and this Agreement is a valid and
legally binding agreement, enforceable against it in accordance
with its terms, assuming the due execution and delivery by the
other parties; and
(b) The performance of this Agreement by it will not violate or
conflict with any law, regulation, order or agreement, or, to the
extent applicable, such party's charter or organic documents, and
such party is not required to obtain any governmental approvals or
third party consents to enter into and perform its obligations
pursuant to this Agreement. Such execution and performance does
not and will not constitute a default under any agreement or
obligation binding on it or result in the forfeiture or loss of
any rights or assets by it except as specifically provided for in
this Agreement.
3.2 By the Selling Stockholders. Each Selling Stockholder represents and
warrants to the Company that it owns the Purchase Shares to be sold hereunder by
such Selling Stockholder to the Company, beneficially and of record, free and
clear of any liens, charges or encumbrances and that upon delivery of its
Purchase Shares, and payment therefore pursuant hereto, good and valid title to
its Purchase Shares will pass to the Company (assuming that the Company is
without notice of any adverse claim, as defined in the Uniform Commercial Code
as adopted in the State of New York (the "Code") and is otherwise a bona fide
purchaser for the purposes of the Code).
SECTION 4 - CONDITIONS TO THE
PARTIES' OBLIGATIONS TO CLOSE
4.1 Conditions to the Selling Stockholders Obligations to Close. The
obligations of each of the several Selling Stockholders to consummate the
transactions contemplated by this Agreement are subject to the satisfaction (or
waiver) of the following conditions:
(a) No Injunctions. There shall not be in effect any statute,
regulation, order, decree or judgment of any Governmental Entity
that makes illegal or
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enjoins or prevents in any material respect the consummation of
the transactions contemplated by this Agreement.
(b) Representations. All representations made by the Company in
Article III hereof shall be true and correct in all material
respects at and as of the Closing Date.
(c) Consummation of the Offering. The Offering shall have been
consummated.
4.2 Conditions to the Company's Obligations to Close. The obligations of the
Company to consummate the transactions contemplated by this Agreement are
subject to the satisfaction (or waiver) of the following conditions:
(a) No Injunctions. There shall not be in effect any statute,
regulation, order, decree or judgment of any Governmental Entity
that makes illegal or enjoins or prevents in any material respect
the consummation of the transactions contemplated by this
Agreement.
(b) Representations. All representations made by the Selling
Stockholders in Article III hereof shall be true and correct in
all material respects at and as of the Closing Date.
(c) Consummation of the Offering. The Offering shall have been
consummated.
SECTION 5 - TERMINATION
5.1 Termination. This Agreement shall terminate automatically if either (i)
the Offering is terminated prior to consummation thereof or (ii) the
Underwriters exercise their over-allotment option in full and purchase all of
the Offered Shares subject thereto. This Agreement may be terminated at any time
prior to the Closing:
(a) by written agreement of MBO-IV and the Company;
(b) either by MBO-IV or by the Company, by written notice of such
termination to the other, if the Offering shall not have been
consummated on or prior to December 31, 1998;
(c) either by MBO-IV or by the Company if any court of competent
jurisdiction or other competent Governmental Entity shall have by
statute, rule, regulation, order, decree or injunction or other
action permanently restrained, enjoined or otherwise prohibited
any of the transactions contemplated by this Agreement.
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SECTION 6 - MISCELLANEOUS
6.1 Notices. All notices or other communications hereunder shall be deemed
to have been duly given and made if in writing and if served by personal
delivery upon the party for whom it is intended, if delivered registered or
certified mail, return receipt requested, or by a national courier service, if
sent by facsimile transmission, provided that the facsimile transmission is
promptly confirmed by telephone confirmation thereof, or on the third day after
posting in the United States postage prepaid if sent by registered or certified
mail, return receipt requested, to the person at the address set forth below, or
such other address as may be designated in writing hereafter, in the same
manner, by such person:
To the Company:
General Instrument Corporation
101 Tournament Drive
Horsham, Pennsylvania 19044
Attention: Robert A. Scott,
Senior Vice President, Legal and Secretary
Tel: (215) 323-1000
Fax: (215) 323-1293
To the Selling Stockholders:
c/o Forstmann Little & Co.
767 Fifth Avenue
New York, New York 10153
Attention: Winston W. Hutchins
Tel: (212) 355-5656
Fax: (212) 759-9059
6.2 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 any amendment, by MBO-IV, the Individual Selling Stockholders
(through their Attorney-in-Fact) and the Company, 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,
except as otherwise provided herein, shall not be exclusive of any rights or
remedies provided by law.
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6.3 Assignment. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the consent of each other party hereto,
except that a Selling Stockholder may make such assignments with notice to the
Company but without the need for the Company's consent to one or more other
Selling Stockholders.
6.4 Entire Agreement. This Agreement contains the entire agreement among the
parties thereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral or written, among them with respect to
such matters, and any written agreement of the parties that expressly provides
that it is not superseded by this Agreement.
6.5 Parties in Interest. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. Nothing in this Agreement, express or implied, is intended to confer
upon any person other than each of the Selling Stockholders or the Company, and
their successors or permitted assigns, any rights or remedies under or by reason
of this Agreement.
6.6 Governing Law: Submission to Jurisdiction; Selection of Forum. THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. Each party
hereto agrees that it shall bring any action or proceeding in respect of any
claim arising out of or related to this Agreement or the transactions contained
in or contemplated by this Agreement, whether in tort or contract or at law or
in equity, exclusively in the United States District Court for the Southern
District of New York or the Supreme Court of the State of New York for the
County of New York, and solely in connection with claims arising under this
Agreement or the transactions contained in or contemplated by this Agreement (i)
irrevocably submits to the exclusive jurisdiction of such courts, (iii) waives
any objection that such courts are an inconvenient forum or do not have
jurisdiction over any party hereto and (iv) agrees that service of process upon
such party in any such action or proceeding shall be effective if notice is
given in accordance with Section 6.1 of this Agreement.
6.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
GENERAL INSTRUMENT CORPORATION
By:
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Name:
Title:
SELLING STOCKHOLDERS
The Individual Selling Stockholders Listed on
Schedule A hereto
By:
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EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of General Instrument Corporation on Form S-3 of our reports dated February 14,
1998 (March 5, 1998 as to Note 19), appearing in the Annual Report on Form 10-K
of General Instrument Corporation for the year ended December 31, 1997, and to
the reference to us under the heading "Experts" in the Prospectus, which is part
of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
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Parsippany, New Jersey
August 25, 1998
