<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 1998
FILE NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10
GENERAL FORM FOR
REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
------------------------
ROCKWELL SEMICONDUCTOR SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 25-1799439
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
4311 JAMBOREE ROAD
NEWPORT BEACH, CALIFORNIA 92660-3095
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 221-4600
------------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $1 per share
(TITLE OF CLASS)
Preferred Share Purchase Rights
(TITLE OF CLASS)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ROCKWELL SEMICONDUCTOR SYSTEMS, INC.
PART I
INFORMATION INCLUDED IN INFORMATION STATEMENT
AND INCORPORATED IN FORM 10 BY REFERENCE
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM
NO. CAPTION LOCATION IN INFORMATION STATEMENT
- ---- ------- ---------------------------------
<C> <S> <C>
1. Business............................. "Summary of Certain Information"; "Risk Factors"; "The
Semiconductor Systems Business"; "Management's
Discussion and Analysis of Financial Condition and
Results of Operations"; "The
Distribution -- Introduction"; and "The Distribution --
Background and Reasons for the Distribution".
2. Financial Information................ "Summary of Certain Information"; "Historical Selected
Financial Data"; "Unaudited Pro Forma Condensed
Financial Information of the Company"; "Management's
Discussion and Analysis of Financial Condition and
Results of Operations"; "The Distribution" and
"Semiconductor Systems Combined Financial Statements and
Schedule".
3. Properties........................... "The Semiconductor Systems Business -- Properties".
4. Security Ownership of Certain
Beneficial Owners and Management..... "The Distribution -- Trading Market" and "Management of
the Company -- Ownership of Company Common Stock".
5. Directors and Executive Officers..... "Arrangements Between Rockwell and the Company";
"Management of the Company" and "Liability and
Indemnification of Directors and Officers".
6. Executive Compensation............... "Arrangements Between Rockwell and the Company" and
"Management of the Company".
7. Certain Relationships and Related
Transactions......................... "Summary of Certain Information" and "Arrangements
Between Rockwell and the Company".
8. Legal Proceedings.................... "The Semiconductor Systems Business -- Legal
Proceedings".
9. Market Price of and Dividends on the
Registrant's Common Equity and
Related Shareowner Matters........... "Summary of Certain Information"; "Risk Factors"; "The
Distribution -- Introduction" and "The
Distribution -- Trading Market".
10. Recent Sales of Unregistered
Securities........................... Not Applicable.
11. Description of Registrant's
Securities to be Registered.......... "The Distribution -- Trading Market" and "Description of
Company Capital Stock".
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
ITEM
NO. CAPTION LOCATION IN INFORMATION STATEMENT
- ---- ------- ---------------------------------
<C> <S> <C>
12. Indemnification of Directors and
Officers............................. "Liability and Indemnification of Directors and
Officers".
13. Financial Statements and
Supplementary Data................... "Summary of Certain Information"; "Historical Selected
Financial Data"; "Unaudited Pro Forma Condensed
Financial Information of the Company"; "Management's
Discussion and Analysis of Financial Condition and
Results of Operations" and "Semiconductor Systems
Combined Financial Statements and Schedule".
14. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure................. Not Applicable.
15. Financial Statements and Exhibits.... "Semiconductor Systems Combined Financial Statements and
Schedule".
</TABLE>
ii
<PAGE> 4
[ROCKWELL NAME AND LOGO]
December [ ], 1998
Dear Shareowner:
On June 29, 1998, we announced that the Board of Directors of Rockwell
International Corporation ("Rockwell") had approved in principle the
distribution (the "Distribution") to our shareowners of all of the outstanding
shares of common stock of Rockwell Semiconductor Systems, Inc. (the "Company"),
a wholly-owned subsidiary of Rockwell, which after the Distribution will be a
separately-traded public company owning and operating Rockwell's Semiconductor
Systems business ("Semiconductor Systems"). The Distribution will be at the rate
of one share of Company common stock for every [ ] shares of Rockwell common
stock held as of the close of business on December [ ], 1998. Consummation of
the Distribution is conditioned upon, among other things, receipt of a favorable
ruling of the Internal Revenue Service as to the tax-free status of the
Distribution. The enclosed Information Statement explains the Distribution in
detail and provides important financial and other information regarding the
Company. Holders of Rockwell common stock are not required to take any action to
participate in the Distribution. A shareowner vote is not required, and,
accordingly, your proxy is not being sought.
Semiconductor Systems, like many of its Silicon Valley-based counterparts,
is a business with a rich heritage of innovation and technology leadership. It
also has excellent people, facilities and resources and a broad and exciting
array of innovative products. The Distribution will separate Rockwell's
Automation and Avionics & Communications businesses from Semiconductor Systems
and will result in your ownership of shares of two separate and distinct
publicly-traded companies: Rockwell, which will focus on its Automation and
Avionics & Communications businesses, and the Company, which will focus on the
Semiconductor Systems business now operated by Rockwell. We believe that by
taking this strategic step to operate separately and allowing each company to
focus on its own products and markets, we can unlock greater value for each of
these businesses and enhance their ability to achieve their full potential. With
this separation, investors will also be able to focus on the specific growth,
market and value creation characteristics of each company.
As announced in September, Semiconductor Systems is implementing several
restructuring actions to improve competitiveness and to position the business
for future profitability. The Company will begin operations as a leading
supplier of chipsets and other products for the communications electronics
market, with revenues in its last fiscal year in excess of $1 billion. We are
confident about the future of the Company as an independent public company.
We are equally confident about Rockwell going forward. Our continuing
businesses of Automation and Avionics & Communications are global leaders and at
the top of their class. These are great organizations with excellent market
positions, well-known brands and global presence. Our financial strength and our
ability to focus even more intensely on these activities set the stage for rapid
growth and greater profitability.
Sincerely,
Don H. Davis, Jr.
Chairman and Chief Executive Officer
<PAGE> 5
[COMPANY NAME AND LOGO]
December [ ], 1998
Dear Future Shareowner:
The following pages contain a great deal of information about the Company,
of which you will soon become a shareowner. In this letter, I would like to take
the opportunity to briefly summarize the history, strategy and business
performance of Semiconductor Systems as a part of Rockwell and to outline some
of the reasons we feel confident in the prospects for success of the Company as
an independent organization.
Rockwell has a rich heritage in the communications market and Semiconductor
Systems has been involved in the development of analog modem technology for over
three decades. The first to apply semiconductor integration capabilities to
emerging facsimile markets of the 1970s, Semiconductor Systems achieved a better
than seventy percent market share position that continues to this day. In the
1980s, Semiconductor Systems again was first to introduce modem chipset products
for the nascent Personal Computer communications market. A continuous innovator,
Semiconductor Systems once more built a number one market share position, and
despite fierce competition, has held this top position for seven product
generations from 2400bps (V.22bis) to today's 56,000bps (V.90) modem products.
In the process, Semiconductor Systems profitably grew its modem revenue base
from approximately $200 million in the early 1990s to almost $1.2 billion in
sales and over $300 million in earnings from operations in 1996.
Even as the modem market was demonstrating strong growth, the Semiconductor
Systems management team foresaw the maturation and eventual decline of this
communications segment, and in 1995 launched an aggressive portfolio
diversification program. The strategy of this diversification was to build on
our existing core capabilities, what we call mixed-signal processing, and to
leverage these capabilities to address adjacent communications markets. The
execution focus of this program was both internal, through expanded product
development programs and investment in high performance mixed-signal and radio
frequency manufacturing capabilities, and external, through targeted technology
and market position acquisitions. The investment level driving these initiatives
was substantial; in fact, over the three-year period ending in 1997 total
expenditures for research and development, capital expenditures and acquisitions
exceeded $1.5 billion.
Early 1998 found us mid-course in our diversification strategy when we were
faced with twin challenges. First, the existing slowdown in the worldwide
semiconductor market turned into a recession driven by significant industry
over-capacity, the Asia-Pacific market turmoil and slowing PC sales. Second, and
more critical, the decline in our analog PC modem business was occurring sooner
and proceeding more rapidly than we had earlier anticipated. By mid-1998, the
significant successes of our expansion platforms were contributing almost $600
million in annualized revenues; however, this was not sufficient to offset the
precipitous decline in analog PC modem margins, and significant operating losses
resulted. In September of this year, we announced and began implementation of a
comprehensive resizing program that is expected to reduce annualized operating
costs by over $200 million from recent levels and position us for future
profitability.
It is this challenging environment -- driving toward completion of a
strategic diversification during a period of semiconductor industry
retrenchment -- in which the Company will begin to operate as an independent
entity. Despite these hurdles we are optimistic about the future and feel there
are several very solid reasons for our confidence. First, the communications
marketplace is generally considered one of the most outstanding long-term growth
segments in the semiconductor industry, and we will begin life as the largest
company in the world focused exclusively on providing semiconductor products for
communication applications. Second, when complete, our product portfolios in
Wireless Communications, Network Access, Digital Infotainment, Personal Imaging
and Personal Computing will provide a balanced revenue foundation
<PAGE> 6
for renewed growth, with significant opportunities for technology re-use and the
leverage of intellectual property to achieve economies of scale in these
converging markets. Third, the cumulative investments of our diversification
program in technology research, intellectual property portfolio acquisition, and
development of high performance mixed-signal and radio frequency manufacturing
capabilities are a critical asset that will drive future product success.
Fourth, and most important, the Company has a talented and motivated employee
team with a proven track record of product innovation, profitable business
growth and the demonstrated ability to compete and win. We look forward to your
support as we address our present challenge and as we seek to capitalize on our
many opportunities.
Sincerely,
Dwight W. Decker
Chairman and Chief Executive Officer
<PAGE> 7
SUBJECT TO COMPLETION, DATED SEPTEMBER 28, 1998 -- FOR INFORMATION ONLY
INFORMATION STATEMENT
ROCKWELL SEMICONDUCTOR SYSTEMS, INC.
------------------------
COMMON STOCK, PAR VALUE $1 PER SHARE
(INCLUDING ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
This Information Statement is being furnished to shareowners of Rockwell
International Corporation ("Rockwell") in connection with the distribution (the
"Distribution") by Rockwell to its shareowners of all of the outstanding shares
of common stock of its wholly-owned subsidiary, Rockwell Semiconductor Systems,
Inc. (the "Company"). Following the Distribution, the Company will own and
operate Rockwell's semiconductor systems business ("Semiconductor Systems"). The
Company is in the process of developing a new corporate name and logo, which
will be adopted prior to the Distribution.
The Distribution is expected to be made on December 31, 1998, to holders of
record of common stock, par value $1 per share, of Rockwell ("Rockwell Common
Stock") as of the close of business on December [ ], 1998 (the "Record Date"),
on the basis of one share of common stock, par value $1 per share, of the
Company (the "Common Stock") for every [ ] shares of Rockwell Common Stock.
The Common Stock and the associated preferred share purchase rights of the
Company (described below) are collectively referred to herein as the "Company
Common Stock". No consideration will be paid by shareowners of Rockwell for the
shares of Company Common Stock to be received by them in the Distribution, nor
will they be required to surrender or exchange shares of Rockwell Common Stock
or take any other action in order to receive Company Common Stock.
There is no current trading market for the Company Common Stock, although a
"when-issued" trading market is expected to develop prior to the Distribution
Date (as defined below). Application will be made for approval of trading and
quotation of the Company Common Stock on The Nasdaq Stock Market, Inc. National
Market System ("Nasdaq") under the proposed trading symbol "[ ]".
SHAREOWNERS SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER THE SECTION
ENTITLED "RISK FACTORS" IN THIS INFORMATION STATEMENT.
NO VOTE OF SHAREOWNERS IS REQUIRED IN CONNECTION WITH THE DISTRIBUTION. WE
ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS INFORMATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
The date of this Information Statement is , 1998.
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION....................................... 4
SUMMARY OF CERTAIN INFORMATION.............................. 5
RISK FACTORS................................................ 12
Recent and Anticipated Future Losses...................... 12
Declining Contribution of Analog PC Modem Business........ 12
Dependence on Timely Success of Expansion Platforms....... 12
Rapid Technological Change................................ 13
Dependence on New Product Development and Product Cost
Reductions............................................. 13
Future Capital Sources.................................... 13
Research and Development Expenses......................... 14
Capital Expenditures...................................... 14
Fluctuations in Operating Results......................... 14
Intellectual Property Matters............................. 14
Competition............................................... 15
Manufacturing Risks....................................... 16
Order and Shipment Uncertainties.......................... 17
Cyclical Nature of the Semiconductor Industry............. 17
Dependence on Key Personnel............................... 17
International Sales and Operations........................ 18
Investments, Alliances and Acquisitions................... 18
Management Resources...................................... 19
Environmental Matters..................................... 19
Year 2000................................................. 19
Absence of History as an Independent Company.............. 19
No Prior Market For Company Common Stock; Volatility;
Possibility of Substantial Sales of Company Common
Stock.................................................. 20
Certain Anti-takeover Effects............................. 20
Certain Federal Income Tax Considerations................. 21
THE SEMICONDUCTOR SYSTEMS BUSINESS.......................... 22
Industry Background....................................... 23
Company Approach.......................................... 24
Company Strategy.......................................... 25
The Five Product Platforms................................ 26
Customers; Sales and Marketing............................ 32
Competition............................................... 33
Raw Materials and Supplies................................ 33
Research and Development.................................. 33
Intellectual Property..................................... 34
Employees................................................. 34
Cyclicality; Seasonality.................................. 34
Properties................................................ 35
Environmental Matters..................................... 36
Legal Proceedings......................................... 37
General................................................... 38
CREDIT FACILITY............................................. 38
HISTORICAL SELECTED FINANCIAL DATA.......................... 39
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION OF THE
COMPANY................................................... 40
Unaudited Pro Forma Balance Sheet Information of the
Company................................................ 40
Unaudited Pro Forma Results of Operations Information of
the Company............................................ 40
</TABLE>
2
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 41
Overview.................................................. 41
Results of Operations..................................... 42
Income Taxes.............................................. 45
Liquidity and Capital Resources........................... 45
Year 2000................................................. 46
Financial Instrument Disclosures.......................... 46
Cautionary Statement...................................... 47
THE DISTRIBUTION............................................ 48
Introduction.............................................. 48
Background and Reasons for the Distribution............... 48
Manner of Effecting the Distribution...................... 48
Trading Market............................................ 49
Dividend Policy........................................... 50
Certain Federal Income Tax Consequences of the
Distribution........................................... 50
Conditions; Termination................................... 51
ARRANGEMENTS BETWEEN ROCKWELL AND THE COMPANY............... 52
Distribution Agreement.................................... 52
Employee Matters Agreement................................ 53
Tax Allocation Agreement.................................. 55
Transition Agreement...................................... 55
MANAGEMENT OF THE COMPANY................................... 56
Directors of the Company.................................. 56
Committees of the Board of Directors...................... 57
Compensation of Directors................................. 57
Executive Officers of the Company......................... 58
Historical Compensation of Executive Officers............. 59
Option Grants............................................. 61
Aggregated Option Exercises and Fiscal Year-End Values.... 62
Long-Term Incentive Plan Awards........................... 62
Retirement Benefits....................................... 63
Benefit Plans Following the Distribution.................. 64
Ownership of Company Common Stock......................... 69
DESCRIPTION OF COMPANY CAPITAL STOCK........................ 69
Company Common Stock...................................... 70
Company Preferred Stock................................... 70
Certain Provisions in the Company Certificate and Company
By-Laws................................................ 73
Company Rights Plan....................................... 77
Anti-takeover Legislation................................. 79
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS..... 80
GLOSSARY OF TECHNICAL TERMS................................. 81
INDEX TO SEMICONDUCTOR SYSTEMS COMBINED FINANCIAL STATEMENTS
AND SCHEDULE.............................................. F-1
</TABLE>
3
<PAGE> 10
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form 10 (the "Registration Statement")
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), with
respect to the Company Common Stock. This Information Statement does not contain
all of the information set forth in the Registration Statement and the exhibits
thereto. The Registration Statement and any amendments thereto, including
exhibits filed as a part thereof, are available for reading and copying as set
forth below.
Upon effectiveness of the Registration Statement, the Company will be
subject to the Exchange Act and will file reports, proxy and information
statements and other information relating to itself with the Commission. The
public may read and copy such reports, proxy and information statements and
other information filed by the Company, including the Registration Statement and
exhibits thereto, at the Commission's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. The public may obtain information on the operation
of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The
Commission also maintains an Internet site that contains reports, proxy and
information statements and other information regarding registrants (including
the Company) that file electronically with the Commission (http://www.sec.gov).
The Company's Internet site is http://www.nb.rockwell.com.
If the Company Common Stock is traded and quoted on Nasdaq, reports, proxy
statements and other information concerning the Company can be inspected at the
offices of Nasdaq, 1735 K Street, N.W., Washington, D.C. 20006-1500.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION WITH RESPECT TO THE MATTERS DESCRIBED IN THIS INFORMATION
STATEMENT OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS INCORPORATED BY
REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS INFORMATION STATEMENT DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SECURITIES.
NEITHER THE DELIVERY OF THIS INFORMATION STATEMENT NOR ANY DISTRIBUTION OF
SHARES OF COMPANY COMMON STOCK MADE AS DESCRIBED HEREIN SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
4
<PAGE> 11
SUMMARY OF CERTAIN INFORMATION
The following summary is not intended to be complete and is qualified by
reference to the more detailed information set forth elsewhere in this
Information Statement, which should be reviewed carefully in its entirety.
Unless the context otherwise indicates, as used in this Information Statement,
the term the "Company" means Semiconductor Systems for periods prior to the
Distribution and Rockwell Semiconductor Systems, Inc. and its subsidiaries for
periods following the Distribution. For the convenience of the reader, a
glossary of technical terms used herein appears on page 81.
THE DISTRIBUTION
Distributing Company.......... Rockwell International Corporation, a Delaware
corporation.
Shares to be Distributed...... Approximately [ ] million shares of Company
Common Stock, based on the number of shares of
Rockwell Common Stock outstanding as of
[ ], 1998. No consideration will be
paid by shareowners of Rockwell for the shares
of Company Common Stock to be received by them
in the Distribution, nor will they be required
to surrender or exchange shares of Rockwell
Common Stock or take any other action in order
to receive Company Common Stock. See "The
Distribution -- Manner of Effecting the
Distribution".
Distribution Ratio............ One share of Company Common Stock for every
[ ] shares of Rockwell Common Stock. See
"The Distribution -- Manner of Effecting the
Distribution".
Direct (Book-Entry)
Registration; Share
Certificates................ Company shareowners initially will have their
ownership of Company Common Stock registered
only in book-entry form. Book-entry
registration refers to a method of recording
stock ownership in the Company's records in
which no share certificates are issued. On the
Distribution Date, each holder of Rockwell
Common Stock as of the close of business on the
Record Date will be credited through book-entry
in the records of the Company with the number
of whole and fractional shares of Company
Common Stock received by the shareowner. Each
such Rockwell shareowner will receive an
account statement indicating the number of
shares (including fractional shares) of Company
Common Stock that the shareowner owns.
Following the Distribution Date, any Company
shareowner whose ownership of Company Common
Stock is registered in book-entry form may
obtain at any time without charge a certificate
to represent the number of whole shares by
contacting the Transfer Agent (as defined
below). See "The Distribution -- Manner of
Effecting the Distribution".
Fractional Share Interests.... The distribution ratio for the number of shares
of Company Common Stock to be issued for each
share of Rockwell Common Stock outstanding on
the Record Date will be such that the
Distribution will give rise to fractional
shares of Company Common Stock. All whole and
fractional interests will be credited to the
shareowner's account through book-entry
registration in the Company's records. After
the Distribution, a shareowner may
5
<PAGE> 12
request and receive physical certificates for
shares of Company Common Stock (in which case a
shareowner will receive physical certificates
for all whole shares of Company Common Stock
that such shareowner owns and cash in lieu of
fractional interests). See "The
Distribution -- Manner of Effecting the
Distribution". Although the Distribution is
intended to be tax-free, shareowners will
recognize gain or loss for tax purposes in an
amount equal to the difference between the cash
received in respect of any fractional share and
the amount of such shareowner's tax basis
allocable to such fractional share. See "The
Distribution -- Certain Federal Income Tax
Consequences of the Distribution".
Record Date................... The Record Date is the close of business on
December [ ], 1998.
Distribution Date............. The Distribution is expected to occur on
December 31, 1998 (the "Distribution Date"). On
or about the Distribution Date, the
Distribution Agent will commence mailing
account statements reflecting ownership of
shares of Company Common Stock to holders of
Rockwell Common Stock as of the close of
business on the Record Date.
Distribution Agent............ ChaseMellon Shareholder Services, L.L.C.
("ChaseMellon") will serve as the distribution
agent (the "Distribution Agent") for the
Distribution. ChaseMellon will also serve as
transfer agent and registrar (the "Transfer
Agent") for the Company Common Stock.
ChaseMellon's address is P.O. Box 3315, South
Hackensack, New Jersey 07606-1915, and its
telephone number is (888) 470-5829.
Federal Income Tax
Consequences.................. The Distribution is conditioned upon the
receipt of a ruling (the "Tax Ruling") from the
Internal Revenue Service (the "IRS") to the
effect that the Distribution will qualify as a
tax-free reorganization within the meaning of
Section 368(a)(1)(D) of the Internal Revenue
Code of 1986, as amended (the "Code"). Although
the conditions to the Distribution set forth in
the Distribution
Agreement (as defined below) may be waived by
Rockwell's Board of Directors in its sole
discretion, Rockwell does not presently intend
to waive the condition of receipt of the Tax
Ruling. See "The Distribution -- Certain
Federal Income Tax Consequences of the
Distribution".
Trading Market and Symbol..... There is no current trading market for the
Company Common Stock, although a "when-issued"
trading market is expected to develop prior to
the Distribution Date. Application will be made
for approval of trading and quotation of the
Company Common Stock on Nasdaq under the
proposed trading symbol "[ ]". See "The
Distribution -- Trading Market".
Conditions to the
Distribution.................. The Distribution is conditioned upon, among
other things: (i) receipt of the Tax Ruling;
(ii) final approval of the Distribution by the
Board of Directors of Rockwell; (iii) the
Registration Statement becoming effective under
the Exchange Act; (iv) the
6
<PAGE> 13
Company Common Stock being approved for trading
and quotation on Nasdaq; and (v) a "no-action"
letter from the staff of the Commission being
issued and in full force and effect regarding
the sale of certain shares of Company Common
Stock to be received by the Rockwell Savings
Plan (as defined below) in the Distribution.
Regardless of whether the conditions are
satisfied, the Distribution Agreement may be
terminated and the Distribution abandoned by
Rockwell's Board of Directors, in its sole
discretion, without the approval of Rockwell
shareowners, at any time prior to the
Distribution. See "The
Distribution -- Conditions; Termination".
Arrangements Between Rockwell
and the Company............... For the purpose of governing certain of the
relationships between Rockwell and the Company
relating to the Distribution, to provide for an
orderly transition and for other matters,
Rockwell and the Company will, prior to the
Distribution, enter into certain agreements,
including (i) the Distribution Agreement
providing for, among other things, the
principal corporate transactions required to
effect the separation of Semiconductor Systems
from the Automation Business and the Avionics &
Communications Business (each as defined below)
and the Distribution, and certain other
agreements governing the relationship between
Rockwell and the Company with respect to or in
consequence of the Distribution; (ii) the
Employee Matters Agreement (as defined below)
providing for, among other things, certain
matters relating to employees, employee benefit
plans and certain compensation arrangements for
current and former employees of Semiconductor
Systems and their beneficiaries; (iii) the Tax
Allocation Agreement (as defined below)
providing for, among other things, the
allocation between Rockwell and the Company of
federal, state, local and foreign tax
liabilities relating to Semiconductor Systems;
and (iv) the Transition Agreement (as defined
below) providing for, among other things, the
provision by Rockwell to the Company, for
specified periods after the Distribution Date
and on mutually agreed terms, of certain
services which prior to the Distribution Date
have been provided to the Company by Rockwell.
See "Arrangements Between Rockwell and the
Company".
7
<PAGE> 14
THE COMPANY
The Company................... The Company, a Delaware corporation, is
currently a wholly-owned subsidiary of Rockwell
which, together with certain other subsidiaries
of Rockwell, operates Semiconductor Systems.
Following consummation of the Distribution, the
Company will be a separately-traded public
company owning and operating Semiconductor
Systems. Prior to the Distribution, Rockwell
will contribute to the Company assets and
liabilities of Semiconductor Systems not
already owned by the Company, including the
stock of certain subsidiaries, and the Company
will distribute to Rockwell all assets and
liabilities not constituting part of
Semiconductor Systems, including all assets and
liabilities of Rockwell's electronic commerce
business.
The Semiconductor Systems
Business...................... Following the Distribution, Semiconductor
Systems will be the world's largest company
focused exclusively on providing semiconductor
products for communications electronics. With
over 30 years of experience in developing
analog modem technology, Semiconductor Systems
utilizes its expertise in mixed-signal
processing and communications technology to
deliver semiconductor products for a broad
range of communications applications. In
addition to its semiconductor integrated
circuit products, the Company's system-level
solutions integrate signal processing
algorithms, communication protocols and
applications software.
Semiconductor Systems' products facilitate
communications worldwide through wireline voice
and data communications networks, cordless and
cellular wireless telephony systems and
emerging cable and wireless broadband
communications networks. Semiconductor Systems
focuses its business in five key product
platforms: Personal Computing, Personal
Imaging, Wireless Communications, Digital
Infotainment and Network Access. Through these
strategic product platforms, Semiconductor
Systems believes it is well positioned to
supply semiconductor products for a broad range
of closely interrelated and converging markets.
See "The Semiconductor Systems Business" and
"Semiconductor Systems Combined Financial
Statements and Schedule".
Management.................... Most of the initial executive officers of the
Company are expected to be persons who
currently serve as officers or other employees
of Semiconductor Systems or Rockwell. All such
persons who are employees of Rockwell will
resign from their positions with Rockwell prior
to the Distribution, so that the Company and
Rockwell will have no executive officers in
common and none of the executive officers of
the Company will be employees of Rockwell. It
is expected that Donald R. Beall, former
Chairman and Chief Executive Officer of
Rockwell and currently Chairman of the
Executive Committee of the Board of Directors
of Rockwell, will serve as a non-executive
director of the Company. See "Management of the
Company".
8
<PAGE> 15
Credit Facility............... Prior to the Distribution, the Company expects
to enter into a secured revolving credit
facility with a group of banks (the "Credit
Facility"), which will be used for working
capital and other general corporate purposes of
the Company and its subsidiaries following the
Distribution. See "Credit Facility".
Certain Anti-takeover
Effects....................... Certain provisions of the Company's Restated
Certificate of Incorporation (the "Company
Certificate") and the Company's Amended By-Laws
(the "Company By-Laws"), as each will be in
effect as of the Distribution Date, would have
the effect of making more difficult an
acquisition of control of the Company in a
transaction not approved by the Company's Board
of Directors. See "Description of Company
Capital Stock -- Certain Provisions in the
Company Certificate and Company By-Laws". The
Rights Agreement to be entered into between the
Company and ChaseMellon, as rights agent, also
would make more difficult an acquisition of
control of the Company in a transaction not
approved by the Board of Directors of the
Company. See "Description of Company Capital
Stock -- Company Rights Plan". Certain tax
consequences may also discourage an acquisition
of control of the Company for some period of
time. See "Risk Factors -- Certain Federal
Income Tax Considerations".
Post-Distribution Dividend
Policy........................ It is anticipated that following the
Distribution, the Company initially will not
pay dividends and Rockwell initially will
continue to pay quarterly cash dividends at the
same annual rate of $1.02 per share as
currently paid on Rockwell Common Stock.
However, the declaration and payment of
dividends by the Company and Rockwell will be
at the sole discretion of their respective
Boards of Directors. See "The
Distribution -- Dividend Policy".
Risk Factors.................. Shareowners should carefully consider the
matters discussed under the section entitled
"Risk Factors" in this Information Statement.
RECENT DEVELOPMENTS
In September 1998, the Company announced a comprehensive plan to resize its
business to align it with the realities of the current global semiconductor
market and to position the Company for future profitability. This plan will
result in fourth quarter fiscal 1998 special after tax charges of approximately
$105 million, including approximately $60 million related to the planned
disposition of the Company's Colorado Springs, Colorado wafer fabrication
facilities, approximately $35 million for severance and other expenses related
to a worldwide workforce reduction of approximately 10 percent and approximately
$10 million for other actions. Management believes that this plan, as well as
other cost reduction initiatives, will enable Semiconductor Systems to reduce
annual operating costs by over $200 million in fiscal 1999 from the annualized
level incurred in the third quarter of fiscal 1998.
Semiconductor Systems expects its fiscal 1998 full-year net loss after tax
to be approximately $275 million, including inventory write-offs of
approximately $55 million (after tax), a charge for intellectual property
matters of approximately $20 million (after tax) and the fourth quarter special
charges described above. The Company anticipates a further net loss after tax of
approximately $40 million in the first quarter of fiscal 1999. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
9
<PAGE> 16
SUMMARY FINANCIAL DATA
The following summary financial data have been derived from the financial
statements of Semiconductor Systems. The data should be read in conjunction with
the financial statements of Semiconductor Systems and notes thereto included
elsewhere in this Information Statement. The statement of operations data for
the years ended September 30, 1995, 1996 and 1997 and the balance sheet data as
of September 30, 1996 and 1997 have been derived from the audited financial
statements of Semiconductor Systems. The statement of operations data for the
years ended September 30, 1993 and 1994 and the balance sheet data as of
September 30, 1993, 1994 and 1995 have been derived from unaudited financial
information of Semiconductor Systems. The statement of operations data for the
nine months ended June 30, 1997 and 1998 and the balance sheet data as of June
30, 1997 and 1998 have been derived from unaudited financial statements of
Semiconductor Systems which, in the opinion of management, include all
adjustments necessary for a fair presentation of assets and liabilities as of
such dates and results of operations for such periods. Results for the nine
months ended June 30, 1998 are not indicative of the results that may be
expected for the entire year ending September 30, 1998.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
-------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998(1)
------ ------ ------ ------- ------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Net sales............................... $ 436 $ 599 $ 784 $1,470 $1,412 $1,043 $ 936
Cost of sales........................... 252 347 483 849 744 541 556
------ ------ ------ ------ ------ ------ ------
Gross margin............................ 184 252 301 621 668 502 380
Research and development................ 59 74 91 155 280 199 251
Selling, general and administrative..... 73 79 103 150 191 128 191
Purchased research and development(2)... -- -- -- 121 30 30 --
------ ------ ------ ------ ------ ------ ------
Operating earnings (loss)............... 52 99 107 195 167 145 (62)
Other income, net....................... 1 1 4 3 13 12 10
------ ------ ------ ------ ------ ------ ------
Income (loss) before income taxes....... 53 100 111 198 180 157 (52)
Provision (benefit) for income taxes.... 18 33 35 114 54 47 (24)
------ ------ ------ ------ ------ ------ ------
Net income (loss)....................... $ 35 $ 67 $ 76 $ 84 $ 126 $ 110 $ (28)
====== ====== ====== ====== ====== ====== ======
Operating earnings (loss) before
purchased research and
development(2)........................ $ 52 $ 99 $ 107 $ 316 $ 197 $ 175 $ (62)
====== ====== ====== ====== ====== ====== ======
COMBINED BALANCE SHEET DATA:
(at end of period)
Working capital(3)...................... $ 59 $ 95 $ 130 $ 229 $ 222 $ 269 $ 379
Property, net........................... 112 215 351 656 802 735 840
Total assets............................ 285 448 671 1,383 1,486 1,431 1,590
Rockwell's net investment............... 148 301 478 899 1,107 1,108 1,276
OTHER DATA:
Capital expenditures.................... $ 50 $ 148 $ 166 $ 380 $ 317 $ 201 $ 176
Depreciation and amortization........... 33 44 61 132 181 131 150
Cash provided by (used in) operating
activities............................ 66 49 106 315 296 161 (29)
</TABLE>
- ---------------
(1) In September 1998, Semiconductor Systems announced a comprehensive plan to
resize its business to align it with the realities of the current global
semiconductor market and to position the Company for future profitability.
Semiconductor Systems will record special charges of approximately $105
million after tax in the fourth quarter of fiscal 1998. Semiconductor
Systems expects its 1998 full-year net loss after tax (including the special
charges) to be approximately $275 million and its fiscal 1999 first quarter
net loss after tax to be approximately $40 million.
(2) Purchased research and development relates to the acquisition of Brooktree
Corporation in September 1996 and the acquisition of the Hi-Media broadband
communication chipset business of ComStream Corporation in May 1997.
(3) Working capital consists of all current assets and current liabilities,
including cash and short-term debt.
10
<PAGE> 17
PRO FORMA CAPITALIZATION
The following table sets forth the unaudited pro forma cash, short-term
debt and capitalization of the Company as of June 30, 1998. This information
should be read in conjunction with the pro forma financial information and the
financial statements of Semiconductor Systems and notes thereto appearing
elsewhere herein. The pro forma information may not reflect the cash, short-term
debt and capitalization of the Company in the future or as it would have been
had the Company been a stand-alone company on June 30, 1998. Assumptions
regarding the number of shares of Company Common Stock may not reflect the
actual number outstanding on the Distribution Date.
PRO FORMA CAPITALIZATION TABLE
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
SEMICONDUCTOR
SYSTEMS PRO FORMA COMPANY
HISTORICAL ADJUSTMENTS(1) PRO FORMA(2)
------------- -------------- ------------
(IN MILLIONS)
<S> <C> <C> <C>
Cash............................................... $ 14 $ -- $ 14
====== ========== ======
Short-term debt(3)................................. $ 14 $ -- $ 14
====== ========== ======
Shareowners' equity:
Rockwell's net investment........................ $1,284 $ (1,284) $ --
Common Stock..................................... -- [ ] [ ]
Additional paid-in capital....................... -- [ ] [ ]
Retained earnings................................ -- -- --
Currency translation............................. (8) -- (8)
------ ---------- ------
Total shareowners' equity................ 1,276 -- 1,276
------ ---------- ------
Total capitalization..................... $1,276 $ -- $1,276
====== ========== ======
</TABLE>
- ---------------
(1) To reflect the Distribution as the elimination of Rockwell's net investment
and the issuance of an estimated [ ] million shares of Company Common
Stock, par value $1 per share. This is based on the number of shares of
Rockwell Common Stock outstanding on June 30, 1998 of approximately 192
million shares and the distribution ratio of one share of Company Common
Stock for every [ ] shares of Rockwell Common Stock outstanding.
(2) In September 1998, Semiconductor Systems announced a comprehensive plan to
resize its business to align it with the realities of the current global
semiconductor market and to position the Company for future profitability.
Semiconductor Systems will record special charges of approximately $105
million after tax in the fourth quarter of fiscal 1998. These charges have
not been reflected in the Pro Forma Capitalization Table. See "-- Recent
Developments".
(3) The Company is in the process of arranging a revolving credit facility with
a group of banks. The credit facility will be used to support working
capital requirements and for other general corporate purposes when the
Company becomes an independent company.
11
<PAGE> 18
RISK FACTORS
Shareowners should carefully consider and evaluate all of the information
set forth in this Information Statement, including the risk factors listed
below. Any one or more of such risk factors could materially and adversely
affect the Company's business, financial condition and results of operations,
which in turn could materially and adversely affect the price of the Company
Common Stock. In addition to the historical information included herein, this
Information Statement contains statements relating to future results of the
Company (including certain projections and business trends) that are
"forward-looking statements". Actual results may differ materially from those
projected as a result of certain risks and uncertainties, including but not
limited to the factors listed below and those detailed from time to time in the
filings of the Company with the Commission. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Cautionary
Statement".
RECENT AND ANTICIPATED FUTURE LOSSES
Although Semiconductor Systems experienced rapid growth in sales and
operating earnings during the five fiscal years ended September 30, 1996, in
fiscal 1997 sales declined $58 million, or four percent, to $1,412 million and
operating earnings declined $119 million, or 38 percent, to $197 million, before
acquisition related charges in both years. Moreover, for the nine months ended
June 30, 1998 Semiconductor Systems had sales of $936 million and incurred an
operating loss of $62 million, compared to sales of $1,043 million and an
operating profit of $175 million (before an acquisition related charge) in the
comparable period in fiscal 1997. In September 1998, the Company announced a
comprehensive plan to resize its business to align it with the realities of the
current global semiconductor market and to position the Company for future
profitability. This plan will result in fourth quarter fiscal 1998 special
charges of approximately $105 million after tax and includes workforce
reductions, facility closures and other actions. Semiconductor Systems expects
its fiscal 1998 full-year net loss after tax to be approximately $275 million,
including inventory write-offs of approximately $55 million (after tax), a
charge for intellectual property matters of approximately $20 million (after
tax) and the fourth quarter special charges. The Company anticipates a further
net loss after tax of approximately $40 million in the first quarter of fiscal
1999. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations". There can be no assurance as to whether or when the
Company will return to profitability or whether it will be able to sustain such
profitability, if achieved.
DECLINING CONTRIBUTION OF ANALOG PC MODEM BUSINESS
The Company is the world's leading supplier of analog PC modem chipsets for
personal computing applications. However, revenues and gross margin from sales
of these products, which make up most of the Company's Personal Computing
platform, have recently declined, most particularly in fiscal 1998, due to,
among other factors, intense competitive price pressures as modem chipset
suppliers aggressively compete for market share. Such revenues and margins are
expected to decline even further as unit growth in the markets for these
products is not anticipated to offset continued price erosion. The Company's
inability to offset further declines in the analog PC modem business with
revenues and gross margin from sales of other products would have a material
adverse effect on the Company's business, financial condition and results of
operations.
DEPENDENCE ON TIMELY SUCCESS OF EXPANSION PLATFORMS
In 1995, Semiconductor Systems began to diversify its business and expand
into selected related product platforms -- Personal Imaging, Wireless
Communications, Digital Infotainment and Network Access -- with higher growth
prospects than its analog PC modem business. The Company's future financial
performance and overall success, particularly in the long term, will depend in
large measure on the rate of sales growth and margin contribution of the
Company's expansion platforms and whether these platforms will increase their
contribution to the Company's financial performance sufficiently and soon enough
to offset the anticipated continued declining financial contribution of the
Company's analog PC modem chipset products.
12
<PAGE> 19
There are numerous risks inherent in the Company's diversification and
expansion strategy, many of which are beyond the Company's control. In certain
of its expansion platforms, the Company currently has minimal market presence
relative to other more established competitors. Moreover, the Company's success
with its expansion platforms will depend, in part, on the ability of the
Company's customers to develop new and enhanced products and successfully
introduce and market such products to end users. There can be no assurance that
the Company will be successful in its diversification and expansion program, and
its failure to do so would have a material adverse effect on the Company's
business, financial condition and results of operations.
RAPID TECHNOLOGICAL CHANGE
The markets for the Company's products are generally characterized by rapid
technological developments, evolving industry standards, changes in customer
requirements, frequent new product introductions and enhancements and short
product life cycles with declining prices over the life cycle of the product. A
faster than anticipated change in one or more of the technologies related to its
products or in market demand for products based on a particular technology, in
particular due to the introduction of new technology which represents a
substantial advance over current technology, could result in faster than
anticipated obsolescence of the Company's products and could have a material
adverse effect on the Company's business, financial condition and results of
operations. For example, increased market demand for sub-$1,000 PCs is causing
PC original equipment manufacturers ("OEMs") to require less expensive modem
devices, such as software modems, which require fewer semiconductor components
than the Company's traditional modem chipsets and may render obsolete the
traditional hardware upgrade path for the Company's modem products. Currently
accepted industry standards are also subject to change, which may contribute to
the obsolescence of the Company's products.
DEPENDENCE ON NEW PRODUCT DEVELOPMENT AND PRODUCT COST REDUCTIONS
The Company's operating results will depend to a significant extent on its
ability to continue to introduce new and enhanced semiconductor products on a
timely basis. Successful product development and introduction depends on
numerous factors, including, among others, the Company's ability to anticipate
customer and market requirements and changes in technology and industry
standards, accurate new product definition, timely completion and introduction,
differentiation from offerings of the Company's competitors and market
acceptance. Furthermore, the Company is required to continually evaluate planned
product development expenditures and choose among alternative technologies based
upon its expectations of future market growth. There can be no assurance that
the Company will be able to develop and introduce new or enhanced products in a
timely and cost-effective manner or that such products will satisfy customer
requirements, achieve market acceptance or anticipate new industry standards and
technological changes or that the Company will be able to respond to new product
announcements and introductions by competitors.
In addition, as prices of established products decline, sometimes
significantly, over time, the Company believes that in order to remain
competitive it must continue to reduce the cost of producing and delivering
existing products at the same time as it is developing and introducing new or
enhanced products. There can be no assurance that the Company will be able to
continue to reduce the cost of its products to remain competitive.
FUTURE CAPITAL SOURCES
Over the past several years, Semiconductor Systems has obtained significant
investments from Rockwell to help satisfy its capital needs. Following the
Distribution, the Company will no longer be able to rely on investments from
Rockwell. Prior to the Distribution, the Company expects to enter into the
Credit Facility, which will be used for working capital and other general
corporate purposes of the Company and its subsidiaries following the
Distribution. Although the Company believes that anticipated improved cash flows
from operations resulting in part from the restructuring actions announced in
September 1998 (see "Summary of Certain Information -- Recent Developments") and
available borrowings under the Credit Facility will be sufficient to satisfy its
future research and development, capital expenditure, working capital and other
13
<PAGE> 20
financing requirements, there can be no assurance that this will be the case or
that alternative sources of liquidity will be available to the Company.
RESEARCH AND DEVELOPMENT EXPENSES
The semiconductor industry requires substantial investment in research and
development. In order to remain competitive, the Company must continue to make
substantial investments in research and development to develop new and enhanced
products. There can be no assurance that the Company will have sufficient
resources to develop new and enhanced technologies and competitive products. As
part of its plan to resize its business announced in September 1998, the Company
intends to reduce research and development expenditures in fiscal 1999 by
approximately 25 percent from fiscal 1998 levels. The Company's failure to make
sufficient investments in research and development programs could have a
material adverse effect on the Company's business, financial condition and
results of operations.
CAPITAL EXPENDITURES
The semiconductor industry is capital intensive. Semiconductor
manufacturing requires a constant upgrading of process technology to remain
competitive, as new and enhanced semiconductor processes are developed which
permit smaller, more efficient and more powerful semiconductor devices. The
Company maintains its own manufacturing, assembly and test facilities which have
required and will continue to require significant investments in manufacturing
technology and equipment. After several years of significant capital investments
to improve manufacturing capabilities, the Company expects fiscal 1999 capital
expenditures to be approximately $100 million less than in fiscal 1998. There
can be no assurance that the Company will have sufficient capital resources to
make necessary investments in manufacturing technology and equipment.
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results are subject to substantial quarterly and
annual fluctuations due to a number of factors, many of which are beyond the
Company's control. Such factors may include, among others, the effects of
competitive pricing pressures, decreases in average selling prices of the
Company's products, production capacity levels and fluctuations in manufacturing
yields, availability and cost of products from the Company's suppliers, the gain
or loss of significant customers, the Company's ability to develop, introduce
and market new products and technologies on a timely basis, new product and
technology introductions by the Company's competitors, changes in the mix of
products produced and sold, market acceptance of the Company's and its
customers' products, intellectual property disputes, seasonal customer demand,
the timing of significant orders and the timing and extent of product
development costs. Operating results also could be adversely affected by general
economic and other conditions causing a downturn in the market for semiconductor
products, or otherwise affecting the timing of customer orders or causing order
cancellations or rescheduling. The Company's customers may change delivery
schedules or cancel or reduce orders without significant penalty and generally
are not subject to minimum purchase requirements. The foregoing factors are
difficult to forecast, and these or other factors could materially adversely
affect the Company's quarterly or annual operating results. If the Company's
operating results fail to meet the expectations of analysts or investors, the
price of the Company Common Stock could be materially and adversely affected.
INTELLECTUAL PROPERTY MATTERS
The semiconductor industry is characterized by vigorous protection and
pursuit of intellectual property rights. Litigation has been necessary in the
past and is expected to be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets or to
determine the validity and scope of proprietary rights of others, including the
Company's customers. The Company has received, and may continue to receive in
the future, claims of infringement of intellectual property rights of others.
The Company is a party to certain pending proceedings involving such claims.
There can be no assurance that the Company will prevail in pending actions, or
that other actions alleging infringement by the Company of third-
14
<PAGE> 21
party patents or invalidity of the patents held by the Company will not be
asserted or prosecuted against the Company, or that any assertions of
infringement or prosecutions seeking to establish the invalidity of Company-held
patents will not materially and adversely affect the Company's business,
financial condition and results of operations. Even if the Company is successful
in such matters, the attempted enforcement of intellectual property rights by or
against the Company could result in significant costs and diversion of the
Company's resources and could have a material adverse effect on the Company's
business, financial condition and results of operations. If claims or actions
are asserted or commenced against the Company, the Company in certain situations
may seek to obtain licenses under a third party's intellectual property rights
to avert or resolve a controversy. There can be no assurance that under such
circumstances a license would be available on commercially reasonable terms, if
at all. See "The Semiconductor Systems Business -- Intellectual Property" and
"-- Legal Proceedings".
The Company relies primarily on patent, copyright, trademark and trade
secret laws, as well as nondisclosure and confidentiality agreements and other
methods to protect its proprietary technologies and processes. In addition, the
Company often incorporates the intellectual property of its customers into its
designs, and the Company has certain obligations with respect to the non-use and
non-disclosure of such intellectual property. There can be no assurance that the
steps taken by the Company to prevent misappropriation or infringement of the
intellectual property of the Company or its customers will be successful; that
any existing or future patents will not be challenged, invalidated or
circumvented; or that any of the protective measures described above would
provide meaningful protection to the Company. The failure of any patents to
provide protection to the Company's technology would make it easier for the
Company's competitors to offer similar products. Moreover, despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use the Company's technology without authorization, develop similar
technology independently or design around the Company's patents. In addition,
effective copyright, trademark and trade secret protection may be unavailable or
limited in certain countries.
The Company has historically indemnified its customers for certain of the
costs and damages of patent infringement in circumstances where the Company's
product is the factor creating the customer's infringement exposure (generally
excluding coverage where infringement arises out of the combination of the
Company's products with products of others). This policy could have a material
adverse effect on the business, financial condition and results of operations of
the Company, particularly with respect to the Company's products designed for
use in devices manufactured by its customers that comply with international
standards. Such international standards are often covered by patent rights held
by competitors of the Company or its customers and the combined costs of
obtaining licenses from all holders of patent rights essential to such standards
could be high and could have a material adverse effect on the Company's
business, financial condition and results of operations.
COMPETITION
The semiconductor industry in general and the markets in which the Company
competes in particular are intensely competitive. The Company currently faces
significant competition in its markets and expects that intense price and
product competition will continue. Such competition has resulted and is expected
to continue to result in declining average selling prices for the Company's
products. As a result of the trend toward global expansion by foreign and
domestic competitors, technological and public policy changes and relatively low
barriers to entry in certain segments of the industry, the Company anticipates
that additional competitors will enter its markets. Although the Company enjoys
substantial market shares in its analog data and facsimile ("fax") modem chipset
product lines, as the Company pursues its diversification strategy and develops
its expansion platforms it will be competing in certain new markets in which it
has little or no market share and where existing competitors have dominant
market positions. Moreover, certain of the Company's customers offer products
that compete with similar products offered by the Company.
Many of the Company's current and potential competitors have longer
operating histories and presence in key markets, greater name recognition,
access to larger customer bases and significantly greater financial, sales and
marketing, manufacturing, distribution, technical and other resources than the
Company. As a result,
15
<PAGE> 22
such competitors may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements or devote greater resources to
the development, promotion and sale of their products than the Company. Current
and potential competitors also have established or may establish financial or
strategic relationships among themselves or with existing or potential
customers, resellers or other third parties, which may affect customers'
purchasing decisions. Accordingly, it is possible that new competitors or
alliances among competitors could emerge and rapidly acquire significant market
share. There can be no assurance that the Company will be able to compete
successfully against current or potential competitors, or that competition will
not have a material adverse effect on the Company's business, financial
condition and results of operations. See "The Semiconductor Systems
Business -- Competition".
The high-growth nature of the communications electronics industry, coupled
with critical time-to-market factors, has led to consolidation among
participants in the markets that the Company serves, including both competitors
and customers of the Company, and this trend is expected to continue.
Investments, alliances and acquisitions may enable semiconductor suppliers,
including the Company and its competitors, to augment technical capabilities or
achieve faster time-to-market for their products than internal development.
Certain participants in the markets served by the Company have been actively
engaged in merger and acquisition transactions. Consolidations by industry
participants, including, in some cases, acquisition of certain of the Company's
customers by competitors of the Company, are creating entities with increased
market share, customer base, technology and marketing expertise in markets in
which the Company competes. These developments may significantly and adversely
affect the Company's current markets, the markets the Company is seeking to
serve and the Company's ability to compete successfully in such markets.
MANUFACTURING RISKS
The fabrication of integrated circuits is an extremely complex and precise
process consisting of hundreds of separate steps and requiring production in a
highly controlled, clean environment. Minute impurities, errors in any step of
the fabrication process, defects in the masks used to print circuits on a wafer
or a number of other factors can cause a substantial percentage of wafers to be
rejected or numerous die on each wafer to be non-functional.
The Company maintains its own manufacturing, assembly and test facilities,
including three operating wafer fabrication facilities, a test and assembly
facility and a module assembly facility. The Company also has arrangements with
third parties, including entities outside the United States, for the production,
assembly and testing of certain of its semiconductor products. The Company's
assembly and test facility in Mexicali, Mexico and its international subcontract
manufacturing arrangements are subject to a number of risks of operating abroad.
The semiconductor industry is currently experiencing an excess of wafer
fabrication capacity. In this environment, the Company is at a relative
disadvantage when compared to some of its competitors who rely primarily on
outside foundries because the Company's wafer fabrication facilities require
substantial fixed costs and investment. The Company's Newport Beach, California
wafer fabrication facility is currently operating below its full capacity, and
in September 1998, the Company announced that it would dispose of its Colorado
Springs, Colorado wafer fabrication facilities. The Company is also exploring
wafer manufacturing alternatives, including increased use of outside foundries,
entering into joint ventures with respect to wafer manufacturing or other
actions in respect of its wafer manufacturing facilities. There can be no
assurance that the Company will succeed in implementing any such alternatives.
Lengthy or recurring disruptions of operations at any of the Company's
production facilities or those of its subcontractors for any reason, including
work stoppages, fire, earthquake, flooding or other natural disasters, could
cause significant delays in shipments until the Company could shift the products
from an affected facility or subcontractor to another facility or subcontractor.
In such event, there can be no assurance that required alternate capacity,
particularly wafer production capacity, would be available on a timely basis or
at all, or that if available, it could be obtained on favorable terms, thereby
potentially resulting in a loss of customers. Any inability of the Company to
generate sufficient manufacturing capacities to meet demand, either at its own
facilities or through foundry or similar arrangements with others, could have a
material adverse effect on the Company's business, financial condition and
results of operations. Certain of the
16
<PAGE> 23
Company's manufacturing facilities are located near major earthquake fault
lines, including the Company's Newport Beach, California and Mexicali, Mexico
facilities. The Company maintains only minimal earthquake insurance coverage
with respect to these facilities. See "The Semiconductor Systems
Business -- Properties".
Due to the highly specialized nature of the Gallium Arsenide ("GaAs")
semiconductor manufacturing process, in the event of a disruption at the
Company's Newbury Park, California wafer fabrication facility, alternate GaAs
production capacity would not be readily available from third party sources. In
addition, the Company is dependent on a single source supplier for epitaxial
wafers used in its GaAs manufacturing processes. The number of qualified
alternative suppliers for such wafers is limited and the process of qualifying a
new epitaxial wafer supplier could require a substantial leadtime. See "The
Semiconductor Systems Business -- Raw Materials and Supplies". Any disruption of
operations at the Company's Newbury Park, California wafer fabrication facility
or the interruption in the supply of epitaxial wafers used in its GaAs process
could have a material adverse effect on the Company's business, financial
condition and results of operations, particularly with respect to the Company's
Wireless Communications products.
ORDER AND SHIPMENT UNCERTAINTIES
The Company's sales are typically made pursuant to individual purchase
orders and the Company generally does not have long-term supply arrangements
with its customers. The Company's customers may cancel orders until 30 days
prior to the shipping date. In addition, the Company sells a portion of its
products through distributors who have certain rights to return unsold products
to the Company. Moreover, semiconductor companies, including the Company,
routinely manufacture or purchase inventory based on estimates of customer
demand for their products, which is difficult to predict. The cancellation or
deferral of product orders, the return of previously sold products or
overproduction due to the failure of anticipated orders to materialize could
result in the Company holding excess or obsolete inventory which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
CYCLICAL NATURE OF THE SEMICONDUCTOR INDUSTRY
The semiconductor industry is highly cyclical and is characterized by
constant and rapid technological change, rapid product obsolescence and price
erosion, evolving standards, short product life cycles and wide fluctuations in
product supply and demand. The industry has experienced significant downturns,
often in connection with, or in anticipation of, maturing product cycles (of
both semiconductor companies' and their customers' products) and declines in
general economic conditions. These downturns have been characterized by
diminished product demand, production overcapacity, high inventory levels and
accelerated erosion of average selling prices. The Company is currently
experiencing these conditions in its analog PC modem chipset business and may
experience such downturns in the future. The current downturn in the Company's
analog modem chipset business, which has been exacerbated by the Asia-Pacific
region's current economic situation, has had, and any future downturns may have,
a material adverse effect on the Company's business, financial condition and
results of operations. The semiconductor industry also from time to time has
experienced periods of increased demand and production capacity constraints. The
Company thus may experience substantial changes in future operating results due
to general semiconductor industry conditions, general economic conditions and
other factors.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a significant extent upon the
continued service of its executive officers and other key management and
technical personnel and on its ability to continue to attract, retain and
motivate qualified personnel. The Company is dependent on key technical
personnel, who represent a significant asset of the Company as the source of its
technological and product innovations. The competition for such personnel is
intense in the semiconductor industry. There can be no assurance that the
Company will be able to continue to attract and retain qualified management and
other personnel necessary for the design, development, manufacture and sale of
its products. The ability of the Company to attract and retain key
17
<PAGE> 24
personnel may be negatively impacted during periods of poor operating
performance by the Company. The loss of the services of one or more of the
Company's key employees or the Company's failure to attract, retain and motivate
qualified personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. In particular, the loss
of the services of Dwight W. Decker, Chairman and Chief Executive Officer of the
Company, or certain key design and technical personnel could materially and
adversely affect the Company.
INTERNATIONAL SALES AND OPERATIONS
For the fiscal year ended September 30, 1997, approximately 55 percent of
total sales of Semiconductor Systems were to customers located outside the
United States, primarily in Japan and other Asian-Pacific countries. In
addition, the Company has facilities and suppliers located outside the United
States, including its assembly and test facility in Mexicali, Mexico and
third-party foundries located in the Asia-Pacific region. The Company's
international sales and operations are subject to a number of risks inherent in
selling and operating abroad, including, but not limited to, risks with respect
to currency exchange rate fluctuations, local economic and political conditions,
disruptions of capital and trading markets, restrictive governmental actions
(such as restrictions on transfer of funds and trade protection measures,
including export duties and quotas and customs duties and tariffs), changes in
legal or regulatory requirements, import or export licensing requirements,
limitations on the repatriation of funds, difficulty in obtaining distribution
and support, nationalization, the laws and policies of the United States
affecting trade, foreign investment and loans, and tax laws. Because most of the
Company's international sales, other than sales to Japan (which are denominated
principally in Japanese yen), are currently denominated in U.S. dollars, the
Company's products could become less competitive in international markets if the
value of the U.S. dollar increases relative to foreign currencies. Moreover, the
Company may be competitively disadvantaged relative to competitors of the
Company located outside the United States who may benefit from a devaluation of
their local currency. There can be no assurance that the factors described above
will not have a material adverse effect on the Company's ability to increase or
maintain its foreign sales or on its business, financial condition and results
of operations.
The decline in the Company's operating performance has been exacerbated by
the current economic situation in the Asia-Pacific region. This economic
situation has increased the uncertainty with respect to the long-term viability
of certain of the Company's customers and suppliers in the region. Sales to
customers in Japan and other countries in the Asia-Pacific region, principally
Taiwan, South Korea and Hong Kong, represented approximately 45 percent of total
Semiconductor Systems sales in each of fiscal 1997 and the nine months ended
June 30, 1998.
The Company enters into foreign currency forward exchange contracts,
principally for the Japanese yen, to minimize risk of loss from currency
exchange rate fluctuations for foreign currency commitments entered into in the
ordinary course of business. The Company has not experienced nor does it
anticipate any material adverse effect on its results of operations or financial
condition related to these foreign currency forward exchange contracts. The
Company has not entered into foreign currency forward exchange contracts for
other purposes and the Company's financial condition and results of operations
could be affected (negatively or positively) by currency fluctuations.
INVESTMENTS, ALLIANCES AND ACQUISITIONS
Although the Company invests significant resources in research and
development activities, the complexity and rapidity of technological changes
make it impractical for the Company to pursue development of all technological
solutions on its own. As part of its goal to provide advanced semiconductor
products and systems, the Company expects to review on an ongoing basis
investment, alliance and acquisition prospects that would complement its
existing product offerings, augment its market coverage or enhance its
technological capabilities. However, there can be no assurance that the Company
will be able to identify and consummate suitable investment, alliance or
acquisition transactions in the future. Moreover, should the Company consummate
such transactions, they could result in the diversion of management resources,
as well
18
<PAGE> 25
as dilutive issuances of equity securities, large one-time write-offs, the
incurrence of debt and contingent liabilities, amortization of expenses related
to goodwill and other intangible assets and other acquisition related costs, any
of which could materially adversely affect the Company's business, financial
condition and results of operations and the price of the Company Common Stock.
The ultimate success of any such investments, alliances or acquisitions in
achieving the purposes for which they are undertaken will depend on the ability
of the Company to integrate successfully any acquired business and to retain key
personnel, as well as a variety of other factors.
MANAGEMENT RESOURCES
A combination of circumstances is currently presenting the Company's
management with a variety of challenges. In addition to implementing the
Company's ongoing diversification and expansion strategy, the Company will need
to dedicate significant managerial and other resources to implement the resizing
of Semiconductor Systems announced in September 1998 and to establish the
infrastructure and systems necessary for the Company to operate as an
independent public company. While the Company believes that it has sufficient
management resources to execute each of these initiatives, there can be no
assurance that this will be the case or that the initiatives will be
successfully implemented. Failure to implement these initiatives successfully
could have a material adverse effect on the Company's business, financial
condition and results of operations.
ENVIRONMENTAL MATTERS
The Company uses a variety of chemicals in its manufacturing operations and
is subject to a wide range of environmental protection regulations in the United
States and Mexico. While the Company has not experienced any material adverse
effect on its operations as a result of such regulations, there can be no
assurance that current or future regulations would not have a material adverse
effect on the Company's business, financial condition and results of operations.
In the United States, environmental regulations often require parties to fund
remedial action regardless of fault. As a consequence, it is often difficult to
estimate the future impact of environmental matters, including potential
liabilities. There can be no assurance that the amount of expense and capital
expenditures which might be required to complete remedial actions and to
continue to comply with applicable environmental laws will not have a material
adverse effect on the Company's business, financial condition and results of
operations. See "The Semiconductor Systems Business -- Environmental Matters".
YEAR 2000
The Company is in the process of implementing plans to address issues
related to the impact of the Year 2000 on the Company's products, business
systems, infrastructure, manufacturing systems and suppliers. A five-step
process is applied to each of these areas to inventory all possibly affected
assets, assess non-compliance with Year 2000, formulate a remediation strategy,
upgrade the system and test compliance. The Company continues to evaluate the
estimated costs associated with these efforts based on actual experience. While
the Company believes, based on available information, that it will be able to
manage its total Year 2000 transition without any material adverse effect on its
business, financial condition and results of operations, there can be no
assurance that such will be the case. In addition, the Company and the economy
in general may be adversely affected by the failure of federal, state, local and
international governments to address Year 2000 issues affecting their systems.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000".
ABSENCE OF HISTORY AS AN INDEPENDENT COMPANY
The Company does not have an operating history as an independent company.
Accordingly, the financial information included herein may not necessarily
reflect the results of operations, financial position and cash flows of
Semiconductor Systems had the Company been operated independently during the
periods presented.
19
<PAGE> 26
While Semiconductor Systems had been profitable as part of Rockwell,
Semiconductor Systems has experienced recent operating losses and anticipates
future operating losses at least in the short-term. There can be no assurance
that as a stand-alone company the Company will return to, or maintain any
particular level of, profitability. Semiconductor Systems has historically
relied on Rockwell for cash investments and various financial and administrative
services. After the Distribution, although Rockwell will provide to the Company
certain transitional services which prior to the Distribution have been provided
to Semiconductor Systems by Rockwell, the Company will maintain its own sources
of funding, banking relationships and administrative functions. See "Credit
Facility".
NO PRIOR MARKET FOR COMPANY COMMON STOCK; VOLATILITY; POSSIBILITY OF SUBSTANTIAL
SALES OF COMPANY COMMON STOCK
There is no current trading market for the Company Common Stock, and while
a "when-issued" trading market is expected to develop prior to the Distribution,
there can be no assurance as to the prices at which trading in the Company
Common Stock will occur after completion of the Distribution. Application will
be made for approval of trading and quotation of the Company Common Stock on
Nasdaq under the proposed trading symbol "[ ]". At least until the Company
Common Stock is fully distributed and an orderly market develops, and even
thereafter, the prices at which trading in such stock occurs may fluctuate
significantly. There can be no assurance that an active trading market in the
Company Common Stock will develop or be sustained in the future. The prices at
which shares of Company Common Stock trade will be determined by the marketplace
and may be influenced by many factors, including, among other things, the
Company's performance and prospects, the depth and liquidity of the market for
Company Common Stock, investor perception of the Company and the industry in
which it operates, changes in earnings estimates or buy/sell recommendations by
analysts, general financial and other market conditions, and domestic and
international economic conditions. In addition, public stock markets have
experienced extreme price and trading volume volatility, particularly in high
technology sectors of the market. This volatility has significantly affected the
market prices of securities of many technology companies for reasons frequently
unrelated to the operating performance of the specific companies. These broad
market fluctuations may adversely affect the market price of the Company Common
Stock. See "The Distribution -- Trading Market".
Substantially all of the shares of Company Common Stock distributed in the
Distribution will be eligible for immediate resale in the public market. In
spin-off transactions similar to the Distribution, it is not unusual for a
significant redistribution of shares to occur during the first few weeks or even
months following completion of the spin-off. Neither Rockwell nor the Company is
able to predict whether substantial amounts of Company Common Stock will be sold
in the open market following the Distribution or what effect such sales may have
on prices at which shares of Company Common Stock may trade. Any sales of
substantial amounts of Company Common Stock in the public market during this
period, or the perception that any redistribution has not been completed, could
materially adversely affect the market price of Company Common Stock. For a
description of the treatment of shares of Company Common Stock to be held by the
Rockwell International Corporation Savings Plan (the "Rockwell Savings Plan"),
see "Arrangements Between Rockwell and the Company -- Employee Matters
Agreement".
CERTAIN ANTI-TAKEOVER EFFECTS
The Company Certificate, the Company By-Laws, the Company Rights Agreement
(as defined below) and the General Corporation Law of the State of Delaware (the
"DGCL") contain several provisions that would make more difficult the
acquisition of control of the Company in a transaction not approved by the
Company's Board of Directors. See "Description of Company Capital
Stock -- Certain Provisions in the Company Certificate and Company By-Laws",
"-- Company Rights Plan" and "-- Anti-takeover Legislation". Certain tax
consequences may also discourage an acquisition of control of the Company for
some period of time. See "-- Certain Federal Income Tax Considerations".
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<PAGE> 27
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The Distribution is conditioned upon receipt of the Tax Ruling to the
effect that the Distribution will qualify as a tax-free reorganization within
the meaning of Section 368(a)(1)(D) of the Code. See "The
Distribution -- Certain Federal Income Tax Consequences of the Distribution".
The Tax Ruling has been requested from the IRS but has not been received as of
the date hereof. While the Tax Ruling generally would be binding on the IRS, the
continuing validity of such a ruling is subject to certain factual
representations and assumptions. Rockwell and the Company are not aware of any
facts or circumstances that would cause such representations and assumptions to
be untrue. The Tax Allocation Agreement provides that neither Rockwell nor the
Company is to take any action inconsistent with, nor fail to take any action
required by, the request for the Tax Ruling or the Tax Ruling (if received)
unless required to do so by law or the other party has given its prior written
consent or, in certain circumstances, a supplemental ruling permitting such
action is obtained. Rockwell and the Company will agree to indemnify each other
with respect to any tax liability resulting from their respective failures to
comply with such provisions. The Tax Allocation Agreement also provides that the
Company will be responsible for any taxes imposed on Rockwell, the Company or
Rockwell shareowners as a result of the failure of the Distribution to qualify
as a tax-free reorganization within the meaning of Section 368(a)(1)(D) of the
Code or the subsequent disqualification of the Distribution as a tax-free
transaction to Rockwell under Section 361(c)(2) of the Code if such failure or
disqualification is attributable to certain post-Distribution actions by or in
respect of the Company (including its subsidiaries) or its shareowners, such as
the acquisition of the Company by a third party at a time and in a manner that
would cause such a failure or disqualification. In addition, in connection with
Rockwell's spin-off of Meritor Automotive, Inc. on September 30, 1997, certain
tax-free intragroup spin-offs were effected by the Company. The Tax Allocation
Agreement provides that the Company will be responsible for any taxes imposed on
Rockwell, the Company or Rockwell shareowners in respect of those intragroup
spin-offs if such taxes are attributable to certain post-Distribution actions by
or in respect of the Company (including its subsidiaries) or its shareowners,
such as the acquisition of the Company by a third party at a time and in a
manner that would cause such taxes to be incurred. In the event that any of the
taxes described above were to become payable by the Company, such payment would
have a material adverse effect on the financial position, results of operations
and cash flow of the Company. See "Arrangements Between Rockwell and the
Company -- Tax Allocation Agreement".
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<PAGE> 28
THE SEMICONDUCTOR SYSTEMS BUSINESS
Following the Distribution, Semiconductor Systems will be the world's
largest company focused exclusively on providing semiconductor products for
communications electronics. With over 30 years of experience in developing
analog modem technology, Semiconductor Systems utilizes its expertise in mixed-
signal processing and communications technology to deliver semiconductor
products for a broad range of communications applications. In addition to its
semiconductor integrated circuit products, the Company's system-level solutions
integrate signal processing algorithms, communication protocols and applications
software.
The Company's core technological capability in mixed-signal processing
forms the foundation of its analog PC modem business as well as the building
blocks for the Company's expansion platforms, as illustrated below.
[DESCRIPTION OF ILLUSTRATION: MIXED-SIGNAL PROCESSING (SIGNAL CONVERSION, SIGNAL
PROCESSING ALGORITHMS AND COMMUNICATION PROTOCOLS) BRIDGING THE ANALOG AND
DIGITAL WORLDS.]
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<PAGE> 29
INDUSTRY BACKGROUND
Initially developed in the 1950s, analog data modems have played a crucial
role in the history of data communications, revolutionizing computing by
allowing users to have distributed and remote-computing communications
capabilities. The word "modem" is a contraction of the device's primary
functions: modulation, where outgoing digital signals are converted into analog
tones that can be communicated over telephone lines, and demodulation, which
performs the reverse function for incoming signals. Early modem systems were
large, self-contained pieces of equipment housed in three- to four-foot tall
cabinets, operating at speeds below 150 bits per second ("bps"). These modems
were primarily used for early computer applications such as airline reservations
and financial services. In the 1980s, the modem industry's growth was driven by
the beginning of the PC revolution, the V.22bis international industry standard
and significant technology advancements in modem semiconductors. Advances in
integrated circuit design techniques and process technologies have enabled
improvements in modem product building blocks, such as digital signal processors
("DSPs"), microcontrollers, signal converters and embedded memory. These
advances have allowed manufacturers to improve performance and offer an
ever-increasing variety of features, while simultaneously reducing the number
and cost of components. While the first widely-available PC modems operated at
speeds of approximately 1200 bps, today's V.90 modems operate at speeds of up to
56 Kbps, representing a doubling of modem performance every two years since the
mid-1980s. In the mid-1990s, modems became the primary interface for the
Internet explosion, propelling the modem from a niche PC peripheral to a key PC
communications feature.
In the early 1980s, fax communications revolutionized business
communications by enabling the electronic transfer of documents in near
real-time. Modem technology also is the basis for communications in fax
equipment, which scans and modulates a digital image locally followed by
demodulation and printing the image remotely. Fax machines designed in the late
1970s were large, cumbersome pieces of equipment approximately the size of
today's commercial copy machine. Since then, streamlining the scanning and
printing mechanics has significantly reduced the size and cost of fax machines.
Since the late 1970s, fax modem electronic content has declined from over 200
components costing approximately $1,000 and covering more than 128 square inches
of circuit board space to one semiconductor package containing two die covering
less than one square inch of circuit board space. Concurrent with this decrease
in size, a decrease in cost to less than $20 per unit and an increase in speeds
to 33.6 Kbps (V.34), fax modem functionality has evolved to include digital
answering machine, speakerphone and caller ID features.
In addition to use in PCs and fax machines, analog modems are increasingly
employed in a wide range of embedded applications. These applications include
credit card verification machines, automated teller machines, game machines and
personal digital assistants.
Today, nearly every form of communication is being revolutionized by the
growing use of digital communications to move all types of data, voice and video
around the world. In addition to data and fax modem functionality, different
technologies, protocols and media have evolved which are uniquely suited to the
particular application required. Each of these technologies requires specific
transport and access hardware devices, including handsets and base stations for
wireless telephony, switches and routers for telecommunications and data
networking, set-top boxes for cable and satellite communications, and digital
cable and digital subscriber line ("xDSL") modems for Internet access.
The advent of the Internet as a communications medium has dramatically
increased business and consumer demand for high-speed access to multimedia and
entertainment content. As businesses and consumers increasingly rely on the
Internet and intranets, networks are under unprecedented stress. A bandwidth
constraint has emerged, particularly at the last mile of network
infrastructures, challenging users and industry participants in a number of
communications segments. In response to growing network demands,
telecommunications, data communications and cable network operators are making
significant investments to alleviate congestion and support emerging high
bandwidth, integrated data, voice and video services. Specific technologies
addressing this bandwidth problem include cable modems and xDSL, including
asymmetric digital subscriber line ("ADSL"), for residential applications, high
speed digital subscriber line ("HDSL") and T1/E1 for high speed network access
in commercial applications, and Asynchronous Transfer Mode
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<PAGE> 30
("ATM"), Synchronous Optical Network ("SONET") and Synchronous Digital Hierarchy
("SDH") for network backbone transmission.
For wireless communications, digital wireless services are rapidly
eclipsing analog wireless services for next generation voice and data
applications by providing superior voice quality, improved security, more
efficient use of bandwidth and the ability to provide enhanced features. In
emerging markets, where wireline infrastructure is inadequate or limited,
digital wireless networks are providing a viable and economic alternative that
can be rapidly deployed. Wireless systems also deliver digital entertainment via
direct broadcast satellite ("DBS"), multi-point, multi-channel distribution
system ("MMDS") and local multi-channel distribution system ("LMDS") networks.
The various forms of digital communications will continue to evolve and are
expected to grow. In all forms of digital communications products, the core
competencies required include the mixed-signal processing competencies employed
in traditional data and fax modem products. These signal conversion and
processing functions are best addressed by highly integrated mixed-signal
devices that combine analog and digital functions with high-performance digital
signal processing circuitry using cost-effective semiconductor technologies to
achieve faster, smaller, lower cost and more integrated product offerings.
In order to address the evolving needs of their increasingly diverse
customer base and to provide products for the broad array of communications
protocols and functionalities, providers of communications semiconductor
solutions are being continually challenged to enhance product performance
features. To be successful, they must have access to the core technologies of
communications semiconductors, including signal conversion, signal processing,
radio frequency techniques and applications software. To keep pace with changes
across various communications media, providers must also have access to the
breadth of manufacturing process technologies required to produce new and
innovative solutions.
COMPANY APPROACH
The Company is the worldwide leader in supplying analog PC and fax modem
chipsets. In addition, it is at the forefront of advances in digital
communications, providing semiconductor products for a broad range of wireline
and wireless communications applications. The Company's strong business
relationships with leading OEMs have enabled collaboration in successful new
product introductions and definition of product roadmaps. These relationships
also provide a foundation for expansion into new market areas.
Semiconductor Systems has had a continuous presence as a leader of the
modem industry, having led seven generations of modem chipset evolution, from
Semiconductor Systems' early heritage in driving the standard for V.22bis (2400
bps) data modems to its industry-leading position in V.90 (56 Kbps) data modems.
The Company has maintained its leadership position in modem technology by
integrating additional functionality in its data and fax modem portfolio,
including simultaneous voice and data, audio and full-featured telephony (caller
ID, speakerphone and digital answering machine). In building its market
leadership positions in analog modems, the Company has advanced its core
competencies in signal conversion, signal processing, communication algorithms
and protocols and applications software, and has evolved to become one of the
largest application-specific DSP providers in the world.
Semiconductor Systems has successfully leveraged its core technological
competencies to expand into related high growth communications markets,
developing leading positions in digital cellular handset power amplifiers, HDSL
devices, global positioning system ("GPS") components and video decoder/encoder
devices. Additionally, the Company has capitalized on its system-level design
and integration expertise to provide OEMs with higher value semiconductor
systems, such as its industry leading 900 MHz digital spread spectrum ("DSS")
cordless telephone chipsets.
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<PAGE> 31
COMPANY STRATEGY
The Company's products facilitate communications worldwide through wireline
voice and data communication networks, cordless and cellular wireless telephony
systems and emerging cable and wireless broadband communications networks, as
illustrated below.
[DESCRIPTION OF ILLUSTRATION: LEVERAGING CORE COMPETENCIES IN MIXED-SIGNAL
PROCESSING FOR MULTIPLE COMMUNICATIONS NETWORKS (PSTN, CABLE, CELLULAR/PCS AND
SATELLITE)]
The Company's strategic intent is to drive to world leadership in providing
semiconductor products for communications electronics by leveraging its
competencies in signal conversion, signal processing, communication algorithms
and protocols and applications software. Key elements of the Company's strategy
include the following:
Diversification and Expansion. In view of the rapid expansion of
communications electronics markets in areas other than traditional analog
data and fax modem communication over telephone lines, the Company decided
to diversify its product offerings into new, higher growth markets. The
interrelationship and convergence within the Company's product platforms
offers opportunities for the Company to leverage its strength in
mixed-signal processing technology and to spread its core technological
competencies and intellectual property quickly and cost-effectively across
multiple product initiatives to develop communications products for each of
its targeted markets. The Company is building on its leadership position in
the modem chipset marketplace to expand into selected related product areas
that draw upon the same core competencies established with its modem
business.
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<PAGE> 32
Core Technology Strategy. The Company believes that executing a core
technology strategy that deploys technology building blocks, such as DSPs,
radio frequency integrated circuits ("RFIC"), mixed-signal cores and
software, across multiple product platforms is integral to its
diversification and expansion strategy. The Company believes this will
allow the continued creation of economies of scale in research and
development and facilitate reducing the time-to-market for its key
products. The Company intends to continue to leverage its broad-based
talent pool of approximately 1,700 engineers to extend its technology
portfolio and, in parallel, seek to form alliances to gain access to
critical technology, thereby ensuring agility and flexibility to meet
rapidly changing market and technology requirements.
Integrated Solutions Focus. The Company seeks to capitalize on its
design capabilities and experience by providing suppliers of communications
electronics products with complete semiconductor system solutions. High
levels of integration allow the Company to enhance the benefits of its
products by reducing production costs through fewer external components,
reduced board space and improved yields, improvement of performance and
reliability and reduced time-to-market for end products. Through the
combination of all the necessary communication functions for a complete
system solution, the Company seeks to increase semiconductor value-added
content, thereby offering its existing and potential customers more
compelling and cost-effective products.
Process, Design and Manufacturing Capabilities. Semiconductor Systems
intends to maintain access to small geometry, high volume semiconductor
design and manufacturing resources (CMOS, Bipolar, BiCMOS, RFCMOS, GaAs and
SiGe) that are the driving force behind today's smaller, more integrated,
lower power, lower cost devices. These design and manufacturing resources
are supported by the Company's platform technologies organization, which
develops semiconductor manufacturing processes, advanced packaging
techniques and design automation tools/kits for re-use across multiple
product platforms. The Company will continue to use both internal wafer
fabrication production and external foundries to optimize capacity
availability and reduce time-to-market, while seeking to reduce capital and
operating infrastructure requirements.
Strategic Customer Relationships. The Company believes that the
strength of its relationships with leading customers in each of its product
platforms is a competitive advantage that enables it to target more
effectively its product development activities. Semiconductor Systems has
established relationships with leading OEMs in each of its addressed
markets. The Company will seek to enhance its existing leadership market
positions and gain market share in new high-growth segments by continuing
to offer innovative products to existing and new customers.
THE FIVE PRODUCT PLATFORMS
The Company focuses its business in five key product platforms:
<TABLE>
<S> <C>
- - Personal Computing - Wireless Communications
- - Digital Infotainment - Network Access
- Personal Imaging
</TABLE>
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<PAGE> 33
Through these strategic product platforms, the Company believes it is well
positioned to supply semiconductor products for a broad range of closely
interrelated and converging markets, as illustrated below.
[DESCRIPTION OF ILLUSTRATION: Terminals and network infrastructure equipment for
which the Company's five product platforms supply products.]
Semiconductor Systems sales by product platform for the three fiscal years
ended September 30, 1997 and the nine months ended June 30, 1997 and 1998 were
as follows (in millions):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------ --------------
1995 1996 1997 1997 1998
---- ------ ------ ------ ----
<S> <C> <C> <C> <C> <C>
Personal Computing............................... $616 $1,173 $ 861 $ 674 $526
Personal Imaging................................. 102 113 131 93 81
Wireless Communications.......................... 33 45 115 74 117
Digital Infotainment............................. 27 32 112 77 110
Network Access................................... 6 107 193 125 102
---- ------ ------ ------ ----
Total.................................. $784 $1,470 $1,412 $1,043 $936
==== ====== ====== ====== ====
</TABLE>
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<PAGE> 34
PERSONAL COMPUTING
The Personal Computing product platform provides telephony-based
communications products for personal computing terminals, including desktops,
notebooks and handheld PCs. The Company is the world's leading supplier of
voiceband analog modem chipsets to modem subsystems manufacturers who supply
modems to PC OEMs and retail modem markets. In addition, the Company supplies
audio semiconductor system hardware and software which provide multimedia
functionality for PCs.
The Company offers a wide range of analog PC modem products for
communications over standard telephone wires, including high-speed data/fax
modems incorporating simultaneous voice and data, speakerphone and enhanced
audio capabilities. The Company supports a number of modem standards, including
the V.34 standard for data transmission at speeds of up to 33.6 Kbps and the
K56Flex(TM) and V.90 standards for data transmission at up to 56 Kbps. The
Company has been an active participant in the development of 56 Kbps modem
technology beginning with the introduction of its K56Flex(TM) modem product in
1997, jointly developed and promoted with Lucent Technologies, Inc. ("Lucent").
Following an extended period of intense competition in 1997 between the
Company's K56Flex(TM) modem products and modem products using X2(TM) technology,
an incompatible 56 Kbps solution developed by 3Com/U.S. Robotics Corporation,
the International Telecommunications Union (the "ITU") established the V.90
standard which permits inter-operability among competing 56 Kbps modem products
supplied by the Company and its competitors. In February 1998, the Company began
shipment of V.90 standard 56 Kbps modem chipsets. Due to line quality and FCC
limitations, actual speeds are less than rated speeds.
The Company's modem products are supplied in multiple and single chip
configurations, and include DSPs, analog-to-digital ("A/D") and
digital-to-analog ("D/A") converters and, in most cases, microcontrollers
together with optimized signal processing algorithms, communication protocols
and applications software. Increasingly, modems are becoming a key
communications feature of PCs. To provide a broader range of modem products to
its customers, particularly to address the low-cost, sub-$1,000 PC segment, the
Company is developing mixed-signal intensive controllerless modem chipsets and
software modem solutions which take advantage of the increasing power of PC
central processors and use software to perform functions traditionally enabled
by semiconductor components.
The Company is also developing system solutions that merge the
communications functionality of modems with audio capabilities to enable PC
audio telephony while eliminating the need for separate dedicated audio and
modem chipsets. The Company's RipTide(TM) audio/communications device includes a
full complement of modem functions, mainstream audio capabilities and advanced
wavetable synthesis for next generation, audio-intensive communications
applications, such as 3-D multiplayer gaming and interactive music.
Capitalizing on its core mixed-signal processing technologies and its xDSL
technology alliances, the Company is developing chipsets that provide xDSL modem
capabilities permitting broadband digital transmission of data, voice and video
over existing standard telephone lines at speeds of up to 8 Mbps. The Company's
xDSL modem architecture is designed to support digital modem products based on
specifications being developed by the ITU and the Universal ADSL Working Group,
a consortium of leading computer and telecommunications suppliers. The Company
is also developing Home Networking communications solutions that are designed to
enable the interconnection of equipment, such as PCs, printers and multifunction
peripherals ("MFPs"), over existing home wiring.
The Company markets and sells PC modem chipsets worldwide to modem
subsystem manufacturers who, in turn, sell complete modem boards to PC OEMs and
to PC system integrators. The Company also markets its Personal Computing
products to leading PC OEMs directly, and indirectly through modem subsystem
manufacturers. The Company markets and sells its Personal Computing products
worldwide to retail modem manufacturers, who sell modems to consumers in the
retail aftermarket.
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<PAGE> 35
PERSONAL IMAGING
The Personal Imaging product platform supplies semiconductor products that
enable image capture, processing and printing. These products are used in a wide
array of office automation products such as fax machines and MFPs, which combine
printer, plain paper fax, copier, scanner and telephone functionality into one
system. The Company is the world's leading supplier of fax modem chipsets to fax
machine OEMs, supplying more than 70 percent of the worldwide market. In
addition, the Company is capitalizing on its leading position in fax machine
chipsets by offering complete system-level chipsets for the growing market for
high-performance MFPs. The Company's fax modem and MFP products incorporate
DSPs, A/D and D/A converters and microcontrollers integrated within a single
package, together with optimized signal processing algorithms, communication
protocols and application software.
The Company offers a wide range of standard fax modem products with speeds
ranging from 9600 bps to 33.6 Kbps (V.34). The Company is now shipping V.34 fax
modems to leading fax machine OEMs with whom Semiconductor Systems collaborated
on the standardization of V.34 protocols and interoperability for fax
applications. The Company's FAXENGINE(TM) family of complete system-level fax
chipsets consists of a fax controller, fax modem and system firmware to provide
all the standard facsimile functions. Optional features include digital
answering machine and full-duplex speakerphone functionality.
The Company is also integrating additional functionality with its core fax
modem to address the high-performance MFP market and offers the MFPEngine(TM)
family of products which combine the functions of traditional stand-alone
business machines, such as fax, copier, printer and scanner machines, into a
two-chip semiconductor chipset. In order to accelerate development time for its
MFP products, the Company has entered into strategic partnerships with market
leaders in key technology areas.
WIRELESS COMMUNICATIONS
The Wireless Communications product platform provides components,
subsystems and system-level semiconductor products for wireless voice and data
communications. The Company supplies silicon and GaAs-based components and
systems for use in digital cordless telephones, digital cellular handsets and
base stations and GPS receivers. Many of these products include DSPs, A/D and
D/A converters, microcontrollers and RFICs, together with optimized signal
processing algorithms, communication protocols and applications software.
The Company is the world leader in supplying complete antenna-to-microphone
system-level semiconductor products for the 900 MHz DSS digital cordless
telephone market. DSS technology offers extended range, improved voice quality
and increased security relative to traditional analog cordless phones and other
digital cordless products.
The Company is the worldwide leader in supplying GaAs power amplifiers for
use in digital cellular handsets. The Company's power amplifier micromodules
provide a smaller package, lower parts count and lower power consumption than
traditional multiple discrete component solutions. The Company supplies digital
cellular handset OEMs with power amplifier components for a wide range of
digital cellular standards, including the GSM (Global System for Mobile
Communications) standard, the CDMA (Code Division Multiple Access) standard and
the TDMA (Time Division Multiple Access) standard. The Company also supplies
GaAs single and dual band receivers for cellular base stations for the GSM and
CDMA digital cellular standards.
The Company is developing RFICs, chipset subsystems that integrate the
functions of mixers, oscillators and amplifiers and thereby reduce the number of
radio frequency ("RF") components, for use in digital cellular handsets. The
first RFICs to be offered by the Wireless Communications product platform are
for the CDMA standard.
The Company is developing semiconductor system solutions for GSM handsets
that will seek to integrate the RF front end, which receives and filters the RF
signal, with the baseband backend, which processes the voice signal, to provide
digital cellular handset OEMs with complete antenna-to-microphone system-level
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<PAGE> 36
chipsets in smaller, less expensive and less power consuming packages. These
chipsets are designed to enable OEMs to provide a broad range of low- to
high-end products, while improving time-to-market performance.
The Company designs and manufactures GPS receiver components and supplies
them to OEMs for incorporation into end products for marine, automotive and
personal computer applications. GPS receivers use signals from a series of
satellites to provide precise location determination anywhere on earth. Building
on Rockwell's long heritage as an industry leader in GPS military receivers and
satellites, the Company offers the 12-channel Jupiter(TM) GPS receiver module on
a printed circuit board for lower-volume applications and the two-device
Zodiac(TM) chipset for high-volume applications.
The Company markets and sells its Wireless Communications products to a
wide variety of cellular and cordless telephony OEMs who require various levels
of integration for wireless components.
DIGITAL INFOTAINMENT
The Digital Infotainment product platform provides semiconductor products
that perform communication and media processing functions within a variety of
electronics equipment for digital information and entertainment. Digital
infotainment is the delivery of digitally encoded information or entertainment
content to the consumer from a storage device or via transmission over a
traditional wireline, satellite or cable network, for display on a television
set or on a PC. As entertainment media transition to a digital format, a
convergence of functionality is taking place, wherein televisions become more
interactive devices through digital set-top boxes and PCs enable more home
entertainment applications. The Company offers broadband wireless communications
and cable modem products and RF tuners, which process high-speed data, voice and
video transmissions from various sources. The Company is also developing
semiconductor products and systems for digital infotainment applications by
combining communications technologies with video encoder and decoder technology,
which convert video signals for television to a format that can be displayed on
a PC monitor or PC images to a format that can be displayed on a television.
Many of the Company's Digital Infotainment products include DSPs, A/D and D/A
converters and microcontrollers, together with optimized signal processing
algorithms, communication protocols and application software.
The Company offers high-speed broadband wireless communication and cable
demodulation products for satellite and other broadband communications and tuner
integrated circuits (ICs) for satellite communications. These products process
the signals received from various broadband transmissions, such as satellites,
cable or MMDS microwave transmissions, and send high-speed and high-resolution
digital information and entertainment both to PCs and to consumer appliances.
The Company is currently a leading supplier of products for digital MMDS. The
Company has developed a tuner and demodulator product for satellite
transmissions, in which the tuner section receives the RF input signal and
performs channel selection, filtering and RF to baseband conversion and the
demodulator section processes and decodes the video signal. The Company sells
these products to manufacturers of set-top boxes, satellite service providers
and PC OEMs and add-in card manufacturers for use in PC receiver cards and in
products which provide interactive services.
The Company currently supplies analog modem chipsets for set-top boxes
which provide users with interactive capability over traditional telephone
lines. The Company is also developing a family of cable modem chipsets that will
enable data transmission at speeds up to 100 times the speed of the fastest
conventional analog modems. These system-level semiconductor chipsets are
designed to enable OEMs to develop client-side modems that support the
Multimedia Cable Network Systems Data Over Cable Services Interface
Specifications ("MCNS/DOCSIS") and to combine communications and media
processing technology. These cable modems can be used internally in a set-top
box or a PC or as a stand-alone appliance external to a PC. The Company is also
developing a complete system-level solution for head-end modems for cable
operators.
For the PC platform, the Company also offers its Fusion(TM) family of
analog-to-digital video decoders which enable use of the PC to receive radio and
television broadcasts and create and edit videos. In addition, the Company
offers Broadcast Media(TM) Device Sets, which combine the Company's video
decoders with RF front-end tuners to permit television viewing on a PC. The
Company markets and sells video encoder and
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<PAGE> 37
decoder components, as well as integrated decoder/tuner products, to PC
subsystem manufacturers and also markets its products to leading PC OEMs.
NETWORK ACCESS
The Network Access product platform provides network infrastructure OEMs
with semiconductor products for electronic equipment that resides at
communications access points between individual client users and wide area
networks ("WANs"). These products enable the transportation of voice, data and
video between and within networks. WAN access equipment provides connectivity
for PCs, fax machines, cellular telephones and local area networks ("LANs")
through the Public Switched Telephone Network, the Internet, intranets and other
high speed corporate data networks, cellular networks and cable networks. WAN
transport equipment provides network backbone point-to-point communications at
very high speeds. Many of the Company's Network Access products include DSPs,
A/D and D/A converters and microcontrollers, together with optimized signal
processing algorithms, communication protocols and applications software.
The Company is a leading supplier of analog modems chipsets for central
site equipment used by Internet service providers ("ISPs"). Utilizing the same
core 56 Kbps analog modem technology used in client-side PC modems supplied by
the Personal Computing product platform, the Network Access product platform
offers network infrastructure OEMs complete system-level chipsets for
high-density remote access servers used by ISPs. These central site modems can
support data, fax and voice over IP (Internet Protocol). The Company is
developing a complete system-level solution for xDSL network modems which,
together with the client-side xDSL modem products offered by the Personal
Computing product platform, will enable high-speed digital Internet connectivity
at speeds of up to 8 Mbps over existing telephone lines.
The Company supplies network infrastructure OEMs with semiconductor
products that enable telecommunications and data communications companies to
deploy digital T1/E1 and T3/E3 communications over existing telephone lines. The
Network Access product platform offers line interface units, framers and
controllers for a variety of networking equipment. In addition, the Network
Access product platform offers xDSL products which simplify the deployment of
T1/E1 transmission lines by eliminating the need for repeaters and other line
conditioning equipment to achieve digital service at speeds up to 1.5 Mbps.
The Company also supplies chipsets to network infrastructure OEMs for ATM
packet-switched networking products, which subdivide digital information into
individual packets with unique identifiers to be sent by various routes through
the network and reassembled at their destination, for high speed voice, video
and data transmission. These segmentation and reassembly ("SAR") chipsets
implement the ATM specifications for subdividing and reassembling data, enabling
transmission speeds of 155 Mbps, and the Company is developing a family of 622
Mbps SAR devices. In addition, the Company has developed mixed-signal intensive
physical layer devices (PHYs), which enable transmission of ATM packets and,
together with its SAR products, allow the Company to provide network system OEMs
with a complete semiconductor system for ATM transmissions.
The Network Access product platform also offers a GaAs-based front-end
transceiver chipset for 2.5 Gbps transmission (OC-48) over fiber-optic lines
based on SONET and SDH communication standards. The Company is developing a
similar GaAs transceiver chipset for next generation 9.6 Gbps (OC-192) optical
standards.
The Company markets and sells WAN access products to network infrastructure
OEMs that provide high density remote access equipment, primarily for the ISP
market. The Company markets and sells WAN transport products to network
infrastructure OEMs that provide WAN hubs, routers, switches, analog and digital
multiplexors and other multi-service networking equipment.
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<PAGE> 38
CUSTOMERS; SALES AND MARKETING
The Company markets and sells its products to leading OEMs of
communications electronics products in each of its product platforms, including
the following:
PERSONAL COMPUTING (PC OEMs, PC systems integrators, retail modem manufacturers
and modem subsystem manufacturers)
<TABLE>
<S> <C> <C>
Acer Incorporated Dell Computer Corporation International Business
Apple Computer, Inc. Diamond Multimedia Machines
Aztech Systems Ltd. Systems, Inc. Corporation
Best Data Products, Inc. Fujitsu Limited Packard Bell NEC, Inc.
Boca Research, Inc. GVC Corporation Psion Dacom plc
Compaq Computer Corporation Hewlett-Packard Company Toshiba Corporation
</TABLE>
PERSONAL IMAGING (Fax and multifunction peripherals manufacturers)
<TABLE>
<S> <C> <C>
Brother Industries, Ltd. Lexmark International Ricoh Company Ltd.
Canon Inc. Group, Inc. Sagem S.A.
Daewoo Telecom Ltd. Matsushita Electric Industrial Samsung Electronics Co., Ltd.
Fuji Xerox Co., Ltd. Co., Ltd. Sanyo Electric Company Ltd.
Hewlett-Packard Company NEC Corporation Sharp Corporation
Kinpo Electronics Inc. Olivetti S.p.A.
</TABLE>
WIRELESS COMMUNICATIONS (Wireless base station equipment, cellular and cordless
handset and navigation systems manufacturers)
<TABLE>
<S> <C> <C>
Ericsson, Inc. NEC Corporation Samsung Electronics Co., Ltd.
Fujitsu Limited Nokia Corporation Sanyo Electric Company Ltd.
Lowrance Electronics, Inc. Northern Telecom Limited Sharp Corporation
Mitsubishi Wireless QUALCOMM Incorporated Sony Corporation
Communications, Inc. Sagem S.A. Uniden Corporation
</TABLE>
DIGITAL INFOTAINMENT (PC OEMs, PC subsystem manufacturers, set-top box
manufacturers and satellite service providers)
<TABLE>
<S> <C> <C>
ATI Technologies, Inc. Hewlett-Packard Company Sony Corporation
Compaq Computer Corporation Hughes Network Systems, Inc. Sun Microsystems, Inc.
EchoStar Communications Intel Corporation Thomson Corporation
Corporation Matsushita Electric Industrial Toshiba Corporation
Gateway 2000, Inc. Co., Ltd. Web TV Networks, Inc.
General Instruments, Inc. Philips Electronics N.V.
</TABLE>
NETWORK ACCESS (Data communications and telecommunications network
infrastructure manufacturers)
<TABLE>
<S> <C> <C>
ADC Telecommunications, Inc. Cisco Systems, Inc. Lucent Technologies, Inc.
Alcatel Data Networks, S.A. Copper Mountain, Inc. Newbridge Networks Corporation
Ascend Communications, Inc. ECI Telecommunications Nokia Corporation
Cabletron Systems, Inc. Ericsson, Inc. Northern Telecom Limited
CIENA Corporation Fujitsu Limited Tellabs, Inc.
</TABLE>
Semiconductor Systems has a worldwide sales organization comprised of
approximately 250 employees as of June 30, 1998, with 11 domestic and 14
international sales offices. To complement its direct sales and customer support
efforts, the Company also sells its products through approximately 50
independent manufacturers' representatives and approximately 50 distributors.
The Company has a marketing staff that is organized around its five product
platforms. In addition, the Company's design and applications engineering
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<PAGE> 39
staff is actively involved with customers during all phases of design and
production and provides customer support through the Company's worldwide sales
offices, which are generally in close proximity to customers' facilities.
COMPETITION
The semiconductor industry in general and the markets in which the Company
competes in particular are intensively competitive. The Company competes
worldwide with a number of United States and international manufacturers that
are both larger and smaller than the Company in terms of resources and market
share. In addition, customers for certain of the Company's products offer other
products that compete with similar products offered by the Company. The Company
believes that the principal competitive factors for silicon providers to the
Company's addressed markets are product performance, level of integration,
quality, compliance with industry standards, price, time-to-market, system cost,
design and engineering capabilities, new product innovation and customer
support. The specific bases on which the Company competes vary by product
platform. See "Risk Factors -- Competition".
Within PC analog modem products, the Company competes primarily with Lucent
in the PC OEM market and with Cirrus Logic, Inc. and Lucent in the PC system
integrator market. For semiconductor sales to retail modem manufacturers, the
Company competes primarily with Texas Instruments Incorporated (which supplies
basic DSP chipsets without communications software to 3Com/U.S. Robotics
Corporation) and Lucent. The Company's competitors in the Personal Imaging
market include Hyundai Electronics Industries Co., Ltd., Matsushita Electric
Industrial Co., Ltd., Samsung Electronics Co., Ltd. and Toshiba Corporation. The
Company's competitors in the markets addressed by the Wireless Communications
platform include ANADIGICS, Inc., Analog Devices, Inc., Hitachi Ltd., Lucent,
Motorola, Inc., National Semiconductor Corporation, Philips Electronics N.V., RF
Micro Devices, Inc., Siemens Corporation, Texas Instruments Incorporated,
TriQuint Semiconductor, Inc. and VLSI Technology, Inc. In the Digital
Infotainment market, competitors of the Company include Broadcom, Inc., C-Cube
Microsystems, ITT Industries, Inc., Libit Signal Processing Ltd., LSI Logic
Corporation, Philips Electronics N.V., STMicroelectronics N.V. and VLSI
Technology, Inc. In the Network Access market, competitors of the Company
include Analog Devices, Inc., Applied Micro Circuits Corporation, Level One
Communications Incorporated, Lucent, MMC Networks, Inc., PMC-Sierra Inc.,
STMicroelectronics N.V., Siemens Corporation, Texas Instruments Incorporated and
Vitesse Semiconductor, Inc.
RAW MATERIALS AND SUPPLIES
The Company believes it has adequate sources for the supply of raw
materials and components for its manufacturing needs with suppliers located
around the world. Blank wafers and other raw materials used in the production of
the Company's CMOS products are available from several suppliers. However, the
Company is dependent on a single source supplier for epitaxial wafers used in
the GaAs semiconductor manufacturing processes at its Newbury Park, California
facility. The number of qualified alternative suppliers for such wafers is
limited and the process of qualifying a new epitaxial wafer supplier could
require a substantial leadtime. Although the Company historically has not
experienced any significant difficulties in obtaining an adequate supply of raw
materials and components necessary for its manufacturing operations, the loss of
a significant supplier or the inability of a supplier to meet performance and
quality specifications or delivery schedules could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Risk Factors -- Manufacturing Risks".
RESEARCH AND DEVELOPMENT
The Company has significant research, development, engineering and product
design capabilities. At June 30, 1998, the Company employed approximately 1,700
engineers.
Ongoing research and development projects in each of the Company's product
platforms include the following: In the Personal Computing platform, the Company
is developing a software modem that replaces DSP and microcontroller functions
traditionally enabled through hardware chip devices with software to be
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<PAGE> 40
processed by the host PC's processor. For its Personal Imaging platform, the
Company is developing MFP chipsets that provide a complete suite of office
equipment in a single platform, with future development planned for combined
monochrome and color devices. In the Wireless Communications platform, the
Company is developing complete antenna-to-microphone system solutions for 900
MHz GSM cellular handsets, with future developments in similar products for all
three GSM frequency bands planned. For the Digital Infotainment platform, the
Company is focusing its development efforts on next generation MCNS compliant
cable modems with higher levels of function, performance and integration and is
working with major OEMs and CableLabs to develop technical specifications for
packet voice telephony. In the Network Access platform, the Company is investing
in WAN solutions, particularly T1/E1, T3/E3 and SONET products, focusing on
integrating functionality, reducing power requirements and increasing the port
density of network access equipment.
The Company spent approximately $91 million, $155 million and $280 million
in fiscal 1995, 1996 and 1997, respectively, and expects to spend approximately
$330 million in fiscal 1998, on research and development. The Company expects to
spend approximately $250 million on research and development in fiscal 1999. See
"Risk Factors -- Research and Development Expenses" and "-- Future Capital
Sources".
Rockwell's Science Center also provides assistance to the Company in the
development of various technological and product advancements and will continue
to provide assistance after the Distribution. See "Arrangements Between Rockwell
and the Company -- Transition Agreement".
INTELLECTUAL PROPERTY
Numerous United States and foreign patents and patent applications are
owned or licensed by the Company relating to its manufacturing operations and
other activities. The Company will introduce its new name and logo in the near
future and will file federal and international trademark applications seeking
registered protection of the name and logo. In addition, the Company owns a
number of other trademarks applicable only to certain of its products.
Management believes that intellectual property, including patents, patent
applications and licenses, and trademarks are of material importance to the
Company. In addition to the protection of its proprietary technologies and
processes, the Company is seeking to strengthen its intellectual property
portfolio to enhance its ability to obtain cross-licenses of intellectual
property from others, whether to obtain access to intellectual property the
Company does not possess or to resolve potential intellectual property claims
against the Company, without the need to make financial payments.
Various claims of patent infringement have been made against the Company.
Management believes that none of these claims, other than the suit by Celeritas
Technologies, Ltd., will have a material adverse effect on the consolidated
financial statements of the Company. Pursuant to the Distribution Agreement, the
Company will assume all liabilities in respect of intellectual property matters
related to current and former operations of Semiconductor Systems. See "-- Legal
Proceedings" and "Risk Factors -- Intellectual Property Matters".
EMPLOYEES
As of June 30, 1998, Semiconductor Systems had approximately 6,800
full-time employees, of whom approximately 1,700 were engineers. Approximately
600 Semiconductor Systems employees in the United States and 1,700 employees in
Mexico are covered by collective bargaining agreements. In July 1998, following
a 50-day strike by members of the International Brotherhood of Electrical
Workers (IBEW) Local 2295, Semiconductor Systems entered into a collective
bargaining agreement with that union covering approximately 600 employees at the
Company's Newport Beach, California facility. The agreement will expire in May
2003. No other significant work stoppages have occurred in the past five years.
CYCLICALITY; SEASONALITY
The semiconductor industry is highly cyclical. Sales of the Company's
Personal Computing, Wireless Communications and Personal Imaging product
platforms are subject to seasonal fluctuation related to the increase in sales
of products which include the Company's products, such as PCs, cordless and
cellular telephones and fax machines, generally associated with the Christmas
season. The Company's sales for these
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<PAGE> 41
product platforms generally increase beginning in August and September and
continue at a higher level through the end of the calendar year. See "Risk
Factors -- Cyclical Nature of the Semiconductor Industry" and " -- Fluctuations
in Operating Results".
PROPERTIES
At June 30, 1998, the Company operated four manufacturing facilities in the
United States and one facility in Mexico. It also had 14 design centers and 25
sales offices. These facilities had an aggregate floor space of approximately
2.9 million square feet, approximately 72 percent of which was owned and
approximately 28 percent of which was leased. Approximately 676,000 square feet
of the Company's owned facilities is unused space at the Company's Colorado
Springs, Colorado facility. As of June 30, 1998, there were no major
encumbrances (other than financing arrangements which in the aggregate are not
material) on any of the Company's property, plants or equipment. In the opinion
of management, the Company's properties have been well maintained, are in sound
operating condition and contain all the equipment and facilities necessary to
operate at present levels. A summary of floor space of the Company's facilities
at June 30, 1998 is as follows:
<TABLE>
<CAPTION>
OWNED LEASED
TYPE OF FACILITY FACILITIES FACILITIES TOTAL
- ---------------- ---------- ---------- -----
(IN THOUSANDS OF SQUARE FEET)
<S> <C> <C> <C>
Manufacturing.................................... 2,088 285 2,373
General office space............................. -- 508 508
----- --- -----
Total.................................. 2,088 793 2,881
===== === =====
</TABLE>
The following table outlines the functions and capabilities of the
Company's major manufacturing facilities:
<TABLE>
<CAPTION>
FACILITY FUNCTION CAPACITY
-------- -------- --------
<S> <C> <C>
Newport Beach, California Wafer fabrication facility - 4500 8-inch wafer starts
- Class 1 and Class 10 per week
clean rooms
- 0.25-0.5 micron CMOS
- RF BiPolar
- Embedded flash, BiCMOS
in development
Newbury Park, California GaAs wafer fabrication - 500 4-inch wafer starts
facility per week
- 2.0 micron HBT
Fmax 50 GHz
- 0.7 micron MESFET
Mexicali, Mexico Assembly and test facility - 110 million assembly
- High volume/low cost starts per year
multichip modules
El Paso, Texas Module design and assembly - 400,000 modules and
facility systems per month
</TABLE>
The Company's headquarters and primary wafer fabrication facility are
located in Newport Beach, California, consisting of approximately 598,000 square
feet of owned and approximately 324,000 square feet of leased floor space;
approximately 80,000 square feet is subleased to a tenant. This location
includes a 127,000 square foot wafer fabrication facility. The Company
manufactures GaAs products at its wafer fabrication facility located in Newbury
Park, California. In September 1998, the Company announced that it will dispose
of its wafer fabrication facilities in Colorado Springs, Colorado. See "Summary
of Certain Information -- Recent Developments".
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<PAGE> 42
The Company owns an approximately 198,000 square foot assembly and test
facility in Mexicali, Mexico, which has been in operation for over 25 years. The
Mexicali facility assembles semiconductor die from the Company's wafer
fabrication facilities and outside foundry sources into various types of chipset
packages and tests the packages using automatic test equipment with a full range
of analog, digital and radio frequency capability. This facility is ISO 9002
certified and focuses on high volume, industry standard plastic packaging but
has the capability to manufacture a wide variety of high- and low-volume and
specialized packages using conventional and proprietary assembly techniques.
The Company operates a fully integrated electronic module design and
assembly facility in El Paso, Texas, consisting of approximately 152,000 square
feet of leased manufacturing space. This facility provides full turnkey design
capabilities and the ability to manufacture and test standard and custom
products for each of the Company's product platforms, ranging from prototypes to
high volume production. At this facility, the Company integrates its
semiconductor chipset devices into electronic modules, such as internal cards
for PCs and digital infotainment equipment and standard PCMCIA interface cards,
as well as custom products and complete, market-ready systems. This facility has
been ISO 9002 certified since 1993.
The Company's design centers provide design engineering and product
application support as well as after-sales customer service. The design centers
are strategically located around the world to be in close proximity to the
Company's OEM customers and to take advantage of key technical and engineering
talent worldwide.
Certain of the Company's facilities, including the Newport Beach,
California and Mexicali, Mexico facilities, are located near major earthquake
fault lines. The Company maintains only minimal earthquake insurance with
respect to these facilities. A portion of the Mexicali, Mexico facility is
seismically isolated and the Company is currently undertaking a $28 million
program to seismically isolate certain portions of its Newport Beach, California
facility. See "Risk Factors -- Manufacturing Risks".
ENVIRONMENTAL MATTERS
Federal, state and local requirements relating to the discharge of
substances into the environment, the disposal of hazardous wastes, and other
activities affecting the environment have had and will continue to have an
impact on the manufacturing operations of Semiconductor Systems. Thus far,
compliance with environmental requirements and resolution of environmental
claims have been accomplished without material effect on Semiconductor Systems'
liquidity and capital resources, competitive position or financial statements.
Semiconductor Systems has been designated as a potentially responsible
party ("PRP") at one Superfund site located at a former silicon wafer
manufacturing facility and steel fabrication plant in Parker Ford, Pennsylvania
formerly occupied by Semiconductor Systems. The site was also formerly occupied
by Recticon Corporation and Allied Steel Products Corporation, each also named
as a PRP and each of which is insolvent. The remediation plan for the site
includes installation of a public water supply line and a groundwater pump and
treat system, as well as routine groundwater sampling. Management estimates the
total reasonably possible costs the Company could incur for the remediation of
this Superfund site to be approximately $3 million, of which approximately $1
million was accrued, as of June 30, 1998.
In addition, the Company is engaged in two other remediations of
groundwater contaminations at its Newport Beach and Newbury Park, California
facilities. Management estimates the total reasonably possible costs the Company
could incur for these remediations to be approximately $5 million as of June 30,
1998.
Pursuant to the Distribution Agreement, the Company will assume all
liabilities in respect of environmental matters related to current and former
operations of Semiconductor Systems. See "Arrangements Between Rockwell and the
Company -- Distribution Agreement".
Management of the Company believes that Semiconductor Systems' expenditures
for environmental capital investment and remediation necessary to comply with
present regulations governing environmental protection and other expenditures
for the resolution of environmental claims will not have a material adverse
effect on the Company's liquidity and capital resources, competitive position or
financial statements.
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<PAGE> 43
Management cannot assess the possible effect of compliance with future
requirements. See "Risk Factors -- Environmental Matters".
LEGAL PROCEEDINGS
On September 27, 1995, Celeritas Technologies, Ltd. filed a suit against
Rockwell in the U.S. District Court for the Central District of California for
patent infringement, misappropriation of trade secrets and breach of contract
relating to cellular telephone data transmission technology utilized in certain
modem products produced by the Company in 1995 and 1996. The court entered
judgment against Rockwell in January 1997 and, in ruling on post-trial motions
in July 1997, entered a revised judgment awarding damages of $57 million. On
July 20, 1998, the U.S. Court of Appeals for the Federal Circuit reversed the
holding of the trial court based on patent infringement and found Celeritas's
patent invalid but affirmed the trial court holding based on breach of contract.
The Company's petition for a rehearing (and rehearing en banc) and a motion to
certify the contract issue to the California Supreme Court were denied in
September 1998. The Company continues to believe that the judgment is in error
and intends to file a petition for certiorari with the United States Supreme
Court. See Note 18 of Notes to Combined Financial Statements.
The Company was joined on April 7, 1998 as a defendant in a suit filed by
Harris Corporation against PairGain Technologies, Inc. in the Superior Court of
California for Orange County. Harris alleges that a "teaming agreement" between
it and PairGain to develop a complete ADSL solution constituted a joint venture
and that the Company's subsequent exclusive agreement with PairGain to develop
digital modem products using PairGain's ADSL technology constituted an
intentional interference with contractual relations, intentional interference
with prospective economic advantage, negligent interference with contractual
relations and an unfair trade practice in violation of the California Business &
Professions Code. The Company believes it has meritorious defenses to these
claims and will vigorously defend this action. Discovery is ongoing.
On October 14, 1997, Brent Townshend filed suit against Rockwell and the
Company in the Superior Court of California for San Mateo County seeking an
injunction to halt the sale of products containing the Company's K56Flex(TM)
chipsets and requesting unspecified damages, claiming that the Company had
engaged in unfair competition, misappropriation of trade secrets, breach of
contract and breach of confidence by using technical information disclosed in
confidence by Mr. Townshend to accelerate its development of 56 Kbps modem
technology. The Company is vigorously defending its position that it
independently developed the 56 Kbps modem technology using entirely its own
skills and public domain information. Trial on this matter is expected to
commence in the spring of 1999.
On July 29, 1991, Shumpei Yamazaki filed suit against a Japanese subsidiary
of Rockwell in the Tokyo District Court, Twenty-ninth Civil Division for patent
infringement relating to the Company's facsimile modem chipsets seeking 685
million yen (approximately $4.85 million based on the exchange rate on August
31, 1998) and court costs. The Company believes that it has meritorious defenses
to these claims and will vigorously defend this action. The parties are
exchanging briefs to the court in accordance with Japanese legal procedures and
anticipate a decision by the court in due course.
On May 30, 1997, Klaus Holtz filed suit against Rockwell in the U.S.
District Court for the Northern District of California for patent infringement
relating to the Company's modem products utilizing the V.42bis standard for data
compression. The Company believes that it has meritorious defenses to these
claims and will vigorously defend this action. The case is expected to go to
trial in the first half of 1999.
On May 6, 1998, Western Atlas, Inc. filed suit against Rockwell in the U.S.
District Court for the Southern District of Texas alleging infringement of
several patents acquired by Western Atlas covering certain aspects of GPS
technology. The complaint explicitly identifies the Company's Jupiter(TM) GPS
receiver as an allegedly infringing product. The Company believes that it has
meritorious defenses to these claims and will vigorously contest the
infringement claims and the validity of the asserted patents. No trial date has
been set in this matter.
On May 5, 1996, former shareowners of Brooktree Corporation ("Brooktree"),
now a subsidiary of the Company, commenced a class action in the Superior Court
of the State of California for the County of San
37
<PAGE> 44
Diego against Brooktree and officers of Brooktree alleging fraud on the market
by Brooktree and its officers arising from allegedly false statements made
during introduction of certain Brooktree products in 1995 and 1996. Following
dismissal of that action, a similar action was filed in the United States
District Court for the Southern District of California. On March 10, 1998, the
complaint was dismissed without prejudice, and on August 14, 1998, plaintiffs
filed an amended complaint in this action. The Company believes that is has
meritorious defenses to these claims and will vigorously defend this action.
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against Rockwell or the Company or their respective
subsidiaries relating to Semiconductor Systems, including those pertaining to
product liability, intellectual property, environmental, safety and health, and
employment matters.
Pursuant to the Distribution Agreement, the Company will assume
responsibility for all current and future litigation (including environmental
and intellectual property proceedings) against Rockwell or its subsidiaries in
respect of Semiconductor Systems.
Although the outcome of litigation cannot be predicted with certainty and
some lawsuits, claims or proceedings may be disposed of unfavorably to the
Company, based on its evaluation of matters which are pending or asserted,
management of the Company believes, other than the suit by Celeritas
Technologies, Ltd., the disposition of such matters will not have a material
adverse effect on the financial statements of Semiconductor Systems.
GENERAL
In connection with the sale of Rockwell's aerospace and defense businesses
to The Boeing Company in December 1996, Semiconductor Systems was reorganized as
a wholly-owned subsidiary of Rockwell in the form of the Company, a Delaware
corporation incorporated in September 1996. The Company's executive offices are
located at 4311 Jamboree Road, Newport Beach, California 92660-3095, and its
telephone number is (949) 221-4600.
CREDIT FACILITY
Prior to the Distribution, the Company expects to enter into the Credit
Facility. The Credit Facility is expected to be secured and will be used for
working capital and other general corporate purposes of the Company and its
subsidiaries following the Distribution.
The Credit Facility is expected to contain, among other terms, conditions
precedent, covenants, representations and warranties, mandatory and voluntary
prepayment provisions and events of default customary for facilities of this
type.
38
<PAGE> 45
HISTORICAL SELECTED
FINANCIAL DATA
The following selected financial data have been derived from the financial
statements and financial information of Semiconductor Systems. The data should
be read in conjunction with the financial statements of Semiconductor Systems
and notes thereto included elsewhere in this Information Statement. The
statement of operations data for the years ended September 30, 1995, 1996 and
1997 and the balance sheet data as of September 30, 1996 and 1997 have been
derived from the audited financial statements of Semiconductor Systems. The
statement of operations data for the years ended September 30, 1993 and 1994 and
the balance sheet data as of September 30, 1993, 1994 and 1995 have been derived
from unaudited financial information of Semiconductor Systems. The statement of
operations data for the nine months ended June 30, 1997 and 1998 and the balance
sheet data as of June 30, 1997 and 1998 have been derived from unaudited
financial statements of Semiconductor Systems which, in the opinion of
management, include all adjustments necessary for a fair presentation of assets
and liabilities as of such dates and results of operations for such periods.
Operating results for the nine months ended June 30, 1998 are not indicative of
the results that may be expected for the entire year ending September 30, 1998.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, JUNE 30,
--------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998(1)
----- ----- ----- ------ ------ ------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Net sales.................................... $ 436 $ 599 $ 784 $1,470 $1,412 $1,043 $ 936
Cost of sales................................ 252 347 483 849 744 541 556
----- ----- ----- ------ ------ ------ ------
Gross margin................................. 184 252 301 621 668 502 380
Research and development..................... 59 74 91 155 280 199 251
Selling, general and administrative.......... 73 79 103 150 191 128 191
Purchased research and development(2)........ -- -- -- 121 30 30 --
----- ----- ----- ------ ------ ------ ------
Operating earnings(loss)..................... 52 99 107 195 167 145 (62)
Other income, net............................ 1 1 4 3 13 12 10
----- ----- ----- ------ ------ ------ ------
Income (loss) before taxes................... 53 100 111 198 180 157 (52)
Provision (benefit) for taxes................ 18 33 35 114 54 47 (24)
----- ----- ----- ------ ------ ------ ------
Net income (loss)............................ $ 35 $ 67 $ 76 $ 84 $ 126 $ 110 $ (28)
===== ===== ===== ====== ====== ====== ======
Operating earnings (loss) before purchased
research and development(2)................ $ 52 $ 99 $ 107 $ 316 $ 197 $ 175 $ (62)
===== ===== ===== ====== ====== ====== ======
COMBINED BALANCE SHEET DATA:
(at end of period)
Working capital(3)........................... $ 59 $ 95 $ 130 $ 229 $ 222 $ 269 $ 379
Property (at cost)........................... 355 475 653 1,053 1,342 1,235 1,502
Accumulated depreciation..................... (243) (260) (302) (397) (540) (500) (662)
Property, net................................ 112 215 351 656 802 735 840
Intangible assets, net....................... 1 9 14 36 87 102 76
Total assets................................. 285 448 671 1,383 1,486 1,431 1,590
Short-term debt.............................. 14 20 20 14 14 14 14
Rockwell's net investment.................... 148 301 478 899 1,107 1,108 1,276
OTHER DATA:
Capital expenditures......................... $ 50 $ 148 $ 166 $ 380 $ 317 $ 201 $ 176
Depreciation and amortization................ 33 44 61 132 181 131 150
Cash provided by (used in) operating
activities................................. 66 49 106 315 296 161 (29)
</TABLE>
- ---------------
(1) In September 1998, Semiconductor Systems announced a comprehensive plan to
resize its business to align it with the realities of the current global
semiconductor market and to position the Company for future profitability.
Semiconductor Systems will record special charges of approximately $105
million after tax in the fourth quarter of fiscal 1998. Semiconductor
Systems expects its 1998 full-year net loss after tax (including the special
charges) to be approximately $275 million and its fiscal 1999 first quarter
net loss after tax to be approximately $40 million.
(2) Purchased research and development relates to the acquisition of Brooktree
Corporation in September 1996 and the acquisition of the Hi-Media broadband
communication chipset business of ComStream Corporation in May 1997.
(3) Working capital consists of all current assets and current liabilities,
including cash and short-term debt.
39
<PAGE> 46
UNAUDITED PRO FORMA CONDENSED
FINANCIAL INFORMATION OF THE COMPANY
In September 1998, Semiconductor Systems announced a comprehensive plan to
resize its business to align it with the realities of the current global
semiconductor market and to position the Company for future profitability.
Semiconductor Systems will record special charges of approximately $105 million
after tax in the fourth quarter of fiscal 1998. These charges have not been
reflected in the following Pro Forma Combined Financial Information. See
"Summary of Certain Information -- Recent Developments".
UNAUDITED PRO FORMA BALANCE SHEET INFORMATION OF THE COMPANY
The unaudited pro forma balance sheet information of the Company has been
derived from the unaudited historical balance sheet of Semiconductor Systems and
has been prepared assuming the Distribution occurred on June 30, 1998.
The unaudited pro forma balance sheet information should be read in
conjunction with the historical financial statements of Semiconductor Systems
and the notes thereto for the three years ended September 30, 1997 and for the
nine months ended June 30, 1997 and 1998 included elsewhere herein. The
unaudited pro forma balance sheet information is not necessarily indicative of
the financial position of the Company had the Distribution occurred on June 30,
1998.
The Distribution will result in a change in the equity structure of the
Company. The unaudited pro forma effect of the Distribution is to eliminate
Rockwell's net investment in Semiconductor Systems of $1,284 million and reflect
the issuance of approximately [ ] million shares of Company Common Stock, based
on approximately 192 million shares of Rockwell Common Stock outstanding at June
30, 1998 and a distribution ratio of one share of Company Common Stock for every
[ ] shares of Rockwell Common Stock outstanding. Pro forma equity reflects
$[ ] million of Company Common Stock and $[ ] million of additional paid-in
capital.
UNAUDITED PRO FORMA RESULTS OF OPERATIONS INFORMATION OF THE COMPANY
The unaudited pro forma results of operations information of the Company
has been derived from the historical statements of operations of Semiconductor
Systems and has been prepared assuming the Distribution occurred on October 1,
1996.
The unaudited pro forma results of operations information should be read in
conjunction with the historical financial statements of Semiconductor Systems
and notes thereto for the three years ended September 30, 1997 and for the nine
months ended June 30, 1997 and 1998 included elsewhere herein. The unaudited pro
forma results of operations information is not necessarily indicative of the
financial results of the Company had the Distribution occurred on October 1,
1996.
The basic and diluted earnings (loss) per share and average outstanding
shares are based on the post-Distribution capital structure of the Company.
These amounts are based on average outstanding basic and diluted shares of
Rockwell Common Stock of 200.2 million for the nine months ended June 30, 1998
and basic shares of 213.8 million and diluted shares of 217.1 million for the
year ended September 30, 1997 and the distribution ratio of one share of Company
Common Stock for every [ ] shares of Rockwell Common Stock outstanding. Based
on this information, pro forma diluted earnings per share is $[ ] for the
year ended September 30, 1997 and pro forma diluted loss per share is $[ ] for
the nine months ended June 30, 1998.
40
<PAGE> 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Following the Distribution, Semiconductor Systems will be the world's
largest company focused exclusively on providing semiconductor products for
communications electronics. Semiconductor Systems is presently implementing a
strategic transition from a narrow offering of primarily analog PC modem
products to a more broadly diversified product portfolio. The Company's product
portfolio is now comprised of its Personal Computing platform, which includes
analog PC modems, and the following expansion platforms: Personal Imaging,
Digital Infotainment, Wireless Communications and Network Access.
From 1991 through 1997, Semiconductor Systems grew rapidly, with average
annual revenue and profit growth of nearly 30 percent, driven principally by the
growth of the Internet and the robust demand for data modems for personal
computers. During this growth period, management recognized that Semiconductor
Systems' dependence on analog PC modem products would likely result in declining
revenue and profits over time due to the eventual reduced pace of technological
change and a market migration to lower cost software-based solutions. Beginning
in 1995, the Company aggressively implemented a diversification strategy, more
than trebling its annual research and development investments to approximately
$330 million in fiscal 1998 and making several strategic acquisitions. The
Company expects sales from its expansion platforms to generate almost half of
the Company's total sales in fiscal 1998 and to grow as a percentage of sales
over the next several years.
The introduction of competing 56 Kbps modem technologies in 1997 greatly
intensified price competition in the markets for the Company's K56Flex(TM)
product and its older V.34 modems, resulting in lower operating earnings. In
fiscal 1998, the Company expects average selling prices of Personal Computing
products to fall by approximately 50 percent and the annual growth in demand for
such products to fall to a rate of less than 20 percent. The greater than
expected decline in prices and lower than expected demand, combined with the
Company's increasing investments in its expansion product platforms and
manufacturing process technology, will result in disappointing operating
performance in fiscal 1998. This decline in operating performance has been
exacerbated by worldwide excess capacity in the semiconductor industry and the
weakening economic environment in the Asia-Pacific region.
In September 1998, the Company announced a comprehensive plan to resize its
business to align it with the realities of the current global semiconductor
market and to position the Company for future profitability. This plan will
result in fourth quarter fiscal 1998 special after tax charges of approximately
$105 million ($170 before tax), including approximately $60 million ($95 million
before tax) related to the planned disposition of the Company's Colorado
Springs, Colorado wafer fabrication facilities, approximately $35 million ($55
million before tax) for severance and other expenses related to a worldwide
workforce reduction of approximately 10 percent and approximately $10 million
($20 million before tax) for other actions. Management believes that this plan,
as well as other cost reduction initiatives, will enable Semiconductor Systems
to reduce operating costs by over $200 million in fiscal 1999 from the
annualized level incurred in the third quarter of fiscal 1998. Semiconductor
Systems expects its fiscal 1998 full-year net loss after tax to be approximately
$275 million ($440 million before tax), including inventory write-offs of
approximately $55 million ($75 million before tax), a charge for intellectual
property matters of approximately $20 million ($30 million before tax) and the
fourth quarter special charges described above. The Company anticipates a
further net loss after tax of approximately $40 million ($60 million before tax)
in the first quarter of fiscal 1999.
41
<PAGE> 48
RESULTS OF OPERATIONS
The following table sets forth the Company's sales by product platform (in
millions):
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------ --------------
1995 1996 1997 1997 1998
---- ------ ------ ------ ----
<S> <C> <C> <C> <C> <C>
Personal Computing............................... $616 $1,173 $ 861 $ 674 $526
Personal Imaging................................. 102 113 131 93 81
Wireless Communications.......................... 33 45 115 74 117
Digital Infotainment............................. 27 32 112 77 110
Network Access................................... 6 107 193 125 102
---- ------ ------ ------ ----
Total.................................. $784 $1,470 $1,412 $1,043 $936
==== ====== ====== ====== ====
</TABLE>
The following tables set forth certain Combined Statement of Operations
data of the Company for the years ended September 30, 1995, 1996 and 1997 and
the nine months ended June 30, 1997 and 1998:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------ --------------
1995 1996 1997 1997 1998
---- ------ ------ ------ ----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales........................................ $784 $1,470 $1,412 $1,043 $936
Cost of sales.................................... 483 849 744 541 556
---- ------ ------ ------ ----
Gross margin..................................... 301 621 668 502 380
Research and development......................... 91 155 280 199 251
Selling, general and administrative.............. 103 150 191 128 191
Purchased research and development............... -- 121 30 30 --
---- ------ ------ ------ ----
Operating earnings (loss)........................ 107 195 167 145 (62)
Other income, net................................ 4 3 13 12 10
---- ------ ------ ------ ----
Income (loss) before income taxes................ 111 198 180 157 (52)
Provision (benefit) for income taxes............. 35 114 54 47 (24)
---- ------ ------ ------ ----
Net income (loss)................................ $ 76 $ 84 $ 126 $ 110 $(28)
==== ====== ====== ====== ====
Operating earnings (loss) before purchased
research and development....................... $107 $ 316 $ 197 $ 175 $(62)
==== ====== ====== ====== ====
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
-------------------------- --------------
1995 1996 1997 1997 1998
------ ------ ------ ----- -----
(AS A PERCENTAGE OF NET SALES)
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................... 61.6 57.8 52.7 51.9 59.4
----- ----- ----- ----- -----
Gross margin....................................... 38.4 42.2 47.3 48.1 40.6
Research and development........................... 11.6 10.5 19.8 19.1 26.8
Selling, general and administrative................ 13.1 10.2 13.5 12.3 20.4
Purchased research and development................. -- 8.2 2.1 2.9 --
----- ----- ----- ----- -----
Operating earnings (loss).......................... 13.7 13.3 11.8 13.9 (6.6)
Other income, net.................................. 0.5 0.2 0.9 1.2 1.1
----- ----- ----- ----- -----
Income (loss) before income taxes.................. 14.2 13.5 12.7 15.1 (5.6)
Provision (benefit) for income taxes............... 4.5 7.8 3.8 4.5 (2.6)
----- ----- ----- ----- -----
Net income (loss).................................. 9.7% 5.7% 8.9% 10.5% (3.0)%
===== ===== ===== ===== =====
Operating earnings (loss) before purchased research
and development.................................. 13.7% 21.5% 13.9% 16.8% (6.6)%
===== ===== ===== ===== =====
</TABLE>
42
<PAGE> 49
NINE MONTHS ENDED JUNE 30, 1998 COMPARED TO NINE MONTHS ENDED JUNE 30, 1997
Net sales. Net sales decreased 10.3 percent to $936 million for the first
nine months of fiscal 1998 from $1,043 million for the first nine months of
fiscal 1997. This decrease was principally due to a decline in sales from PC
modems in Personal Computing and central site modems in Network Access. The
decrease in modem sales in 1998 was due to significant price declines of the
business's V.34 and 56 Kbps products. These price declines were partially offset
by an approximate 20 percent increase in modem unit volume. The decline in modem
sales was partially offset by an increase in sales of digital cordless telephone
and power amplifier products in Wireless Communications and video
encoders/decoders and broadband communications products in Digital Infotainment.
Gross margin. Cost of sales consist predominantly of purchased materials,
labor and overhead (including depreciation) associated with product
manufacturing, plus royalty, warranty and sustaining engineering expenses
pertaining to products sold. Gross margin decreased 24.3 percent to $380 million
for the first nine months of fiscal 1998 from $502 million for the first nine
months of fiscal 1997. As a percentage of sales, gross margin declined to 41
percent in 1998 from 48 percent in fiscal 1997. This decline was due primarily
to the 50 percent reduction in average selling prices of modem products.
Research and development. Research and development expenses consist
primarily of salaries and selected costs of employees engaged in product/process
research, design and development activities, as well as related subcontracting
activities, prototype development, cost of design tools and technology license
agreement expenses. Investments in new product and process development increased
26.1 percent to $251 million for the first nine months of fiscal 1998 from $199
million for the nine months ended June 30, 1997. This increase was primarily due
to increased investments in Wireless Communications and Network Access products,
and expanded use of technology licensing agreements with external partners.
Selling, general and administrative expenses. Selling, general and
administrative ("SG&A") expenses consist mainly of employee related expenses,
commissions to sales representatives, advertising, trade exhibit expenses, legal
costs and provisions for doubtful accounts. SG&A expenses increased 49 percent
to $191 million for the nine months ended June 30, 1998 from $128 million for
the nine months ended June 30, 1997. This increase was primarily due to higher
costs of cooperative advertising programs associated with various channel and
brand development campaigns of approximately $24 million, growth of the
Company's worldwide sales organization and a reduction in the allowance for
doubtful accounts in fiscal 1997, due to favorable resolution of accounts which
were previously reserved.
Operating earnings (loss). The Company incurred an operating loss of $62
million for the first nine months of fiscal 1998, compared to operating earnings
of $175 million (before purchased research and development) for the first nine
months of fiscal 1997. Operating earnings including purchased research and
development were $145 million for the first nine months of fiscal 1997.
1997 COMPARED TO 1996
Net sales. Net sales decreased 3.9 percent to $1,412 million in fiscal
1997 from $1,470 million in fiscal 1996 despite the addition of sales resulting
from the acquisition of Brooktree at the end of fiscal 1996. Analog PC modem
sales decreased $312 million due to severe price declines in all the Company's
PC modem products, primarily in connection with the introduction of the
Company's K56Flex(TM) product. Average selling prices for PC modem products
declined by 35 percent compared to fiscal 1996, partially offset by a modem unit
volume increase of 25 percent. Sales in Wireless Communications increased $70
million (or 156 percent) over the prior year primarily due to growth in sales of
the Company's digital cordless telephone products and power amplifier
components. Sales in the Digital Infotainment and Network Access platforms were
up a combined $166 million, due principally to the addition of sales from
Brooktree and an increase in central site modem sales.
Gross margin. Gross margin increased 7.6 percent to $668 million in fiscal
1997 from $621 million in fiscal 1996. As a percentage of sales, gross margin
increased to 47 percent from 42 percent. This increase was principally due to
substantially reduced charges associated with intellectual property matters as
compared to
43
<PAGE> 50
fiscal 1996, which more than offset the impact of lower average selling prices
for modem products. The Company resolved various intellectual property matters
in fiscal 1997 resulting in payments of approximately $32 million and other
concessions.
Research and development. Investments in new product and process
development increased 81 percent to $280 million in fiscal 1997 from $155
million in fiscal 1996. This increase was due primarily to an increase in
investments in mixed signal and manufacturing process technologies and the
inclusion of research and development expenditures from Brooktree, the Hi-Media
broadband communication chipset business acquired from ComStream Corporation
("Hi-Media") and the Company's other acquisitions.
Selling, general and administrative. SG&A expenses increased 27.3 percent
to $191 million in fiscal 1997 from $150 million in fiscal 1996. The increase
was due to the inclusion of SG&A costs from Brooktree, growth in the Company's
worldwide sales organization and increased advertising for the K56Flex(TM)
campaign. The increase was partially offset by a decrease in bad debt expense of
$26 million associated with receipt of payments for accounts which were
previously reserved.
Operating earnings. Operating earnings, before a $30 million ($19 million
after tax) charge for purchased research and development in connection with the
acquisition of Hi-Media, were $197 million in fiscal 1997, a decrease of $119
million from operating earnings (before purchased research and development of
$121 million) of $316 million in fiscal 1996. Operating earnings after purchased
research and development were $167 million in fiscal 1997.
1996 COMPARED TO 1995
Net sales. Net sales increased 88 percent to $1,470 million in fiscal 1996
from $784 million in fiscal 1995. This increase was principally due to a $658
million increase in modem sales in the Personal Computing and Network Access
platforms. This sales growth resulted from increased demand for the Company's
V.34 and V.32 products as shipments increased 50 percent and average selling
prices increased by over 40 percent as the Company's product portfolio
transitioned to the higher priced V.34 product. A surge of demand for Internet
access and strong customer acceptance of the Company's V.34 modem chipsets
contributed to the increase in unit sales. A worldwide shortage of silicon
wafers moderated the historical decline in the average selling prices of the
Company's products.
Gross margin. Gross margin increased 106 percent to $621 million in fiscal
1996 from $301 million in fiscal 1995. As a percentage of sales, gross margin
increased to 42 percent in fiscal 1996 from 38 percent in fiscal 1995. The
increase in average selling prices of the Company's modem products more than
offset higher costs related to intellectual property matters. During fiscal
1996, the Company accrued $115 million, principally for several intellectual
property matters. The Company also increased its reserves for excess and
obsolete inventory by approximately $75 million related to the Company's older
V.32 modem products.
Research and development. Investments in new product and process
development increased 70 percent to $155 million in fiscal 1996 from $91 million
in fiscal 1995. The increase in research and development expenses was related
principally to modem products, digital cellular and cordless telephony and mixed
signal and manufacturing process technologies, as the Company accelerated the
implementation of its expansion platform strategy.
Selling, general and administrative. SG&A expenses increased 46 percent to
$150 million in fiscal 1996 from $103 million in fiscal 1995 due principally to
the higher sales volume, investments in an upgrade of enterprise software and an
increase in bad debt expense of approximately $10 million, which was due to
concerns about the financial condition of several key customers.
Operating earnings. Operating earnings, before a $121 million (before and
after tax) charge for purchased research and development in connection with the
acquisition of Brooktree, were $316 million in fiscal 1996, an increase of $209
million over operating earnings of $107 million in fiscal 1995. Operating
earnings including purchased research and development were $195 million in
fiscal 1996.
44
<PAGE> 51
INCOME TAXES
The effective income tax rates for Semiconductor Systems were determined on
a stand-alone basis and were 30.0 percent in 1997, 57.6 percent in 1996 and 31.5
percent in 1995. The effective tax rates are generally lower than the statutory
rate due to tax benefits utilized by Semiconductor Systems related to export
sales and research credits. The effective tax rate was higher in fiscal 1996 due
to the non-deductible charge recorded in connection with the Brooktree
acquisition.
LIQUIDITY AND CAPITAL RESOURCES
Semiconductor Systems has obtained significant investments from Rockwell as
the business pursued its strategies of product diversification and development
of world-class manufacturing capabilities. Net transfers of cash from Rockwell
to Semiconductor Systems totaled $205 million for the nine months ended June 30,
1998, $86 million in fiscal 1997, $341 million in fiscal 1996 and $102 million
in fiscal 1995.
Cash used in operating activities was $29 million for the first nine months
of fiscal 1998, compared to cash provided by operating activities of $161
million in the first nine months of fiscal 1997. The decrease of $190 million
was due principally to the net loss and a significant increase in modem product
inventory, as Semiconductor Systems built units to meet anticipated demand. In
the fourth quarter of fiscal 1998, Semiconductor Systems revised downward its
estimate of future demand and will record a charge of approximately $75 million
before tax to write off inventory that is not saleable.
Cash provided by operating activities was $296 million in fiscal 1997, $315
million in fiscal 1996 and $106 million in fiscal 1995. Inventories increased
$151 million in fiscal 1996, as the business increased production to meet strong
demand for its V.34 modem products, and declined $66 million in fiscal 1997 as
demand and production slowed in anticipation of the market transition to 56 Kbps
modem products.
Cash provided by operating activities as well as transfers from Rockwell
have funded significant investments in product and process technology, including
capital expenditures of $176 million in the nine months ended June 30, 1998,
$317 million in fiscal 1997, $380 million in fiscal 1996 and $166 million in
fiscal 1995. The capital expenditures included capacity expansion at the
Company's main fabrication facility in Newport Beach, California and investments
in manufacturing process technology to reduce manufacturing costs. The Company
also made several strategic acquisitions to broaden its product technology.
These acquisitions included Brooktree, a designer and supplier of mixed-signal
integrated circuits for high-speed digital communications and media processing
applications, for approximately $254 million (net of cash acquired) in fiscal
1996 and Hi-Media for approximately $42 million in fiscal 1997.
Investing activities from fiscal 1995 through fiscal 1997 also included
approximately $140 million of cash used for the Company's wafer fabrication
facilities in Colorado Springs, Colorado. Due to current and forecasted future
demand for Semiconductor Systems' products and excess capacity of wafer
manufacturing worldwide, management decided in the fourth quarter of fiscal 1998
to dispose of the Company's facilities in Colorado Springs. The Company will
record a charge of approximately $95 million before tax in the fourth quarter to
write down these facilities to estimated net realizable value.
Management expects that cash requirements during the next two or three
years will be reduced by several factors. As the Company's expansion platforms
mature, research and development expenditures should decline from approximately
$330 million in fiscal 1998 to approximately $250 million in fiscal 1999. After
several years of significant capital investments to improve manufacturing
capabilities, the Company expects fiscal 1999 capital expenditures to decline to
approximately $160 million from approximately $260 million in fiscal 1998. In
addition, the Company is exploring wafer manufacturing alternatives, including
the use of foundries, joint ventures or other actions.
In September 1998, Semiconductor Systems began to take initial steps to
obtain financing on a stand-alone basis, in order to operate as an independent
company. Prior to the Distribution, the Company expects to enter into a secured
revolving credit facility with a group of banks. Management believes that the
credit facility, coupled with improved operating cash flow resulting in part
from the actions initiated in the fourth quarter of fiscal 1998, will be
sufficient to fund future capital requirements.
45
<PAGE> 52
YEAR 2000
Semiconductor Systems has developed plans to address issues related to the
impact of the Year 2000 on each of five major areas: the Company's products,
business systems (computer systems that handle business processes),
infrastructure (servers, desktop computers, networks, telecom systems and
software), manufacturing systems (computer systems used in the manufacturing
process) and suppliers (critical materials suppliers to the business). Each of
the five areas will undergo the following process to ensure readiness for the
Year 2000. First, in the inventory phase, all Semiconductor Systems assets are
inventoried to identify those that have any type of software or hardware Year
2000-related issues. Second, in the assessment phase, all inventoried items are
assessed to confirm that a Year 2000-related issue is present and the extent of
remediation required. Third, in the strategy phase, a remediation strategy is
created to ensure that all critical systems are upgraded to be Year 2000 ready
by December 31, 1999. Fourth, in the conversion/upgrade phase, upgrades are
performed on all items identified in the assessment and strategy phases.
Finally, in the certification phase, all upgraded items receive final
certification testing to verify Year 2000 readiness. Semiconductor Systems has
completed the inventory phase for all five areas. In addition, it has completed
the assessment and strategy phases and is currently in the conversion and
certification phases for the products, business systems and manufacturing
systems areas. Semiconductor Systems is currently in the assessment and strategy
phases for the infrastructure and supplier areas. Semiconductor Systems is
integrating its testing efforts with SEMATECH, a consortium of semiconductor
manufacturing companies, to ensure best practice testing. The manufacturing
systems, hardware systems and software applications areas are being tested under
the SEMATECH guidelines.
Semiconductor Systems, utilizing both internal and external resources to
address the Year 2000 issue, expects to be substantially complete with this
project by the middle of calendar year 1999. The current estimate of total
project cost is approximately $6 million, which includes the cost of purchasing
certain hardware and software. Approximately $4 million of this amount is for
capital investments, with the remainder being expenses (primarily salary costs).
At June 30, 1998, approximately $500,000 had been spent, with the majority of
the remaining amount to be spent within the next year. Semiconductor Systems
continues to evaluate the estimated costs associated with these efforts based on
actual experience. Although management believes, based on available information,
that the Company will be able to remediate Year 2000-related issues in the
products, business systems and infrastructure areas without any material adverse
effect on its business operations, products or financial condition,
Semiconductor Systems is dependent on semiconductor equipment manufacturers to
supply the upgrades required to remediate Year 2000 issues in the manufacturing
systems area and suppliers to upgrade their systems to ensure an uninterrupted
supply of materials. Moreover, the Company could be adversely impacted by the
Year 2000 issues faced by major distributors, customers, vendors and financial
services organizations with which the Company interacts. Any disruption in the
Company's operations as a result of Year 2000 compliance could have a material
adverse effect on Semiconductor Systems' operations, products, and financial
condition.
FINANCIAL INSTRUMENT DISCLOSURES
The Company's financial instruments include cash, short-term debt and
foreign currency forward exchange contracts. At June 30, 1998, the carrying
values of the Company's financial instruments approximated their fair values
based on current market prices and rates.
It is the policy of the Company not to enter into derivative financial
instruments for speculative purposes. The Company enters into foreign currency
forward exchange contracts to protect itself from adverse currency rate
fluctuations on foreign currency commitments entered into in the ordinary course
of business. These commitments are generally for terms of less than one year.
The foreign currency forward exchange contracts are executed with creditworthy
banks and are denominated in currencies of major industrial countries. The
notional amount of all the Company's outstanding foreign currency forward
exchange contracts aggregated $46 million at June 30, 1998 and $28 million at
September 30, 1997. The gains and losses relating to these foreign currency
forward exchange contracts are deferred and included in the measurement of the
foreign currency transaction subject to the hedge. The Company believes that any
gain or loss incurred on foreign
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currency forward exchange contracts is offset by the effects of currency
movements on the respective underlying hedged transactions.
Based on the Company's overall currency rate exposure at June 30, 1998, a
10 percent change in currency rates would not have had a material effect on the
financial position, results of operations or cash flows of the Company.
CAUTIONARY STATEMENT
This Information Statement contains statements relating to future results
of the Company (including certain projections and business trends) that are
"forward-looking statements". Actual results may differ materially from those
projected as a result of certain risks and uncertainties. These risks and
uncertainties include, but are not limited to, global and market conditions,
including, but not limited to, the cyclical nature of the semiconductor industry
and the markets addressed by the Company's and its customers' products; demand
for and market acceptance of new and existing products; successful development
of new products; the timing of new product introductions; the availability and
extent of utilization of manufacturing capacity; price erosion; other
competitive factors; changes in product mix; fluctuations in manufacturing
yields; product obsolescence; the ability to develop and implement new
technologies and to obtain protection of the related intellectual property;
labor relations of the Company, its customers and suppliers; competitive product
and pricing pressures; and the uncertainties of litigation, as well as other
risks and uncertainties, including but not limited to those set forth under
"Risk Factors" and those detailed from time to time in the filings of the
Company with the Commission.
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THE DISTRIBUTION
INTRODUCTION
On June 29, 1998, the Board of Directors of Rockwell approved in principle
a plan to separate Rockwell into two companies by means of a tax-free spin-off
of Semiconductor Systems. The spin-off is intended to be effected through the
Distribution. The Distribution is conditioned upon, among other things, receipt
of the Tax Ruling and final approval by Rockwell's Board of Directors. At the
time of the Distribution, the Company will own, directly or through
subsidiaries, substantially all of the assets, liabilities (including
liabilities relating to former operations) and operations which prior to the
Distribution Date comprise Semiconductor Systems. See "The Semiconductor Systems
Business".
Shareowners of Rockwell with inquiries relating to the Distribution should
contact the Distribution Agent, telephone number (888) 470-5829, or Rockwell
Shareowner Services, telephone number (714) 424-4550. After the Distribution
Date, shareowners of the Company with inquiries relating to the Distribution or
their investment in the Company should contact the Company at 4311 Jamboree
Road, Newport Beach, California 92660-3095, telephone number (949) 221-4600 or
ChaseMellon, the Company's Transfer Agent, at P.O. Box 3315, South Hackensack,
New Jersey 07606-1915, telephone number (888) 470-5829.
BACKGROUND AND REASONS FOR THE DISTRIBUTION
Rockwell's Board of Directors believes that the Distribution will
accomplish a number of important business objectives and, by enabling Rockwell
and the Company to develop their respective businesses separately, should better
position the two companies to produce greater total shareowner value over the
long term. The Distribution will separate Semiconductor Systems from Rockwell's
remaining automation (the "Automation Business") and avionics and communications
(the "Avionics & Communications Business") businesses, each with distinct
financial, investment and operating characteristics, so that each can adopt
strategies and pursue objectives appropriate to its specific business. The
Distribution will permit the management of each company to prioritize the
allocation of its respective management and financial resources for achievement
of its own corporate objectives. In particular, Rockwell believes that the
Distribution will permit each business to maximize its strengths and provide
greater flexibility to pursue business opportunities, including acquisitions,
joint ventures and other business alliances and combinations. In addition, the
establishment of Company Common Stock as a separate, publicly-traded equity
security will increase the Company's ability to participate in the ongoing
process of consolidation in its industry by facilitating the Company's ability
to effect acquisitions using Company Common Stock as consideration. Further, the
Distribution is expected to allow each of Rockwell and the Company to attract,
motivate and retain key personnel by enabling Rockwell and the Company to
provide more effective incentive compensation programs that are based on the
performance of the respective business in which such individuals are employed
without being influenced by the results of the business in which they have no
involvement. The Distribution also will enable shareowners and potential
investors to evaluate better the financial performance of each business and its
strategies, enhancing the likelihood that each will achieve appropriate market
recognition for its own performance.
MANNER OF EFFECTING THE DISTRIBUTION
The Distribution is expected to be made on the Distribution Date to
shareowners of record of Rockwell Common Stock as of the close of business on
the Record Date. On the Distribution Date, Rockwell will effect the Distribution
by delivering all of the outstanding shares of Company Common Stock to the
Distribution Agent for allocation to the holders of record of Rockwell Common
Stock as of the close of business on the Record Date. In the Distribution, each
Rockwell shareowner will receive one share of Company Common Stock for every
[ ] shares of Rockwell Common Stock held as of the close of business on the
Record Date. The delivery of a share of Company Common Stock in connection with
the Distribution also will constitute the delivery of the Company Right (as
defined below) associated with such share. Based on the
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number of shares of Rockwell Common Stock outstanding as of [ ],
1998, approximately [ ]million shares of Company Common Stock will be
distributed in the Distribution.
Company shareowners will have their ownership of Company Common Stock
registered only in book-entry form. Book-entry registration refers to a method
of recording stock ownership in the Company's records in which no share
certificates are issued. On the Distribution Date, each owner of Rockwell Common
Stock as of the close of business on the Record Date will be credited through
book-entry in the records of the Company with the number of whole and fractional
shares of Company Common Stock received by the shareowner. Commencing on or
about the Distribution Date, the Distribution Agent will begin mailing account
statements to such Rockwell shareowners indicating the number of shares,
including fractional shares, of Company Common Stock that each such shareowner
owns. Following the Distribution Date, any Company shareowner whose ownership of
Company Common Stock is registered in book-entry form may obtain at any time
without charge, physical certificates to represent the number of whole shares
owned by such shareowner by contacting the Transfer Agent. In that case,
fractional shares will not be issued. Instead, with respect to shares for which
physical certificates are requested, the Transfer Agent will, as soon as
practicable after the request, aggregate and sell such fractional interests at
then prevailing prices and distribute the net cash proceeds to shareowners
entitled thereto pro rata based on their fractional interests in a share of
Company Common Stock. See "-- Certain Federal Income Tax Consequences of the
Distribution". All shares of Company Common Stock distributed in the
Distribution will be fully paid and nonassessable and holders thereof will not
be entitled to preemptive rights. See "Description of Company Capital
Stock -- Company Common Stock".
Participants in the Rockwell Investor Services Program will be credited
with the number of shares (including fractional shares) of Company Common Stock
distributed in the Distribution in respect of the Rockwell Common Stock held in
their accounts. Shares of Company Common Stock credited as a result of the
Distribution to participants in the Rockwell Investor Services Program in
respect of the Rockwell Common Stock held by such participants in their accounts
will be aggregated with shares of Company Common Stock distributed in the
Distribution in respect of Rockwell Common Stock held outside such accounts
(except shares held in the Rockwell Savings Plan) and will be credited to such
shareowner through book-entry in the records of the Company.
Participants in the Rockwell Savings Plan will have their Rockwell Common
Stock accounts credited with the number of shares (including fractional shares)
of Company Common Stock distributed in the Distribution in respect of the
Rockwell Common Stock held in their Rockwell Savings Plan accounts. Individual
Rockwell Savings Plan participants, rather than the Rockwell Savings Plan, will
have authority to determine if and when shares of Company Common Stock held in
their Rockwell Savings Plan accounts will be sold. See "Arrangements Between
Rockwell and the Company -- Employee Matters Agreement".
NO CONSIDERATION WILL BE PAID BY SHAREOWNERS OF ROCKWELL FOR THE SHARES OF
COMPANY COMMON STOCK TO BE RECEIVED BY THEM IN THE DISTRIBUTION, NOR WILL THEY
BE REQUIRED TO SURRENDER OR EXCHANGE SHARES OF ROCKWELL COMMON STOCK OR TAKE ANY
OTHER ACTION IN ORDER TO RECEIVE COMPANY COMMON STOCK.
The Distribution will not affect the number of outstanding shares of
Rockwell Common Stock or the rights attendant thereto. Certificates representing
outstanding shares of Rockwell Common Stock will continue also to represent
rights to purchase shares of Series A Junior Participating Preferred Stock,
without par value, of Rockwell ("Rockwell Junior Preferred Stock") pursuant to
the Rights Agreement, dated as of November 30, 1996, between Rockwell and
ChaseMellon, as rights agent.
TRADING MARKET
There is no current trading market for the Company Common Stock, and while
a "when-issued" trading market is expected to develop prior to the Distribution,
there can be no assurance as to the prices at which trading in the Company
Common Stock will occur after completion of the Distribution. See "Risk
Factors -- No Prior Market For Company Common Stock; Volatility; Possibility of
Substantial Sales of Company Common Stock".
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Application will be made for approval of trading and quotation of the
Company Common Stock on Nasdaq under the proposed trading symbol "[ ]". The
Company initially will have approximately 59,000 shareowners of record, based on
the number of record holders of Rockwell Common Stock as of August 31, 1998. For
certain information regarding options to purchase Company Common Stock that will
be or may become outstanding after the Distribution, see "Arrangements Between
Rockwell and the Company -- Employee Matters Agreement", "Management of the
Company -- Historical Compensation of Executive Officers" and "-- Benefit Plans
Following the Distribution".
Shares of Company Common Stock distributed to Rockwell shareowners in the
Distribution will be freely transferable, except for shares received by persons
who may be deemed to be "affiliates" of the Company under the Securities Act of
1933, as amended (the "Securities Act"), and the rules promulgated thereunder.
Persons who may be deemed to be affiliates of the Company after the Distribution
generally include individuals or entities that control, are controlled by, or
are under common control with the Company, and may include certain officers and
directors of the Company as well as principal shareowners of the Company, if
any. Persons who are affiliates of the Company will be permitted to sell their
shares of Company Common Stock only pursuant to an effective registration
statement under the Securities Act or an exemption from the registration
requirements of the Securities Act, such as the exemption afforded by Rule 144
under the Securities Act.
DIVIDEND POLICY
It is anticipated that following the Distribution, the Company initially
will not pay cash dividends and Rockwell initially will continue to pay
quarterly cash dividends at the same annual rate of $1.02 per share as currently
paid on Rockwell Common Stock. However, the declaration and payment of dividends
by the Company and Rockwell will be at the sole discretion of their respective
Boards of Directors.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
The Distribution is conditioned upon receipt of the Tax Ruling to the
effect that the Distribution will qualify as a tax-free reorganization within
the meaning of Section 368(a)(1)(D) of the Code. The Tax Ruling has been
requested from the IRS but has not been received as of the date hereof. So long
as the Distribution qualifies as a tax-free reorganization within the meaning of
Section 368(a)(1)(D) of the Code and is not disqualified as a tax-free
transaction to Rockwell under Section 361(c)(2) of the Code because of a post-
Distribution acquisition of Rockwell or the Company by a third party, the
material United States federal income tax consequences of the Distribution will
be as follows:
(i) no gain or loss will be recognized by or be includable in the
income of a holder of Rockwell Common Stock solely as a result of the
receipt of Company Common Stock in the Distribution, except, as described
below, in connection with cash received in lieu of fractional shares of
Company Common Stock;
(ii) no gain or loss will be recognized by Rockwell upon the
Distribution;
(iii) assuming that a holder of Rockwell Common Stock holds such
Rockwell Common Stock as a capital asset, such holder's holding period for
Company Common Stock received in the Distribution will include the period
during which such Rockwell Common Stock was held;
(iv) a Rockwell shareowner who requests physical certificates for
shares of Company Common Stock and who receives cash in lieu of fractional
shares of Company Common Stock as a result of the sale of a fractional
share by the Transfer Agent will be treated as if such fractional share had
been received by the shareowner as part of the Distribution and then sold
by such shareowner. Accordingly, such shareowner will recognize gain or
loss equal to the difference between the cash received and the amount of
tax basis allocable (as described below) to such fractional share. Such
gain or loss will be capital gain or loss if such fractional share was held
by such shareowner as a capital asset; and
(v) the tax basis of Rockwell Common Stock held by a Rockwell
shareowner immediately prior to the Distribution will be apportioned (based
upon relative fair market values at the time of the
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Distribution) between such Rockwell Common Stock and Company Common Stock
received (including any fractional share of Company Common Stock received)
by such shareowner in the Distribution.
While the Tax Ruling relating to the qualification of the Distribution as a
tax-free reorganization within the meaning of Section 368(a)(1)(D) of the Code
generally would be binding on the IRS, the continuing validity of such a ruling
is subject to certain factual representations and assumptions. Rockwell and the
Company are not aware of any facts or circumstances which would cause such
representations and assumptions to be untrue. If the Distribution were not to
qualify as a tax-free reorganization within the meaning of Section 368(a)(1)(D)
of the Code, Rockwell would recognize taxable gain equal to the excess of the
fair market value of the Company Common Stock distributed to Rockwell's
shareowners over Rockwell's tax basis in such Company Common Stock. In addition,
each Rockwell shareowner who receives Company Common Stock in the Distribution
would generally be treated as receiving a taxable distribution in an amount
equal to the fair market value of the Company Common Stock. If the Distribution
qualified under Section 368(a)(1)(D) of the Code but was disqualified as
tax-free to Rockwell under Section 361(c)(2) of the Code because of a
post-Distribution acquisition of Rockwell or the Company, Rockwell would
recognize taxable gain as described in the second preceding sentence above but
the Distribution would generally be tax-free to each Rockwell shareowner as
described in the preceding paragraph. See "Risk Factors -- Certain Federal
Income Tax Considerations".
Although pursuant to the terms of the Distribution Agreement the conditions
to the Distribution set forth therein may be waived by Rockwell's Board of
Directors in its sole discretion, Rockwell does not presently intend to waive
the condition of receipt of the Tax Ruling.
Promptly following the Distribution, information with respect to the
allocation of tax basis between Rockwell Common Stock and Company Common Stock
will be made available to the holders of Rockwell Common Stock.
THE FOREGOING IS ONLY A SUMMARY OF THE MATERIAL UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OF THE DISTRIBUTION UNDER CURRENT LAW AND IS INTENDED
FOR GENERAL INFORMATION ONLY. EACH ROCKWELL SHAREOWNER SHOULD CONSULT HIS OR HER
TAX ADVISOR AS TO THE PARTICULAR CONSEQUENCES OF THE DISTRIBUTION TO SUCH
SHAREOWNER, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS, AND
AS TO POSSIBLE CHANGES IN TAX LAW THAT MAY AFFECT THE TAX CONSEQUENCES DESCRIBED
ABOVE.
The Tax Allocation Agreement provides that neither Rockwell nor the Company
is to take any action inconsistent with, nor fail to take any action required
by, the request for the Tax Ruling or the Tax Ruling (if received) unless
required to do so by law or the other party has given its prior written consent
or, in certain circumstances, a supplemental ruling permitting such action is
obtained. See "Arrangements Between Rockwell and the Company -- Tax Allocation
Agreement".
CONDITIONS; TERMINATION
The Distribution is subject to the satisfaction or waiver of certain
conditions as set forth in the Distribution Agreement. Regardless of whether the
conditions are satisfied, Rockwell's Board of Directors, in its sole discretion,
without approval of Rockwell's shareowners, may terminate the Distribution
Agreement and abandon the Distribution at any time prior to the effective time
of the Distribution. See "Arrangements Between Rockwell and the
Company -- Distribution Agreement".
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ARRANGEMENTS BETWEEN ROCKWELL AND THE COMPANY
For the purpose of governing certain of the relationships between Rockwell
and the Company relating to the Distribution, to provide for an orderly
transition and for other matters, Rockwell and the Company will, prior to the
Distribution, enter into the agreements described below, forms of which (other
than the Transition Agreement) have been filed as exhibits to the Registration
Statement of which this Information Statement is a part. The following summaries
of the material terms of these agreements are qualified by reference to the
agreements as so filed.
DISTRIBUTION AGREEMENT
Rockwell and the Company will enter into a distribution agreement (the
"Distribution Agreement") providing for, among other things, the principal
corporate transactions required to effect the separation of Semiconductor
Systems from the Automation and Avionics & Communications Businesses and the
Distribution, and certain other agreements governing the relationship between
Rockwell and the Company with respect to or in consequence of the Distribution.
The Distribution Agreement provides for the Distribution to be effective as of
the close of business on the Distribution Date.
The Distribution Agreement further provides that prior to the Distribution,
Rockwell will contribute to the Company certain assets and liabilities of
Semiconductor Systems (including liabilities relating to former operations) not
already owned by the Company, including the stock of certain subsidiaries, and
the Company will distribute to Rockwell all assets and liabilities not
constituting part of Semiconductor Systems, including all assets and liabilities
of Rockwell's electronic commerce business. Rockwell will retain all cash and
cash equivalents of the Company and its wholly-owned subsidiaries at the time of
the Distribution, except for an amount equal to certain outstanding indebtedness
of the Company that will be retained by the Company. The Distribution Agreement
generally provides for the elimination of intercompany indebtedness between
Rockwell and the Company in existence at the time of the Distribution. The
Distribution Agreement also includes cross licenses by each of Rockwell and the
Company to the other of rights to use, subsequent to the Distribution,
intellectual property of the licensor to the extent the same is used by the
licensee at the time of the Distribution. In addition, for a period of five
years following the Distribution Date, in certain circumstances the Distribution
Agreement authorizes each of Rockwell and the Company to grant licenses of
intellectual property owned by the other to third-parties in connection with the
resolution of intellectual property disputes or the formation of alliances.
The Distribution Agreement provides that after the Distribution, Rockwell
will have all rights in and to the names "Rockwell" and "Rockwell International"
and all derivatives thereof, except for certain limited rights of use granted to
the Company. The Company will change the names of its subsidiaries to eliminate
therefrom the names "Rockwell", "Rockwell International" and all derivatives
thereof.
Subject to certain exceptions, the Distribution Agreement provides for
cross-indemnities principally designed to place financial responsibility for the
liabilities of Semiconductor Systems (including liabilities relating to former
operations) with the Company and financial responsibility for the liabilities of
the Automation and Avionics & Communications Businesses (including liabilities
relating to former operations) with Rockwell. In addition, the Distribution
Agreement provides that each of Rockwell and the Company will indemnify the
other in the event of certain liabilities arising under the Exchange Act.
The Distribution Agreement provides that prior to the Distribution the
Board of Directors of the Company will approve the Company Certificate and the
Company By-Laws and that the Company and Rockwell will take all actions which
may be required to elect or otherwise appoint as directors of the Company, at or
prior to the time of the Distribution, the persons named herein to constitute
the Company's Board of Directors at the time of the Distribution. See
"Management of the Company -- Directors of the Company".
The Distribution Agreement provides generally that all costs and expenses
incurred prior to the Distribution in connection with the Distribution, the
preparation, execution and delivery of the Distribution Agreement, the Employee
Matters Agreement, the Tax Allocation Agreement and the Transition Agreement
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and the consummation of the transactions contemplated thereby will be charged to
and paid by Rockwell, other than the costs and expenses of the Credit Facility
and other costs and expenses to the extent relating to operations of
Semiconductor Systems subsequent to the Distribution, which will be charged to
and paid by the Company. Except as otherwise expressly provided, all costs and
expenses incurred following the Distribution in connection with the
implementation thereof will be charged to and paid by the party for whose
benefit the expenses are incurred, with any expenses which cannot be allocated
on such basis to be split equally between Rockwell and the Company.
The Distribution Agreement provides that the Distribution will not be made
until all of the following conditions are satisfied or waived by Rockwell's
Board of Directors in its sole discretion:(i) receipt of the Tax Ruling; (ii)
final approval by Rockwell's Board of Directors of the Distribution; (iii)
receipt of all material consents required to effect the Distribution; (iv) the
Registration Statement of which this Information Statement is a part becoming
effective under the Exchange Act; (v) the Company Certificate, the Company
By-Laws and the Company Rights Agreement being adopted and in full force and
effect; (vi) the Company Common Stock being approved for trading and quotation
on Nasdaq; (vii) the transactions contemplated by the Distribution Agreement in
connection with separating Semiconductor Systems and the Automation and Avionics
& Communications Businesses being consummated in all material respects; (viii)
Rockwell and the Company having entered into each of the agreements,
instruments, understandings, assignments and other arrangements to be entered
into in connection with the transactions contemplated by the Distribution
Agreement, including, without limitation, any conveyance documents, the Employee
Matters Agreement, the Tax Allocation Agreement and the Transition Agreement,
and each such agreement being in full force and effect; (ix) a "no-action"
letter from the staff of the Commission being issued and in full force and
effect regarding the sale of Company Common Stock to be received by the Rockwell
Savings Plans in the Distribution by or on behalf of non-affiliate plan
participants without compliance with Rule 144 under the Securities Act; (x) no
order, injunction or decree having been issued by any court of competent
jurisdiction or other legal restraint or prohibition preventing consummation of
the Distribution being in effect; and (xi) no suit, action or proceeding by or
before any court of competent jurisdiction or other governmental entity having
been commenced and pending to restrain or challenge the Distribution, and no
inquiry having been received that in the reasonable judgment of the Board of
Directors of Rockwell may lead to such a suit, action or proceeding. Even if all
the conditions have been satisfied, the Distribution Agreement may be terminated
and the Distribution abandoned by Rockwell's Board of Directors, in its sole
discretion, without the approval of Rockwell shareowners, at any time prior to
the Distribution.
EMPLOYEE MATTERS AGREEMENT
Rockwell and the Company will enter into an employee matters agreement (the
"Employee Matters Agreement") providing for certain matters relating to
employees, employee benefit plans and compensation arrangements for current and
former employees of Semiconductor Systems and their beneficiaries (collectively,
the "Company Participants").
The Employee Matters Agreement provides that, except as expressly set forth
therein, effective as of the time of the Distribution, the Company will or will
cause one or more of its subsidiaries to assume or retain, as the case may be,
all liabilities of Rockwell and its subsidiaries with respect to Company
Participants relating to employment by Rockwell or its subsidiaries, including
liabilities under medical, retiree health and life insurance, short and
long-term disability, workers compensation and other employee benefit plans,
policies and agreements.
Pursuant to the Employee Matters Agreement and subject to the terms and
conditions thereof, Rockwell will retain liabilities for all vested benefits of
Company Participants accrued to the time of the Distribution under Rockwell's
U.S. and certain foreign pension plans and all related assets. Rockwell will
cause each employee participating in Rockwell's U.S. and such foreign pension
plans who will be employed by the Company at the time of the Distribution to
have a fully nonforfeitable right to such employee's benefit payable at normal
retirement age under Rockwell's U.S. and such foreign pension plans accrued as
of the time of the Distribution. Notwithstanding the foregoing, Rockwell shall
not grant to Company Participants credit for any purpose under Rockwell's U.S.
and such foreign pension plans for service with the Company after the
Distribution Date, including without limitation, credit for purposes of
determining eligibility for any early
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retirement or disability pension. The Company does not expect to establish
defined benefit pension plans for its employees, except for a defined benefit
pension plan covering employees of Semiconductor Systems who are members of
Local 2125 of the International Brotherhood of Electrical Workers.
The Employee Matters Agreement also provides for adjustment of outstanding
options to purchase Rockwell Common Stock ("Rockwell Options") granted under the
Rockwell International Corporation 1995 Long-Term Incentives Plan (the "Rockwell
1995 LTIP") and the Rockwell International Corporation 1988 Long-Term Incentives
Plan (the "Rockwell 1988 LTIP" and, together with the Rockwell 1995 LTIP, the
"Rockwell Option Plans"). Pursuant to the Employee Matters Agreement, Rockwell
Options held by employees of Semiconductor Systems at the time of the
Distribution will be replaced with options to purchase shares of Company Common
Stock ("Company Options"), with the number of shares covered thereby and the
exercise price per share to be determined pursuant to a formula designed to
cause (i) the economic value of such Company Options (i.e., the difference
between the aggregate fair market value of the shares of Company Common Stock
subject to such options and the aggregate per share exercise price thereof)
immediately after the Distribution to be the same as the economic value
immediately prior to the Distribution of the Rockwell Options being replaced,
and (ii) the ratio of the exercise price to the fair market value of the
underlying stock to remain the same immediately before and immediately after the
Distribution. See "Management of the Company -- Benefit Plans Following the
Distribution -- 1999 Long-Term Incentives Plan".
Rockwell Options held by persons other than employees of Semiconductor
Systems at the time of the Distribution, other than those granted prior to
January 1, 1990 or after September 1, 1998, will be adjusted so that following
the Distribution, each such holder will hold options to purchase shares of
Rockwell Common Stock and Company Common Stock. The number of shares subject to,
and the exercise price of, such options will be adjusted to take into account
the Distribution and to ensure that the aggregate economic value (i.e., the
difference between the aggregate fair market value of the shares subject to such
options and the aggregate per share exercise price thereof) of the resulting
Rockwell and Company options immediately after the Distribution is equal to the
aggregate economic value of the Rockwell Options immediately prior to the
Distribution.
Rockwell Options held by persons other than employees of Semiconductor
Systems at the time of the Distribution that were granted prior to January 1,
1990 or after September 1, 1998 will remain Rockwell Options, but the number of
shares covered thereby and the exercise price per share will be adjusted
pursuant to a formula designed to cause (i) the economic value of such Rockwell
Options (i.e., the difference between the aggregate fair market value of the
shares of Rockwell Common Stock subject to such options and the aggregate per
share exercise price thereof) to remain the same immediately before and
immediately after the Distribution, after giving effect to any change in the
fair market value of Rockwell Common Stock resulting from the Distribution, and
(ii) the ratio of the exercise price to the fair market value of the underlying
Rockwell Common Stock to remain the same immediately before and immediately
after the Distribution.
Pursuant to the Employee Matters Agreement, following the Distribution,
Rockwell will retain sponsorship of the Rockwell Savings Plan and the trust
related thereto. Rockwell will cause each employee who will be employed by the
Company or one of its subsidiaries on the Distribution Date to have a fully
nonforfeitable right to such employee's account balances, if any, under the
Rockwell Savings Plan. The account balances of each such employee will be
maintained under the Rockwell Savings Plan; provided, however, that such
employees will not be entitled to make additional contributions into the
Rockwell Savings Plan and matching contributions will no longer be made by
either Rockwell or the Company on behalf of such employees. For purposes of
distribution of account balances under the Rockwell Savings Plan, continued
employment with the Company or any of its subsidiaries will be deemed to be
continued employment with Rockwell or one of its subsidiaries and such account
balances will not be distributed to such employees until termination of
employment with the Company or one of its subsidiaries, except as may otherwise
be permitted in accordance with the terms of the Rockwell Savings Plan and
applicable law.
Based upon the Rockwell Savings Plan's ownership of Rockwell Common Stock
on [ ], 1998, the Rockwell Savings Plan is expected to hold
approximately [ ] million shares of Company Common Stock or approximately 19%
of the Company Common Stock outstanding immediately following the Distribution.
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The Rockwell Savings Plan will provide Rockwell Savings Plan participants a high
degree of flexibility with respect to continued investment in Company Common
Stock in their Rockwell Savings Plan accounts, so that individual participants,
rather than the Rockwell Savings Plan, will have authority to determine if and
when shares of Company Common Stock held in participant accounts will be sold
and reinvested in accordance with the provisions of the Rockwell Savings Plan.
Participants in the Rockwell Savings Plan will be entitled to elect at any time,
but not more frequently than twice during each calendar month, to have all or a
portion of the Company Common Stock in their accounts under the Rockwell Savings
Plan sold, with the net proceeds reinvested as provided for in the Rockwell
Savings Plan. Under the Rockwell Savings Plan, dispositions of Company Common
Stock will be effected only at the direction and on behalf of individual
participants.
TAX ALLOCATION AGREEMENT
Through the Distribution Date, the results of the operations of
Semiconductor Systems have been and will be included in Rockwell's consolidated
United States federal income tax returns. As part of the Distribution, Rockwell
and the Company will enter into a tax allocation agreement (the "Tax Allocation
Agreement") which provides, among other things, for the allocation between
Rockwell and the Company of federal, state, local and foreign tax liabilities
relating to Semiconductor Systems.
The Tax Allocation Agreement also allocates between Rockwell and the
Company liability for any taxes which may arise in connection with separating
Semiconductor Systems and the Automation and Avionics & Communications
Businesses. The Tax Allocation Agreement provides, in general, that Rockwell
will be responsible for any such taxes. The Tax Allocation Agreement also
provides that neither Rockwell nor the Company is to take any action
inconsistent with, nor fail to take any action required by, the request for the
Tax Ruling or the Tax Ruling (if received) unless required to do so by law or
the other party has given its prior written consent or, in certain
circumstances, a supplemental ruling permitting such action is obtained.
Rockwell and the Company will agree to indemnify each other with respect to any
tax liability resulting from their respective failures to comply with such
provisions. In addition, the Company will be responsible for any taxes imposed
on Rockwell, the Company or Rockwell shareowners as a result of the failure of
the Distribution to qualify as a tax-free reorganization within the meaning of
Section 368(a)(1)(D) of the Code or the subsequent disqualification of the
Distribution as tax-free to Rockwell under Section 361(c)(2) of the Code if such
failure or disqualification is attributable to certain post-Distribution actions
by or in respect of the Company (including its subsidiaries) or its shareowners,
such as the acquisition of the Company by a third party at a time and in a
manner that would cause such a failure or disqualification. In addition, in
connection with Rockwell's spin-off of Meritor Automotive, Inc. on September 30,
1997, certain tax-free intragroup spin-offs were effected by the Company. The
Tax Allocation Agreement provides that the Company will be responsible for any
taxes imposed on Rockwell, the Company or Rockwell shareowners in respect of
those intragroup spin-offs if such taxes are attributable to certain
post-Distribution actions by or in respect of the Company (including its
subsidiaries) or its shareowners, such as the acquisition of the Company by a
third party at a time and in a manner that would cause such taxes to be
incurred. In the event that any of the taxes described above were to become
payable by the Company, such payment would have a material adverse effect on the
financial position, results of operations and cash flow of the Company.
Though valid as between the parties thereto, the Tax Allocation Agreement
is not binding on the IRS and does not affect the liability of each of the
Company, Rockwell and their respective subsidiaries to the IRS for all federal
taxes of the consolidated group relating to periods through the Distribution
Date.
TRANSITION AGREEMENT
Rockwell and the Company will enter into a transition services agreement
(the "Transition Agreement") prior to the Distribution. Pursuant to the
Transition Agreement, Rockwell will provide to the Company, for specified
periods after the Distribution Date and on mutually agreed terms, certain
services which prior to the Distribution have been provided to Semiconductor
Systems by Rockwell, including research and development support services of the
Rockwell Science Center. In addition, the Transition Agreement will provide for
the continuation of certain supply arrangements between the Company and Rockwell
or certain Rockwell subsidiaries.
55
<PAGE> 62
MANAGEMENT OF THE COMPANY
DIRECTORS OF THE COMPANY
Immediately after the Distribution, the Board of Directors of the Company
is expected to consist of the individuals named below. The Company Certificate
provides that the Company will have three classes of directors, the initial
terms of office of which will expire, respectively, at the annual meetings of
shareowners in 1999, 2000 and 2001. Successors to any directors whose terms are
expiring are elected to three-year terms and hold office until their successors
are elected and qualified. Also set forth below with respect to each director is
the class of which such director will be a member. Unless otherwise indicated,
(i) the business address for each person listed below is Rockwell Semiconductor
Systems, Inc., 4311 Jamboree Road, Newport Beach, California 92660-3095 and (ii)
each individual listed below is a citizen of the United States. See "Description
of Company Capital Stock -- Certain Provisions in the Company Certificate and
Company By-Laws".
CLASS I DIRECTORS
Class I Directors will serve until the 1999 Annual Meeting of Shareowners
of the Company and until their respective successors are elected and qualified.
DWIGHT W. DECKER -- Mr. Decker, age 48, will serve as Chairman of the Board
and Chief Executive Officer of the Company. Mr. Decker joined Rockwell in 1989
as director of data modem products engineering and, after serving in a number of
increasingly responsible management positions, served as Vice President/ General
Manager, Digital Communications Division of Rockwell's Telecommunications
Division from January 1993 to June 1995. He served as President,
Telecommunications of Rockwell from June 1995 to October 1995, President,
Rockwell Semiconductor Systems from October 1995 to March 1997, Senior Vice
President of Rockwell and President, Rockwell Semiconductor Systems and
Electronic Commerce from March 1997 to July 1998 and Senior Vice President of
Rockwell and President, Rockwell Semiconductor Systems since July 1998.
[Additional director(s) to come.]
CLASS II DIRECTORS
Class II Directors will serve until the 2000 Annual Meeting of Shareowners
of the Company and until their respective successors are elected and qualified.
[Additional director(s) to come.]
CLASS III DIRECTORS
Class III Directors will serve until the 2001 Annual Meeting of Shareowners
of the Company and until their respective successors are elected and qualified.
DONALD R. BEALL -- Mr. Beall, age 59, is former Chairman of the Board and
Chief Executive Officer of Rockwell and has been a director of Rockwell since
1978. He served as Chairman of the Board and Chief Executive Officer of Rockwell
from February 1988 to February 1998 after serving nine years as President and
Chief Operating Officer. Mr. Beall joined Rockwell in 1968 and served in a
number of senior management positions prior to becoming Executive Vice President
in September 1977 and President in February 1979. Mr. Beall is also Chairman of
the Executive Committee of the Board of Directors of Rockwell. Mr. Beall is a
director of Amoco Corporation, Meritor Automotive, Inc., The Procter & Gamble
Company and The Times Mirror Company. He is a trustee of the California
Institute of Technology and a member of the Board of Overseers of the Hoover
Institution and the University of California -- Irvine as well as a member of
The Business Council and the Council on Competitiveness. He is also a director,
trustee or member of a number of other professional and civic organizations.
[Additional director(s) to come.]
56
<PAGE> 63
COMMITTEES OF THE BOARD OF DIRECTORS
The standing committees of the Board of Directors of the Company will
include an Audit Committee, a Compensation and Management Development Committee,
a Board Composition Committee and a Technology, Environmental and Social
Responsibility Committee, each of which will be comprised of non-employee
directors. The functions of each of these four committees are described below.
The Audit Committee will review the scope and effectiveness of audits of
the Company by the Company's independent public accountants and internal
auditors; select and recommend to the Board of Directors the employment of
independent public accountants for the Company, subject to approval of the
shareowners; review the audit plans of the Company's independent public
accountants and internal auditors; review and approve the fees charged by the
independent public accountants; review the Company's annual financial statements
before their release; review the adequacy of the Company's system of internal
controls and recommendations of the independent public accountants with respect
thereto; review and act on comments and suggestions by the independent public
accountants and by the internal auditors with respect to their audit activities;
and monitor compliance by the employees of the Company with the Company's
standards of business conduct policies.
The principal functions of the Compensation and Management Development
Committee (the "Compensation Committee") will be to evaluate the performance of
the Company's senior executives and plans for management succession and
development, to consider the design and competitiveness of the Company's
compensation plans, to review and approve senior executive compensation and to
administer the Company's incentive, deferred compensation, stock option and
long-term incentives plans pursuant to the terms of the respective plans. The
members of the Compensation Committee will be ineligible to participate in any
of the plans or programs which are administered by the Committee except the
Directors Plan (as defined below).
The principal functions of the Board Composition Committee will be to
consider and recommend to the Board qualified candidates for election as
directors of the Company and periodically to prepare and submit to the Board for
adoption the Committee's selection criteria for director nominees. The Committee
will also periodically assess the performance of the Board of Directors and
report thereon to the Board. Shareowners of the Company may recommend candidates
for consideration by the Committee by writing to the Secretary of the Company
within certain specified time periods, giving the candidate's name, biographical
data and qualifications. See "Description of Company Capital Stock -- Certain
Provisions in the Company Certificate and Company By-Laws". Any such
recommendation should be accompanied by a written statement from the individual
of his or her consent to be named as a candidate and, if nominated and elected,
to serve as a director.
The Technology, Environmental and Social Responsibility Committee will
review and monitor science and technological activities of the Company and will
review and assess the Company's policies and practices in the following areas:
employee relations, with emphasis on equal employment opportunity and
advancement; the protection and enhancement of the environment and energy
resources; product integrity and safety; employee health and safety; and
community and civic relations including programs for and contributions to
health, educational, cultural and other social institutions.
COMPENSATION OF DIRECTORS
Non-employee directors of the Company will receive a retainer at the rate
of $[ ] per year for Board service. Pursuant to the Directors Plan, each
non-employee director will be granted an option to purchase, at the closing
price of the Company Common Stock on Nasdaq on the date of grant, [ ] shares of
Company Common Stock effective upon election as a director (or for the initial
directors, in the first calendar quarter of 1999), in each case, subject to
approval of the Directors Plan at the 1999 Annual Meeting of Shareowners of the
Company. Following completion of one year of service on the Board, each
non-employee director will thereafter be granted an option for [ ] shares of
Company Common Stock immediately after each Annual Meeting of Shareowners of the
Company. Under the terms of the Company's directors' deferred compensation plan,
a director may elect to defer all or part of the cash payment of retainer fees
until such time as shall be specified, with interest on deferred amounts
accruing quarterly at 120% of the Federal long-term
57
<PAGE> 64
rate set each month by the Secretary of the Treasury. Each director shall also
have the option each year to determine whether to defer all or any portion of
the cash retainers by electing to receive restricted shares valued at the
closing price of the Company Common Stock on Nasdaq on the date each retainer
payment would otherwise be made in cash. See "-- Benefit Plans Following the
Distribution -- Directors Stock Plan".
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below are the name, age, position and office to be held with the
Company, principal occupations and employment during the past five years, and
education of those individuals who are expected to serve as executive officers
of the Company immediately following the Distribution. Those individuals named
below who are currently officers or employees of Rockwell will resign from all
such positions prior to the Distribution. Executive officers of the Company will
be elected to serve until they resign or are removed, or are otherwise
disqualified to serve, or until their successors are elected and qualified.
<TABLE>
<CAPTION>
NAME, OFFICE AND POSITION, PRINCIPAL OCCUPATIONS AND EMPLOYMENT, AND EDUCATION AGE
- ------------------------------------------------------------------------------ -----
<S> <C>
DWIGHT W. DECKER -- Chairman of the Board and Chief Executive Officer. Senior
Vice President of Rockwell and President, Rockwell Semiconductor Systems
since July 1998; Senior Vice President of Rockwell and President, Rockwell
Semiconductor Systems and Electronic Commerce from March 1997 to July 1998;
President, Rockwell Semiconductor Systems from October 1995 to March 1997;
President, Telecommunications of Rockwell from June 1995 to October 1995;
Vice President/General Manager, Digital Communications Division of
Rockwell's Telecommunications Division prior thereto. Mr. Decker received a
Ph.D. in applied mathematics from the California Institute of Technology and
a B.Sc. in mathematics and physics from McGill University.......... 48
MOIZ M. BEGUWALA -- Senior Vice President and General Manager -- Personal
Computing. Vice President and General Manager -- Personal Computing Division
of Rockwell Semiconductor Systems since January 1998; Vice President,
Worldwide Sales of Rockwell Semiconductor Systems from October 1995 to
January 1998; Vice President, Worldwide Sales of Rockwell's
Telecommunications Division from September 1995 to October 1995; Division
Director, Worldwide Sales, Digital Communications Division of Rockwell's
Telecommunications Division prior thereto. Mr. Beguwala received an M.B.A.
and a B.S. in engineering from the University of California -- Los Angeles
and a M.S. and Ph.D. in electrical engineering from the University of
Southern California ............................................... 52
ANTHONY C. D'AUGUSTINE -- Senior Vice President and General Manager -- Digital
Infotainment. Vice President and General Manager -- Digital Infotainment
Division of Rockwell Semiconductor Systems since April 1997; Vice
President -- Graphic/Imaging Sub-Business Unit of Rockwell Semiconductor
Systems' Brooktree subsidiary from October 1996 to April 1997; Vice
President -- Graphic/Imaging Sub-Business Unit of Brooktree Corporation
(graphics and multimedia semiconductor supplier) prior thereto. Mr.
D'Augustine received a M.B.A. from Rutgers University and B.S.E.E. in
electrical engineering from Drexel University ..................... 54
RAOUF Y. HALIM -- Senior Vice President and General Manager -- Network Access.
Vice President and General Manager -- Network Access Division of Rockwell
Semiconductor Systems since February 1997; Vice President -- VLSI
Engineering of Rockwell Semiconductor Systems from October 1995 to February
1997; Vice President -- VLSI Engineering of Rockwell's Telecommunications
Division from September 1995 to October 1995; Division Director, VLSI
Engineering, Digital Communications Division of Rockwell's
Telecommunications Division prior thereto. Mr. Halim received a M.S.E.E. in
electrical engineering from the Georgia Institute of Technology and a B.Sc.
in electrical engineering from Alexandria University .............. 38
</TABLE>
58
<PAGE> 65
<TABLE>
<CAPTION>
NAME, OFFICE AND POSITION, PRINCIPAL OCCUPATIONS AND EMPLOYMENT, AND EDUCATION AGE
- ------------------------------------------------------------------------------ -----
<S> <C>
VIJAY C. PARIKH -- Senior Vice President and General Manager -- Wireless
Communications. Vice President and General Manager -- Wireless
Communications Division of Rockwell Semiconductor Systems since January
1998; Vice President and General Manager -- Multimedia Communications
Division & Wireless Communications Division of Rockwell Semiconductor
Systems from April 1997 to January 1998; Vice President and General
Manager -- Wireless Communications of Rockwell Semiconductor Systems from
October 1995 to April 1997; Business Director -- Wireless Systems, Digital
Communications Division of Rockwell's Telecommunications Division prior
thereto. Mr. Parikh received a M.B.A. from the University of Michigan and a
B.S.E.E. in electronics from the Birla Institute of Technology and
Sciences .......................................................... 40
KEVIN V. STRONG -- Senior Vice President and General Manager -- Personal
Imaging. Vice President and General Manager -- Personal Imaging Division of
Rockwell Semiconductor Systems since September 1998; Division Director,
Digital Communications Products, Personal Computing Division of Rockwell
Semiconductor Systems from June 1998 to September 1998; Division Director,
Technology Planning, Personal Computing Division of Rockwell Semiconductor
Systems from June 1997 to June 1998; Business Director, Personal Computing
Products, Multimedia Communications Division of Rockwell Semiconductor
Systems from August 1996 to June 1997; Director Technology Planning -- Media
Processing, Multimedia Communications Division of Rockwell Semiconductor
Systems from January 1996 to August 1996; Manager -- Business Development,
Multimedia Communications Division of Rockwell Semiconductor Systems prior
thereto. Mr. Strong received a B.S. in electronic engineering from
Southampton University ............................................ 38
</TABLE>
HISTORICAL COMPENSATION OF EXECUTIVE OFFICERS
There is shown below information concerning the annual and long-term
compensation for services rendered in all capacities to Rockwell and its
subsidiaries for the fiscal years ended September 30, 1996, 1997 and 1998 of the
individual who will serve as chief executive officer of the Company and for the
fiscal year ended September 30, 1998 for the other four most highly compensated
executive officers of the Company, in each case, based on their employment by
Rockwell or an affiliate of Rockwell at September 30, 1998 (the "Named Executive
Officers"). The compensation described in this table was paid by Rockwell or an
affiliate of Rockwell. References to "stock options" relate to awards of options
under the Rockwell 1995 LTIP. The services rendered to Rockwell were, in some
cases, in capacities not equivalent to those to be provided to the Company and
this table does not reflect the compensation to be paid to executive officers of
the Company in the future.
59
<PAGE> 66
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ALL OTHER
ANNUAL COMPENSATION LONG-TERM COMPENSATION COMPENSATION(3)
-------------------------------- ----------------------- ---------------
AWARDS PAYOUTS
----------- ---------
OTHER STOCK LONG-TERM
NAME AND ANNUAL OPTIONS INCENTIVE
PRINCIPAL POSITION(2) YEAR SALARY BONUS COMPENSATION (SHARES)(4) PAYOUTS
- --------------------- ---- ------- ------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Dwight W. Decker........... 1998
Chairman of the Board and 1997 (5)
Chief Executive Officer 1996
Moiz M. Beguwala........... 1998
Senior Vice President and
General Manager --
Personal Computing
Anthony C. D'Augustine..... 1998
Senior Vice President and
General
Manager -- Digital
Infotainment Division
Raouf Y. Halim............. 1998
Senior Vice President and
General Manager --
Network Access Division
Vijay C. Parikh............ 1998
Senior Vice President and
General Manager --
Wireless Communications
</TABLE>
- ---------------
(1) In accordance with the executive compensation disclosure rules adopted by
the Commission, the compensation of the Named Executive Officers, other than
Mr. Decker, is not shown for fiscal 1996 and 1997 because the Company was
not a reporting company under the Exchange Act for such years and such
compensation information has not been provided in a prior filing with the
Commission.
(2) The positions reflected in the table are the positions to be held by the
Named Executive Officers with the Company at the time of the Distribution
and were not the positions held by the Named Executive Officers with
Rockwell during the period or periods covered by the table.
(3) Amounts contributed or accrued for the Named Executive Officers under the
Rockwell Savings Plan and the related supplemental savings plan.
(4) Shares reflect anti-dilution adjustments made December 6, 1996 and September
30, 1997 to preserve the intrinsic value of options following the
reorganization of Rockwell in connection with the divestiture of its
Aerospace and Defense businesses and the pro-rata distribution of shares of
Meritor Automotive, Inc., respectively.
(5) Long-term incentive payments to Mr. Decker for the three-year performance
period ended September 30, 1997 were paid in part by delivery of 8,205
shares of restricted Rockwell Common Stock, valued at the closing price on
the New York Stock Exchange -- Composite Transactions on November 28, 1997,
the date specified for that purpose in the Rockwell 1995 LTIP ($48.75).
Effective January 1, 1999, the annual salaries of Messrs. Decker, Beguwala,
D'Augustine, Halim and Parikh are expected to be $[ ], $[ ], $[ ], $[ ] and
$[ ], respectively. It is anticipated that options for shares of Company Common
Stock will be granted to employees of the Company, including the Named Executive
Officers, in the first calendar quarter of 1999, subject to approval of the
Company's 1999 Long-Term Incentives Plan at the 1999 Annual Meeting of
Shareowners of the Company.
60
<PAGE> 67
OPTION GRANTS
Shown below is further information on grants to the Named Executive
Officers of stock options pursuant to the Rockwell 1995 LTIP during the fiscal
year ended September 30, 1998, which are reflected in the Summary Compensation
Table above.
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
- ------------------------------------------------------------------------------------------------ ----------------
PERCENTAGE
OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO
UNDERLYING ROCKWELL EXERCISE OR GRANT DATE
OPTIONS GRANTED EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME (SHARES)(1) FISCAL 1998 (PER SHARE) DATE VALUE(2)
- ---- --------------- ------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Dwight W. Decker.......... 30,000 [ ]% $41.125 12/3/2007 $ [ ]
Moiz M. Beguwala.......... 20,000 [ ]% $55.8125 4/23/2008 $ [ ]
Anthony C. D'Augustine.... -- -- -- -- --
Raouf Y. Halim............ -- -- -- -- --
Vijay C. Parikh........... -- -- -- -- --
</TABLE>
- ---------------
(1) All options granted to Mr. Decker were granted on December 3, 1997 and the
first of three substantially equal installments will become exercisable
December 3, 1998. All options granted to Mr. Beguwala were granted on April
23, 1998 and will become exercisable April 23, 2001.
(2) These values are based on the Black-Scholes option pricing model which
produces a per option share value of $[ ] using the following assumptions
and inputs: options exercised after 7 1/2 years, weighted five-year prior
stock price volatility and dividend yield of [ ] and [ ]%, respectively,
and an interest rate of [ ]%, which was the zero coupon 7 1/2-year Treasury
bond rate at date of grant. The actual value, if any, the executive officer
may realize from these options will depend solely on the gain in stock value
over the exercise price when the options are exercised.
The Black-Scholes option pricing methodology, on which the present value of
the stock options granted to the Named Executive Officers is based, attempts to
portray the value of an option at the date of grant. While the options have no
value if the stock price does not increase, were the $[ ] present value of the
options converted into a future stock price at the end of the 7 1/2-year period
when it is assumed the options would be exercised, the shareowners of the
approximately [ ] million shares of Rockwell Common Stock outstanding on the
grant date of those options (assuming that number of shares remains outstanding)
would realize aggregate appreciation of $[ ] million compared to aggregate
appreciation on the options of approximately $[ ] million for the Named
Executive Officers (assuming that they held their options or the shares acquired
on exercise thereof for the whole 7 1/2-year period).
As set forth in the Employee Matters Agreement, Rockwell Options held by
employees of Semiconductor Systems at the time of the Distribution will be
converted into Company Options, having the same terms and vesting schedule as
the original Rockwell Options, but with adjustments in order to provide
equivalent value to each optionholder. Rockwell Options held by other than
employees of Semiconductor Systems at the time of the Distribution, other than
those granted prior to January 1, 1990 or after September 1, 1998, will be
adjusted so that following the Distribution, each holder will hold options to
purchase shares of Rockwell Common Stock and Company Common Stock with
adjustments in order to provide equivalent value to each optionholder after
giving effect to the Distribution. Rockwell Options held by persons other than
those who will be employed by Semiconductor Systems at the time of the
Distribution that were granted prior to January 1, 1990 or after September 1,
1998 will continue as Rockwell Options with adjustments in order to provide
equivalent value to each optionholder after giving effect to the Distribution.
See "Arrangements Between Rockwell and the Company -- Employee Matters
Agreement".
61
<PAGE> 68
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END VALUES
Shown below is information with respect to (i) exercises by the Named
Executive Officers during fiscal 1998 of options to purchase Rockwell Common
Stock granted under the Rockwell Option Plans and (ii) the unexercised options
to purchase Rockwell Common Stock granted to the Named Executive Officers in
fiscal 1998 and prior years under the Rockwell Option Plans and held by them at
September 30, 1998.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES SEPTEMBER 30, 1998 SEPTEMBER 30, 1998(1)(2)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dwight W. Decker........
Moiz M. Beguwala........
Anthony C.
D'Augustine...........
Raouf Y. Halim..........
Vijay C. Parikh.........
</TABLE>
- ---------------
(1) The number of shares and exercise prices of the options reflect
anti-dilution adjustments made December 6, 1996 and September 30, 1997 to
preserve the intrinsic value of the options following the acquisition by The
Boeing Company of the Aerospace and Defense businesses of Rockwell and
Rockwell's pro rata distribution of shares of Meritor Automotive, Inc.,
respectively.
(2) Based on the closing price of Rockwell Common Stock on the NYSE Composite
Transactions reporting system on September 30, 1998, the last trading day in
that month ($[ ]).
LONG-TERM INCENTIVE PLAN AWARDS
The following table shows for each Named Executive Officer the specified
information with respect to awards (other than stock options included in the
Summary Compensation Table above) during fiscal 1998 under the Rockwell
Semiconductor Systems business unit long-term incentive plans of Rockwell.
<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUT
NUMBER OF SHARES, OTHER PERIOD UNDER NON-STOCK PRICE-BASED PLANS(2)
UNITS OR OTHER UNTIL MATURATION ------------------------------------
NAME RIGHTS(1) OR PAYOUT THRESHOLD TARGET(3) MAXIMUM(3)
- ---- ----------------- ---------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Dwight W. Decker........
Moiz M. Beguwala........
Anthony C.
D'Augustine...........
Raouf Y. Halim..........
Vijay C. Parikh.........
</TABLE>
- ---------------
(1) Potential awards granted under the long-term incentive plans of Rockwell are
described in terms of target performance payouts expressed in cash amounts.
(2) A payout percentage of between 0% and 300%, based on actual performance over
the three-year performance period, as measured by sales growth, return on
average net assets (after tax) and return on sales (after tax), is applied
to the target performance payout amount.
(3) Does not include application of a stock price multiplier based on the
percentage change of the price of Rockwell Common Stock over the three-year
performance period, which can increase or decrease the final payout amount
actually paid.
All Rockwell long-term incentive plan awards granted to Semiconductor
Systems employees as of the time of the Distribution will have been paid or
terminated on or prior to the Distribution Date. Such long-term incentive plan
awards are based in part on achieving goals measured by sales growth, return on
sales and return on assets of Semiconductor Systems, and performance of Rockwell
Common Stock, for 3-year performance cycles ending on each of September 30,
1998, September 30, 1999 and September 30, 2000. It is anticipated that [ ] in
respect of grants made for the 3-year performance cycle ending September 30,
1998 based on performance for the fiscal years ended September 30, 1996, 1997
and 1998. Grants made in respect of the 3-
62
<PAGE> 69
year performance cycles ending September 30, 1999 and September 30, 2000 will be
terminated without payment as of the Distribution Date.
RETIREMENT BENEFITS
All of the Named Executive Officers participate in Rockwell's defined
benefit pension plan which qualifies under Section 401(a) of the Code. Pursuant
to the Employee Matters Agreement, the Named Executive Officers will have a
fully non-forfeitable right in their benefits under the pension plan accrued as
of the time of the Distribution. See "Arrangements Between Rockwell and the
Company -- Employee Matters Agreement". The Company does not expect to adopt a
defined benefit pension plan.
The following table shows the estimated aggregate annual retirement
benefits payable on a straight life annuity basis to participating employees in
the earnings and years of service classifications indicated, under the Rockwell
retirement plans which cover most officers and other salaried employees of the
Company on a noncontributory basis. Such benefits reflect termination of benefit
accrual on December 31, 1998 and a reduction to recognize in part the cost of
Social Security benefits related to service for Rockwell. The plans also provide
for the payment of benefits to an employee's surviving spouse or other
beneficiary.
<TABLE>
<CAPTION>
AVERAGE ESTIMATED ANNUAL RETIREMENT BENEFITS FOR YEARS OF SERVICE INDICATED
ANNUAL ----------------------------------------------------------------------
EARNINGS 10 YEARS 15 YEARS 20 YEARS 25 YEARS
- -------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
$200,000.................................. $ 51,924 $ 77,874 $ 82,485 $ 87,096
400,000.................................. 105,264 157,874 167,485 177,096
600,000.................................. 158,604 237,874 252,485 267,096
800,000.................................. 211,944 317,874 337,485 357,096
</TABLE>
Covered compensation includes salary and annual bonus. The calculation of
retirement benefits under the plans generally is based upon average earnings for
the highest five consecutive years of the ten years preceding retirement.
The credited years of service of Messrs. Decker, Beguwala, D'Augustine,
Halim and Parikh are 10, 25, 2, 7 and 16 years, respectively.
Sections 401(a)(17) and 415 of the Code limit the annual benefits which may
be paid from a tax-qualified retirement plan. As permitted by the Employee
Retirement Income Security Act of 1974, Rockwell has established supplemental
plans which authorize the payment out of its general funds of any benefits
calculated under provisions of the applicable retirement plan which may be above
the limits under these sections. Pursuant to the Employee Matters Agreement,
Rockwell will retain liabilities accrued as of the Distribution Date with
respect to Company Participants under such supplemental plans of Rockwell.
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<PAGE> 70
BENEFIT PLANS FOLLOWING THE DISTRIBUTION
The following are descriptions of certain benefit plans that are expected
to provide benefits to employees and directors of the Company after the
Distribution.
1999 LONG-TERM INCENTIVES PLAN
The Company's 1999 Long-Term Incentives Plan (the "1999 LTIP") will be
adopted by the Company's Board of Directors and approved by Rockwell as the
Company's sole shareowner. The 1999 LTIP will also be submitted to the Company's
shareowners for approval at the 1999 Annual Meeting of Shareowners of the
Company, although failure to obtain such approval will not affect Company
Options issued in replacement of or to effectuate adjustments to Rockwell
Options in connection with the Distribution. The 1999 LTIP permits grants to be
made from time to time as nonqualified stock options, incentive stock options
and restricted stock.
Administration. The 1999 LTIP will be administered by the Compensation
Committee, consisting of two or more members of the Company's Board of Directors
who are not eligible to participate in the 1999 LTIP. In order to meet the
requirements of Section 162(m) of the Code and the rules under Section 16 of the
Exchange Act, however, all grants under the 1999 LTIP will be made by a Grant
Committee consisting of those members of the Compensation Committee who are both
"outside directors" as defined for purposes of Section 162(m) of the Code and
regulations thereunder and "nonemployee directors" as defined for purposes of
Section 16 of the Exchange Act. In addition, the Company's Board of Directors
has authority to perform all functions of the Compensation Committee and the
Grant Committee under the 1999 LTIP.
Participation. The persons to whom grants are made under the 1999 LTIP
("1999 LTIP Participants") will be selected from time to time by the Grant
Committee in its sole discretion from among employees of the Company and its
subsidiaries and affiliates. In selecting 1999 LTIP Participants and determining
the type and amount of their grants, the Grant Committee may consider
recommendations of the Chief Executive Officer of the Company and shall take
into account such factors as the 1999 LTIP Participant's level of
responsibility, performance, performance potential, level and type of
compensation and potential value of grants under the 1999 LTIP.
Shares Subject to 1999 LTIP. The 1999 LTIP authorizes the issuance or
transfer of an aggregate of [ ] million shares of Company Common Stock.
Stock Options and Restricted Stock. The 1999 LTIP authorizes grants to
1999 LTIP Participants of stock options, which may be either incentive stock
options eligible for special tax treatment or nonqualified stock options, and
restricted stock.
Under the provisions of the 1999 LTIP authorizing the grant of stock
options, (a) the option price may not be less than the fair market value of the
shares of Company Common Stock at the date of grant, (b) the aggregate fair
market value (determined as of the date the option is granted) of the shares of
Company Common Stock for which any employee may be granted incentive stock
options which are exercisable for the first time in any calendar year may not
exceed $100,000, (c) stock options generally may not be exercised prior to one
year nor after ten years from the date of grant and generally become exercisable
in four approximately equal installments on the first, second, third and fourth
anniversaries of the date of grant, and (d) at the time of exercise of a stock
option the option price must be paid in full in cash or in shares of Company
Common Stock or in a combination of cash and shares of Company Common Stock. If
a 1999 LTIP Participant who holds an outstanding stock option dies, the 1999
LTIP permits the exercise thereof within three years of the date of death (or
the expiration date specified in the option if earlier) even if it were not
exercisable at such date. If a 1999 LTIP Participant holding an outstanding
grant of options retires under a retirement plan of the Company at any time
after a portion of the options subject to a particular grant has become
exercisable, the options subject to that grant may be exercised from and after
the date upon which they are first exercisable under that grant for five years
after the date of retirement (or the expiration date specified in the grant if
earlier), even if any of them was not exercisable at the date of retirement. The
1999 LTIP permits the Compensation Committee to make determinations as to
exercisability upon other termination of a 1999 LTIP Participant's employment,
subject to certain limitations.
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Under the 1999 LTIP, the Grant Committee may also grant shares of Company
Common Stock subject to specified restrictions ("restricted stock") to 1999 LTIP
Participants. Grants of restricted stock are subject to forfeiture if the
grantee does not continue as an employee of the Company or a subsidiary or
affiliate (i) for a period of two years or longer, as may be specified by the
Grant Committee, from the grant date, or (ii) until performance criteria
specified by the Grant Committee are met, except that in the event of a
grantee's death, or retirement under a retirement plan of the Company not less
than one year after the date of grant, before the end of the restricted period,
the grantee's heirs or the grantee will be entitled to the shares of Company
Common Stock. In the case of a grantee whose employment terminates for any other
reason before the end of the restricted period, the Compensation Committee,
taking into account the purpose of the 1999 LTIP and such other factors as in
its sole discretion it deems appropriate, may waive the forfeiture of all or a
portion of those shares of restricted stock granted. During the restricted
period, shares of restricted stock have all the attributes of outstanding shares
of Company Common Stock, except that such shares of Company Common Stock and
(unless the Grant Committee determines otherwise at the time of grant) dividends
thereon are delivered to and held by the Company for the grantee's account. As
and to the extent that shares of restricted stock are no longer subject to
forfeiture, such shares and any dividends related thereto withheld by the
Company, together with interest on any such cash dividends computed at the same
rate and in the same manner as interest credited from time to time under the
Company's deferred compensation plan, are delivered to the grantee.
Under the 1999 LTIP, stock options and restricted stock may not be granted
after [ ], 2009.
Initial Grants. It is anticipated that options to purchase approximately
[ ] shares of Company Common Stock will be granted to employees of the
Company, including the Named Executive Officers, in the first calendar quarter
of 1999, subject to approval of the 1999 LTIP at the 1999 Annual Meeting of
Shareowners of the Company. It is also expected that options to purchase
approximately [ ] shares of Company Common Stock will be issued to certain
holders of Rockwell Options in replacement of or to effectuate adjustments to
Rockwell Options in connection with the Distribution, including options for
approximately [ ] shares to be issued to the Named Executive Officers. See
"Arrangements Between Rockwell and the Company -- Employee Matters Agreement".
Tax Matters. The following is a brief summary of the material Federal
income tax consequences of benefits under the 1999 LTIP under present law and
regulations:
(a) Incentive Stock Options. The grant of an incentive stock option
will not result in any immediate tax consequences to the Company or the
optionee. An optionee will not realize taxable income, and the Company will
not be entitled to any deduction, upon the timely exercise of an incentive
stock option, but the excess of the fair market value of the shares of
Company Common Stock acquired over the option exercise price will be
includable in the optionee's "alternative minimum taxable income" for
purposes of the alternative minimum tax. If the optionee does not dispose
of the shares of Company Common Stock acquired within one year after their
receipt (and within two years after the option was granted), gain or loss
realized on the subsequent disposition of the shares of Company Common
Stock will be treated as long-term capital gain or loss. Capital losses of
individuals are deductible only against capital gains and a limited amount
of ordinary income. In the event of an earlier disposition, the optionee
will realize ordinary income in an amount equal to the lesser of (i) the
excess of the fair market value of the shares of Company Common Stock on
the date of exercise over the option exercise price or (ii) if the
disposition is a taxable sale or exchange, the amount of any gain realized.
Upon such a disqualifying disposition, the Company will be entitled to a
deduction in the same amount and at the same time as the optionee realizes
such ordinary income.
(b) Nonqualified Stock Options. The grant of a nonqualified stock
option will not result in any immediate tax consequences to the Company or
the optionee. Upon the exercise of a nonqualified stock option, the
optionee will realize ordinary income, and the Company will be entitled to
a deduction, equal to the difference between the option exercise price and
the fair market value of the shares of Company Common Stock acquired at the
time of exercise.
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(c) Restricted Stock. An employee normally will not realize taxable
income in connection with an award of restricted stock, and the Company
will not be entitled to a deduction, until the termination of the
restrictions. Upon such termination, the employee will realize ordinary
income in an amount equal to the fair market value of the shares of Company
Common Stock at that time, plus the amount of the dividends and interest
thereon to which the employee then becomes entitled. However, an employee
may elect to realize taxable ordinary income in the year the restricted
stock is awarded in an amount equal to its fair market value at that time,
determined without regard to the restrictions. The Company will be entitled
to a deduction in the same amount and at the same time as the employee
realizes income.
Change of Control Benefits. In order to maintain the rights of 1999 LTIP
Participants in the event of a change of control of the Company, the 1999 LTIP
provides that upon the occurrence of such a change, all outstanding stock
options shall become fully exercisable whether or not otherwise then
exercisable, and the restrictions on all shares of Company Common Stock granted
as restricted stock would lapse. A change of control is deemed to occur under
the same circumstances as provided in Article III, Section 13(I) of the Company
By-Laws. This section of the Company By-Laws defines "change of control" as any
of the following occurring at any time after the Distribution: (a)the
acquisition by any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of either (i) the then outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this clause (a), the following
acquisitions shall not constitute a Change of Control: (w) any acquisition
directly from the Company, (x) any acquisition by the Company, (y) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or Rockwell or by any corporation controlled by the
Company or Rockwell or (z) any acquisition pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of clause (c) of this definition; or
(b) individuals who, as of the date of the Distribution, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board of Directors; provided, however, that any individual
becoming a director subsequent to that date whose election, or nomination for
election by the Company's shareowners, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board of Directors; or (c) consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company or the acquisition of assets of another entity (a
"Corporate Transaction"), in each case, unless, following such Corporate
Transaction, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Corporate Transaction beneficially own, directly or indirectly, more than 60%
of, respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case may be, (ii)
no Person (excluding any employee benefit plan (or related trust) of the
Company, of Rockwell or of such corporation resulting from such Corporate
Transaction) beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such Corporate Transaction or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Corporate Transaction and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Corporate Transaction were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board of
Directors, providing for such Corporate
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<PAGE> 73
Transaction; or (d) approval by the Company's shareowners of a complete
liquidation or dissolution of the Company.
Amendment, Suspension or Termination of 1999 LTIP. The Compensation
Committee may at any time amend, suspend or terminate the 1999 LTIP or grants
made thereunder. In the event any change in or affecting shares of Company
Common Stock occurs, the Company's Board of Directors may make appropriate
amendments to or adjustments in the 1999 LTIP or grants made thereunder,
including changes in the number of shares of Company Common Stock which may be
issued or transferred under the 1999 LTIP and the number of shares of Company
Common Stock and price per share of Company Common Stock subject to outstanding
options. The Company's Board of Directors and the Compensation Committee may
not, however (except in making amendments and adjustments in the event of
changes in or affecting shares of Company Common Stock) (i) without the consent
of the person affected, cancel or reduce any grant theretofore made other than
as provided for or contemplated in the agreement evidencing the grant or (ii)
without the approval of shareowners, change the class of persons eligible to
receive incentive stock options under the 1999 LTIP, increase the number of
shares of Company Common Stock that may be issued or transferred under the 1999
LTIP, reduce the option exercise price of any stock option below the fair market
value of the shares of Company Common Stock covered thereby at the date of grant
or decrease the forfeiture period for any restricted stock below that permitted
under the 1999 LTIP.
DIRECTORS STOCK PLAN
The Company's Directors Stock Plan (the "Directors Plan") will be adopted
by the Company's Board of Directors and approved by Rockwell as the Company's
sole shareowner. The Directors Plan will also be submitted to the Company's
shareowners for approval at the Company's 1999 Annual Meeting of Shareowners. An
aggregate of [ ] shares of Company Common Stock may be issued under the
Directors Plan, subject to appropriate adjustment in the event of any change in
or affecting shares of Company Common Stock, including but not limited to stock
dividends, stock splits and recapitalizations.
Participation. Participation in the Directors Plan will be limited to
directors who are not employees of the Company or any of its subsidiaries.
Restricted Shares. Directors may elect to receive their cash retainer for
Board service in the form of restricted shares of Company Common Stock.
Restricted shares, if elected, would be held by the Company until ten days after
the recipient retires from the Company's Board of Directors after reaching age
72 and having served at least three years as a director or ceases to be a
director by reason of the antitrust laws, compliance with the Company's conflict
of interest policies, death, disability or other circumstances the Company's
Board of Directors determines not to be adverse to the best interests of the
Company. Restricted shares would have all the attributes of outstanding shares
including the right to vote and to receive dividends thereon.
Stock Options. Under the Directors Plan grants of options to purchase
[ ] shares of Company Common Stock will be made to each non-employee
director effective upon election as a director (or for the initial directors, in
the first calendar quarter of 1999), in each case, subject to approval of the
Directors Plan at the 1999 Annual Meeting of Shareowners of the Company.
Following completion of one year of service on the Board by a non-employee
director, grants of options to purchase [ ] shares of Company Common
Stock will thereafter be made annually to such non-employee director immediately
following each Annual Meeting of Shareowners. The purchase price of the shares
subject to the option will be one hundred percent (100%) of the fair market
value on the date an option is granted. Upon exercise of an option, the option
price must be paid in full in cash, shares of Company Common Stock valued at
their fair market value on the date of exercise, or a combination of both.
Options granted under the Directors Plan may not be exercised prior to one
year nor after ten years from the date of grant and become exercisable in four
approximately equal installments on the first, second, third and fourth
anniversaries of the date of grant. If an optionee who holds an outstanding
stock option dies, the Directors Plan permits the exercise of such option within
three years of the date of death (or until the expiration date specified in the
option, if earlier), even if it were not exercisable at such date. If an
optionee
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<PAGE> 74
who holds an outstanding stock option retires from the Company's Board of
Directors after reaching age 72 and having served at least three years as a
director, all options then held will be exercisable even if they were not
exercisable at such retirement date, provided that such options shall expire at
the earlier of five years from the date of retirement or the expiration date
specified in the options. The Directors Plan permits the Compensation Committee
to make determinations as to exercisability upon other termination of an
optionee's membership on the Company's Board of Directors.
Administration and Amendment. The Directors Plan will be administered by
the Compensation Committee. The Company's Board of Directors may amend the
Directors Plan in any respect, provided that no amendment may be made without
shareowner approval that would materially (i) increase the maximum number of
shares of Company Common Stock available for delivery under the Directors Plan
(other than adjustments to reflect changes in or affecting shares of Company
Common Stock), (ii) increase the benefits accruing to participants under the
Directors Plan, or (iii) modify the requirements as to eligibility for
participation in the Directors Plan. The Company's Board of Directors also has
authority to terminate the Directors Plan at any time.
Change of Control Benefits. In order to maintain the rights of
participants in the Directors Plan in the event of a change of control of the
Company, the Directors Plan provides that upon the occurrence of such a change,
all outstanding stock options shall become fully exercisable whether or not then
exercisable and the restrictions on all restricted shares shall lapse. The
Directors Plan further provides that unexpired options held by a director who
resigns or is removed as a director in connection with a change of control of
the Company shall not become void. A change of control is deemed to occur under
the same circumstances as provided in Article III, Section 13(I) of the Company
By-Laws. See "-- 1999 Long-Term Incentives Plan".
Tax Matters. The material Federal income tax consequences of the issuance
or transfer of restricted shares awarded in lieu of cash retainers is that the
value thereof is not taxable to the recipient, and the Company will not be
entitled to its deduction, until the restriction lapses (at the value of the
shares on the date the restriction lapses).
The material Federal income tax consequences of the grant of options under
the Directors Plan are that upon the exercise of an option, the optionee
realizes ordinary income, and the Company is entitled to a deduction, equal to
the difference between the option exercise price and the fair market value of
the shares acquired at the time of exercise.
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OWNERSHIP OF COMPANY COMMON STOCK
The following table sets forth the number of shares of Company Common Stock
expected to be beneficially owned following the Distribution, directly or
indirectly, by each director, each Named Executive Officer and such persons and
other executive officers, as a group, based upon the beneficial ownership of
such persons of Rockwell Common Stock reported to Rockwell as of
[ ], 1998, including shares as to which a right to acquire
ownership exists (for example, through the exercise of stock options,
conversions of securities or through various trust arrangements) within the
meaning of Rule 13d-3(d)(1) under the Exchange Act.
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------
NAME SHARES(1) PERCENT OF CLASS (2)
- ---- --------- --------------------
<S> <C> <C>
Donald R. Beall.............................................
Dwight W. Decker............................................
Moiz M. Beguwala............................................
Anthony C. D'Augustine......................................
Raouf Y. Halim..............................................
Vijay C. Parikh.............................................
Kevin V. Strong.............................................
[Other directors and executive officers]....................
All of the above and other executive officers as a group ([]
persons)..................................................
</TABLE>
- ---------------
(1) Each person has sole voting and investment power with respect to the shares
listed unless otherwise indicated.
(2) The shares owned by each person, and by the group, and the shares included
in the number of shares outstanding have been adjusted, and the percentage
of shares owned (where such percentage exceeds 0.1%) has been computed, in
accordance with Rule 13d-3(d)(1) under the Exchange Act.
(3) Includes shares expected to be beneficially owned in respect of shares of
Rockwell Common Stock held under Rockwell's savings plans as of [ ],
1998. Does not include [ ], [ ] and [ ] share equivalents for
Messrs. Beall, Decker and the group, respectively, held under Rockwell's
supplemental savings plans.
(4) Includes shares, as to which beneficial ownership is disclaimed, as follows:
[ ] shares expected to be held for the benefit of family members and
[ ] shares expected to be owned by the Beall Family Foundation, of which
Mr. Beall is President and a director.
(5) Includes shares which may be acquired upon the exercise of outstanding stock
options within 60 days as follows:[ ], [ ] and [ ] for Messrs.
Beall, Decker and the group, respectively.
(6) Includes [ ] shares granted to Mr. Decker as restricted stock in partial
payment of long-term incentive payments earned for three-year performance
periods ended September 30, 1997.
(7) Includes shares held jointly, or in other capacities, as to which in some
cases beneficial ownership is disclaimed.
With the exception of Wells Fargo Bank, N.A., as trustee under the Rockwell
Savings Plan, which held approximately 19% of the outstanding shares of Rockwell
Common Stock as of [ ], 1998, there are no persons known to Rockwell who
are expected to be "beneficial owners" (as that term is defined in the rules of
the Commission) of more than 5% of any class of the Company's voting securities
outstanding as of the Distribution Date.
DESCRIPTION OF COMPANY CAPITAL STOCK
Immediately prior to the Distribution, the Company will be authorized to
issue (i) 500,000,000 shares of Company Common Stock, of which (based on the
number of shares of Rockwell Common Stock outstanding as of [ ],
1998) approximately [ ] million shares of Company Common Stock will be
issued to
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shareowners of Rockwell in the Distribution, and (ii) 25,000,000 shares of
Preferred Stock, without par value ("Company Preferred Stock"), of which
1,000,000 shares will be designated as Series A Junior Participating Preferred
Stock ("Company Junior Preferred Stock") for issuance in connection with the
exercise of the Company Rights. See "-- Company Rights Plan".
The discussion of the material terms of the Company's capital stock
contained herein is qualified by reference to the Company Certificate, which
will be in effect immediately prior to the Distribution, a copy of which has
been filed as an exhibit to the Registration Statement of which this Information
Statement is a part.
COMPANY COMMON STOCK
The Company Certificate (except as to the numbers of authorized shares of
capital stock) and the Company By-Laws will be substantially similar to the
Restated Certificate of Incorporation of Rockwell (the "Rockwell Certificate")
and the By-Laws of Rockwell (the "Rockwell By-Laws"), including provisions
establishing a classified Board of Directors, requiring shareowners to provide
advance notice of any shareowner nominations of directors or any proposal of new
business to be considered at any meeting of shareowners, requiring a
supermajority vote to remove a director or to amend or repeal certain provisions
of the Company Certificate or the Company By-Laws and precluding shareowners
from calling a special meeting of shareowners. See "-- Certain Provisions in the
Company Certificate and Company By-Laws".
Holders of Company Common Stock will be entitled to such dividends as may
be declared by the Board of Directors of the Company out of any funds of the
Company legally available therefor. Dividends may not be paid on Company Common
Stock unless all accrued dividends on Company Preferred Stock, if any, have been
paid or set aside. In the event of any liquidation, dissolution or winding up of
the Company, the holders of Company Common Stock will be entitled to share pro
rata in the assets remaining after payment to creditors and after payment of the
liquidation preference plus any unpaid dividends to holders of any outstanding
Company Preferred Stock. Each holder of Company Common Stock will be entitled to
one vote for each such share outstanding in such holder's name. No holder of
Company Common Stock will be entitled to cumulate such holder's votes in voting
for directors. The Company Certificate provides that, unless otherwise
determined by the Board of Directors of the Company, no holder of Company Common
Stock will, as such holder, have any right to purchase or subscribe for any
stock of any class which the Company may issue or sell.
Except as described below under "-- Certain Provisions in the Company
Certificate and Company By-Laws", the rights, privileges and preferences of
Company Common Stock will otherwise be substantially similar to the rights,
privileges and preferences of Rockwell Common Stock.
COMPANY PREFERRED STOCK
General
The Company Certificate authorizes the Board of Directors of the Company to
establish one or more series of Company Preferred Stock (of up to an aggregate
of 25,000,000 shares) and to determine, with respect to any series of Company
Preferred Stock, the terms and rights of such series, including (i) the
designation of the series, (ii) the number of shares of the series, which number
the Board of Directors of the Company may thereafter (except where otherwise
provided in the applicable certificate of designation) increase or decrease (but
not below the number of shares thereof then outstanding), (iii) whether
dividends, if any, will be cumulative or noncumulative, and, in the case of
shares of any series having cumulative dividend rights, the date or dates or
method of determining the date or dates from which dividends on the shares of
such series shall be cumulative, (iv) the rate of any dividends (or method of
determining such dividends) payable to the holders of the shares of such series,
any conditions upon which such dividends will be paid and the date or dates or
the method for determining the date or dates upon which such dividends will be
payable, (v) the redemption rights and price or prices, if any, for shares of
the series, (vi) the terms and amounts of any sinking fund provided for the
purchase or redemption of shares of the series, (vii) the amounts payable on and
the preferences, if any, of shares of the series in the event of any voluntary
or involuntary liquidation, dissolution or winding up of the affairs of the
Company, (viii) whether the shares of the series will be convertible or
exchangeable into shares of any other class or series, or any other security, of
the Company or any other
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corporation, and, if so, the specification of such other class or series or such
other security, the conversion or exchange price or prices or rate or rates, any
adjustments thereof, the date or dates as of which such shares will be
convertible or exchangeable and all other terms and conditions upon which such
conversion or exchange may be made, (ix) restrictions on the issuance of shares
of the same series or of any other class or series, (x) the voting rights, if
any, of the holders of the shares of the series and (xi) any other relative
rights, preferences and limitations of such series.
The Board of Directors of the Company believes that the ability of the
Board to issue one or more series of Company Preferred Stock will provide the
Company with flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs which might arise. The
authorized shares of Company Preferred Stock, as well as Company Common Stock,
will be available for issuance without further action by the Company's
shareowners, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. If the approval of the Company's shareowners
is not so required, the Board of Directors of the Company may determine not to
seek shareowner approval.
Although the Board of Directors of the Company has no intention at the
present time of doing so (other than as described below with respect to the
Company Junior Preferred Stock), it could issue a series of Company Preferred
Stock that could, depending on the terms of such series, impede the completion
of a merger, tender offer or other takeover attempt. The Board of Directors of
the Company will make any determination to issue such shares based on its
judgment as to the best interests of the Company and its shareowners. The Board
of Directors of the Company, in so acting, could issue Company Preferred Stock
having terms that could discourage an acquisition attempt through which an
acquirer may be able to change the composition of the Board of Directors of the
Company, including a tender offer or other transaction that some, or a majority,
of the Company's shareowners might believe to be in their best interests or in
which shareowners might receive a premium for their stock over the then current
market price of such stock.
Company Junior Preferred Stock
The summary of the material terms of the Company Junior Preferred Stock
contained herein is qualified by reference to the provisions of the Company
Certificate, a copy of which has been filed as an exhibit to the Registration
Statement of which this Information Statement is a part.
Prior to the Distribution, the Board of Directors of the Company will
authorize the issuance of up to 1,000,000 shares of Company Junior Preferred
Stock. The terms of the Company Junior Preferred Stock will be set forth in the
Company Certificate. The Company Junior Preferred Stock, when issued upon
exercise of the Company Rights, will be fully paid and nonassessable. See
"-- Company Rights Plan".
Ranking and Redemption. The Company Junior Preferred Stock will rank
junior to all series of any other class of Company Preferred Stock with respect
to payments of dividends and distribution of assets and will be non-redeemable.
Dividend Rights. Holders of Company Junior Preferred Stock will be
entitled to receive, when, as and if declared by the Board of Directors of the
Company out of funds legally available therefor, quarterly dividends equal to
the greater of (i) $1 or (ii) 100 times the amount of cash dividends and 100
times the amount (payable in kind) of non-cash dividends or other distributions
(other than stock dividends of Company Common Stock) declared per share of the
Company Common Stock. If the Company at any time declares or pays a stock
dividend payable in Company Common Stock, or effects a subdivision or
combination or consolidation of Company Common Stock, then the amount to which
holders of Company Junior Preferred Stock will be entitled under clause (ii) of
the previous sentence will be adjusted in accordance with the antidilution
provisions contained in the Company Certificate.
Dividends and distributions on the Company Junior Preferred Stock will be
declared immediately after the declaration of the dividend or distribution on
the Company Common Stock and will be payable quarterly on the second Monday of
March, June, September and December in each year (a "Dividend Payment Date"). In
the event that no dividend or distribution is declared on Company Common Stock,
then a dividend
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of $1 per share of Company Junior Preferred Stock will nevertheless be payable
on the next Dividend Payment Date. The Board of Directors of the Company may fix
a record date for the determination of the holders of Company Junior Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date may not be more than 60 days prior to the payment
date. Dividends on the Company Junior Preferred Stock will accrue and be
cumulative. Accrued and unpaid dividends will not bear interest.
If quarterly dividends or other dividends or distributions payable on the
Company Junior Preferred Stock are in arrears, until all accrued and unpaid
dividends and distributions on the Company Junior Preferred Stock are paid in
full, the Company may not (i) declare or pay any dividend or distribution with
respect to any stock ranking junior to the Company Junior Preferred Stock; (ii)
declare or pay any dividend or distribution with respect to any stock ranking on
a parity with the Company Junior Preferred Stock, other than pro rata
distributions made on the Company Junior Preferred Stock and all such parity
stock; (iii) redeem or purchase or otherwise acquire shares of Company Junior
Preferred Stock or any stock ranking junior to the Company Junior Preferred
Stock (provided that the Company may redeem or purchase or otherwise acquire
shares of any such junior stock in exchange for shares of any stock ranking
junior to the Company Junior Preferred Stock); and (iv) redeem or purchase or
otherwise acquire shares of any stock ranking on a parity with the Company
Junior Preferred Stock, except in accordance with a purchase offer made in
writing or publication to all holders of such shares upon such terms as the
Board of Directors, after consideration of the respective annual dividend rates
and other relative rights and preferences of the respective series and classes,
shall determine in good faith will result in fair and equitable treatment among
the respective series or classes.
Liquidation Preference. In the event of any liquidation, dissolution or
winding up of the Company, no distributions will be made with respect to (i) any
shares of stock ranking junior to the Company Junior Preferred Stock, unless
holders of shares of Company Junior Preferred Stock have received an amount per
share equal to $100 plus an amount per share equal to any dividends accrued but
unpaid thereon, without interest, provided that such holders will be entitled to
receive an amount per share equal to 100 times the amount to be distributed per
share to holders of Company Common Stock or (ii) any shares of stock ranking on
a parity with the Company Junior Preferred Stock, except for pro rata
distributions made on the Company Junior Preferred Stock and all such parity
stock. If the Company at any time declares or pays a stock dividend payable in
Company Common Stock, or effects a subdivision or combination or consolidation
of Company Common Stock, then the amount to which holders of Company Junior
Preferred Stock will be entitled will be adjusted in accordance with the
antidilution provisions contained in the Company Certificate.
Voting Rights. Each share of Company Junior Preferred Stock will be
entitled to 100 votes per share. If the Company at any time declares or pays a
stock dividend payable in Company Common Stock, or effects a subdivision or
combination or consolidation of Company Common Stock, then the number of votes
to which holders of Company Junior Preferred Stock will be entitled will be
adjusted in accordance with the antidilution provisions contained in the Company
Certificate. The Company Junior Preferred Stock shall vote together with the
Company Common Stock and any other capital stock of the Company having general
voting rights as one class on all matters submitted to a vote of shareowners of
the Company, except as otherwise provided in a certificate of designation for
any other class of Company Preferred Stock filed with the Secretary of State of
the State of Delaware or by law. Except as otherwise provided by law, the
Company Junior Preferred Stock will have no special voting rights, and except to
the extent the Company Junior Preferred Stock is entitled to vote with the
Company Common Stock, the consent of the Company Junior Preferred Stock will not
be required for taking any corporate action.
Rights Upon Consolidation, Merger or Combination. If the Company enters
into any consolidation, merger, combination or other transaction in which shares
of Company Common Stock are exchanged for or changed into other stock or
securities, cash and/or other property, then each share of Company Junior
Preferred Stock will at the same time be similarly exchanged or changed into an
amount per share equal to 100 times the aggregate amount of stock, securities,
cash and/or other property (payable in kind) into which or for which each share
of Company Common Stock is changed or exchanged. If the Company at any time
declares or pays a stock dividend payable in Company Common Stock, or effects a
subdivision or combination or consolidation of Company Common Stock, then the
amount to which holders of Company Junior Preferred
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Stock will be entitled with respect to such exchange or change will be adjusted
in accordance with the antidilution provisions contained in the Company
Certificate.
CERTAIN PROVISIONS IN THE COMPANY CERTIFICATE AND COMPANY BY-LAWS
Except as described below, the Company Certificate and the Company By-Laws
will be substantially similar to the Rockwell Certificate and the Rockwell
By-Laws. Accordingly, the Company Certificate and the Company By-Laws will
contain various provisions intended to (i) promote stability of the Company's
shareowner base and (ii) render more difficult certain unsolicited or hostile
attempts to take over the Company which could disrupt the Company, divert the
attention of the Company's directors, officers and employees and adversely
affect the independence and integrity of the Company's business. A summary of
the material terms of these provisions of the Company Certificate and the
Company By-Laws is set forth below.
Classified Board of Directors and Removal of Directors
Pursuant to the Company Certificate, the number of directors of the Company
will be fixed by the Board of Directors of the Company. The directors (other
than those elected by the holders of any series of Company Preferred Stock or
any other series or class of stock, other than Company Common Stock) will be
divided into three classes, each class to consist as nearly as possible of
one-third of the directors. Directors elected by shareowners at an Annual
Meeting of Shareowners will be elected by a plurality of all votes cast at such
annual meeting. Initially, the terms of office of the three classes of directors
will expire, respectively, at the Annual Meetings of Shareowners in 1999, 2000
and 2001. The term of the successors of each such class of directors expires
three years from the year of election.
The Company Certificate provides that except as otherwise provided for or
fixed by or pursuant to a certificate of designations setting forth the rights
of the holders of any class or series of Company Preferred Stock and unless the
Board of Directors of the Company otherwise determines, newly created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors of the Company resulting from death,
resignation, disqualification, removal or other cause will be filled by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors of the Company, and not by
the shareowners. Any director elected in accordance with the preceding sentence
will hold office for the remainder of the full term of the class of directors in
which the new directorship was created or the vacancy occurred and until such
director's successor shall have been duly elected and qualified. No decrease in
the number of directors constituting the Board of Directors of the Company will
shorten the term of any incumbent director. Subject to the rights of holders of
any Company Preferred Stock, any director may be removed from office only for
cause by the affirmative vote of the holders of at least 80 percent of the
voting power of all the outstanding capital stock of the Company entitled to
vote generally in the election of directors (the "Voting Power"), voting
together as a single class.
These provisions of the Company Certificate would preclude a third party
from removing incumbent directors and simultaneously gaining control of the
Board of Directors of the Company by filling the vacancies created by removal
with its own nominees. Under the classified board provisions described above, it
would take at least two elections of directors for any individual or group to
gain control of the Board of Directors of the Company. Accordingly, these
provisions could discourage a third party from initiating a proxy contest,
making a tender offer or otherwise attempting to gain control of the Company.
Fair Price Provision
The Company Certificate contains a provision (the "Fair Price Provision")
pursuant to which a Business Combination (as defined below) between the Company
or a subsidiary of the Company and an Interested Shareowner (as defined below)
requires approval by the affirmative vote of the holders of not less than 80
percent of the Voting Power, unless the Business Combination is approved by at
least two-thirds of the Continuing Directors (as defined below) or certain fair
price criteria and procedural requirements specified in the Fair Price Provision
and described below are met. If either the requisite Board of Directors approval
or the fair price and procedural requirements were met, the Business Combination
would be subject to the voting
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requirements otherwise applicable under the DGCL and Nasdaq, which for most
types of Business Combinations currently would be the affirmative vote of the
holders of a majority of the outstanding shares of stock of the Company entitled
to vote thereon.
The general purpose of the Fair Price Provision is to protect shareowners
against so-called front-end loaded or two-tier tender offers which may afford
some shareowners a disproportionately higher price for their shares than
shareowners receive generally. The Fair Price Provision is intended to help
assure the Company's shareowners fair and equitable treatment in the event a
third party were to seek to acquire the Company.
A "Business Combination" is defined as: (i) a merger or consolidation of
the Company or any subsidiary with an Interested Shareowner; (ii) the sale,
lease, exchange, mortgage, pledge, transfer or other disposition by the Company
or a subsidiary of assets or securities having a value of $25 million or more if
an Interested Shareowner is a party to the transaction; (iii) the adoption of
any plan or proposal for the liquidation or dissolution of the Company proposed
by or on behalf of an Interested Shareowner; (iv) any reclassification of
securities, recapitalization, merger with a subsidiary or other transaction
which has the effect, directly or indirectly, of increasing an Interested
Shareowner's proportionate share of the outstanding capital stock of the Company
or a subsidiary; or (v) any agreement or contract providing for any of the
foregoing.
An "Interested Shareowner" is defined as any person who is the beneficial
owner of 10 percent or more of the Voting Power other than the Company, certain
of its subsidiaries, or the employee benefit plans of the Company, any
subsidiary or Rockwell and the trustees of such plans. A person is the
"beneficial owner" of stock that such person, directly or indirectly, owns or
has the right to acquire or vote. The Company is not aware of any person or
group who would have been within the definition of an "Interested Shareowner" if
the Distribution had occurred on [ ], 1998.
"Fair Price" Criteria. Under the Fair Price Provision, the fair price
criteria that must be satisfied to avoid the 80 percent shareowner voting
requirement include the requirements that the consideration paid to the
Company's shareowners in a Business Combination must be (i) either cash or the
same form of consideration used by the Interested Shareowner in acquiring its
beneficial ownership of the largest number of shares of the relevant class or
series of the Company's capital stock acquired by the Interested Shareowner and
(ii) at least equal to the highest of (A) the highest per share price paid by or
on behalf of the Interested Shareowner in the two-year period immediately
preceding the date of the first public announcement of the proposal of the
Business Combination or in the transaction in which it became an Interested
Shareowner, whichever is higher, (B) the fair market value per share of the
relevant class or series of the Company's capital stock on the date the
Interested Shareowner became an Interested Shareowner or the date of the first
public announcement of the proposal of the Business Combination, whichever is
higher, or (C) the liquidation preference of the relevant class or series of the
Company's capital stock (other than Company Common Stock). The Interested
Shareowner would be required to meet the fair price criteria with respect to
each class of the Company's capital stock, whether or not the Interested
Shareowner beneficially owned shares of that class prior to proposing the
Business Combination. If the Business Combination does not involve any cash or
other property being received by any of the other shareowners, such as a sale of
assets or an issuance of the Company's securities to an Interested Shareowner,
then the fair price criteria discussed above would not apply, and approval by
the holders of 80 percent of the Voting Power would be required unless the
transaction were approved by at least two-thirds of the Continuing Directors.
Procedural Requirements. Under the Fair Price Provision, even if the
foregoing fair price criteria are met, the following procedural requirements
must be met if the Business Combination is not to require approval by at least
two-thirds of the Continuing Directors or approval by the holders of 80 percent
of the Voting Power: (i) the Company, after the Interested Shareowner became an
Interested Shareowner, must not have failed to pay full quarterly dividends on
the Company Preferred Stock, if any, or reduced the rate of dividends paid on
the Company Common Stock, unless such failure or reduction was approved by at
least two-thirds of the Continuing Directors; (ii) the Interested Shareowner
must not have acquired at any time after becoming an Interested Shareowner any
additional shares of the Company's capital stock in any transaction unless after
giving effect to such acquisition there would be no increase in the Interested
Shareowner's percentage beneficial ownership of any class of the Company's
capital stock; (iii) the Interested Shareowner
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must not have received (other than proportionately as a shareowner) at any time
after becoming an Interested Shareowner, whether in connection with the proposed
Business Combination or otherwise, the benefit of any loans or other financial
assistance or any tax advantages provided by the Company; (iv) a proxy or
information statement describing the proposed Business Combination and complying
with the requirements of the Exchange Act must have been mailed to all
shareowners of the Company at least 30 days prior to the consummation of the
Business Combination; and (v) the Interested Shareowner must not have made any
material change in the Company's business or equity capital structure without
the approval of at least two-thirds of the Continuing Directors.
Continuing Director Approval. If the Business Combination with an
Interested Shareowner is approved by at least two-thirds of the Continuing
Directors, neither the fair price criteria and other procedural requirements nor
the 80 percent shareowner vote requirement would be applicable. A "Continuing
Director" is any member of the Board of Directors of the Company who is not
affiliated or associated with or a representative of the Interested Shareowner
and who was a director of the Company prior to the time the Interested
Shareowner became an Interested Shareowner, and any successor to such Continuing
Director who is not affiliated or associated with or a representative of an
Interested Shareowner and who was recommended or elected by at least two-thirds
of the Continuing Directors.
80 Percent Shareowner Vote. If the fair price criteria and procedural
requirements are not satisfied and the Business Combination is not approved by
at least two-thirds of the Continuing Directors, the Fair Price Provision
requires the approval of the holders of 80 percent of the Voting Power, voting
as a single class, in addition to any vote required by law or otherwise. If the
fair price criteria and other procedural requirements were met or at least
two-thirds of the Continuing Directors approved a particular Business
Combination, the normal voting requirements of the DGCL and Nasdaq would apply.
Under current provisions of the DGCL, certain mergers, consolidations,
reclassifications of securities, sales of substantially all assets and plans of
dissolution would have to be approved by the holders of a majority of the
outstanding shares of stock of the Company entitled to vote thereon. Under the
current rules of Nasdaq, on which shares of Company Common Stock are expected to
be approved for trading and quotation, the issuance of additional shares of
Company Common Stock aggregating 20 percent of the outstanding shares could,
under certain circumstances, require approval by a majority of the votes cast by
the holders of the shares of the stock of the Company entitled to vote thereon.
Certain other transactions, such as sales of less than substantially all assets,
mergers involving a 90%-owned subsidiary and recapitalizations not involving any
amendments to the Company Certificate, would not require shareowner approval
under the DGCL or Nasdaq rules, although such transactions may constitute
Business Combinations subject to the Fair Price Provision.
Amendment of the Fair Price Provision. Any amendment or repeal of the Fair
Price Provision, or the adoption of provisions inconsistent therewith, must be
approved by the affirmative vote of the holders of not less than 80 percent of
the Voting Power, voting together as a single class, unless such amendment,
repeal or adoption were approved by at least two-thirds of the Continuing
Directors, in which case the provisions of the DGCL would require the
affirmative vote of the holders of a majority of the outstanding shares of the
Company's stock entitled to vote thereon.
Special Shareowners' Meetings and Right to Act By Written Consent
The Company Certificate and the Company By-Laws provide that a special
meeting of shareowners may be called only by a resolution adopted by a majority
of the entire Board of Directors of the Company. Shareowners are not permitted
to call, or to require that the Board of Directors call, a special meeting of
shareowners. Moreover, the business permitted to be conducted at any special
meeting of shareowners is limited to the business brought before the meeting
pursuant to the notice of the meeting given by the Company. In addition, the
Company Certificate provides that any action taken by the shareowners of the
Company must be effected at an annual or special meeting of shareowners and may
not be taken by written consent in lieu of a meeting.
The provisions of the Company Certificate and the Company By-Laws
prohibiting shareowner action by written consent may have the effect of delaying
consideration of a shareowner proposal until the next annual meeting. These
provisions would also prevent the holders of a majority of the Voting Power from
unilaterally
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using the written consent procedure to take shareowner action. Moreover, a
shareowner could not force shareowner consideration of a proposal over the
opposition of the Board of Directors of the Company by calling a special meeting
of shareowners prior to the time the Board believes such consideration to be
appropriate.
Procedures for Shareowner Nominations and Proposals
The Company By-Laws establish an advance notice procedure for shareowners
to nominate candidates for election as directors or to bring other business
before meetings of shareowners of the Company (the "Shareowner Notice
Procedure").
Only those shareowner nominees who are nominated in accordance with the
Shareowner Notice Procedure will be eligible for election as directors of the
Company. Under the Shareowner Notice Procedure, notice of shareowner nominations
to be made at an annual meeting (or of any other business to be brought before
such meeting) must be received by the Company not less than 90 days nor more
than 120 days prior to the first anniversary of the previous year's annual
meeting (or, in the case of the 1999 Annual Meeting of Shareowners or if the
date of the annual meeting is more than 30 days before or more than 60 days
after such anniversary date, not earlier than the 120th day prior to such
meeting and not later than the later of (i) the 90th day prior to such meeting
or (ii) the 10th day after public announcement of the date of such meeting is
first made). Notwithstanding the foregoing, in the event that the number of
directors to be elected is increased and there is no public announcement naming
all of the nominees for director or specifying the size of the increased Board
of Directors made by the Company at least 100 days prior to the first
anniversary of the preceding year's annual meeting, a shareowner's notice will
be timely, but only with respect to nominees for any new positions created by
such increase, if it is received by the Company not later than the 10th day
after such public announcement is first made by the Company.
The Company By-Laws provide that only such business may be conducted at a
special meeting as is specified in the notice of meeting. Nominations for
election to the Company's Board of Directors may be made at a special meeting at
which directors are to be elected only by or at the Company's Board of Directors
direction or by a shareowner who has given timely notice of nomination. Under
the Shareowner Notice Procedure, such notice must be received by the Company not
earlier than the 120th day before such meeting and not later than the later of
(i) the 90th day prior to such meeting or (ii) the 10th day after public
announcement of the date of such meeting is first made. Shareowners will not be
able to bring other business before special meetings of shareowners.
The Shareowner Notice Procedure provides that at an annual meeting only
such business may be conducted as has been brought before the meeting by or at
the direction of the Company's Board of Directors or by a shareowner who has
given timely written notice (as set forth above with respect to shareowner's
nominations for election of directors at annual meetings) to the Company of such
shareowner's intention to bring such business before such meeting.
Under the Shareowner Notice Procedure, a shareowner's notice to the Company
proposing to nominate an individual for election as a director must contain
certain information, including, without limitation, the identity and address of
the nominating shareowner, the class and number of shares of stock of the
Company owned by such shareowner, and all information regarding the proposed
nominee that would be required to be included in a proxy statement soliciting
proxies for the proposed nominee. Under the Shareowner Notice Procedure, a
shareowner's notice relating to the conduct of business other than the
nomination of directors must contain certain information about such business and
about the proposing shareowner, including, without limitation, a brief
description of the business the shareowner proposes to bring before the meeting,
the reasons for conducting such business at such meeting, the name and address
of such shareowner, the class and number of shares of stock of the Company
beneficially owned by such shareowner, and any material interest of such
shareowner in the business so proposed. If the Chairman or other officer
presiding at a meeting determines that an individual was not nominated, or other
business was not brought before the meeting, in accordance with the Shareowner
Notice Procedure, such individual will not be eligible for election as a
director, or such business will not be conducted at such meeting, as the case
may be.
By requiring advance notice of nominations by shareowners, the Shareowner
Notice Procedure will afford the Company's Board of Directors an opportunity to
consider the qualifications of the proposed nominees and,
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to the extent deemed necessary or desirable by the Company's Board of Directors,
to inform shareowners about such qualifications. By requiring advance notice of
other proposed business, the Shareowner Notice Procedure will provide a more
orderly procedure for conducting annual meetings of shareowners and, to the
extent deemed necessary or desirable by the Company's Board of Directors, will
provide the Company's Board of Directors with an opportunity to inform
shareowners, prior to such meetings, of any business proposed to be conducted at
such meetings, together with the Company's Board of Directors' position
regarding action to be taken with respect to such business, so that shareowners
can better decide whether to attend such a meeting or to grant a proxy regarding
the disposition of any such business.
Although the Company By-Laws do not give the Company's Board of Directors
any power to approve or disapprove shareowner nominations for the election of
directors or proposals for action, they may have the effect of precluding a
contest for the election of directors or the consideration of shareowner
proposals if the proper procedures are not followed, and of discouraging or
deterring a third party from conducting a solicitation of proxies to elect its
own slate of directors or to approve its own proposal, without regard to whether
consideration of such nominees or proposals might be harmful or beneficial to
the Company and its shareowners.
Amendment of the Company Certificate and Company By-Laws
The Company Certificate provides that the affirmative vote of at least 80
percent of the Voting Power, voting together as a single class, would be
required to (i) amend or repeal the provisions of the Company Certificate with
respect to (A) the election of directors, (B) the right to call a special
shareowners' meeting and (C) the right to act by written consent, (ii) adopt any
provision inconsistent with such provisions and (iii) amend or repeal the
provisions of the Company Certificate with respect to amendments to the Company
Certificate or the Company By-Laws. In addition, the Company Certificate
provides that the Board of Directors of the Company may make, alter, amend and
repeal the by-laws of the Company and that the amendment or repeal by
shareowners of any by-laws of the Company would require the affirmative vote of
at least 80 percent of the Voting Power, voting together as a single class.
COMPANY RIGHTS PLAN
The Company's Board of Directors will declare a dividend of one preferred
share purchase right ("Company Right") to be paid in respect of each share of
Company Common Stock to be issued in the Distribution. Each Company Right will
entitle the registered holder to purchase from the Company one one-hundredth of
a share of Company Junior Preferred Stock, at a price to be established by the
Board of Directors of the Company at the time the Company Rights Agreement is
entered into (the "Purchase Price"), subject to adjustment. The description and
terms of the Company Rights will be set forth in a Rights Agreement (the
"Company Rights Agreement") to be entered into between the Company and
ChaseMellon, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 20% or more of the outstanding
Company Common Stock or (ii) 10 business days (or such later date as may be
determined by the Company's Board of Directors prior to such time as any person
or group becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of the outstanding Company Common Stock (the earlier of
such dates being called the "Rights Distribution Date"), the Company Rights will
be attached to Company Common Stock and the Company Rights will be owned by the
registered owners of Company Common Stock.
The Company Rights Agreement will provide that, until the Rights
Distribution Date (or until the earlier redemption or expiration of the Company
Rights), (i) the Company Rights will be transferred with and only with the
Company Common Stock, (ii) certificates representing Company Common Stock and
statements in respect of shares of Company Common Stock registered in book-entry
or uncertificated form will contain a notation incorporating the terms of the
Company Rights by reference and (iii) the transfer of any shares of Company
Common Stock will also constitute the transfer of the Company Rights associated
therewith. As soon as practicable following the Rights Distribution Date,
separate certificates evidencing the Company Rights ("Rights Certificates") will
be mailed to holders of record of the Company Common Stock as of the
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close of business on the Rights Distribution Date and such separate Rights
Certificates alone will evidence the Company Rights.
The Company Rights will not be exercisable until the Rights Distribution
Date. The Company Rights will expire on the tenth anniversary of the
Distribution (the "Final Expiration Date"), unless the Final Expiration Date is
extended or unless the Company Rights are earlier redeemed by the Company, in
each case, as described below.
The Purchase Price payable, and the number of shares of Company Junior
Preferred Stock or other securities or property issuable, upon exercise of the
Company Rights will be subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a subdivision, combination
or reclassification of, Company Junior Preferred Stock, (ii) upon the grant to
holders of shares of Company Junior Preferred Stock of certain rights or
warrants to subscribe for or purchase shares of Company Junior Preferred Stock
at a price, or securities convertible into shares of Company Junior Preferred
Stock with a conversion price, less than the then current market price of the
shares of Company Junior Preferred Stock or (iii) upon the distribution to
holders of shares of Company Junior Preferred Stock of evidences of indebtedness
or assets (excluding regular periodic cash dividends or dividends payable in
shares of Company Junior Preferred Stock) or of subscription rights or warrants
(other than those referred to above).
The number of outstanding Company Rights and the number of one
one-hundredths of a share of Company Junior Preferred Stock issuable upon
exercise of each Company Right will also be subject to adjustment in the event
of a stock split of the Company Common Stock or a stock dividend on the Company
Common Stock payable in Company Common Stock or subdivisions, consolidations or
combinations of the Company Common Stock occurring, in any such case, prior to
the Rights Distribution Date.
Shares of Company Junior Preferred Stock purchasable upon exercise of the
Company Rights will not be redeemable. Each share of Company Junior Preferred
Stock will be entitled to a minimum preferential quarterly dividend payment of
$1 per share but will be entitled to an aggregate dividend of 100 times the
dividend declared per share of Company Common Stock whenever such dividend is
declared. In the event of liquidation, the holders of Company Junior Preferred
Stock will be entitled to a minimum preferential liquidation payment of $100 per
share but will be entitled to an aggregate payment of 100 times the payment made
per share of Company Common Stock. Each share of Company Junior Preferred Stock
will have 100 votes, voting together with the Company Common Stock. In the event
of any merger, consolidation or other transaction in which shares of Company
Common Stock are exchanged, each share of Company Junior Preferred Stock will be
entitled to receive 100 times the amount received per share of Company Common
Stock. These rights will be protected by customary antidilution provisions.
Because of the nature of the Company Junior Preferred Stock's dividend,
liquidation and voting rights, the value of the one one-hundredth interest in a
share of Company Junior Preferred Stock purchasable upon exercise of each
Company Right should approximate the value of one share of Company Common Stock.
In the event that, at any time after a person has become an Acquiring
Person, the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power is sold,
proper provision will be made so that each holder of a Company Right will
thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Company Right, that number of shares of common
stock of the acquiring company which at the time of such transaction will have a
market value of two times the exercise price of the Company Right. In the event
that any person becomes an Acquiring Person, proper provision shall be made so
that each holder of a Company Right, other than Company Rights beneficially
owned by the Acquiring Person (which will thereafter be void), will thereafter
have the right to receive upon exercise, in lieu of shares of Company Junior
Preferred Stock, that number of shares of Company Common Stock having a market
value of two times the exercise price of the Company Right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person, and prior to the acquisition by such person or
group of 50% or more of the outstanding shares of Company Common Stock, the
Company's Board of Directors may exchange the Company Rights (other than Company
Rights owned by such person or group, which will have become void after such
person became an Acquiring Person) for Company Common Stock or Company Junior
Preferred Stock, in whole or in part, at an exchange
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ratio of one share of Company Common Stock, or one hundredth of a share of
Company Junior Preferred Stock (or of a share of another series of Company
Preferred Stock having equivalent rights, preferences and privileges), per
Company Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Company Junior Preferred Stock will
be issued (other than fractions which are integral multiples of one
one-hundredth of a share of Company Junior Preferred Stock, which may, at the
election of the Company, be evidenced by depository receipts) and in lieu
thereof, an adjustment in cash will be made based on the market price of the
Company Junior Preferred Stock on the last trading day prior to the date of
exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
shares of Company Common Stock, the Board of Directors of the Company may redeem
the Company Rights in whole, but not in part, at a price of $.01 per Company
Right (the "Redemption Price"). The redemption of the Company Rights may be made
effective at such time, on such basis and with such conditions as the Company's
Board of Directors may determine, in its sole discretion. Immediately upon any
redemption of the Company Rights, the right to exercise the Company Rights will
terminate and the only right of the holders of Company Rights will be to receive
the Redemption Price.
The terms of the Company Rights may be amended by the Board of Directors of
the Company without the consent of the holders of the Company Rights, including
an amendment to decrease the threshold at which a person becomes an Acquiring
Person from 20% to not less than 10%, except that from and after such time as
any person becomes an Acquiring Person no such amendment may adversely affect
the interests of the holders of the Company Rights.
Until a Company Right is exercised, the holder thereof, as such, will have
no rights as a shareowner of the Company, including, without limitation, the
right to vote or to receive dividends.
The Company Rights will have certain anti-takeover effects. The Company
Rights will cause substantial dilution to a person or group that attempts to
acquire the Company on terms not approved by the Company's Board of Directors,
except pursuant to an offer conditioned on a substantial number of the Company
Rights being acquired. The Company Rights should not interfere with any merger
or business combination approved by the Company's Board of Directors, since the
Company Rights may be redeemed by the Company at the Redemption Price prior to
the time that a person or group has become an Acquiring Person.
The foregoing summary of the material terms of the Company Rights is
qualified by reference to the form of the Company Rights Agreement, which has
been filed as an exhibit to the Registration Statement of which this Information
Statement is a part.
ANTI-TAKEOVER LEGISLATION
Section 203 of the DGCL provides that, subject to certain exceptions
specified therein, a corporation shall not engage in any business combination
with any interested shareowner for a three-year period following the time that
such shareowner becomes an interested shareowner unless (i) prior to such time,
the board of directors of the corporation approved either the business
combination or the transaction which resulted in the shareowner becoming an
interested shareowner; (ii) upon consummation of the transaction which resulted
in the shareowner becoming an interested shareowner, the interested shareowner
owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced (excluding certain shares); or (iii) at or
subsequent to such time, the business combination is approved by the board of
directors of the corporation and by the affirmative vote of at least 66 2/3% of
the outstanding voting stock which is not owned by the interested shareowner.
Except as specified in Section 203 of the DGCL, an "interested shareowner" is
defined to include (x) any person that is the owner of 15% or more of the
outstanding voting stock of the corporation, or is an affiliate or associate of
the corporation and was the owner of 15% or more of the outstanding voting stock
of the corporation at any time within three years immediately prior to the
relevant date and (y) the affiliates and associates of any such person.
Under certain circumstances, Section 203 of the DGCL makes it more
difficult for a person who would be an interested shareowner to effect various
business combinations with a corporation for a three-year period, although the
shareowners may elect to exclude a corporation from the restrictions imposed
thereunder. The
79
<PAGE> 86
Company Certificate does not exclude the Company from the restrictions imposed
under Section 203 of the DGCL. It is anticipated that the provisions of Section
203 of the DGCL may encourage companies interested in acquiring the Company to
negotiate in advance with the Company's Board of Directors, since the shareowner
approval requirement would be avoided if a majority of the directors then in
office approved either the business combination or the transaction which
resulted in the shareowner becoming an interested shareowner.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The DGCL permits Delaware corporations to eliminate or limit the monetary
liability of directors for breach of their fiduciary duty of care, subject to
certain limitations. The Company Certificate provides that Company directors are
not liable to the Company or its shareowners for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its shareowners, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for willful or negligent violation of the laws governing
the payment of dividends or the purchase or redemption of stock or (iv) for any
transaction from which a director derived an improper personal benefit.
The DGCL provides for indemnification of directors, officers, employees and
agents subject to certain limitations. The Company By-Laws and the appendix
thereto provide for the indemnification of directors, officers, employees and
agents of the Company to the extent permitted by Delaware law. It is expected
that the Company's directors and officers will be insured against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act.
80
<PAGE> 87
GLOSSARY OF TECHNICAL TERMS
<TABLE>
<S> <C>
A/D Analog-to-Digital.
ADSL Asymmetric Digital Subscriber Line.
ASIC Application Specific Integrated Circuit.
ATM Asynchronous Transfer Mode.
BiCMOS Bipolar Complementary Metal-Oxide Semiconductor.
bps Bits per second.
CDMA Code Division Multiple Access.
CMOS Complementary Metal Oxide Semiconductor.
D/A Digital-to-Analog.
DBS Direct Broadcast Satellite.
DSL Digital Subscriber Line.
DSP Digital Signal Processor.
DSS Digital Spread Spectrum.
E1 European standard for digital transmission for speeds up to
2.048 Mbps.
E3 European standard for digital transmission for speeds up to
34.368 Mbps.
GaAs Gallium Arsenide.
GHz Gigahertz.
GPS Global Positioning System.
GSM Global System for Mobile Communications.
HBT Heterojunction Bipolar Transistor.
HDSL High-speed Digital Subscriber Line.
IC Integrated Circuit.
IP Internet Protocol.
ISO International Standards Organization.
ISP Internet Service Provider.
ITU International Telecommunications Union.
Kbps Kilobits per second, a thousand bits per second.
LAN Local Area Network.
LMDS Local Multi-channel Distribution Service.
Mbps Megabits per second, a million bits per second.
MCNS/DOCSIS Multimedia Cable Network Systems Data Over Cable Services
Interface Specifications.
MESFET Metal Semiconductor Field-Effect Transistor.
MFP Multifunction peripheral.
MHz Megahertz.
MMDS Multi-channel Multi-point Distribution Service.
OEM Original Equipment Manufacturer.
PCMCIA Personal Computer Memory Card International Association.
PHY Physical layer device.
RF Radio Frequency.
RFCMOS Radio Frequency Complementary Metal Oxide Semiconductor.
RFIC Radio Frequency Integrated Circuit.
SAR Segmentation And Reassembly device.
SDH Synchronous Digital Hierarchy.
SiGe Silicon Germanium.
SONET Synchronous Optical Network.
T1 North American standard for digital transmission for speeds
up to 1.544 Mbps.
T3 North American standard for digital transmission for speeds
up to 45 Mbps.
TDMA Time Division Multiple Access.
WAN Wide Area Network.
xDSL Generic term for digital subscriber line, including ADSL and
HDSL.
</TABLE>
81
<PAGE> 88
INDEX TO SEMICONDUCTOR SYSTEMS COMBINED
FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Combined Balance Sheet as of September 30, 1996 and 1997 and
(Unaudited) June 30, 1998................................. F-3
Combined Statement of Operations for the years ended
September 30, 1995, 1996 and 1997 and (Unaudited) the nine
months ended June 30, 1997 and 1998....................... F-4
Combined Statement of Cash Flows for the years ended
September 30, 1995, 1996 and 1997 and (Unaudited) the nine
months ended June 30, 1997 and 1998....................... F-5
Notes to Combined Financial Statements...................... F-6
Schedule II -- Valuation and Qualifying Accounts............ F-19
</TABLE>
F-1
<PAGE> 89
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareowners of
Rockwell International Corporation:
We have audited the accompanying combined balance sheet of the
semiconductor systems business (Semiconductor Systems) of Rockwell International
Corporation (Rockwell), as described in Note 1 to the financial statements, as
of September 30, 1997 and 1996, and the related combined statements of
operations and cash flows for each of the three years in the period ended
September 30, 1997. Our audits also included the financial statement schedule
listed in the Index to Semiconductor Systems Combined Financial Statements and
Schedule at page F-1. These financial statements and the financial statement
schedule are the responsibility of Rockwell's management. Our responsibility is
to express an opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of Semiconductor Systems as of
September 30, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended September 30, 1997, in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
combined financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
September 4, 1998
F-2
<PAGE> 90
SEMICONDUCTOR SYSTEMS
COMBINED BALANCE SHEET
(IN MILLIONS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- JUNE 30,
1996 1997 1998
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................ $ 14 $ 14 $ 14
Receivables (less related reserves: 1996, $34; 1997, $23;
1998, $31)................................................ 196 223 195
Inventories, net............................................ 288 223 333
Deferred income taxes....................................... 78 50 55
Other current assets........................................ 40 11 15
------ ------ ------
Total current assets.............................. 616 521 612
PROPERTY, NET............................................... 656 802 840
INTANGIBLE ASSETS, NET...................................... 36 87 76
OTHER ASSETS................................................ 75 76 62
------ ------ ------
TOTAL ASSETS...................................... $1,383 $1,486 $1,590
====== ====== ======
LIABILITIES AND ROCKWELL'S NET INVESTMENT
CURRENT LIABILITIES:
Short-term debt............................................. $ 14 $ 14 $ 14
Accounts payable............................................ 178 189 143
Accrued compensation and benefits........................... 50 49 44
Other current liabilities................................... 145 47 32
------ ------ ------
Total current liabilities......................... 387 299 233
ACCRUED RETIREMENT BENEFITS................................. 32 33 33
OTHER LIABILITIES AND CONTINGENCIES......................... 65 47 48
ROCKWELL'S NET INVESTMENT................................... 899 1,107 1,276
------ ------ ------
TOTAL LIABILITIES AND ROCKWELL'S NET INVESTMENT... $1,383 $1,486 $1,590
====== ====== ======
</TABLE>
See notes to combined financial statements.
F-3
<PAGE> 91
SEMICONDUCTOR SYSTEMS
COMBINED STATEMENT OF OPERATIONS
(IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
------------------------ --------------
1995 1996 1997 1997 1998
---- ------ ------ ------ ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................................ $784 $1,470 $1,412 $1,043 $936
Cost of sales.................................... 483 849 744 541 556
---- ------ ------ ------ ----
GROSS MARGIN..................................... 301 621 668 502 380
Research and development......................... 91 155 280 199 251
Selling, general and administrative.............. 103 150 191 128 191
Purchased research and development............... -- 121 30 30 --
---- ------ ------ ------ ----
OPERATING EARNINGS (LOSS)........................ 107 195 167 145 (62)
Other income, net................................ 4 3 13 12 10
---- ------ ------ ------ ----
INCOME (LOSS) BEFORE INCOME TAXES................ 111 198 180 157 (52)
Provision (benefit) for income taxes............. 35 114 54 47 (24)
---- ------ ------ ------ ----
NET INCOME (LOSS)...................... $ 76 $ 84 $ 126 $ 110 $(28)
==== ====== ====== ====== ====
</TABLE>
See notes to combined financial statements.
F-4
<PAGE> 92
SEMICONDUCTOR SYSTEMS
COMBINED STATEMENT OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED SEPTEMBER 30, ENDED JUNE 30,
-------------------------- --------------
1995 1996 1997 1997 1998
------ ------ ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)................................ $ 76 $ 84 $ 126 $ 110 $ (28)
Adjustments to net income (loss) to arrive at
cash provided by (used in) operating
activities:
Depreciation and amortization.................. 61 132 181 131 150
Purchased research and development............. -- 121 30 30 --
Deferred income taxes.......................... (7) (89) 32 37 (6)
Changes in assets and liabilities, excluding
effects of acquisitions:
Receivables................................. (46) (54) (27) (3) 24
Inventories................................. (28) (151) 66 50 (111)
Accounts payable............................ 28 95 11 (71) (50)
Other current liabilities................... 14 146 (125) (119) (10)
Other....................................... 8 31 2 (4) 2
----- ----- ----- ----- -----
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES........................... 106 315 296 161 (29)
----- ----- ----- ----- -----
INVESTING ACTIVITIES
Capital expenditures............................. (166) (380) (317) (201) (176)
Acquisitions of businesses and investments....... (36) (254) (65) (60) --
----- ----- ----- ----- -----
CASH USED FOR INVESTING ACTIVITIES..... (202) (634) (382) (261) (176)
----- ----- ----- ----- -----
FINANCING ACTIVITIES
Decrease in short-term borrowings................ -- (11) -- -- --
Payments of long-term debt....................... (6) (11) -- -- --
Net transfers from Rockwell...................... 102 341 86 100 205
----- ----- ----- ----- -----
CASH PROVIDED BY FINANCING
ACTIVITIES........................... 96 319 86 100 205
----- ----- ----- ----- -----
DECREASE IN CASH................................. -- -- -- -- --
CASH AT BEGINNING OF PERIOD...................... 14 14 14 14 14
----- ----- ----- ----- -----
CASH AT END OF PERIOD............................ $ 14 $ 14 $ 14 $ 14 $ 14
===== ===== ===== ===== =====
</TABLE>
See notes to combined financial statements.
F-5
<PAGE> 93
SEMICONDUCTOR SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On June 29, 1998, Rockwell International Corporation (Rockwell) announced
that its Board of Directors had approved in principle the distribution (the
Distribution) to Rockwell shareowners of all of the outstanding shares of common
stock of Rockwell Semiconductor Systems, Inc. (the Company), a wholly-owned
subsidiary of Rockwell, which after the Distribution will own Rockwell's
semiconductor systems business (Semiconductor Systems). The shares of the
Company will be distributed on a pro rata basis to the shareowners of Rockwell
in a tax-free transaction. The Company will be renamed and will become a
separately traded, publicly-held company. Prior to the Distribution, Rockwell
will contribute to the Company those assets and liabilities of Semiconductor
Systems not already owned by the Company, including the stock of certain
subsidiaries. The Distribution, which is subject to several conditions,
including receipt of a ruling by the Internal Revenue Service to the effect that
the transaction qualifies as a tax-free distribution and final approval of
Rockwell's Board of Directors, is expected to be completed on December 31, 1998.
The accompanying combined financial statements present the historical
financial position, results of operations, and cash flows of Semiconductor
Systems, and are not necessarily indicative of what the financial position,
results of operations, or cash flows would have been had Semiconductor Systems
been an independent public company during the periods presented.
The combined financial statements of Semiconductor Systems have been
prepared in accordance with generally accepted accounting principles which
require management to make estimates and assumptions that affect the amounts
reported in the financial statements. Actual results could differ from those
estimates.
Rockwell provides certain services to Semiconductor Systems' United States
(U.S.) operations, including payroll and employee benefits administration, data
processing and telecommunications services, and research and development
activities. Rockwell also administers certain programs in which Semiconductor
Systems' U.S. operations participate, including active medical and insurance
programs. Costs for these services and programs are billed to Semiconductor
Systems based on actual usage and are included in Semiconductor Systems'
Combined Statement of Operations. These costs totaled $14 million, $15 million
and $19 million in fiscal 1995, 1996, and 1997, respectively, and $15 million
and $18 million for the nine-month periods ended June 30, 1997 and 1998,
respectively. Management believes that the methods of billing these costs are
reasonable and that the costs charged to Semiconductor Systems are approximately
those which would have been incurred on a stand-alone basis.
Rockwell also provides management services to Semiconductor Systems,
including corporate oversight, financial, legal, tax, corporate communications,
and human resources. The costs of providing these services have been allocated
to Semiconductor Systems based on sales in proportion to total Rockwell sales
and are included in selling, general and administrative expense in the Combined
Statement of Operations. These costs totaled $9 million, $12 million and $11
million in fiscal 1995, 1996, and 1997, respectively, and $9 million for each of
the nine-month periods ended June 30, 1997 and 1998. Management believes that
the method of allocating these costs to Semiconductor Systems is reasonable and
the amount is approximately equal to the cost of providing these services on a
stand-alone basis.
Semiconductor Systems' U.S. and certain of its non-U.S. operations
participate in Rockwell's centralized cash management systems wherein receipts
are centrally deposited and disbursements are centrally funded. Accordingly, the
combined financial statements exclude debt and interest income and expense in
countries with centralized cash management systems. Accounts payable includes $4
million, $14 million and $24 million as of September 30, 1996 and 1997 and June
30, 1998, respectively, related to outstanding checks drawn on U.S. centralized
disbursement accounts.
F-6
<PAGE> 94
SEMICONDUCTOR SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
It is Rockwell's intention to transfer cash balances and debt of
approximately $14 million each to the Company related to the distribution of
assets in Japan. As such, the cash and short-term debt balances for all periods
presented each includes $14 million related to the Japanese distribution.
Semiconductor Systems' operating results for the nine months ended June 30,
1998 are not indicative of the results for the full year. In the opinion of
management, the unaudited interim financial statements contain all adjustments,
consisting solely of adjustments of a normal recurring nature, necessary to
present fairly the financial position, results of operations, and cash flows for
the periods presented. At the end of each interim reporting period management
makes an estimate of the effective tax rate expected to be applicable for the
full fiscal year. The rate so determined is used in providing for income taxes
on a year-to-date basis. All amounts in the combined financial statements as of
or for the nine months ended June 30, 1997 and 1998 are unaudited.
2. ACCOUNTING POLICIES
Basis of Combination
The combined financial statements include all subsidiaries and businesses
of Rockwell which relate to Semiconductor Systems. All significant accounts and
transactions among Semiconductor Systems' locations have been eliminated.
Intercompany accounts receivable and payable between Semiconductor Systems
and Rockwell or its subsidiaries as of the date of the Distribution will be
canceled or otherwise eliminated and, accordingly, have been reflected in
Rockwell's net investment on the Combined Balance Sheet.
Inventories
Inventories are stated at the lower of cost (using the average cost method)
or market (determined on the basis of estimated realizable values). Management
evaluates the need for lower of cost or market impairment reserves by comparing
the total cost of inventory to total market value. Management determines excess
and obsolete inventory reserves based on current inventory levels and projected
usage for the following six month period.
Property
Property is stated at cost. Depreciation is based on estimated useful lives
(50 years for buildings and 10 to 30 years for building improvements; 5 years
for machinery and equipment; and the shorter of the remaining terms of the
leases or the estimated economic useful lives of the improvements for land and
leasehold improvements) using straight-line and double-declining methods.
Significant renewals and betterments are capitalized and replaced units are
written off. Maintenance and repairs, as well as renewals of a minor amount, are
charged to expense.
Intangible Assets
Goodwill and other intangible assets generally result from business
acquisitions. Semiconductor Systems accounts for business acquisitions by
assigning the purchase price to tangible and intangible assets and liabilities,
including research and development projects which have not yet reached
technological feasibility and have no alternative future use (purchased research
and development). Assets acquired and liabilities assumed are recorded at their
fair values; the appraised value of purchased research and development is
immediately charged to expense, and the excess of the purchase price over the
amounts assigned is recorded as goodwill.
F-7
<PAGE> 95
SEMICONDUCTOR SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Goodwill, patents, product technology, and other intangibles are amortized
on a straight-line basis over their estimated useful lives, ranging from 5 to 10
years.
Impairment of Long-Lived Assets
Semiconductor Systems reviews all long-lived assets for impairment when
events or circumstances indicate that the carrying amount of a long-lived asset
may not be recoverable, and for all assets to be disposed of. Long-lived assets
held for use are reviewed for impairment by comparing undiscounted cash flows
over remaining useful lives to net book value. When impairment is indicated for
a long-lived asset, the amount of impairment loss is the excess of net book
value over fair value.
Revenue Recognition
Gross revenue is recognized when title for the product transfers. Gross
revenue is reduced by accruals for estimated pricing and return activity on
product shipments based on prior experience.
Environmental Matters
Semiconductor Systems records accruals for environmental matters in the
accounting period in which its responsibility is established and the cost to
remediate can be reasonably estimated. At environmental sites in which more than
one potentially responsible party has been identified, Semiconductor Systems
records a liability for its allocable share of costs related to its involvement
with the site as well as an allocable share of costs related to insolvent
parties or unidentified shares. At environmental sites in which Semiconductor
Systems is the only responsible party, Semiconductor Systems records a liability
for the total estimated costs of remediation before consideration of recovery
from insurers or other third parties. If recovery from a third party is
determined to be probable, Semiconductor Systems records a receivable for the
estimated recovery.
New Accounting Standards
Effective October 1, 1997, Semiconductor Systems adopted American Institute
of Certified Public Accountants Statement of Position No. 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use" (SOP
98-1). SOP 98-1 requires the cost of purchased software and certain costs
incurred in developing computer software for internal use to be capitalized and
amortized over future periods. During the first nine months of fiscal 1998,
Semiconductor Systems capitalized $3 million of such costs that would have been
charged to expense under its previous accounting policy.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133), which is effective for fiscal 2000. SFAS 133
will require Semiconductor Systems to record all derivatives on the balance
sheet at fair value. For derivatives that are hedges, changes in the fair value
of derivatives will be offset by the change in fair value of the hedged assets,
liabilities, or firm commitments. Management believes the impact of adopting
this standard will not be material to the financial position or results of
operations of Semiconductor Systems.
F-8
<PAGE> 96
SEMICONDUCTOR SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITIONS OF BUSINESSES
In September 1996, Semiconductor Systems acquired Brooktree Corporation
(Brooktree), a designer and supplier of mixed-signal integrated circuits for
high-speed digital communications and media processing applications, for $278
million in cash. The acquisition was accounted for as a purchase as of September
30, 1996 and the price allocation included $121 million (before and after tax)
for purchased research and development which was immediately expensed, and $57
million for purchased intangibles, primarily developed technology, which is
being amortized over 9 years.
Semiconductor Systems acquired the Hi-Media broadband communications
chipset business of ComStream Corporation (Hi-Media) for $42 million in cash.
The acquisition was accounted for as a purchase as of May 31, 1997, and the
price allocation included $30 million ($19 million after-tax) for purchased
research and development which was immediately expensed, and $18.5 million for
goodwill, which is being amortized on a straight-line basis over 10 years.
Semiconductor Systems also acquired two other businesses in fiscal 1997 at a net
cost of $22 million.
The following unaudited pro forma schedule presents combined information
for Semiconductor Systems, Brooktree and Hi-Media for the twelve months ended
September 30, 1995, 1996, and 1997 as if each of the acquisitions had taken
place at the beginning of each period presented (the effect of the purchased
research and development charges for Brooktree and Hi-Media are included in pro
forma net income in the actual year of acquisition only):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1995 1996 1997
---- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Net sales.......................................... $917 $1,642 $1,447
Net income......................................... 85 77 123
</TABLE>
4. INVENTORIES
Inventories are summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- JUNE 30,
1996 1997 1998
----- ----- -----------
(UNAUDITED)
<S> <C> <C> <C>
Finished goods................................... $ 77 $ 62 $136
Die bank......................................... 166 78 105
Work-in-process.................................. 77 90 102
Raw materials, parts, and supplies............... 33 28 47
---- ---- ----
Inventories, gross............................... 353 258 390
Reserves......................................... (65) (35) (57)
---- ---- ----
Inventories, net................................. $288 $223 $333
==== ==== ====
</TABLE>
Die bank is work-in-process inventory that has completed all die processing
operations and is stored in wafer form. Die bank inventory needs to be cut,
packaged, assembled and tested to become finished goods.
Reserves are primarily for excess and obsolete finished goods and die bank
inventory.
F-9
<PAGE> 97
SEMICONDUCTOR SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY
Property is summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------- JUNE 30,
1996 1997 1998
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Property at cost:
Land........................................ $ 12 $ 16 $ 16
Land and leasehold improvements............. 8 10 11
Buildings................................... 226 261 325
Machinery and equipment..................... 605 727 918
Construction in progress.................... 202 328 232
------ ------ ------
Total......................................... 1,053 1,342 1,502
Less accumulated depreciation................. (397) (540) (662)
------ ------ ------
Property, net................................. $ 656 $ 802 $ 840
====== ====== ======
</TABLE>
In July 1996, Semiconductor Systems announced that, due to current and
forecasted favorable pricing in the worldwide semiconductor silicon wafer
fabrication market, it would delay production start-up of a facility under
construction in Colorado Springs, Colorado. Construction in progress includes
$92 million, $103 million, and $104 million as of September 30, 1996, September
30, 1997 and June 30, 1998, respectively, related to the non-operating portion
of this facility (see Note 18).
6. INTANGIBLE ASSETS
Intangible assets are summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- JUNE 30,
1996 1997 1998
----- ----- -----------
(UNAUDITED)
<S> <C> <C> <C>
Developed technology and other.................... $25 $ 49 $ 49
Goodwill.......................................... 7 36 36
Patents........................................... 10 21 21
--- ---- ----
Total............................................. 42 106 106
Less accumulated amortization..................... (6) (19) (30)
--- ---- ----
Intangible assets, net............................ $36 $ 87 $ 76
=== ==== ====
</TABLE>
7. OTHER ASSETS
Other assets are summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- JUNE 30,
1996 1997 1998
----- ----- -----------
(UNAUDITED)
<S> <C> <C> <C>
Investments........................................ $21 $16 $17
Net deferred income taxes (see Note 12)............ 46 42 43
Other.............................................. 8 18 2
--- --- ---
Other assets....................................... $75 $76 $62
=== === ===
</TABLE>
F-10
<PAGE> 98
SEMICONDUCTOR SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
8. OTHER CURRENT LIABILITIES AND OTHER LIABILITIES
Other current liabilities are summarized as follows (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------- JUNE 30,
1996 1997 1998
----- ----- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued royalties and licenses.................... $ 63 $23 $ 6
Payable to Brooktree shareowners.................. 50 -- --
Other............................................. 32 24 26
---- --- ---
Other current liabilities......................... $145 $47 $32
==== === ===
</TABLE>
Accrued royalties and licenses as of September 30, 1996 and 1997 include
reserves for various intellectual property disputes. The Company resolved
various intellectual property matters in 1997 resulting in payments of $32
million and other concessions.
Other liabilities and contingencies relate primarily to the long-term
portions of accrued royalties and licenses, and unresolved intellectual property
matters.
9. FINANCIAL INSTRUMENTS
Semiconductor Systems' financial instruments include cash, short-term debt
and foreign currency forward exchange contracts. As of September 30, 1996 and
1997, and June 30, 1998, the carrying values of Semiconductor Systems' financial
instruments approximated their fair values based on prevailing market prices and
rates.
It is the policy of Semiconductor Systems not to enter into derivative
financial instruments for speculative purposes. Semiconductor Systems does enter
into foreign currency forward exchange contracts to minimize risk of loss from
currency rate fluctuations on foreign currency commitments entered into in the
ordinary course of business. These commitments are generally for terms of less
than one year. The foreign currency forward exchange contracts are executed with
creditworthy banks and are denominated in currencies of major industrial
countries. The notional amount of outstanding foreign currency forward exchange
contracts aggregated $29 million, $28 million and $46 million at September 30,
1996, September 30, 1997, and June 30, 1998, respectively. Semiconductor Systems
does not anticipate any material adverse effect on its financial position
relating to these foreign currency forward exchange contracts.
10. RETIREMENT MEDICAL PLANS
Semiconductor Systems has retirement medical plans which cover most of its
U.S. and certain non-U.S. employees and provide for medical payments to eligible
employees and dependents upon retirement.
Retirement medical expense included in the Combined Statement of
Operations, consisting principally of interest accrued on the accumulated
retirement medical obligation, was $2 million in each of 1995, 1996 and 1997.
F-11
<PAGE> 99
SEMICONDUCTOR SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The retirement medical obligation at September 30, 1996 and 1997 is
comprised of the following (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------
1996 1997
----- ----
<S> <C> <C>
Accumulated retirement medical obligation:
Retirees.................................................. $ 16 $ 17
Employees eligible to retire.............................. 4 4
Employees not eligible to retire.......................... 7 9
----- ----
Total............................................. 27 30
Unamortized amounts:
Plan amendments........................................... 4 3
Actuarial losses.......................................... (1) (3)
----- ----
Recorded liability.......................................... $ 30 $ 30
===== ====
Assumptions used (June 30 measurement date):
Discount rate............................................. 7.75% 7.5%
Health care cost trend rate (decreasing to 5.5% after
2015).................................................. 8.0% 8.0%
</TABLE>
Increasing the health care cost trend rate by one percentage point would
increase the accumulated retirement medical obligation at September 30, 1997 by
approximately $2 million and would not significantly increase retirement medical
expense.
11. RETIREMENT PENSION PLANS
Semiconductor Systems participates in a Rockwell pension plan which
provides for monthly pension payments to eligible U.S. employees upon
retirement. Pension benefits for U.S. salaried employees are based on years of
credited service and compensation. Pension benefits for U.S. hourly employees
are based on years of service and specified benefit amounts.
In connection with the Distribution, Rockwell will retain the obligation
for vested benefits earned by Semiconductor Systems' participants in the U.S.
pension plan and all related assets. For U.S. employees that are members of
Local 2125 of the International Brotherhood of Electrical Workers Union ("U.S.
Hourly Employees"), Semiconductor Systems will establish a pension plan with
substantially similar benefits and which credits these employees for service
earned with Rockwell. The benefits payable under this Semiconductor Systems'
plan will be equal to the difference between the total benefit earned with both
companies and the vested benefit obligation retained by Rockwell. Accordingly,
the balance sheet includes a liability for the pension obligations related to
U.S. Hourly Employees equal to the excess of the projected benefit obligation
over the vested benefit obligation retained by Rockwell. Semiconductor Systems
will not establish a pension plan for U.S. salaried and certain hourly employees
and, accordingly, no pension liability related to these employees has been
included in the Combined Balance Sheet.
Non-U.S. pension plans which relate solely to employees and retirees of
Semiconductor Systems will be assumed by Semiconductor Systems.
Net pension expense included in the Combined Statement of Operations,
consisting principally of service cost for benefits earned during the year, was
$5 million in 1995 and $6 million in both 1996 and 1997. The projected benefit
obligation and the accrued liability included in the Combined Balance Sheet
related to the pension liabilities to be assumed by Semiconductor Systems
totaled $1 million each at both September 30, 1996 and 1997. There were no plan
assets at September 30, 1996 and 1997.
F-12
<PAGE> 100
SEMICONDUCTOR SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Assumptions (using a June 30 measurement date) include a 7.75% discount
rate and a 4.5% compensation increase rate for both periods presented.
Semiconductor Systems also participates in certain Rockwell defined
contribution savings plans for eligible employees. Expense related to these
plans was $3 million for 1995, $4 million for 1996 and $4 million for 1997.
12. INCOME TAXES
Most of Semiconductor Systems' operations are included in the consolidated
or combined income tax returns of Rockwell. Rockwell intends to indemnify
Semiconductor Systems for all income tax liabilities and retain rights to all
tax refunds relating to operations included in consolidated or combined tax
returns for periods through the date of the Distribution. Accordingly, the
Combined Balance Sheet does not include current or prior period income tax
receivables or payables related to wholly-owned subsidiaries which file on a
consolidated or combined basis with Rockwell. The income tax provisions included
in the Combined Statement of Operations have been determined as if Semiconductor
Systems were a separate taxpayer.
The components of the provision for income taxes are summarized as follows
(in millions):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current tax provision:
United States........................................ $31 $162 $12
Foreign.............................................. 5 9 7
State and local...................................... 6 32 3
--- ---- ---
Total current tax provision.................. 42 203 22
--- ---- ---
Deferred tax (benefit) provision:
United States........................................ (6) (76) 25
State and local...................................... (1) (13) 7
--- ---- ---
Total deferred tax (benefit) provision....... (7) (89) 32
--- ---- ---
Provision for income taxes............................. $35 $114 $54
=== ==== ===
</TABLE>
Net current deferred income tax benefits included in the Combined Balance
Sheet at September 30, 1996 and 1997 consist of the tax effects of temporary
differences related to the following (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1996 1997
----- -----
<S> <C> <C>
Accrued compensation and benefits........................... $ 8 $ 6
Inventory................................................... 34 31
Allowance for doubtful accounts and other reserves.......... 14 9
Accrued royalties and licenses.............................. 16 2
Other, net.................................................. 6 2
--- ---
Current deferred income taxes............................... $78 $50
=== ===
</TABLE>
F-13
<PAGE> 101
SEMICONDUCTOR SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Net deferred income tax benefits included in Other Assets in the Combined
Balance Sheet at September 30, 1996 and 1997 consist of the tax effects of
temporary differences related to the following (in millions):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------
1996 1997
----- -----
<S> <C> <C>
Accrued royalties and licenses.............................. $ 24 $ 16
Retirement benefits......................................... 11 12
Property.................................................... 13 21
Intangible assets........................................... (16) (11)
Other, net.................................................. 14 4
---- ----
Long-term deferred income taxes............................. $ 46 $ 42
==== ====
</TABLE>
Management believes it is more likely than not that current and long-term
deferred tax benefits will reduce future income tax payments. Significant
factors considered by management in its determination of the probability of the
realization of the deferred tax benefits included: (a) the historical operating
results of Semiconductor Systems, (b) expectations of future earnings, and (c)
available tax planning strategies.
Semiconductor Systems' effective tax rate was different from the U.S.
statutory rate for the reasons set forth below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Statutory tax rate................................... 35.0% 35.0% 35.0%
State and local income taxes......................... 2.9 3.8 3.4
Foreign income taxes................................. 0.7 1.0 0.8
Foreign sales corporation............................ (6.6) (6.1) (7.8)
Research and experimentation credits................. (1.2) -- (1.7)
Purchased research and development................... -- 23.8 --
Other................................................ 0.7 0.1 0.3
---- ---- ----
Effective tax rate................................... 31.5% 57.6% 30.0%
==== ==== ====
</TABLE>
The income tax provisions were calculated based upon the following
components of income before income taxes (in millions):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
United States income.............................. $101 $179 $162
Foreign income.................................... 10 19 18
---- ---- ----
Total............................................. $111 $198 $180
==== ==== ====
</TABLE>
No provision has been made for U.S., state, or additional foreign income
taxes related to approximately $11 million of undistributed earnings of foreign
subsidiaries which have been or are intended to be permanently reinvested.
F-14
<PAGE> 102
SEMICONDUCTOR SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
13. ROCKWELL'S NET INVESTMENT
Changes in Rockwell's net investment are summarized as follows (in
millions):
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, NINE MONTHS
------------------------- ENDED
1995 1996 1997 JUNE 30,1998
----- ----- ------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Beginning balance......................... $301 $478 $ 899 $1,107
Net income (loss)......................... 76 84 126 (28)
Net transfers from Rockwell............... 102 341 86 205
Currency translation loss................. (1) (4) (4) (8)
---- ---- ------ ------
Ending balance............................ $478 $899 $1,107 $1,276
==== ==== ====== ======
</TABLE>
The cumulative deferred currency translation gain (loss) was $5 million, $1
million, $(3) million, and $(11) million as of September 30, 1995, 1996, and
1997, and June 30, 1998, respectively.
14. SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------
1995 1996 1997
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Statement of operations data:
Maintenance and repairs............................. $31 $ 64 $ 74
Rental expense...................................... 5 6 12
Depreciation expense................................ 59 126 167
Statement of cash flows data:
Income tax payments................................. 4 6 10
</TABLE>
Minimum future rental commitments under operating leases having
non-cancelable lease terms in excess of one year aggregated $35 million as of
September 30, 1997 and are payable as follows (in millions): 1998, $7; 1999, $6;
2000, $5; 2001, $5; 2002, $4; and thereafter, $8.
15. CONTINGENT LIABILITIES
Compliance with federal, state and local environmental requirements and
resolution of environmental claims have been accomplished without material
effect on Semiconductor Systems' liquidity and capital resources, competitive
position, or financial statements.
Based on its assessment, management believes that Semiconductor Systems'
expenditures for environmental capital investment and remediation necessary to
comply with present regulations governing environmental protection and other
expenditures for the resolution of environmental claims will not have a material
adverse effect on Semiconductor Systems' liquidity and capital resources,
competitive position, or financial statements. Management cannot assess the
possible effect of compliance with future requirements.
Claims have been asserted against Semiconductor Systems for utilizing the
intellectual property rights of others in certain of Semiconductor Systems'
products. The resolution of these matters may result in the negotiation of a
license agreement, a settlement or the resolution of such claims through
arbitration or litigation. Semiconductor Systems accrues the estimated cost of
the ultimate resolution of these matters. See also Note 18.
Semiconductor Systems has been designated as a potentially responsible
party (PRP) at one Superfund site located at a former silicon wafer
manufacturing facility and steel fabrication plant in Parker Ford,
F-15
<PAGE> 103
SEMICONDUCTOR SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Pennsylvania formerly occupied by Semiconductor Systems. The site was also
formerly occupied by Recticon Corporation and Allied Steel Products Corporation,
each also named as a PRP and each of which is insolvent. The remediation plan
for the site includes installation of a public water supply line and a
groundwater pump and treat system, as well as routine groundwater sampling.
Management estimates the total reasonably possible costs the Company could incur
for the remediation of this Superfund site to be approximately $3 million, of
which approximately $1 million was accrued, as of June 30, 1998.
In addition, the Company is engaged in two other remediations of
groundwater contaminations at its Newport Beach and Newbury Park, California
facilities. Management estimates the total reasonably possible costs the Company
could incur for these remediations to be approximately $5 million as of June 30,
1998.
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against Semiconductor Systems relating to the conduct of
its business, including those pertaining to product liability, safety and health
and employment matters. Although the outcome of litigation cannot be predicted
with certainty and some lawsuits, claims, or proceedings may be disposed of
unfavorably to Semiconductor Systems, management believes the disposition of
matters which are pending or asserted will not have a material adverse effect on
Semiconductor Systems' financial statements.
The Company will assume all contingent liabilities (including those in
respect of intellectual property and environmental matters) related to current
and former operations of Semiconductor Systems.
16. GEOGRAPHIC SEGMENT INFORMATION
Semiconductor Systems operates in one industry segment which is engaged in
research, development, and manufacture of semiconductor products and systems for
communications electronics markets such as personal computers, personal imaging
devices, wireless communications products, network access devices, and digital
information and entertainment products.
Sales by Geographic Area
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------
1995 1996 1997
----- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
United States..................................... $ 755 $1,443 $1,359
Europe............................................ 81 145 131
Asia-Pacific...................................... 76 138 168
Other............................................. 20 28 28
Eliminations...................................... (148) (284) (274)
----- ------ ------
Total Sales....................................... $ 784 $1,470 $1,412
===== ====== ======
</TABLE>
United States sales include export sales to unaffiliated customers of $286
million, $434 million, and $517 million in fiscal 1995, 1996, and 1997,
respectively. Substantially all export sales are to the Asia-Pacific region.
F-16
<PAGE> 104
SEMICONDUCTOR SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings by Geographic Area
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1995 1996 1997
----- ------ -----
(IN MILLIONS)
<S> <C> <C> <C>
United States........................................ $ 96 $ 178 $151
Europe............................................... 4 6 3
Asia-Pacific......................................... 6 9 11
Other................................................ 1 2 2
---- ----- ----
Operating earnings................................... 107 195 167
Other income, net.................................... 4 3 13
Provision for income taxes........................... (35) (114) (54)
---- ----- ----
Net income...................................... $ 76 $ 84 $126
==== ===== ====
</TABLE>
Included within United States earnings are pre-tax charges for the
write-off of purchased research and development in connection with the fiscal
1996 Brooktree acquisition and the fiscal 1997 Hi-Media acquisition of $121
million and $30 million, respectively.
Identifiable Assets by Geographic Area
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1995 1996 1997
---- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
United States............................................... $593 $1,251 $1,375
Europe...................................................... 18 25 32
Asia-Pacific................................................ 51 93 63
Other....................................................... 9 14 16
---- ------ ------
Total.................................................. $671 $1,383 $1,486
==== ====== ======
</TABLE>
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (IN MILLIONS)
<TABLE>
<CAPTION>
1997 FISCAL QUARTERS
----------------------------------
FIRST SECOND THIRD FOURTH 1997
----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C>
Sales.............................................. $388 $334 $321 $369 $1,412
Cost of sales...................................... 199 169 173 203 744
Net income......................................... 56 50 4 16 126
</TABLE>
<TABLE>
<CAPTION>
1996 FISCAL QUARTERS
----------------------------------
FIRST SECOND THIRD FOURTH 1996
----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C>
Sales.............................................. $287 $410 $415 $358 $1,470
Cost of sales...................................... 141 252 252 204 849
Net income (loss).................................. 52 53 54 (75) 84
</TABLE>
Third quarter fiscal 1997 net income includes a $30 million charge ($19
million after tax) for the write-off of purchased research and development in
connection with the acquisition of Hi-Media.
Fourth quarter fiscal 1996 net income includes a $121 million charge
(before and after tax) for the write-off of purchased research and development
in connection with the acquisition of Brooktree.
18. SUBSEQUENT EVENTS (UNAUDITED)
In September 1995, Celeritas Technologies, Ltd. filed suit against Rockwell
for patent infringement, misappropriation of trade secrets, and breach of
contract relating to cellular telephone data transmission
F-17
<PAGE> 105
SEMICONDUCTOR SYSTEMS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
technology utilized in certain modem products produced by Semiconductor Systems.
In July 1997, the court entered a judgment awarding damages of $57 million. On
July 20, 1998, the U.S. Court of Appeals for the Federal Circuit affirmed the
trial court's judgment based on breach of contract. Rockwell continues to
believe the judgment is in error and intends to file a petition for certiorari
with the United States Supreme Court. At June 30, 1998, approximately $30
million had been accrued for the ultimate resolution of this matter.
Semiconductor Systems will record an additional charge of $30 million in the
fourth quarter of fiscal 1998 related to this matter.
In September 1998, Semiconductor Systems announced a comprehensive plan to
resize its business to align it with the realities of the current global
semiconductor market and to position the Company for future profitability. In
connection with the plan, Semiconductor Systems will record special charges of
approximately $170 million before tax in the fourth quarter of 1998. The special
charges include approximately $95 million related to the planned disposal of
wafer fabrication facilities in Colorado Springs, Colorado, approximately $55
million for severance and other employee separation costs associated with a
worldwide workforce reduction of approximately 10 percent and approximately $20
million for other actions.
F-18
<PAGE> 106
SCHEDULE II
SEMICONDUCTOR SYSTEMS
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE AT NET CHARGE TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(b) YEAR
- ----------- ---------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
Year ended September 30, 1995
Allowance for doubtful accounts and other
reserves (a).......................... $12 $ 6 $ 1 $17
Year ended September 30, 1996
Allowance for doubtful accounts and other
reserves (a).......................... 17 25 8 34
Year ended September 30, 1997
Allowance for doubtful accounts and other
reserves (a).......................... 34 6 17 23
</TABLE>
- ---------------
(a) Includes allowances for trade receivables.
(b) Uncollectible accounts written off.
F-19
<PAGE> 107
PART II
INFORMATION NOT INCLUDED IN INFORMATION STATEMENT
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
2 Form of Distribution Agreement
3.1 Certificate of Incorporation of the Company
3.2 By-Laws of the Company
4.1 Form of Restated Certificate of Incorporation of the Company
4.2 Form of Amended By-Laws of the Company
*4.3 Specimen certificate for Company Common Stock, par value $1
per share
4.4 Form of Rights Agreement by and between the Company and the
rights agent named therein
*10.1 Form of Company's 1999 Long-Term Incentives Plan
*10.2 Form of Company's Directors Stock Plan
10.3 Form of Employee Matters Agreement
*10.4 Form of Tax Allocation Agreement
*10.5 Form of Credit Agreement
21 Subsidiaries of the Company
27 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
II-1
<PAGE> 108
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, as amended, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
ROCKWELL SEMICONDUCTOR SYSTEMS, INC.
By: /s/ DWIGHT W. DECKER
------------------------------------
Name: Dwight W. Decker
Title: President and Chief
Executive Officer
Date: September 28, 1998
II-2
<PAGE> 109
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- ------- ----------- ----
<C> <S> <C>
2 Form of Distribution Agreement
3.1 Certificate of Incorporation of the Company
3.2 By-Laws of the Company
4.1 Form of Restated Certificate of Incorporation of the Company
4.2 Form of Amended By-Laws of the Company
*4.3 Specimen certificate for Company Common Stock, par value $1
per share
4.4 Form of Rights Agreement by and between the Company and the
rights agent named therein
*10.1 Form of Company's 1999 Long-Term Incentives Plan
*10.2 Form of Company's Directors Stock Plan
10.3 Form of Employee Matters Agreement
*10.4 Form of Tax Allocation Agreement
*10.5 Form of Credit Agreement
21 Subsidiaries of the Company
27 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
Exhibit 2
DISTRIBUTION AGREEMENT
by and between
ROCKWELL INTERNATIONAL CORPORATION
and
[ROCKWELL SEMICONDUCTOR SYSTEMS, INC.]
[ ], 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS.................................1
Section 1.01 General.................................1
ARTICLE II THE DISTRIBUTION..........................20
Section 2.01 The Distribution.......................20
Section 2.02 Cooperation Prior to the
Distribution..........................21
Section 2.03 Rockwell Board Action; Conditions
to the Distribution...................22
Section 2.04 Waiver of Conditions...................23
Section 2.05 Disclosure.............................23
ARTICLE III TRANSACTIONS RELATING TO THE
DISTRIBUTION ...........................23
Section 3.01 Intercorporate Reorganization..........23
Section 3.02 Rockwell Group Obligations
Relating to the Semiconductor
Business..............................27
Section 3.03 Intercompany Accounts and
Arrangements..........................28
Section 3.04 Cash Management........................30
Section 3.05 The Semiconductor Board................32
Section 3.06 Resignations; Transfer of Stock
Held as Nominee.......................32
Section 3.07 Company Certificate of
Incorporation and By-Laws;
Rights Plan...........................33
Section 3.08 Insurance..............................34
Section 3.09 Use of Names, Trademarks, etc..........37
Section 3.10 Consents...............................42
Section 3.11 Cross-License of Intellectual
Property..............................43
ARTICLE IV MUTUAL RELEASE; INDEMNIFICATION...........57
Section 4.01 Mutual Release.........................57
Section 4.02 Indemnification by Rockwell............58
Section 4.03 Indemnification by the Company.........59
Section 4.04 Limitations on Indemnification
Obligations...........................61
Section 4.05 Procedures Relating to
Indemnification.......................62
Section 4.06 Remedies Cumulative....................65
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
Section 4.07 Survival of Indemnities................66
Section 4.08 Exclusivity of Tax Allocation
Agreement.............................66
ARTICLE V ACCESS TO INFORMATION......................66
Section 5.01 Access to Information..................66
Section 5.02 Production of Witnesses................68
Section 5.03 Retention of Records...................68
Section 5.04 Confidentiality........................69
ARTICLE VI MISCELLANEOUS.............................70
Section 6.01 Entire Agreement; Construction.........70
Section 6.02 Survival of Agreements.................70
Section 6.03 Expenses...............................70
Section 6.04 Governing Law..........................71
Section 6.05 Notices................................71
Section 6.06 Consent to Jurisdiction................73
Section 6.07 Amendments.............................73
Section 6.08 Assignment.............................73
Section 6.09 Captions; Currency.....................74
Section 6.10 Severability...........................74
Section 6.11 Parties in Interest....................74
Section 6.12 Schedules..............................74
Section 6.13 Termination............................75
Section 6.14 Waivers; Remedies......................75
Section 6.15 Further Assurances.....................75
Section 6.16 Counterparts...........................75
Section 6.17 Performance............................75
</TABLE>
ANNEXES
Annex A - Employee Matters Agreement
Annex B - Tax Allocation Agreement
SCHEDULES
Schedule 1.1(a) - By-Laws
Schedule 1.1(b) - Certificate of Incorporation
Schedule 1.1(c) - Company Subsidiaries
Schedule 1.1(d) - Semiconductor Bank Accounts
Schedule 1.1(e) - Former Businesses of the Company
Schedule 1.1(f) - Semiconductor Financial Instruments
and Shared Agreements
Schedule 1.1(g) - Semiconductor Litigation
ii
<PAGE> 4
Schedule 3.1(c) - Reorganization Transactions
Schedule 3.3(a) - Intercompany Accounts
Schedule 3.3(b)(ii) - Intercompany Agreements
Schedule 3.6 - Continuing Directors and Officers
Schedule 3.11(a) - Certain Intellectual Property
Licensed By Rockwell
Schedule 3.11(b) - Certain Intellectual Property
Licensed By the Company
Schedule 4.2 - Certain Form 10 Sections
iii
<PAGE> 5
DISTRIBUTION AGREEMENT
DISTRIBUTION AGREEMENT (this "Agreement"), dated as of [ ],
1998, by and between ROCKWELL INTERNATIONAL CORPORATION, a Delaware corporation
("Rockwell"), and [ROCKWELL SEMICONDUCTOR SYSTEMS, INC.], a Delaware corporation
and, as of the date hereof, a wholly-owned subsidiary of Rockwell (the
"Company").
WHEREAS, the Rockwell Board (as defined herein) has determined that it
is appropriate and desirable to distribute all outstanding shares of
Semiconductor Common Stock (as defined herein) on a pro rata basis to the
holders of Rockwell Common Stock (as defined herein); and
WHEREAS, Rockwell and the Company have determined that it is
appropriate and desirable to set forth the principal corporate transactions
required to effect such distribution and certain other agreements that will
govern certain matters relating to such distribution;
NOW, THEREFORE, in consideration of the premises and of the respective
agreements and covenants contained in this Agreement, the parties hereby agree
as follows:
ARTICLE I
DEFINITIONS
Section 1.01 General. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Action" means, with respect to any Person, any actual or threatened or
future action, suit, arbitration, inquiry, proceeding or investigation by or
before any Governmental Entity or any claims or other legal matters that have
been or may be asserted by or against, or otherwise affect, such Person.
"Administrative Services" shall have the meaning ascribed thereto in
Section 3.11(d)(i)(A).
<PAGE> 6
"Administrative Services Software" shall have the meaning ascribed
thereto in Section 3.11(d)(i)(B).
"Affiliate" means, with respect to any specified Person, any other
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with, such specified
Person; provided, however, that for purposes of this Agreement, following the
Time of Distribution no member of either Group shall be deemed to be an
Affiliate of any member of the other Group. For purposes of the immediately
preceding sentence, the term "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as used with respect
to any Person, means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such Person,
whether through ownership of voting securities, by contract or otherwise.
"Agreement" shall have the meaning ascribed thereto in the preamble.
"Ancillary Agreements" means, collectively, the Employee Matters
Agreement, the Tax Allocation Agreement, the Transition Agreement and the
Conveyance and Assumption Instruments.
"Application Software" shall have the meaning ascribed thereto in
Section 3.11(e)(i).
"Assets" means any and all assets, properties and rights, whether
tangible or intangible, real, personal or mixed, fixed, contingent or otherwise,
and wherever located (other than ownership interests in Subsidiaries),
including, without limitation, the following:
(i) real property interests (including, without limitation,
leases), land, plants, buildings and improvements;
(ii) machinery, equipment, tooling, vehicles, furniture and
fixtures, leasehold improvements, repair parts, tools, plant,
laboratory and office equipment and supplies, computer hardware and
software, computer networking equipment, engineering and design
equipment, test equipment and other
2
<PAGE> 7
tangible personal property, together with any rights or claims arising
out of maintenance or service contracts relating thereto or the breach
of any express or implied warranty by the manufacturers or sellers of
any of such assets or any component part thereof;
(iii) inventories, including, without limitation, raw
materials, work-in-process, materials, components, finished goods,
parts, accessories and supplies;
(iv) cash, bank accounts, notes, short-term and long-term
investments, accounts, loans and notes receivable (whether current or
not current), interests as beneficiary under letters of credit,
advances and performance and surety bonds;
(v) certificates of deposit, banker's acceptances, shares of
stock, bonds, debentures, evidences of indebtedness, certificates of
interest or participation in profit-sharing agreements,
collateral-trust certificates, preorganization certificates or
subscriptions, transferable shares, investment contracts, voting-trust
certificates, puts, calls, straddles, options, swaps, collars, caps and
other securities or hedging arrangements of any kind;
(vi) financial, accounting, corporate, operating, design,
manufacturing, test and other data and records (in each case, in
whatever form or medium, including, without limitation, electronic
media), including, without limitation, books, records, notes, sales and
sales promotional material and data, advertising materials, credit
information, cost and pricing information, customer and supplier lists,
business plans, reference catalogs, payroll and personnel records and
procedures, blue-prints, research and development files, data and
laboratory books, sales order files, litigation files, minute books,
stock ledgers, stock transfer records and other similar property,
rights and information;
(vii) (A) inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all
patents (including, without limitation, utility and design
3
<PAGE> 8
patents, industrial designs and utility models), patent applications,
and patent and invention disclosures, and all other rights of
inventorship, worldwide, together with all reissuances, continuations,
continuations-in-part, divisions, revisions, supplementary protection
certificates, extensions and re-examinations thereof; (B) trademarks,
service marks, trade names, trade dress, logos, business and product
names and slogans, any and every other form of trade identity and
registrations and applications for registration thereof, worldwide; (C)
copyrights in copyrightable works, and all other rights of authorship,
worldwide, and all applications (including, without limitation, the
right to file applications), registrations and renewals in connection
therewith; (D) mask works and semiconductor chip rights, worldwide, and
all applications (including, without limitation, the right to file
applications), registrations and renewals in connection therewith; (E)
trade secrets and confidential business and technical information
(including, without limitation, ideas, research and development,
know-how, formulas, technology, compositions, manufacturing and
production processes and techniques, technical data, engineering,
production and other designs, drawings, engineering notebooks,
industrial models, software and specifications and any other
information meeting the definition of a trade secret under the Uniform
Trade Secrets Act); (F) computer and electronic data processing
programs and software, both source code and object code (including,
without limitation, data and related documentation, flow charts,
diagrams, descriptive texts and programs, computer print-outs,
underlying tapes, computer databases and similar items), computer
applications and operating programs; (G) rights to sue for and remedies
against past, present and future infringements of any or all of the
foregoing and rights of priority and protection of interests therein
under the laws of any jurisdiction worldwide; (H) all copies and
tangible embodiments of any or all of the foregoing (in whatever form
or medium, including, without limitation, electronic media); (I) all
other proprietary and intellectual property rights and interests; and
(J) all other rights relating to any or all of the foregoing;
4
<PAGE> 9
(viii) Contracts;
(ix) credits, prepaid expenses, deposits and retentions held
by third parties;
(x) claims, causes of action, choses in action, rights under
express or implied warranties, guarantees, indemnities and similar
rights, rights of recovery, rights of set-off, rights of subrogation
and all other rights of any kind;
(xi) Licenses; and
(xii) goodwill and going concern value.
"Assigning Party" shall have the meaning ascribed thereto in Section
3.10.
"Assumed Rockwell Liabilities" means Liabilities of the Company Group
as of the Time of Distribution which do not constitute Semiconductor Liabilities
and which relate to or arise in connection with any business of Rockwell and the
Rockwell Subsidiaries other than the Semiconductor Business.
"BNA" means Boeing North American, Inc., a Delaware corporation
formerly named Rockwell International Corporation.
"BNA Transition Agreement" means the Transition Agreement dated as of
December 6, 1996 by and among Rockwell, The Boeing Company and BNA, as the same
may be amended.
"Boeing Post-Closing Covenants Agreement" means the Post-Closing
Covenants Agreement dated as of December 6, 1996 among BNA, The Boeing Company,
Boeing NA, Inc. and Rockwell.
"By-Laws" means the Company's by-laws substantially in the form
attached hereto as Schedule 1.1(a).
"Cash" means all cash, cash on hand, cash in transit, cash equivalents,
funds, certificates of deposit, similar instruments and other short-term
investments held by Rockwell and its Subsidiaries and Affiliates (including,
without limitation, members of the
5
<PAGE> 10
Company Group) at the Time of Distribution (it being understood that cash
equivalents do not include intercompany cash management balances which will be
eliminated as of the Time of Distribution pursuant to Section 3.03(a)).
"Certificate of Incorporation" means the Company's certificate of
incorporation substantially in the form attached hereto as Schedule 1.1(b).
"Change in Control" means, with respect to any party, any of the
following events or circumstances: (a) any Person or group of Persons (within
the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as
amended) shall either (i) acquire beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934) of 25% or more of the outstanding shares of voting stock
of the party or (ii) obtain the power (whether or not exercised) to elect a
majority of the party's directors or (b) Continuing Directors shall cease to
constitute a majority of the board of directors of the party.
"Claims Administration" means the processing of claims made under the
Policies, including, without limitation, the reporting of claims to the
insurance carrier, management and defense of claims, and providing for
appropriate releases upon settlement of claims.
"Claims Made Policies" shall have the meaning ascribed thereto in
Section 3.08(a).
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor legislation.
"Commission" means the Securities and Exchange Commission.
"Company" shall have the meaning ascribed thereto in the preamble.
"Company Group" means the Company and the Company Subsidiaries.
"Company Subsidiary" means each Person listed on Schedule 1.1(c) which
is a direct or indirect Subsidiary of the Company as of the Time of
Distribution.
6
<PAGE> 11
"Consents" means consents, approvals, waivers, clearances, exemptions,
allowances, novations, authorizations, filings, registrations and notifications.
"Continuing Director" means, with respect to either party, any member
of such party's board of directors who either (i) is a member of such board as
of the Time of Distribution or (ii) is thereafter elected to such board, or
nominated for election by stockholders, by a vote of at least two-thirds of the
directors who are Continuing Directors at the time of such vote; provided that
an individual who is so elected or nominated in connection with a merger,
consolidation, acquisition or similar transaction (but excluding the
Distribution) shall not be a Continuing Director unless such individual was a
Continuing Director prior thereto.
"Contracts" means agreements, leases, contracts, memoranda of
understanding, letters of intent, sales orders, purchase orders, open bids and
other commitments and all rights therein and Liabilities thereunder, including,
without limitation, in each case, all amendments, modifications and supplements
thereto and waivers and consents thereunder.
"Conveyance and Assumption Instruments" means, collectively, the
various agreements, deeds, bills of sale, stock powers, certificates of title,
instruments of conveyance and assignment, instruments of assumption and other
instruments and documents to be entered into to effect the transfer of Assets
and Subsidiaries and the assumption of Liabilities contemplated by the
transactions described in Section 3.01.
"Distribution" means the distribution, on the basis provided for in
Section 2.01, to holders of Rockwell Common Stock of the shares of Semiconductor
Common Stock owned by Rockwell on the Distribution Date.
"Distribution Agent" means the distribution agent selected by Rockwell
to distribute Semiconductor Common Stock in connection with the Distribution.
"Distribution Date" means the date determined by the Rockwell Board as
the date as of which the Distribution will be effected.
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<PAGE> 12
"Employee Matters Agreement" means the Employee Matters Agreement
between Rockwell and the Company, substantially in the form attached hereto as
Annex A.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Form 10" means the registration statement on Form 10 filed by the
Company with the Commission to effect the registration of the Semiconductor
Common Stock pursuant to the Exchange Act, including, without limitation, all
amendments thereto filed by the Company with the Commission prior to the Time of
Distribution.
"Former Business" means any corporation, partnership, entity, division,
business unit, business, assets, plants, product line, operations or contract
(including, without limitation, any assets and liabilities comprising the same)
that has been sold, conveyed, assigned, transferred or otherwise disposed of or
divested (in whole or in part) by any member of the Pre-Distribution Group or
the operations, activities or production of which has been discontinued,
abandoned, completed or otherwise terminated (in whole or in part) by any member
of the Pre-Distribution Group.
"Governmental Entity" means any government or any court, arbitral
tribunal, administrative agency or commission or other governmental or
regulatory authority or agency, Federal, state, local, domestic, foreign or
international.
"Group" means the Rockwell Group or the Company Group.
"Indemnifiable Losses" means, subject to Section 4.04, any and all
losses, Liabilities, claims, damages, deficiencies, obligations, fines,
payments, Taxes, Liens, costs and expenses, matured or unmatured, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated, known or unknown,
whenever arising and whether or not resulting from Third Party Claims
(including, without limitation, the costs and expenses of any and all Actions;
all amounts paid in connection with any demands, assessments, judgments,
settlements and compromises relating thereto; interest and penalties recovered
by a third party with respect thereto; out-of-pocket expenses and reasonable
attorneys', accountants'
8
<PAGE> 13
and other experts' fees and expenses reasonably incurred in investigating,
preparing or defending against any such Actions or in asserting, preserving or
enforcing an Indemnitee's rights hereunder; and any losses that may result from
the granting of injunctive relief as a result of any such Actions).
"Indemnifying Party" shall have the meaning ascribed thereto in Section
4.04(a).
"Indemnitee" means any of the Rockwell Indemnitees or the Semiconductor
Indemnitees who or which may seek indemnification under this Agreement.
"Indemnity Reduction Amounts" shall have the meaning ascribed thereto
in Section 4.04(a).
"Information" means all records, books, contracts, instruments,
computer data and other data and information (in each case, in whatever form or
medium, including, without limitation, electronic media).
"Information Statement" means the information statement with respect to
the Company sent to the holders of Rockwell Common Stock in connection with the
Distribution.
"Insurance Proceeds" means monies (a) received by an insured from an
insurance carrier, (b) paid by an insurance carrier on behalf of an insured or
(c) received from any third party in the nature of insurance, contribution or
indemnification in respect of any Liability.
"IRS" means the Internal Revenue Service.
"Japanese Credit Facilities" means (i) the Yen 2.5 billion credit
facility from Industrial Bank of Japan to RSS Japan, (ii) the Yen 4 billion
credit facility from Bank of Tokyo-Mitsubishi to RSS Japan and (iii) any
successor, substitute or replacement credit facilities of any of the foregoing
credit facilities.
"Japanese Debt Amount" means the sum of the aggregate amounts payable
by RSS Japan under all of the Japanese Credit Facilities, including, without
limitation, any accrued interest and fees with respect thereto, as of the Time
of Distribution.
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<PAGE> 14
"Liabilities" means any and all claims, debts, liabilities, commitments
and obligations of whatever nature, whether fixed, contingent or absolute,
matured or unmatured, liquidated or unliquidated, accrued or not accrued, known
or unknown, due or to become due, whenever or however arising (including,
without limitation, those arising out of any contract or tort, whether based on
negligence, strict liability or otherwise) and whether or not the same would be
required by generally accepted accounting principles to be reflected as a
liability in financial statements or disclosed in the notes thereto, including,
without limitation, all costs and expenses relating thereto and those claims,
debts, liabilities, commitments and obligations arising under any law, rule,
regulation, Action, order or consent decree of any Governmental Entity or any
award of any arbitrator of any kind, and those arising under any Contract.
"Licenses" means licenses, permits, authorizations, consents,
certificates, registrations, variances, franchises and other approvals from any
Governmental Entity, including, without limitation, those relating to
environmental matters.
"Lien" means any lien, security interest, pledge, mortgage, charge,
restriction, claim, retention of title agreement or other encumbrance of
whatever nature.
"Meritor" means Meritor Automotive, Inc., a Delaware corporation.
"Meritor Distribution Agreement" means the Distribution Agreement dated
as of September 30, 1997 by and between Rockwell and Meritor.
"Nasdaq" means The Nasdaq Stock Market, Inc. National Market System.
"No-action Letter" means a letter or letters from the staff of the
Commission indicating that the Division of Corporation Finance will not
recommend enforcement action to the Commission if shares of Semiconductor Common
Stock received by the Rockwell Savings Plans in the Distribution (i) are sold by
the Rockwell Savings Plans on behalf of participants in the Rockwell Savings
Plans who are not affiliates of the Company or (ii) are distributed to such
participants and
10
<PAGE> 15
sold by them, in each case, without compliance with Rule 144 under the
Securities Act, registration under the Securities Act or compliance with any
other exemption from registration under the Securities Act.
"Occurrence Basis Policies" shall have the meaning ascribed thereto in
Section 3.08(a).
"Ordinary Course Intercompany Arrangements" shall have the meaning
ascribed thereto in Section 3.03(b)(ii).
"Owner" shall have the meaning ascribed thereto in Section 3.11(c)(ii).
"Person" means any individual, partnership, joint venture, corporation,
limited liability entity, trust, unincorporated organization or other entity
(including, without limitation, a Governmental Entity).
"Policies" means all insurance policies and insurance contracts of any
kind of the Pre-Distribution Group which include the Company, the Company
Subsidiaries and/or the Semiconductor Business within the definition of the
named insured and which were or are in effect at any time at or prior to the
Time of Distribution, including, without limitation, primary, excess and
umbrella policies, commercial general liability policies, fiduciary liability,
product liability, automobile, aircraft, property and casualty, directors and
officers liability, workers' compensation and employee dishonesty insurance
policies, bonds and captive insurance company arrangements, together with all
rights, benefits and privileges thereunder.
"Pre-Distribution Group" means (i) each of Rockwell, the Subsidiaries
of Rockwell existing immediately prior to the Time of Distribution (including,
without limitation, members of the Company Group) and the former Subsidiaries of
Rockwell, (ii) each of the predecessors of each of the foregoing (including,
without limitation, BNA) and (iii) each of the present and former Subsidiaries
and other Affiliates of each of the foregoing, and their predecessors.
"Privileged Information" means, with respect to either Group,
Information regarding a member of such Group, or any of its operations,
employees, assets or
11
<PAGE> 16
Liabilities (whether in documents or stored in any other form or known to its
employees or agents) that is or may be protected from disclosure pursuant to the
attorney-client privilege, the work product doctrine or other applicable
privileges, that a member of the other Group may come into possession of or
obtain access to pursuant to this Agreement or otherwise.
"Recipient Party" shall have the meaning ascribed thereto in Section
3.10.
"Record Date" means the close of business on the date determined by the
Rockwell Board as the record date for the Distribution.
"Recorded Amount" means, with respect to Cash, the amount recorded by
Rockwell as of the Time of Distribution in accordance with Rockwell's practices
and procedures as in effect on the date hereof. The parties acknowledge that
such practices and procedures include (i) deducting the amount of outstanding
checks for the purposes of determining the Recorded Amount of Cash in non-U.S.
bank accounts and (ii) not deducting the amount of outstanding checks for the
purposes of determining the Recorded Amount of Cash in U.S. bank accounts.
"Representative" means, with respect to any Person, any of such
Person's directors, officers, employees, agents, consultants, advisors,
accountants, attorneys and representatives.
"Rights" means the Rights to be issued pursuant to the Rights Plan.
"Rights Plan" means the rights agreement entered into on or prior to
the Distribution Date between the Company and ChaseMellon Shareholder Services,
L.L.C., as rights agent, substantially in the form filed as an exhibit to the
Form 10.
"Rockwell" shall have the meaning ascribed thereto in the preamble.
"Rockwell Assets" means, collectively, all Assets which immediately
prior to the Time of Distribution are owned by Rockwell or any of its
Subsidiaries (including, without limitation, members of the Company Group),
other than the Semiconductor Assets.
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<PAGE> 17
Anything contained herein to the contrary notwithstanding, Rockwell Retained
Assets shall be included in Rockwell Assets.
"Rockwell Board" means the Board of Directors of Rockwell or a duly
authorized committee thereof.
"Rockwell CLIR Fund" means the Rockwell Continued Life Insurance
Reserve Fund.
"Rockwell Common Stock" means the Common Stock, par value $1.00 per
share, of Rockwell.
"Rockwell Group" means Rockwell and its Affiliates, whether now or
hereafter existing, other than members of the Company Group.
"Rockwell Indemnitees" means Rockwell, each Affiliate of Rockwell,
including the Rockwell Subsidiaries, each of their respective Representatives
and each of the heirs, executors, successors and assigns of any of the
foregoing.
"Rockwell Retained Accounts" means all bank accounts of Rockwell and
its Subsidiaries and Affiliates (including, without limitation, members of the
Company Group), other than Semiconductor Bank Accounts.
"Rockwell Retained Assets" means the following:
(i) all (A) Rockwell Retained Accounts and (B) Cash,
including, without limitation, all Cash contained in the Rockwell
Retained Accounts and the Semiconductor Bank Accounts, except for (i)
Cash in a Recorded Amount equal to the Japanese Debt Amount and (ii)
shares of common stock of Semtech Corporation held by Rockwell and its
Subsidiaries;
(ii) all Policies and all rights therein and related thereto,
other than the benefits of Occurrence Basis Policies and Claims Made
Policies to the extent described in Section 3.08(a);
(iii) all rights in and use of the names, trademarks, trade
names and service marks "Rockwell" and "Rockwell International" and all
corporate symbols and logos related thereto and all names, trademarks,
trade names and service marks which
13
<PAGE> 18
include the words "Rockwell" or "Rockwell International" or any
derivative thereof (other than as provided for in Section 3.09);
(iv) all assets with respect to pension plans of Rockwell and
its Subsidiaries (including, without limitation, members of the Company
Group)[, other than as provided for in the Employee Matters Agreement];
(v) all assets of and related to the Rockwell VEBA and the
Rockwell CLIR Fund;
(vi) all Shared Agreements (subject to the provisions of
Section 3.02(c));
(vii) all assets that are used by Rockwell and its
Subsidiaries and Affiliates in providing corporate, insurance and
administrative services to Subsidiaries, divisions or operating units
of the Rockwell Group not included in the Semiconductor Business
(whether or not the same or similar services are provided to the
Semiconductor Business);
(viii) all interests of Rockwell and its Subsidiaries and
Affiliates (including, without limitation, members of the Company
Group) in charitable trusts and assets thereof (it being understood
that such charitable trusts will remain obligated to fund an aggregate
of $[ ] of commitments of such charitable trusts relating to the
Semiconductor Business existing at the Time of Distribution, and that
all other such commitments will constitute Semiconductor Liabilities);
(ix) all rights in U.S. Patent #4,368,098 entitled "Epitaxial
Composite and Method of Making", all license agreements and royalties
with respect to the licensing thereof and all rights to sue and recover
for and remedies against past, present and future infringements thereof
(including, without limitation, all rights in respect of the Action
Rockwell International Corporation v. United States and SDL, Inc., Civ.
No. 93-542 C, U.S. Court of Federal Claims); and
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<PAGE> 19
(x) all rights, choses in action, causes of action and claims
arising out of any asset described in clauses (i) through (ix) above.
"Rockwell Savings Plans" means, collectively, (i) the Rockwell
International Corporation Savings Plan, (ii) the Rockwell Retirement Savings
Plan for Certain Employees, (iii) the Allen-Bradley Savings and Investment Plan
for Salaried Employees, (iv) the Allen-Bradley Savings and Investment Plan for
Hourly Employees, (v) the Allen-Bradley Savings and Investment Plan for
Represented Hourly Employees and (vi) the Reliance Electric Company Savings and
Investment Plan.
"Rockwell Science Center" means Rockwell Science Center, LLC, a
Delaware limited liability company.
"Rockwell Subsidiary" means any Subsidiary of Rockwell other than the
Company or any Company Subsidiary.
"Rockwell VEBA" means the Trust for Employee Welfare Benefit Programs
of Rockwell International Corporation.
"RSS Japan" means Rockwell International Japan Kabushiki Kaisha, a
corporation organized under the laws of Japan.
"Securities Act" means the Securities Act of 1933, as amended.
"Semiconductor Assets" means, collectively, all Assets (other than
Rockwell Retained Assets) which immediately prior to the Time of Distribution
are owned by Rockwell or any of its Subsidiaries (including, without limitation,
members of the Company Group) and which are used primarily in or relate
primarily to the Semiconductor Business, as the same shall exist as of such
time, including, without limitation, except as otherwise provided pursuant to
any Transaction Agreement, all assets reflected in the Semiconductor Balance
Sheet, as such assets may have been added to or sold or otherwise changed since
the date thereof. Anything contained herein to the contrary notwithstanding,
Rockwell Retained Assets shall not be included in Semiconductor Assets.
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<PAGE> 20
"Semiconductor Balance Sheet" means the balance sheet of the
Semiconductor Business as of September 30, 1998 contained in the Form 10.
"Semiconductor Bank Accounts" means all bank accounts set forth on
Schedule 1.1(d).
"Semiconductor Board" means the Board of Directors of the Company.
"Semiconductor Business" means (i) the business engaged in at all times
prior to the Time of Distribution by the Pre-Distribution Group of researching,
developing, designing, engineering, manufacturing, building, selling,
distributing, installing, modifying, repairing, servicing and supporting
semiconductor products and systems for communications electronics markets such
as personal computers, personal imaging devices, wireless communications
products, network access devices and digital information and entertainment
products, and activities related thereto, (ii) Former Businesses managed or
operated with any of the foregoing or operationally or otherwise related to any
of the foregoing, including, without limitation, the Former Businesses listed on
Schedule 1.1(e) and (iii) activities related to the foregoing; provided,
however, that the Semiconductor Business shall not include (A) the business
heretofore and currently engaged in by Rockwell's Electronic Commerce Division,
including, without limitation, researching, developing, designing, engineering,
manufacturing, building, selling, distributing, installing, modifying,
repairing, servicing and supporting electronic commerce products for call center
systems and personalized electronic commerce applications or (B) Rockwell's
mechanical filters product line, including, without limitation, the developing,
designing, engineering, manufacturing, building and selling of high performance
electrical bandpass filters (operating in the 3 kilohertz to 500 kilohertz
center frequency range) for HF, UHF and VHF radios, automatic train controls and
wireless communications infrastructure equipment. Notwithstanding anything
contained herein to the contrary, the term "Semiconductor Business" shall not
include Rockwell Science Center (or the operations thereof) or Rockwell's
Automation or Avionics & Communications businesses. The parties acknowledge that
the Semiconductor Business in the past has operated under such names as
Microelectronics Division, North American
16
<PAGE> 21
Rockwell Microelectronics Company, Electronic Devices Division, Semiconductor
Products Division, Microelectronics Technology Center, Digital Communications
Division, Rockwell Telecommunications Division, Rockwell Semiconductor Systems
Division, Multimedia Communications Division, Wireless Communications Division,
Personal Computing Products Division, Personal Imaging Products Division,
Digital Infotainment Division and Network Access Division.
"Semiconductor Common Stock" means, collectively, the Common Stock, par
value $1.00 per share, of the Company and the related Rights.
"Semiconductor Financial Instruments" means all credit facilities,
guaranties, foreign currency forward exchange contracts, comfort letters,
letters of credit and similar instruments related to the Semiconductor Business
under which any member of the Rockwell Group has any primary, secondary,
contingent, joint, several or other Liability (other than Shared Agreements),
including, without limitation, those set forth on Schedule 1.1(f).
"Semiconductor Indemnitees" means the Company, each Affiliate of the
Company, including the Company Subsidiaries, each of their respective
Representatives and each of the heirs, executors, successors and assigns of any
of the foregoing.
"Semiconductor Liabilities" means (i) all Liabilities of any member of
the Company Group under any Transaction Agreement to which it is or becomes a
party, (ii) all Liabilities for which any member of the Company Group is made
responsible pursuant to any Transaction Agreement and (iii) all Liabilities
based upon, arising out of, relating to or otherwise in connection with the
Semiconductor Assets or the Semiconductor Business, whether based upon, arising
out of, relating to or otherwise in connection with events, actions,
occurrences, omissions, circumstances or conditions occurring, existing or
asserted before, at or after the Time of Distribution, including, without
limitation: (A) all Liabilities reflected (or of the type reflected) on the
Semiconductor Balance Sheet or described (or of the type described) in the notes
thereto (as such Liabilities may have been reduced or added to or otherwise
changed since the date thereof), (B) all
17
<PAGE> 22
Liabilities in respect of checks outstanding as of the Time of Distribution
relating to the Semiconductor Business, (C) all Liabilities in respect of
workers' compensation, automobile, general liability, products liability,
intellectual property liability and other claims and matters (whether direct or
by indemnification of any Person or otherwise) relating to the Semiconductor
Business, (D) all Liabilities in respect of all Actions relating to the
Semiconductor Business, including, without limitation, those Actions set forth
on Schedule 1.1(g) (other than Liabilities described in Section 4.02(g)), (E)
all Liabilities in respect of salary, bonuses, incentive payments, severance
payments and other compensation payments and all Taxes and withholdings related
thereto, (F) except for those Liabilities expressly assumed by the Rockwell
Group pursuant to the Employee Matters Agreement, all Liabilities in respect of
employee welfare and fringe benefits relating to the Semiconductor Business
(including, without limitation, claims for medical and disability benefits), (G)
all Liabilities for environmental matters based upon, arising out of, relating
to or otherwise in connection with the Semiconductor Business, including,
without limitation, Liabilities in respect of any facility to the extent
relating to the Semiconductor Business presently or formerly owned or operated
by any member of the Pre-Distribution Group, (H) all Liabilities based upon,
arising out of, relating to or otherwise in connection with Contracts related to
the Semiconductor Business, including, without limitation, Liabilities to make
payments or otherwise in connection with the termination thereof as a result of
the transactions contemplated hereby or otherwise, (I) all Liabilities in
respect of commitments of charitable trusts relating to the Semiconductor
Business (except for an aggregate of $[ ] of such commitments existing at the
Time of Distribution, which shall be funded by such trusts), (J) all Liabilities
payable under the BNA Transition Agreement and all agreements executed in
connection therewith related to the Semiconductor Business, including, without
limitation, payment for all services performed for the Semiconductor Business
and (K) all Liabilities relating to the Japanese Credit Facilities and all other
credit facilities to which any member of the Company Group is a party at the
Time of Distribution, including, without limitation, all indebtedness
outstanding thereunder and interest and fees payable with respect thereto.
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<PAGE> 23
"Shared Agreements" means all credit facilities, guaranties, foreign
currency forward exchange contracts, comfort letters, letters of credit and
similar instruments, bonds, indemnities, assurances and Contracts under which
Rockwell or any Rockwell Subsidiary has any primary, secondary, contingent,
joint, several or other Liability arising out of or relating to both (i) the
Semiconductor Business and (ii) one or more other businesses of Rockwell or any
Rockwell Subsidiary, which by their terms will be outstanding or in effect as of
or at any time following the Time of Distribution, including, without
limitation, those set forth on Schedule 1.1(f).
"Subsidiary" means, with respect to any Person, any corporation or
other organization, whether incorporated or unincorporated, of which such Person
or any Subsidiaries of such Person controls or owns, directly or indirectly,
more than 50% of the stock or other equity interest, or more than 50% of the
voting power entitled to vote on the election of members to the board of
directors or similar governing body; provided, however, that for purposes of
this Agreement neither the Company nor any Company Subsidiary shall be deemed to
be a Rockwell Subsidiary (as defined herein).
"Tax" shall have the meaning ascribed thereto in the Tax Allocation
Agreement.
"Tax Allocation Agreement" means the Tax Allocation Agreement between
Rockwell and the Company, substantially in the form attached hereto as Annex B.
"Tax Ruling" means a private letter ruling issued by the IRS in form
and substance satisfactory to Rockwell (in its sole discretion) indicating that
the Distribution will qualify as a tax-free spin-off to the shareowners of
Rockwell for federal income tax purposes under Section 368(a)(1)(D) of the Code.
"Third Party Claim" shall have the meaning ascribed thereto in Section
4.05(a).
"Third Party Licensee" shall have the meaning ascribed thereto in
Section 3.11(c)(ii).
"Third Party Licensor" shall have the meaning ascribed thereto in
Section 3.11(c)(ii).
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"Time of Distribution" means the close of business on the Distribution
Date.
"Transaction Agreements" means, collectively, this Agreement and each
Ancillary Agreement.
"Transition Agreement" means a transition services agreement between
Rockwell and the Company which will be entered into on or prior to the
Distribution Date and will provide for various service and other relationships
between Rockwell and the Company following the Distribution Date.
"Transition Period" shall have the meaning ascribed thereto in Section
3.11(d)(i)(C).
"Western Atlas Litigation" means the litigation listed as Item A.11 on
Schedule 1.1(g) existing as of the Distribution Date (it being understood that
the parties to such dispute may raise additional issues in connection
therewith).
"Western Atlas Litigation Liabilities" means all Liabilities in respect
of the Western Atlas Litigation arising solely from sales by Rockwell's Avionics
& Communications business to commercial customers of products incorporating
chipsets purchased by Rockwell's Avionics & Communications business from
suppliers other than the Semiconductor Business.
ARTICLE II
THE DISTRIBUTION
Section 2.01 The Distribution. (a) Subject to Section 2.03, on or prior
to the Distribution Date, Rockwell will deliver to the Distribution Agent, for
the benefit of holders of record of Rockwell Common Stock as of the Record Date,
a certificate or certificates, endorsed by Rockwell in blank, representing, in
the aggregate (and rounded up to the nearest whole share), a number of shares of
Semiconductor Common Stock equal to the number of shares of Rockwell Common
Stock issued and outstanding as of the Record Date (excluding treasury shares
held by Rockwell) divided by [___], and Rockwell will instruct the Distribution
Agent to make book-entry
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credits on the Distribution Date or as soon thereafter as practicable for each
holder of record of Rockwell Common Stock as of the Record Date, or the
designated transferee or transferees of such holder, for a number of shares
(including fractional shares) of Semiconductor Common Stock equal to the
quotient obtained by dividing (i) the number of shares of Rockwell Common Stock
so held by such holder of record as of the Record Date divided by (ii) [___].
The Distribution will be effective as of the Time of Distribution.
(b) Rockwell and the Company will each provide to the
Distribution Agent all information (including, without limitation, information
necessary to make appropriate book-entry credits) and share certificates, in
each case, as may be required in order to complete the Distribution on the basis
of one share of Semiconductor Common Stock for every [___] shares of Rockwell
Common Stock issued and outstanding as of the Record Date (excluding treasury
shares held by Rockwell).
Section 2.02 Cooperation Prior to the Distribution. Prior to the
Distribution:
(a) Rockwell and the Company will prepare, and Rockwell will
mail, promptly after effectiveness of the Form 10, to the holders of Rockwell
Common Stock, the Information Statement, which will set forth appropriate
disclosure concerning the Company, the Distribution and such other matters as
Rockwell and the Company may determine. Rockwell and the Company will prepare,
and the Company will file with the Commission, the Form 10, which will include
or incorporate by reference the Information Statement. The Company will use its
reasonable best efforts to cause the Form 10 to become effective under the
Exchange Act as soon as practicable following the filing thereof.
(b) Rockwell and the Company will cooperate in preparing,
filing with the Commission and causing to become effective any registration
statements or amendments thereof which are required to reflect the establishment
of, or amendments to, any employee benefit and other plans contemplated by the
Employee Matters Agreement.
(c) Rockwell and the Company will take all such action as may
be necessary or appropriate under the
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securities or "blue sky" laws of the states or other political subdivisions of
the United States and the securities laws of any applicable foreign countries or
other political subdivisions thereof in connection with the transactions
contemplated by this Agreement.
(d) Rockwell and the Company will cause to be prepared, and
the Company will file and use its reasonable best efforts to have approved, an
application for approval of trading and quotation on Nasdaq of the Semiconductor
Common Stock to be distributed in the Distribution.
Section 2.03 Rockwell Board Action; Conditions to the Distribution. The
Rockwell Board will in its discretion establish the Record Date and the
Distribution Date and all appropriate procedures in connection with the
Distribution, but in no event will the Distribution occur prior to such time as
each of the following conditions shall have been satisfied or shall have been
waived by the Rockwell Board in accordance with Section 2.04:
(a) Rockwell shall have received the Tax Ruling and the Tax
Ruling shall be in full force and effect and shall not have been modified or
amended in any respect adversely affecting the tax consequences set forth
therein;
(b) the Rockwell Board shall have given final approval of the
Distribution;
(c) all material Consents which are required to effect the
Distribution shall have been obtained and shall be in full force and effect;
(d) the Form 10 shall have become effective under the Exchange
Act;
(e) the Certificate of Incorporation, the By-Laws and the
Rights Plan each shall have been adopted and be in effect;
(f) the Semiconductor Common Stock shall have been approved
for trading and quotation on Nasdaq;
(g) the transactions contemplated by Section 3.01 and Section
3.02 shall have been consummated in all material respects;
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(h) Rockwell and the Company shall have entered into each of
the Ancillary Agreements and each such agreement shall be in full force and
effect;
(i) the No-action Letter shall have been issued and shall be
in full force and effect;
(j) no order, injunction or decree issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing
consummation of the Distribution shall be in effect; and
(k) no suit, action or proceeding by or before any court of
competent jurisdiction or other Governmental Entity shall have been commenced
and be pending to restrain or challenge the Distribution, and no inquiry shall
have been received that in the reasonable judgment of the Rockwell Board may
lead to such a suit, action or proceeding;
provided that the satisfaction of such conditions will not create any obligation
on the part of Rockwell to effect or seek to effect the Distribution or in any
way limit Rockwell's right to terminate this Agreement set forth in Section 6.13
or alter the consequences of any such termination from those specified in such
Section.
Section 2.04 Waiver of Conditions. Any or all of the conditions set
forth in Section 2.03 may be waived, in whole or in part, in the sole discretion
of the Rockwell Board.
Section 2.05 Disclosure. If at any time after the date hereof either of
the parties shall become aware of any circumstances that will or may prevent any
or all of the conditions contained in Section 2.03 from being satisfied, it will
promptly give to the other party written notice of those circumstances.
ARTICLE III
TRANSACTIONS RELATING TO THE DISTRIBUTION
Section 3.01 Intercorporate Reorganization. (a) Prior to the
Distribution Date, Rockwell and the Company will take all actions necessary to
increase the outstanding shares of Semiconductor Common Stock so that,
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immediately prior to the Distribution, Rockwell will hold a number of shares of
Semiconductor Common Stock (rounded up to the nearest whole share) equal to the
number of shares of Rockwell Common Stock issued and outstanding as of the
Record Date (excluding treasury shares held by Rockwell) divided by [___].
(b) Subject to Section 3.10, prior to the Time of
Distribution, Rockwell and the Company will take, or cause to be taken, all
actions necessary, including, without limitation, the actions specified in
Section 3.01(c), to:
(i) have Rockwell and each Rockwell Subsidiary assign and
transfer, or cause to be assigned and transferred, to the Company or a
Company Subsidiary, as appropriate, any and all right, title and
interest of Rockwell and each of the Rockwell Subsidiaries in the
Company Subsidiaries;
(ii) have Rockwell and each Rockwell Subsidiary assign and
transfer, or cause to be assigned and transferred, to the Company or a
Company Subsidiary, as appropriate, any and all right, title and
interest of Rockwell and each of the Rockwell Subsidiaries in the
Semiconductor Assets;
(iii) have the Company and each Company Subsidiary assign and
transfer, or cause to be assigned and transferred, to a Rockwell
Subsidiary any and all right, title and interest of the Company and
each of the Company Subsidiaries in all Rockwell Assets (including,
without limitation, all Rockwell Retained Assets);
(iv) have Rockwell and each Rockwell Subsidiary assign and
transfer, or cause to be assigned and transferred, to the Company or a
Company Subsidiary, as appropriate, and have the Company or a Company
Subsidiary, as appropriate, unconditionally assume and undertake to
pay, perform and discharge, in a timely manner and in accordance with
the terms thereof, all Liabilities of Rockwell and the Rockwell
Subsidiaries that are Semiconductor Liabilities; and
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(v) have the Company and each Company Subsidiary assign and
transfer, or cause to be assigned and transferred, to Rockwell or a
Rockwell Subsidiary, as appropriate, and have Rockwell or a Rockwell
Subsidiary, as appropriate, unconditionally assume and undertake to
pay, perform and discharge, in a timely manner and in accordance with
the terms thereof, all of the Assumed Rockwell Liabilities.
In the event that at any time or from time to time (whether
prior to or after the Time of Distribution) either party (or any member of such
party's respective Group) shall receive or otherwise possess any Asset that is
allocated to any other Person pursuant to this Agreement or any Ancillary
Agreement, such party will promptly transfer, or cause to be transferred, such
Asset to the Person so entitled thereto. Prior to any such transfer, the Person
receiving or possessing such Asset will hold such Asset in trust for the benefit
of the Person entitled thereto (at the expense of the Person entitled thereto).
In the event that at any time or from time to time (whether prior to or after
the Time of Distribution) either Rockwell or the Company determines that the
other party (or any member of such other party's respective Group) shall not
have unconditionally assumed any Liabilities that are allocated to such other
Party (or a member of such other party's respective Group) pursuant to this
Agreement or any Ancillary Agreement, such other party will promptly execute and
deliver, or cause to be executed and delivered, all such documents and
instruments and will take, or cause to be taken, all such actions as the
requesting party may reasonably request to unconditionally assume, or cause to
be unconditionally assumed, such Liabilities.
(c) Subject to Section 3.10, Rockwell and the Company will
take, or cause to be taken, the actions described on Schedule 3.1(c) in
connection with United States and international operations of the Semiconductor
Business.
(d) In connection with the transfers of Subsidiaries and
Assets and the assumptions of Liabilities contemplated by subsections (b) and
(c) of this Section 3.01, Rockwell and the Company will execute or cause to be
executed by the appropriate entities the Conveyance and Assumption Instruments.
The transfer of capital stock contemplated by such subsections will be
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effected by means of delivery of stock certificates duly endorsed or accompanied
by duly executed stock powers and notation on the stock record books of the
corporation or other legal entities involved and, to the extent required by
applicable law, by notation on appropriate registries.
(e) Each of Rockwell (on behalf of itself and each member of
the Rockwell Group) and the Company (on behalf of itself and each member of the
Company Group) understands and agrees that, except as expressly set forth in any
Transaction Agreement, no party to any Transaction Agreement or any other
agreement or document contemplated by any Transaction Agreement either has or
is, in such agreement or otherwise, representing or warranting in any way as to
the Assets, Subsidiaries, businesses or Liabilities retained, transferred or
assumed as contemplated hereby or thereby, as to any consents or approvals
required in connection with the transactions contemplated by the Transaction
Agreements, as to the value or freedom from any Lien of, or any other matter
concerning, any Assets or Subsidiaries of such party, or as to the absence of
any defenses or rights of setoff or freedom from counterclaim with respect to
any claim or other Assets or Subsidiaries of any party, or as to the legal
sufficiency of any assignment, document or instrument delivered hereunder or
thereunder to convey title to any Asset or Subsidiary or thing of value upon the
execution, delivery or filing hereof or thereof. Except as may expressly be set
forth in any Transaction Agreement, all Assets and Subsidiaries being
transferred or retained as contemplated by any Transaction Agreement or any
other agreement or document contemplated by any Transaction Agreement are being
transferred, or are being retained, on an "as is", "where is" basis (and, in the
case of the transfer of any real property, by means of a quitclaim or similar
form deed or conveyance) and the respective transferees shall bear the economic
and legal risks that any conveyance shall prove to be insufficient or that the
title to any Asset or Subsidiary shall be other than good and marketable and
free and clear of any Lien.
(f) It is the intention of the parties that payments made by
the parties to each other after the Time of Distribution pursuant to the
Transaction Agreements are to be treated as relating back to the transactions
occurring prior to the Time of Distribution pursuant to this Section 3.01 as an
adjustment to the transfers of
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Assets, Subsidiaries and Liabilities contemplated by this Section 3.01, and
Rockwell and the Company will, and will cause their Subsidiaries to, take
positions consistent with such intention with any Tax authority, unless with
respect to any payment any party receives an opinion of counsel reasonably
acceptable to the other party to the effect that there is no substantial
authority for such a position.
Section 3.02 Rockwell Group Obligations Relating to the Semiconductor
Business. (a) The Company will, at its expense, take or cause to be taken all
actions and enter into (or cause its Subsidiaries to enter into) such agreements
and arrangements as shall be necessary to effect the release of and substitution
for each member of the Rockwell Group, effective as of the Time of Distribution,
from all primary, secondary, contingent, joint, several and other Liabilities in
respect of Semiconductor Financial Instruments (it being understood that all
Liabilities in respect of Semiconductor Financial Instruments are Semiconductor
Liabilities).
(b) The Company will, at its expense, use its reasonable best
efforts to take or cause to be taken all actions and to enter into (or cause its
Subsidiaries to enter into) such agreements and arrangements as shall be
necessary to effect the release of and substitution for each member of the
Rockwell Group, effective as of the Time of Distribution, from all primary,
secondary, contingent, joint, several and other Liabilities in respect of bonds,
indemnities, assurances and Contracts (other than Semiconductor Financial
Instruments, which are covered by paragraph (a) above, and Shared Agreements,
which are covered by paragraph (c) below) under which any member of the Rockwell
Group has any primary, secondary, contingent, joint, several or other Liability
arising out of or relating to the Semiconductor Business which by their terms
will be outstanding or in effect as of or at any time following the Time of
Distribution; provided, however, that the Company shall not be obligated to pay
any consideration therefor to any third party (it being understood that all
Liabilities in respect of such bonds, indemnities, assurances and Contracts are
Semiconductor Liabilities).
(c) The Company will, at its expense, use its reasonable best
efforts to take or cause to be taken all
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actions and to enter into (or cause its Subsidiaries to enter into) such
agreements and arrangements as shall be necessary to effect the release of and
substitution for each member of the Rockwell Group, effective as of the Time of
Distribution, from all primary, secondary, contingent, joint, several or other
Liabilities arising out of or relating to the Semiconductor Business under
Shared Agreements; provided, however, that the Company shall not be obligated to
pay any consideration therefor to any third party (it being understood that all
Liabilities in respect of Shared Agreements arising out of or relating to the
Semiconductor Business are Semiconductor Liabilities). No member of the Company
Group will incur, without the prior written consent of Rockwell, any Liabilities
under any Shared Agreement or extend or otherwise amend any Shared Agreement
after the Time of Distribution.
(d) The Company's obligations under this Section 3.02 will
continue to be applicable to all Semiconductor Financial Instruments, bonds,
indemnities, assurances, Contracts and Shared Agreements identified at any time
by Rockwell, whether before, at or after the Time of Distribution.
Section 3.03 Intercompany Accounts and Arrangements.
(a) Elimination of Intercompany Accounts.
(i) Except as set forth in Section 3.03(a)(ii) or on
Schedule 3.3(a), the Company, on behalf of itself and each other member
of the Company Group, on the one hand, and Rockwell, on behalf of
itself and each other member of the Rockwell Group, on the other hand,
hereby settle and eliminate, by cancellation or transfer to a member of
the other Group (whether to cancel or transfer and the manner thereof
will be determined by Rockwell), effective as of the Time of
Distribution, all intercompany receivables, payables and other balances
(including, without limitation, intercompany cash management balances)
between the Company and/or any Company Subsidiary, on the one hand, and
Rockwell and/or any Rockwell Subsidiary, on the other hand.
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(ii) The provisions of Section 3.03(a)(i) will not apply to
any intercompany receivables, payables and other balances (A) incurred
in connection with or in contemplation of the transactions described on
Schedule 3.1(c) or (B) incurred in connection with the payment by any
party of any expenses which are required to be paid by the other party
pursuant to Section 6.03.
(b) Intercompany Agreements.
(i) Except as set forth in Section 3.03(b)(ii), in furtherance
of the releases and other provisions of Section 4.01, the Company, on
behalf of itself and each other member of the Company Group, on the one
hand, and Rockwell, on behalf of itself and each other member of the
Rockwell Group, on the other hand, hereby terminate any and all
agreements, arrangements, commitments or understandings in existence as
of the Time of Distribution, whether or not in writing, between or
among the Company and/or any Company Subsidiary, on the one hand, and
Rockwell and/or any Rockwell Subsidiary, on the other hand, effective
as of the Time of Distribution. No such terminated agreement,
arrangement, commitment or understanding (including, without
limitation, any provision thereof which purports to survive
termination) shall be of any further force or effect after the Time of
Distribution.
(ii) The provisions of Section 3.03(b)(i) will not apply to
any of the following agreements, arrangements, commitments or
understandings (or to any of the provisions thereof): (A) the
Transaction Agreements (and each other agreement, instrument or
document expressly contemplated by any Transaction Agreement to be
entered into by any of the parties hereto or any of the members of
their respective Groups); (B) any agreement, arrangement, commitment or
understanding relating to any matter described in Section 3.03(a)(ii);
(C) any agreements, arrangements, commitments or understandings listed
or described on Schedule 3.3(b)(ii); (D) any agreements, arrangements,
commitments or understandings to which any Person other than the
parties hereto and their respective Affiliates is a party; (E) any
other agreements, arrangements,
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commitments or understandings that any of the Transaction Agreements
expressly contemplates will survive the Time of Distribution; and (F)
any agreements, arrangements, commitments or understandings between the
Company and/or any Company Subsidiary, on the one hand, and Rockwell
and/or any Rockwell Subsidiary, on the other hand, for the purchase or
sale of goods or services of a type which the provider thereof provides
to unaffiliated third parties in the ordinary course of business
("Ordinary Course Intercompany Arrangements"); provided, however, that
in the event any such Ordinary Course Intercompany Arrangements do not,
as of the Time of Distribution, contain commercially reasonable
arm's-length terms of a type to which unaffiliated parties would
reasonably agree or do not include terms which would normally appear in
such arrangements between unaffiliated parties, Rockwell and the
Company will cause such Ordinary Course Intercompany Arrangements to be
amended so that they will contain terms which are, as of the Time of
Distribution, commercially reasonable arm's-length terms of a type to
which unaffiliated parties would reasonably agree.
Section 3.04 Cash Management. (a) Bank Accounts. Subject to Section
3.04(b), all Semiconductor Bank Accounts will constitute Semiconductor Assets
and all Rockwell Retained Accounts will constitute Rockwell Assets.
(b) Cash Balances. (i) In the event that the Recorded Amount
of Cash in the Semiconductor Bank Accounts (A) exceeds the Japanese Debt Amount,
the Company will pay to Rockwell (by wire transfer to Rockwell's bank account at
Mellon Bank, N.A., Pittsburgh, Pennsylvania, Account No. 102-3474), within ten
business days after the Distribution Date, an amount equal to such excess or (B)
is less than the Japanese Debt Amount, Rockwell will pay to the Company (by wire
transfer to the Company's bank account at [ ], Account No. [ ]), within ten
business days after the Distribution Date, an amount equal to such deficit.
(ii) The Company will pay to Rockwell (by wire transfer to
Rockwell's bank account at Mellon Bank, N.A., Pittsburgh, Pennsylvania,
Account No. 102-3474), within three business days after the
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Distribution Date, (A) all balances contained as of the Time of
Distribution in petty cash accounts at locations of the Semiconductor
Business and (B) the dollar value of travelers checks as of the Time of
Distribution at locations of the Semiconductor Business.
(c) Rockwell Customer Payments. The Company will, and will
cause its Subsidiaries and Affiliates to, forward promptly to Rockwell (for the
account of Rockwell or its applicable Subsidiary) any customer payments in
respect of accounts receivable owed to any member of the Rockwell Group received
by the Company or any of its Subsidiaries or Affiliates after the Time of
Distribution, whether received in lock boxes, via wire transfer or otherwise.
Such amounts will be forwarded by wire transfer (to Rockwell's bank account at
Mellon Bank, N.A., Pittsburgh, Pennsylvania, Account No. 102-3474) in the case
of customer payments received within thirty days after the Distribution Date and
by check in the case of customer payments received thereafter.
(d) Company Customer Payments. Rockwell will, and will cause
its Subsidiaries and Affiliates to, forward promptly to the Company (for the
account of the Company or its applicable Subsidiary) any customer payments in
respect of accounts receivable owed to any member of the Company Group received
by Rockwell or any of its Subsidiaries or Affiliates after the Time of
Distribution, whether received in lock boxes, via wire transfer or otherwise.
Such amounts will be forwarded by wire transfer in the case of customer payments
received within thirty days after the Distribution Date and by check in the case
of customer payments received thereafter.
(e) Funding of Outstanding Checks. (i) The following
subsections of this Section 3.04(e) are intended to implement the parties'
agreement that the Company or a Company Subsidiary will be liable for payment of
checks relating to the Semiconductor Business that are outstanding as of the
Time of Distribution.
(ii) The Company or a Company Subsidiary will fund all amounts
in respect of checks that are outstanding as of the Time of
Distribution and presented for payment after the Time of Distribution
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in disbursement or payroll accounts that are Semiconductor Bank
Accounts.
(iii) Rockwell or a Rockwell Subsidiary will fund all amounts
in respect of checks that are outstanding as of the Time of
Distribution and presented for payment after the Time of Distribution
in disbursement or payroll accounts that are Rockwell Retained
Accounts. Within three business days after Rockwell's request, the
Company will reimburse Rockwell (by wire transfer to Rockwell's bank
account at Mellon Bank, N.A., Pittsburgh, Pennsylvania, account number
102-3474), for the account of Rockwell or the applicable Rockwell
Subsidiary, for all such amounts funded by Rockwell or a Rockwell
Subsidiary in respect of checks relating to the Semiconductor Business
that are outstanding as of the Time of Distribution and presented for
payment after the Time of Distribution in disbursement or payroll
accounts that are Rockwell Retained Accounts. No checks relating to the
Semiconductor Business will be issued on any Rockwell Retained Accounts
after the Time of Distribution [(other than checks relating to payroll
payments to the extent expressly permitted by the Transition
Agreement)].
Section 3.05 The Semiconductor Board. The Company and Rockwell
will take all actions which may be required to elect or otherwise appoint as
directors of the Company, prior to the Time of Distribution, the persons named
in the Form 10 to constitute the board of directors of the Company at the Time
of Distribution.
Section 3.06 Resignations; Transfer of Stock Held as Nominee.
(a) Rockwell will cause all of its employees and directors and all of the
employees and directors of each other member of the Rockwell Group to resign,
not later than the Time of Distribution, from all boards of directors or similar
governing bodies of the Company or any other member of the Company Group on
which they serve, and from all positions as officers of the Company or any other
member of the Company Group in which they serve, except as otherwise specified
on Schedule 3.6. The Company will cause all of its employees and directors and
all of the employees and directors of each other member of the Company Group to
resign, not later than the Time of Distribution, from all boards of
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directors or similar governing bodies of Rockwell or any other member of the
Rockwell Group on which they serve, and from all positions as officers of
Rockwell or any other member of the Rockwell Group in which they serve, except
as otherwise specified on Schedule 3.6.
(b) Rockwell will cause each of its employees, and each of the
employees of the other members of the Rockwell Group, who holds stock, or
similar evidence of ownership, of any Company Group entity as nominee for such
entity pursuant to the laws of the country in which such entity is located to
transfer such stock, or similar evidence of ownership, to the Person so
designated by the Company to be such nominee as of and after the Time of
Distribution. The Company will cause each of its employees, and each of the
employees of the other members of the Company Group, who holds stock, or similar
evidence of ownership, of any Rockwell Group entity as nominee for such entity
pursuant to the laws of the country in which such entity is located to transfer
such stock, or similar evidence of ownership, to the Person so designated by
Rockwell to be such nominee as of and after the Time of Distribution.
(c) Rockwell will cause each of its employees and each of the
employees of the other members of the Rockwell Group to revoke or withdraw their
express written authority, if any, to act on behalf of any Company Group entity
as an agent or representative therefor after the Time of Distribution. The
Company will cause each of its employees and each of the employees of the other
members of the Company Group to revoke or withdraw their express written
authority, if any, to act on behalf of any Rockwell Group entity as an agent or
representative therefor after the Time of Distribution.
Section 3.07 Company Certificate of Incorporation and By-Laws; Rights
Plan. Prior to the Time of Distribution, (a) the Semiconductor Board will (i)
approve the Certificate of Incorporation and will cause the same to be filed
with the Secretary of State of the State of Delaware and (ii) adopt the By-Laws,
and (b) Rockwell, as sole stockholder of the Company, will approve the
Certificate of Incorporation. Prior to the Time of Distribution, the
Semiconductor Board will adopt the Rights Plan and declare a dividend of the
Rights so that each share of Semiconductor Common Stock issued and
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outstanding as of the Time of Distribution will initially have one Right
attached thereto.
Section 3.08 Insurance. (a) Coverage. Coverage of the Company and the
Company Subsidiaries under all Policies shall cease as of the Time of
Distribution. From and after the Time of Distribution, the Company and the
Company Subsidiaries will be responsible for obtaining and maintaining all
insurance coverages in their own right. All Policies will constitute Rockwell
Retained Assets and will be retained by Rockwell and the Rockwell Subsidiaries
(with Rockwell and the Rockwell Subsidiaries being the only named insureds
thereunder), together with all rights, benefits and privileges thereunder
(including, without limitation, the right to receive any and all return premiums
with respect thereto). The Company and the Company Subsidiaries will have no
rights with respect to any Policies, except that (i) the Company will have the
right to assert claims (and Rockwell will use reasonable best efforts to assist
the Company in asserting claims) for any loss, liability or damage with respect
to Semiconductor Assets under Policies with third-party insurers which are
"occurrence basis" Policies ("Occurrence Basis Policies") arising out of insured
incidents occurring from the date coverage thereunder first commenced until the
Time of Distribution to the extent that the terms and conditions of any such
Occurrence Basis Policies and agreements relating thereto so allow and (ii) the
Company will have the right to continue to prosecute claims properly asserted
with the insurance carrier prior to the Time of Distribution (and Rockwell will
use reasonable best efforts to assist the Company in connection therewith) under
Policies with third-party insurers which are Policies written on a "claims made"
basis ("Claims Made Policies") arising out of insured incidents occurring from
the date coverage thereunder first commenced until the Time of Distribution to
the extent that the terms and conditions of any such Claims Made Policies and
agreements relating thereto so allow, provided that, in the case of both clauses
(i) and (ii) above, (A) all of Rockwell's and each Rockwell Subsidiary's
reasonable costs and expenses incurred in connection with the foregoing are
promptly paid by the Company, (B) Rockwell and the Rockwell Subsidiaries may, at
any time, without liability or obligation to the Company or any Company
Subsidiary (other than as set forth in Section 3.08(b)), amend, commute,
terminate,
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buy-out, extinguish liability under or otherwise modify any Occurrence Basis
Policies or Claims Made Policies (and such claims shall be subject to any such
amendments, commutations, terminations, buy-outs, extinguishments and
modifications), (C) such claims will be subject to (and recovery thereon will be
reduced by the amount of) any applicable deductibles, retentions, self-insurance
provisions or any payment or reimbursement obligations of Rockwell, any Rockwell
Subsidiary or any Affiliate of Rockwell or any Rockwell Subsidiary in respect
thereof and (D) such claims will be subject to exhaustion of aggregate limits.
Rockwell's obligation to use reasonable best efforts to assist the Company in
asserting claims under Occurrence Basis Policies will include using reasonable
best efforts in assisting the Company to establish its right to coverage under
Occurrence Basis Policies (so long as all of Rockwell's costs and expenses in
connection therewith are promptly paid by the Company). None of Rockwell or the
Rockwell Subsidiaries will bear any Liability for the failure of an insurance
carrier to pay any claim under any Occurrence Basis Policy or Claims Made
Policy. It is understood that any Claims Made Policies will not provide any
coverage to the Company and the Company Subsidiaries for incidents occurring
prior to the Time of Distribution but which are asserted with the insurance
carrier after the Time of Distribution[, except and to the extent that coverage
is provided under discovery coverage purchased by the Company (at the Company's
expense) with respect to Rockwell's excess general liability Claims Made
Policies].
(b) Rockwell Actions. In the event that Rockwell or any
Rockwell Subsidiary proposes to amend, commute, terminate, buy-out, extinguish
liability under or otherwise modify any Occurrence Basis Policies or Claims Made
Policies under which the Company has rights to assert claims pursuant to Section
3.08(a) in a manner that would adversely affect any such rights of the Company,
(i) Rockwell will give the Company prior notice thereof and consult with the
Company with respect to such action (it being understood that the decision to
take any such action will be in the sole discretion of Rockwell) and (ii)
Rockwell will pay to the Company its equitable share (based on the amount of
premiums paid by or allocated to the Semiconductor Business in respect of the
applicable Policy) of any net proceeds actually received by Rockwell from the
insurance carrier of the applicable
35
<PAGE> 40
Policy as a result of such action by Rockwell (after deducting Rockwell's
reasonable costs and expenses incurred in connection with such action).
(c) Administration. From and after the Time of Distribution:
(i) Rockwell will be responsible for the Claims
Administration with respect to claims of Rockwell and the
Rockwell Subsidiaries under Occurrence Basis Policies and
Claims Made Policies; and
(ii) The Company or a Company Subsidiary, as
appropriate, will be responsible for the Claims Administration
with respect to the claims of the Company and the Company
Subsidiaries under Occurrence Basis Policies and Claims Made
Policies.
(d) Insurance Premiums. Rockwell will pay all premiums
(retrospectively-rated or otherwise) as required under the terms and conditions
of the respective Policies in respect of periods prior to the Time of
Distribution, whereupon the Company will upon receipt of evidence thereof,
forthwith reimburse Rockwell for that portion of such premiums paid by Rockwell
as are attributable to the Semiconductor Business.
(e) Agreement for Waiver of Conflict and Shared Defense. In
the event that an Occurrence Basis Policy or Claims Made Policy provides
coverage for both Rockwell and/or a Rockwell Subsidiary, on the one hand, and
the Company and/or a Company Subsidiary, on the other hand, relating to the same
occurrence, Rockwell and the Company agree to defend jointly and to waive any
conflict of interest necessary to the conduct of that joint defense. Nothing in
this Section 3.08(e) will be construed to limit or otherwise alter in any way
the indemnity obligations of the parties to this Agreement, including, without
limitation, those created by this Agreement, by operation of law or otherwise.
(f) Directors' and Officers' Insurance. Rockwell will use its
reasonable best efforts to cause the persons currently serving as directors
and/or officers of Rockwell or any Subsidiary of Rockwell who will become
effective as of the Time of Distribution directors and/or officers of the
Company or any Company
36
<PAGE> 41
Subsidiary to be covered for a period of six years from the Time of Distribution
with respect to claims arising from facts or events which occurred prior to the
Time of Distribution by the directors' and officers' liability insurance
policies maintained by Rockwell during such six-year period following the Time
of Distribution for all persons who served as directors and/or officers of
Rockwell or any Rockwell Subsidiary prior to the Time of Distribution with
respect to claims arising from facts or events which occurred prior to the Time
of Distribution.
Section 3.09 Use of Names, Trademarks, etc. (a) From and after the Time
of Distribution, Rockwell will have all rights in and use of the names
"Rockwell" and "Rockwell International" and all corporate symbols and logos
related thereto and all derivatives thereof. Prior to or promptly after the Time
of Distribution (but in no event later than 90 days after the Distribution Date
in the case of United States Persons and 180 days after the Distribution Date in
the case of non-United States Persons), the Company will change the name of any
Subsidiary or other Person under its control to eliminate therefrom the names
"Rockwell" and "Rockwell International" and all derivatives thereof.
(b) From and after the Time of Distribution, except as
permitted in this Section 3.09(b), the Company Group will not use or have any
rights to the names "Rockwell" or "Rockwell International" or any derivatives
thereof or any other trademark, trade name, service mark or logo of the Rockwell
Group constituting Rockwell Assets, including, without limitation, the
trademarks, trade names and service marks "Rockwell" and "Rockwell
International", or any corporate symbol or logo related thereto or to any
thereof or any name or mark which includes the words "Rockwell" or "Rockwell
International" or any derivative thereof or name or mark confusingly similar
thereto, or any special script, type font, form, style, logo, design, device,
trade dress or symbol used or possessed by the Rockwell Group before or after
the Time of Distribution which contains the trademark, trade name or service
mark "Rockwell" or "Rockwell International" or any derivative thereof or any
name or mark confusingly similar thereto and the Company Group will not hold
itself out as having any affiliation with the Rockwell Group. However, Rockwell,
on behalf of Rockwell Science Center, hereby grants to the Company a
non-exclusive, non-transferable (other than by way of
37
<PAGE> 42
sublicenses to members of the Company Group) license to utilize without
obligation to pay royalties to Rockwell or Rockwell Science Center the
trademarks or trade names "Rockwell" or "Rockwell International" or any
corporate symbol or logo related thereto in connection with stationery,
supplies, labels, catalogs, vehicles, signs and products of the Semiconductor
Business only as set forth in paragraphs (i) through (vi) of this Section
3.09(b), subject to the terms and conditions of this Section 3.09(b) and Section
3.09(c), in each case in the same manner and to the same extent as such
trademarks, trade names, corporate symbols or logos were used by the
Semiconductor Business at any time within the five-year period preceding the
Distribution:
(i) All documents constituting Semiconductor Assets
as of the Time of Distribution within the following categories
may be used for the duration of the periods following the
Distribution Date indicated below or until the supply is
exhausted, whichever is the first to occur:
<TABLE>
<CAPTION>
Maximum Period
of Permitted Use
Following the
Category of Documents Distribution Date
--------------------- -----------------
<S> <C> <C>
A. Stationery 6 months
B. Invoices, purchase orders, debit
and credit memos and other similar
documents of a transactional nature 6 months
C. Business cards 6 months
D. Other outside forms such as packing
lists, labels, packing materials and
cartons, etc. 12 months
E. Forms for internal use only 12 months
F. Product literature 12 months;
</TABLE>
provided, however, that the Company will use its reasonable
best efforts to cause each document within any of the above
categories A, B or F used for any purpose within the stated
period to clearly and prominently display a statement, the
form of which is approved by Rockwell, to the effect that the
Company Group was formerly affiliated with
38
<PAGE> 43
Rockwell (it being understood that such reasonable best
efforts shall not include reprinting or relabeling existing
stocks of advertising or brochures).
[(ii) All documents of the Semiconductor Business of
the type described in paragraph (i) above and displays and
signs of the Semiconductor Business of the type described in
paragraph (iv) below may, for a period of [__ years] after the
Distribution Date, contain the statement "_________" in
conjunction with the name of the Company or any Company
Subsidiary so long as such statement is of a type no more
prominent than such name of the Company or the Company
Subsidiary or other statement, the form of which is approved
by Rockwell, to the effect that the Company Group was formerly
affiliated with Rockwell.]
(iii) All vehicles constituting Semiconductor Assets
as of the Time of Distribution may continue to be used without
re-marking (except as to legally required permit numbers,
license numbers, etc.) for a period not to exceed twelve
months following the Distribution Date or the date of
disposition of the vehicle, whichever is the first to occur.
The Company will cause all markings on such vehicles to be
removed or permanently obscured prior to disposition of such
vehicles.
(iv) Within six months following the Distribution
Date, the Company will cause to be removed from display at all
facilities constituting Semiconductor Assets all demountable
displays which contain the trademarks or trade names
"Rockwell" or "Rockwell International" or any corporate symbol
related thereto or any trademark, trade name or corporate
symbol constituting Rockwell Assets and the Company will
remove, or will cause the removal of, all signs displaying any
such trademark, trade name or corporate symbol at all such
facilities (A) located in the United States, no later than six
months following the Distribution Date and (B) located outside
the United States, no later than twelve months following the
Distribution Date.
(v) Products of the Semiconductor Business may have
applied thereto the trademarks or trade
39
<PAGE> 44
names "Rockwell" or "Rockwell International" or any Rockwell
corporate symbol or logo related thereto for a period of [ ]
years after the Distribution.
(vi) Products of the Semiconductor Business in
finished goods inventory and work in process (to the extent
the same bear the trademark or trade name "Rockwell" or
"Rockwell International" at the Time of Distribution or have
any such trademark or trade name applied to them in accordance
with paragraph (v) above) may be disposed of without
re-marking.
(c)(i) Apart from the rights granted under Section 3.09(b), no
member of the Company Group shall acquire any right, title or interest
in or to the use of the trademarks or trade names "Rockwell" or
"Rockwell International" or any corporate symbol or logo related
thereto, either alone or in combination with any other word, name,
symbol, device, trademarks, or any combination thereof. Anything
contained herein to the contrary notwithstanding, except as expressly
permitted by Section 3.09(b)(ii), in no event will any member of the
Company Group utilize the trademarks or trade names "Rockwell" or
"Rockwell International" or any corporate symbol or logo related
thereto as a component of a company or trade name. The Company will
not, and will cause each other member of the Company Group not to,
challenge or contest the validity of such trademarks, trade names,
corporate symbols or logos, the registration thereof or the ownership
thereof by the Rockwell Group. The Company will not, and will cause
each other member of the Company Group not to, apply anywhere at any
time for any registration as owner or exclusive licensee of such
trademarks, trade names, corporate symbols or logos. If,
notwithstanding the foregoing, any member of the Company Group
develops, adopts or acquires, directly or indirectly, any right, title
or interest in or to the use of any such trademarks, trade names,
corporate symbols or logos in any jurisdiction, or any goodwill
incident thereto, the Company will, upon the request of Rockwell, and
for a nominal consideration of one dollar, assign or cause to be
assigned to Rockwell or any designee of Rockwell, all right, title and
interest in and to the use of such trademarks, trade names, corporate
symbols or logos in any and all
40
<PAGE> 45
jurisdictions, together with any goodwill incident thereto.
(ii) If the laws of any country require that any mark
subject to Section 3.09(b) or the right of any member of the Company
Group to use any mark as permitted by Section 3.09(b) be registered in
order to fully protect the Rockwell Group, Rockwell and the Company
will cooperate in constituting such member of the Company Group as a
registered user (or its equivalent) in each of the countries in which
such registration is necessary. If any such laws of any country require
that any such mark or the use by any member of the Company Group of any
such mark be registered prior to use in order to protect fully the
Rockwell Group, the license granted pursuant to Section 3.09(b) will
not extend to such country until such registration has been effected to
the reasonable satisfaction of Rockwell. Any expenses for registering
such mark or constituting such member of the Company Group as a
registered user in any country shall be borne by the Company. Any
registration of such member of the Company Group as a registered user
of any mark hereunder shall be expunged on termination of the period of
permitted use under this Agreement or upon a breach or threatened
breach by any member of the Company Group of the terms of this Section
3.09 and the Company will, upon request of Rockwell, take all necessary
steps to cause such registration to be so expunged upon such
termination or breach or threatened breach. In addition, the Company
hereby constitutes and appoints Rockwell the true and lawful attorney
of the Company, with full power of substitution, in the name and on
behalf of the Company (and at the cost of the Company) to take all
necessary steps to cause such registration to be so expunged upon such
termination or breach or threatened breach.
(iii) The Company will cause each member of the
Company Group to comply with the provisions of this Section 3.09.
Nothing in this Section 3.09 will prevent any member of the Rockwell
Group from enforcing the provisions of this Section 3.09 against any
member of the Company Group.
(iv) Rockwell will have the right to terminate the
license granted in Section 3.09(b)
41
<PAGE> 46
upon 30 days written notice for any failure by any member of the
Company Group to observe the terms of this Section 3.09(c), provided
that such failure is not remedied prior to the effectiveness of the
termination.
(d) From and after the Distribution Date, the Rockwell Group
will not hold itself out as having an affiliation with the Company Group.
However, the Rockwell Group will have rights to use trademarks or trade names or
corporate symbols or any thereof constituting Semiconductor Assets in connection
with stationery, supplies, labels, catalogs, vehicles, signs and finished goods
inventory on the same terms and subject to the same conditions as are set forth
in Section 3.09(b).
Section 3.10 Consents. Prior to and after the Distribution Date,
Rockwell and the Company will, and will cause their respective Subsidiaries to,
use their reasonable best efforts (as requested by the other party) to obtain,
or to cause to be obtained, all Consents and to resolve all impracticalities of
assignments or transfers necessary for the transfer of all Assets, Subsidiaries
and Liabilities contemplated to be transferred pursuant to this Article III;
provided, however, that none of Rockwell or the Company or their respective
Subsidiaries shall be obligated to pay any consideration or offer or grant any
financial accommodation in connection therewith. Anything contained herein to
the contrary notwithstanding, this Agreement shall not constitute an agreement
to assign any Contract, License or Asset if an assignment or attempted
assignment of the same without the Consent of any other party or parties thereto
or other required Consent would constitute a breach thereof or of any applicable
law or in any way impair the rights of any member of the Rockwell Group or the
Company Group thereunder. If any such Consent is not obtained or if an attempted
assignment would be ineffective or would impair any member of either Group's
rights under any such Contract, License or Asset so that the contemplated
assignee hereunder (the "Recipient Party") would not receive all such rights,
then (x) the party contemplated hereunder to assign such Contract, License or
Asset (the "Assigning Party") will use reasonable best efforts (it being
understood that such efforts shall not include any requirement of the Assigning
Party to pay any
42
<PAGE> 47
consideration or offer or grant any financial accommodation) to provide or cause
to be provided to the Recipient Party, to the extent permitted by law, the
benefits of any such Contract, License or Asset and the Assigning Party will
promptly pay or cause to be paid to the Recipient Party when received all moneys
and properties received by the Assigning Party with respect to any such
Contract, License or Asset and (y) the Recipient Party will pay, perform and
discharge on behalf of the Assigning Party all of the Assigning Party's
Liabilities thereunder in a timely manner and in accordance with the terms
thereof. In addition, the Assigning Party will take such other actions (at the
Recipient Party's expense) as may reasonably be requested by the Recipient Party
in order to place the Recipient Party, insofar as reasonably possible, in the
same position as if such Contract, License or Asset had been transferred as
contemplated hereby and so all the benefits and burdens relating thereto,
including, without limitation, possession, use, risk of loss, potential for gain
and dominion, control and command, shall inure to the Recipient Party. If and
when such Consents are obtained, the transfer of the applicable Contract,
License or Asset shall be effected as promptly following the Time of
Distribution as shall be practicable in accordance with the terms of this
Agreement. To the extent that any transfers and assumptions contemplated by this
Article III shall not have been consummated on or prior to the Time of
Distribution, the parties shall cooperate to effect such transfers as promptly
following the Time of Distribution as shall be practicable, it nonetheless being
agreed and understood by the parties that neither party shall be liable in any
manner to the other party for any failure of any of the transfers contemplated
by this Article III to be consummated prior to the Time of Distribution.
Section 3.11 Cross-License of Intellectual Property. (a) Effective as
of the Time of Distribution, Rockwell, on behalf of itself and the Rockwell
Subsidiaries, hereby grants to the Company a royalty-free, world-wide,
irrevocable, non-exclusive license under all intellectual property rights
(including, without limitation, patents, patent applications, trade secrets,
copyrights or other similar industrial property rights, but excluding
trademarks, trade names, service marks, trade dress or any other form of trade
identity) which constitute Rockwell Assets and which are owned by
43
<PAGE> 48
the Rockwell Group or under which the Rockwell Group has a right to license
without the payment of royalties to a third party immediately after the Time of
Distribution and which are used in the conduct of the business of the Company
Group at the Time of Distribution to make, have made, use, import, sell or
otherwise dispose of products, or to practice any process in connection
therewith, in the business of the Company Group being conducted at the Time of
Distribution or any related extensions or expansions thereof; said non-exclusive
license being transferable only by sublicenses (to the extent permitted in any
restricted grant to Rockwell or a Rockwell Subsidiary, as a licensee) to members
of the Company Group and in connection with the sale of all or any part of the
Semiconductor Business to which such intellectual property rights relate. In
addition, effective as of the Time of Distribution, Rockwell, on behalf of
itself and the Rockwell Subsidiaries, hereby grants to the Company a
royalty-free, world-wide, irrevocable, non-exclusive license under all
intellectual property rights (including, without limitation, patents, patent
applications, trade secrets, copyrights or other similar industrial property
rights, but excluding trademarks, trade names, service marks, trade dress or any
other form of trade identity) associated with the items listed on Schedule
3.11(a) to make, have made, use, import, sell or otherwise dispose of products,
or to practice any process in connection therewith, in the business of the
Company Group being conducted at the Time of Distribution or any related
extensions or expansions thereof; said non-exclusive license being transferable
only by sublicenses (to the extent permitted in any restricted grant to Rockwell
or a Rockwell Subsidiary, as a licensee) to members of the Company Group and in
connection with the sale of all or any part of the Semiconductor Business to
which such intellectual property rights relate. To the extent that the Company
Group does not have copies of any information or materials relating to
intellectual property rights licensed under this Section 3.11(a), Rockwell will,
upon reasonable request, supply to the Company Group copies of any such
information or materials relating to such intellectual property rights. Except
as expressly provided in this Section 3.11, none of the intellectual property
rights of the Rockwell Group shall be licensed by the Company or any Company
Subsidiary to any third party.
44
<PAGE> 49
(b) Effective as of the Time of Distribution, the Company on
behalf of itself and the Company Subsidiaries, hereby grants to Rockwell Science
Center a royalty-free, world-wide, irrevocable, non-exclusive license under all
intellectual property rights (including, without limitation, patents, patent
applications, trade secrets, copyrights or other similar industrial property
rights, but excluding trademarks, trade names, service marks, trade dress or any
other form of trade identity) which constitute Semiconductor Assets and which
are owned by the Company Group or under which the Company Group has a right to
license without the payment of royalties to a third party immediately after the
Time of Distribution and which are used in the conduct of the businesses of the
Rockwell Group other than the Semiconductor Business at the Time of Distribution
to make, have made, use, import, sell or otherwise dispose of products, or to
practice any process in connection therewith, in the businesses of the Rockwell
Group (other than the Semiconductor Business) being conducted at the Time of
Distribution or any related extensions or expansions thereof; said non-exclusive
license being transferable only by sublicenses (to the extent permitted in any
restricted grant to the Company or a Company Subsidiary, as a licensee) to
members of the Rockwell Group and in connection with the sale of all or any part
of the Rockwell Group's businesses to which such intellectual property rights
relate. In addition, effective as of the Time of Distribution, the Company, on
behalf of itself and the Company Subsidiaries, hereby grants to Rockwell Science
Center a royalty-free, world-wide, irrevocable, non-exclusive license under all
intellectual property rights (including, without limitation, patents, patent
applications, trade secrets, copyrights or other similar industrial property
rights, but excluding trademarks, trade names, service marks, trade dress or any
other form of trade identity) associated with the items listed on Schedule
3.11(b) to make, have made, use, import, sell or otherwise dispose of products,
or to practice any process in connection therewith, in the businesses of the
Rockwell Group (other than the Semiconductor Business) being conducted at the
Time of Distribution or any related extensions or expansions thereof; said
non-exclusive license being transferable only by sublicenses (to the extent
permitted in any restricted grant to the Company or a Company Subsidiary, as a
licensee) to members of the Rockwell Group and in connection with the
45
<PAGE> 50
sale of all or any part of the Rockwell Group's businesses to which such
intellectual property rights relate. To the extent that the Rockwell Group does
not have copies of any information or materials relating to intellectual
property rights licensed under this Section 3.11(b), the Company will, upon
reasonable request, supply to the Rockwell Group copies of any such information
or materials relating to such intellectual property rights. Except as expressly
provided in this Section 3.11, none of the intellectual property rights of the
Company Group shall be licensed by Rockwell or any Rockwell Subsidiary to any
third party.
(c)(i) From and after the Time of Distribution, each party
(and members of such party's Group) has and retains the unrestricted
right to enforce against any third party such intellectual property
rights as that party then owns. Notwithstanding the grant of any
license or sublicense to the other party (or the members of such other
party's Group) under Section 3.11(a) or (b), the owner of such
intellectual property rights may enforce the same without any
obligation (prior or contemporaneous) to notify or consult with the
other party.
(ii) Either party (as a "Third Party Licensor") may grant a
third party (a "Third Party Licensee") a license under patents owned by
the other party (the "Owner") at the Time of Distribution, whether or
not the Third Party Licensor is itself licensed under such patent(s) in
accordance with the provisions of Section 3.11(a) or (b), in fields of
use other than the businesses of the Owner, subject to strict
compliance with the provisions of this Section 3.11(c)(ii), each of
which is material
(A) the Third Party Licensor shall first confer with
the Owner and tender the proposed terms and conditions of the license
to the Third Party Licensee;
(B) the Owner may reject or condition the proposed
terms and conditions of the license for any of the following reasons:
(1) the Third Party Licensee is a competitor
of the Owner in markets or market sectors in which both
compete for the business
46
<PAGE> 51
of common customers or the output of common suppliers and the
grant of a license to such a Third Party Licensee would reduce
the competitiveness of the Owner in such common markets (or
sectors) or otherwise demonstrably harm its business
interests;
(2) the Owner is currently engaged in or has
taken substantial steps to prepare to become engaged in
negotiations with the Third Party Licensee regarding the grant
of intellectual property licenses or cross-licenses between
them, whether or not including the patent(s) sought to be
licensed by the Third Party Licensor;
(3) the Owner has, within the immediately
preceding twelve months, negotiated with the Third Party
Licensee a license or cross-license of the patent(s) sought to
be licensed to that Third Party Licensee by the Third Party
Licensor;
(4) the proposed terms and conditions would
impose obligations on the Owner other than or in addition to a
naked patent grant including, without limitation, the
obligations to enforce the patent(s) or to transfer
technology;
(5) the grant is broader than reasonably
required to meet the purpose for which the license is to be
granted;
(6) the Owner and the Third Party Licensee
are engaged in or are reasonably likely to become engaged in a
dispute and the grant of such a license would effectively
abrogate the Owner's rights of enforcement as stated in
Section 3.11(c)(i);
(7) the license would violate or conflict
with any contractual obligation of the Owner;
(8) the Owner can demonstrate a significant,
near-term competitive harm to its business other than one
specified in subparts
47
<PAGE> 52
(1)-(7) above were the proposed license to be granted; or
(9) the Owner believes it is in its
strategic interest to reject or condition the proposed terms
of the License;
provided, however, that it shall not be deemed a sufficient reason to reject or
condition a proposed grant merely because the Owner itself could have granted a
license to the Third Party Licensee.
(C) No license shall become effective and no rights
shall be granted to a Third Party Licensee unless and until
the Owner has approved in writing all of the terms and
conditions of the proposed license.
(D) The Third Party Licensor may propose for approval
by the Owner the grant of a license to a Third Party Licensee
under the provisions of this Section 3.11 (c)(ii) only for one
or more of the following purposes:
(1) the Third Party Licensor and the Third
Party Licensee are engaged in a dispute involving
intellectual property, including a pre-litigation
dispute, and the proposed grant will materially
assist the Third Party Licensor in resolving such
dispute; or
(2) the Third Party Licensor and the Third
Party Licensee are engaged in or are preparing to
engage in negotiations to establish an alliance
between them, strategic to the Third Party Licensor's
business, for any of the following purposes:
(a) developing, manufacturing,
selling or distributing products or services
of the type developed, manufactured,
distributed or sold by the Third Party
Licensor at the Time of Distribution;
(b) pooling or cross-licensing
intellectual property to permit either the
Third Party Licensor or the Third Party
48
<PAGE> 53
Licensee to enter or remain in a market or
market sector blocked by the intellectual
property of either or both; or
(c) developing standards to be
adopted by a recognized standard setting
organization (e.g., ITU, ANSI);
and the proposed grant will materially assist the Third Party
Licensor in securing the alliance and provided that such
alliance is in fact established;
provided, however, that it shall not be deemed a sufficient
reason to propose or to grant a license under subpart (1) or
(2) of this subsection (D) that the Third Party Licensor may
recover or obtain from the Third Party Licensee revenue,
royalty or otherwise for such a grant unless such revenue is
incidental to a purpose expressed in subpart (1) or (2) of
this subsection (D).
(E) The Third Party Licensor shall bear all costs and
expenses associated with the grant of any license under this Section
3.11(c)(ii) and shall indemnify and hold harmless the Owner from and
against any and all Indemnifiable Losses it or its Representatives may
suffer on account of the grant of such a license or the relationship
created with the Third Party Licensee under such a license.
(F) Any revenue recovered by the Third Party Licensor
from the Third Party Licensee shall be [shared equally between the
Owner and the Third Party Licensor, net of licensing expenses].
(G) The Owner may, in its sole discretion, elect to
assign to the Third Party Licensor any one or more of the patents to be
licensed to the Third Party Licensee, subject to a retained interest in
favor of the Owner of a scope adequate for the Owner to conduct its
business.
(H) The rights granted between the parties under this
Section 3.11(c)(ii) shall expire five years from the Time of
Distribution; provided, however, that any license granted to a Third
Party
49
<PAGE> 54
Licensee may be made for the life of the patent rights underlying such
grant and all such licenses shall survive expiration of this Section
3.11(c)(ii) to the extent stated in such licenses.
(I) The rights granted between the parties under this
Section 3.11(c)(ii) are personal and nontransferable by either party to
any other Person, whether or not in connection with the sale of any
party's business or any portion thereof. The rights granted between the
parties under this Section 3.11(c)(ii) shall terminate upon a Change in
Control of either party; provided, however, that licenses granted prior
to such termination shall remain in full force and effect for the
duration of the license as specified in each such license.
(J) In any dispute between the parties arising under
the provisions of this Section 3.11(c)(ii) with respect to the right to
grant a license or the scope of such license, [the decision of the
Owner shall be final] [the [ ] of Rockwell and the [ ] of the Company
will attempt a good faith resolution of such dispute within thirty days
after either party notifies the other of such dispute. If such dispute
is not resolved within thirty days of such notification, such dispute
will be referred for resolution to the Chief Executive Officers of
Rockwell and the Company whose joint decision will be final and binding
on the parties].
(iii) In any situation qualifying for the grant of a license
under the provisions of Section 3.11(c)(ii), the party entitled to act
as Third Party Licensor, in addition to or in lieu of seeking the grant
of a license from the Owner under the provisions of Section
3.11(c)(ii), may request from the Owner the right to enforce patent(s)
owned by the Owner at the Time of Distribution against a third party if
such a right of enforcement is reasonably required to materially assist
the Third Party Licensor in resolving a dispute with respect to
intellectual property, including a pre-litigation dispute. If the right
to enforce the patent(s) is granted under this Section 3.11(c)(iii),
the Owner may elect to join any suit and be represented therein at its
own expense or to grant to the party
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granted such right to enforce such rights as may be necessary to confer
standing on such party. In the former event, the Owner shall retain any
damages awarded for infringement of the patent(s). In the latter event,
should the Owner nevertheless be joined in any suit as a proper or
necessary party, the party granted the right of enforcement shall bear
all costs and expenses of the Owner associated with such enforcement
and shall indemnify and hold harmless the Owner from and against any
and all Indemnifiable Losses it or its Representatives may suffer on
account thereof.
(d)(i) For purposes of this Section 3.11(d), the following
terms will have the following definitions:
(A) "Administrative Services" means services
pertaining to personnel, payroll, property management,
benefits, human resource management, financial planning, case
docketing and management, contract and subcontract management,
facilities management, proposal activities and other similar
services.
(B) "Administrative Services Software" means software
originated internally and owned by Rockwell or any of its
Subsidiaries (including, without limitation, members of the
Company Group) prior to the Time of Distribution and relating
to the provision of Administrative Services to the
Semiconductor Business immediately prior to the Time of
Distribution, regardless of where ownership of such software
vests after the Time of Distribution. Administrative Services
Software also shall include materials and documentation
supplied by one party to the other pursuant to clause (iv) of
this Section 3.11(d).
(C) "Transition Period" means the period from the
Time of Distribution until the termination or expiration of
the provision of services pursuant to the Transition
Agreement.
(ii) Anything contained herein to the contrary
notwithstanding, the following licenses shall govern the licensing of
Administrative Services Software.
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Effective as of the Time of Distribution, Rockwell, on behalf of itself
and the Rockwell Subsidiaries, hereby grants to the Company a
royalty-free, world-wide, irrevocable non-exclusive license under
Administrative Services Software which constitutes Rockwell Assets and
which is owned by the Rockwell Group or under which the Rockwell Group
has a right to license without the payment of royalties to a third
party immediately after the Time of Distribution to use such
Administrative Services Software only for the internal business
purposes of the Company Group, including the right to sublicense only
to (x) members of the Company Group and (y) service providers to use
the Administrative Services Software only for or on behalf of the
Company Group. Effective as of the Time of Distribution, the Company,
on behalf of itself and the Company Subsidiaries, hereby grants to
Rockwell Science Center a royalty-free, world-wide, irrevocable,
non-exclusive license under Administrative Services Software which
constitutes Semiconductor Assets and which is owned by the Company
Group or under which the Company Group has a right to license without
the payment of royalties to a third party immediately after the Time of
Distribution to use such Administrative Services Software for the
internal business purposes of the Rockwell Group, including the right
to sublicense only to (x) members of the Rockwell Group and (y) service
providers to use the Administrative Services Software only for or on
behalf of the Rockwell Group. Except as set forth in the preceding two
sentences, the licenses granted pursuant to this Section 3.11(d) do not
include the right to sublicense. Software originated or maintained
during the Transition Period by a party and relating to the provision
of Administrative Services to the other party pursuant to the
Transition Agreement shall be considered Administrative Services
Software subject to the above licenses provided that the party to be
licensed has paid a mutually agreeable share of the origination and/or
maintenance costs for such software and requests during the Transition
Period that such software be subject to such licenses.
(iii) Each party shall have the right to use, disclose,
perform, display, copy, distribute and make derivatives of the
Administrative Services
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Software within the scope of the licenses granted herein. Title to
Administrative Services Software and all rights therein, including,
without limitation, all rights in patents, copyrights and trade secrets
and any other intellectual property rights applicable thereto, shall
remain vested in the party to which ownership is allocated pursuant to
this Agreement. Notwithstanding anything to the contrary contained
herein, each licensed party agrees that it will not use, copy,
disclose, sell, assign or sublicense, or otherwise transfer
Administrative Services Software licensed to it under this Section
3.11(d) or any derivatives thereof, except as expressly provided in
this Section 3.11(d).
(iv) To the extent that a licensed party does not have
copies of any Administrative Services Software or materials and
documentation (such as source code listings, flow charts, user guides
and programmer's guides) relating to the operation and maintenance of
such Administrative Services Software to which the other party has
ownership, such owning party shall, as soon as practicable after
request of the licensed party, supply to the licensed party copies of
such Administrative Services Software and any related operating and
maintenance materials or documentation existing as of the Time of
Distribution.
(v) In the event that Administrative Services Software is
used by the owner in the ordinary course of its business either
associated or bundled with software owned or controlled by a third
party (e.g., as a suite of software), without which the Administrative
Services Software would be wholly or partly inoperable or otherwise
unfit for its intended purposes, the grant of the licenses under the
provisions of this Section 3.11(d) shall not be construed as an implied
license to use the software of such a third party or as an undertaking
on the part of the owner of the Administrative Services Software to
obtain a license to permit the use of such third party software.
(e)(i) For purposes of this Section 3.11(e), "Application
Software" means software originated internally and owned by Rockwell or
any of its
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Subsidiaries (including, without limitation, members of the Company
Group) prior to the Time of Distribution and relating to
computer-aided-design or other similar engineering or technical
analysis functions and related tools or utilities, regardless of where
ownership of such software vests after the Time of Distribution.
Anything contained herein to the contrary notwithstanding, Application
Software does not include any Administrative Services Software.
(ii) Anything contained herein to the contrary
notwithstanding, the following licenses shall govern the licensing of
Application Software. Effective as of the Time of Distribution,
Rockwell, on behalf of itself and the Rockwell Subsidiaries, hereby
grants to the Company a royalty-free, world-wide, irrevocable,
non-exclusive license under Application Software which constitutes
Rockwell Assets and which is owned by the Rockwell Group or under which
the Rockwell Group has a right to license without the payment of
royalties to a third party immediately after the Time of Distribution
to use, disclose, perform, display, copy, distribute and make
derivatives of such Application Software, in any form, in connection
with the Semiconductor Business or any related extensions or expansions
thereof to the same extent as was done in the Semiconductor Business at
the Time of Distribution, and the Company may sublicense only to (x)
members of the Company Group and (y) suppliers, subcontractors and
Affiliates of the Company Group only in connection with work performed
by them for the Company Group to the same extent as was done in the
Semiconductor Business at the Time of Distribution. Effective as of the
Time of Distribution, the Company, on behalf of itself and the Company
Subsidiaries, hereby grants to Rockwell Science Center a royalty-free,
world-wide, irrevocable, non-exclusive license under Application
Software which constitutes Semiconductor Assets and which is owned by
the Company Group or under which the Company Group has a right to
license without the payment of royalties to a third party immediately
after the Time of Distribution to use, disclose, perform, display,
copy, distribute and make derivatives of such Application Software, in
any form, in connection with businesses of the Rockwell Group or any
related extensions or
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expansions thereof to the same extent as was done in businesses of the
Rockwell Group (other than the Semiconductor Business) at the Time of
Distribution, and Rockwell Science Center may sublicense only to (x)
members of the Rockwell Group and (y) suppliers, contractors and
Affiliates of the Rockwell Group only in connection with work performed
by them for the Rockwell Group to the same extent as was done in
businesses of the Rockwell Group (other than the Semiconductor
Business) at the Time of Distribution. Except as set forth in the
preceding two sentences, the licenses granted pursuant to this Section
3.11(e) do not include the right to sublicense.
(iii) Title to Application Software and all rights therein,
including, without limitation, all rights in patents, copyrights and
trade secrets and any other intellectual property rights applicable
thereto, shall remain vested in the party to which ownership is
allocated pursuant to this Agreement. Notwithstanding anything to the
contrary contained herein, each licensed party agrees that it will not
use, copy, disclose, sell, assign, sublicense or otherwise transfer
Application Software licensed to it under this Section 3.11(e) or any
derivatives thereof, except as expressly provided in this Section
3.11(e).
(iv) In the event that Application Software is used by the
owner in the ordinary course of its business either associated or
bundled with software owned or controlled by a third party (e.g., as a
suite of software), without which the Application Software would be
wholly or partly inoperable or otherwise unfit for its intended
purposes, the grant of the licenses under the provisions of this
Section 3.11(e) shall not be construed as an implied license to use the
software of such a third party or as an undertaking on the part of the
owner of the Application Software to obtain a license to permit the use
of such third party software.
(f) Other Licenses. If any member of the Rockwell Group
requires a license with respect to any of the intellectual property contained in
the Semiconductor Assets which is not covered by this Section 3.11 with respect
to its businesses existing at the Time of Distribution, or if any member of the
Company Group
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requires a license with respect to any of the intellectual property contained in
the Rockwell Assets which is not covered by this Section 3.11 with respect to
its business existing at the Time of Distribution, upon notice of the party
requiring such a license, the parties will negotiate in good faith the grant of
such a license, upon reasonable terms, including royalties, permitting the
requesting party to undertake activities in fields of use which do not have an
adverse competitive effect on the businesses of the granting party and its
Affiliates.
(g)(i) Rockwell makes no representations or warranties of any
kind with respect to the validity, scope or enforceability of any
intellectual property rights licensed by Rockwell and the Rockwell
Subsidiaries pursuant to this Section 3.11 and Rockwell has no
obligation to file or prosecute any patent applications or maintain any
patents in force in connection therewith. Rockwell will, at no cost to
the Company Group, promptly execute or cause a member of the Rockwell
Group promptly to execute such further documents as the Company may
reasonably request as necessary or desirable to carry out the terms of
this Section 3.11. Notwithstanding anything contained herein to the
contrary, this Section 3.11 will not be applicable to any rights in and
use of the names, trademarks, trade names and service marks "Rockwell"
and "Rockwell International" and all corporate symbols and logos
related thereto and all names, trademarks, trade names and service
marks which include the words "Rockwell" or "Rockwell International" or
any derivative thereof.
(ii) The Company makes no representations or warranties of any
kind with respect to the validity, scope or enforceability of any
intellectual property rights licensed by the Company and the Company
Subsidiaries pursuant to this Section 3.11 and the Company has no
obligation to file or prosecute any patent applications or maintain any
patents in force in connection therewith. The Company will, at no cost
to Rockwell, promptly execute or cause a member of the Company Group
promptly to execute such further documents as Rockwell may reasonably
request as necessary or desirable to carry out the terms of this
Section 3.11.
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ARTICLE IV
MUTUAL RELEASE; INDEMNIFICATION
Section 4.01 Mutual Release. Effective as of the Time of Distribution
and except as otherwise specifically set forth in the Transaction Agreements,
each of Rockwell, on the one hand, and the Company, on the other hand, on its
own behalf and on behalf of each of its respective Subsidiaries, hereby releases
and forever discharges the other and its Subsidiaries, and its and their
respective officers, directors, agents, Affiliates, record and beneficial
security holders (including, without limitation, trustees and beneficiaries of
trusts holding such securities), advisors and Representatives (in their
respective capacities as such) and their respective heirs, executors,
administrators, successors and assigns, of and from all debts, demands, actions,
causes of action, suits, accounts, covenants, contracts, agreements, damages,
claims and Liabilities whatsoever of every name and nature, both in law and in
equity, which the releasing party has or ever had, which arise out of or relate
to events, circumstances or actions taken by such other party occurring or
failing to occur or any conditions existing at or prior to the Time of
Distribution; provided, however, that the foregoing general release shall not
apply to (i) any Liabilities (including, without limitation, Liabilities with
respect to indemnification or contribution) under the Transaction Agreements or
assumed, transferred, assigned, allocated or arising under any of the
Transaction Agreements (including, without limitation, any Liability that the
parties may have with respect to indemnification or contribution pursuant to any
Transaction Agreement for claims brought against the parties by third Persons)
and will not affect any party's right to enforce the Transaction Agreements in
accordance with their terms, (ii) any Liability arising from or relating to any
agreement, arrangement, commitment or undertaking described in Section
3.03(b)(ii) (including, without limitation, Ordinary Course Intercompany
Arrangements) or (iii) any Liability the release of which would result in the
release of any Person other than a Person released pursuant to this Section 4.01
(provided that the parties agree not to bring suit or permit any of their
Subsidiaries to bring suit against any Person with respect to any Liability to
the extent such Person would
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be released with respect to such Liabilities by this Section 4.01 but for to
this clause (iii)).
Section 4.02 Indemnification by Rockwell. Except as otherwise
specifically provided in any Transaction Agreement and subject to the provisions
of this Article IV, Rockwell shall indemnify, defend and hold harmless the
Semiconductor Indemnitees from and against, and pay or reimburse, as the case
may be, the Semiconductor Indemnitees for, all Indemnifiable Losses, as
incurred, suffered by any Semiconductor Indemnitee based upon, arising out of,
relating to or otherwise in connection with:
(a) businesses of Rockwell, the Rockwell Subsidiaries and
their respective predecessors (other than the Semiconductor Business) engaged in
at or prior to the Time of Distribution, the Rockwell Assets or Liabilities of
Rockwell or any Rockwell Subsidiary as of the Time of Distribution which are not
Semiconductor Liabilities (including, without limitation, the failure by
Rockwell or any other member of the Rockwell Group to pay, perform or otherwise
discharge such Liabilities in accordance with their terms), whether such
Indemnifiable Losses are based upon, arise out of or relate to or are otherwise
in connection with events, occurrences, actions, omissions, facts, circumstances
or conditions occurring, existing or asserted before, at or after the Time of
Distribution;
(b) any untrue statement or alleged untrue statement of a
material fact contained in the sections of the Form 10 listed on Schedule 4.2,
or any omission or alleged omission to state in such sections a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; but only
in each case with respect to information relating to the Rockwell Group provided
by Rockwell expressly for use in the sections of the Form 10 listed on Schedule
4.2;
(c) the breach by any member of the Rockwell Group of any
agreement or covenant contained in a Transaction Agreement which does not by its
express terms expire at the Time of Distribution;
(d) the use by members of the Rockwell Group of any
trademarks, trade names or corporate symbols or
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logos pursuant to Section 3.09(d) or intellectual property licensed by the
Company and the Company Subsidiaries pursuant to Section 3.11;
(e) in the event the Company or a Company Subsidiary is a
Licensor that elects to assign intellectual property rights to a member of the
Rockwell Group as provided in Section 3.11(c)(iv), acts of the Licensee taken to
enforce, or in connection with the enforcement of, such intellectual property
rights;
(f) the enforcement by the Semiconductor Indemnitees of their
rights to be indemnified, defended and held harmless under this Agreement; or
(g) Western Atlas Litigation Liabilities pursuant to (x) a
final and non-appealable order, decree or judgment by a court of competent
jurisdiction in respect of the Western Atlas Litigation or (y) a settlement
arrangement which is approved in writing by Rockwell (which approval shall not
be unreasonably withheld) in respect of the Western Atlas Litigation; provided,
however, that, in each case, royalties payable by Rockwell in respect of Western
Atlas Litigation Liabilities are calculated on the same basis as used in
determining royalties payable by the Semiconductor Business in the Western Atlas
Litigation (it being understood that all other Liabilities in respect of the
Western Atlas Litigation are Semiconductor Liabilities).
Section 4.03 Indemnification by the Company. Except as otherwise
specifically provided in any Transaction Agreement and subject to the provisions
of this Article IV, the Company and the Company Subsidiaries shall indemnify,
defend and hold harmless the Rockwell Indemnitees from and against, and pay or
reimburse, as the case may be, the Rockwell Indemnitees for, all Indemnifiable
Losses, as incurred, suffered by any Rockwell Indemnitee based upon, arising out
of, relating to or otherwise in connection with:
(a) the Semiconductor Business, the Semiconductor
Assets or the Semiconductor Liabilities (including, without limitation,
(i) any guarantees or obligations to assure performance or perform
given or made by, or other Liabilities of, Rockwell or any Rockwell
Subsidiary with respect to the Semiconductor Business, (ii) the failure
by the
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Company or any other member of the Company Group to pay, perform or
otherwise discharge Semiconductor Liabilities in accordance with their
terms, (iii) any Liabilities relating to the Semiconductor Business for
which Rockwell has agreed to indemnify BNA and certain other Persons
pursuant to the Boeing Post-Closing Covenants Agreement and (iv) any
Liabilities relating to the Semiconductor Business for which Rockwell
has agreed to indemnify Meritor and certain other Persons pursuant to
the Meritor Distribution Agreement), whether such Indemnifiable Losses
are based upon, arise out of or relate to or are otherwise in
connection with events, occurrences, actions, omissions, facts,
circumstances or conditions occurring, existing or asserted before, at
or after the Time of Distribution;
(b) any untrue statement or alleged untrue statement
of a material fact contained in the Form 10, or any omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except in
each case with respect to information relating to the Rockwell Group
provided by Rockwell expressly for use in the sections of the Form 10
listed on Schedule 4.2;
(c) the breach by any member of the Company Group of
any agreement or covenant contained in a Transaction Agreement which
does not by its express terms expire at the Time of Distribution;
(d) the use by members of the Company Group of any
trademarks, trade names or corporate symbols or logos pursuant to
Section 3.09(b) or intellectual property licensed by Rockwell and the
Rockwell Subsidiaries pursuant to Section 3.11;
(e) in the event Rockwell or a Rockwell Subsidiary is
a Licensor that elects to assign intellectual property rights to a
member of the Company Group as provided in Section 3.11(c)(iv), acts of
the Licensee taken to enforce, or in connection with the enforcement
of, such intellectual property rights;
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(f) any Action or other claim alleging that any
Liability was improperly allocated to the Company Group or that any
Asset was improperly withheld from the Company Group, in each case
pursuant to any of the Transaction Agreements; or
(g) the enforcement by the Rockwell Indemnitees of
their rights to be indemnified, defended and held harmless under this
Agreement.
Section 4.04 Limitations on Indemnification Obligations. (a) The amount
which any party (an "Indemnifying Party") is or may be required to pay to an
Indemnitee in respect of Indemnifiable Losses or other Liability for which
indemnification is provided under this Agreement shall be reduced by any amounts
actually received (including, without limitation, Insurance Proceeds actually
received) by or on behalf of such Indemnitee (net of increased insurance
premiums and charges related directly and solely to the related Indemnifiable
Losses and costs and expenses (including, without limitation, reasonable legal
fees and expenses) incurred by such Indemnitee in connection with seeking to
collect and collecting such amounts) in respect of such Indemnifiable Losses or
other Liability (such net amounts are referred to herein as "Indemnity Reduction
Amounts"). If any Indemnitee receives any Indemnity Reduction Amounts in respect
of an Indemnifiable Loss for which indemnification is provided under this
Agreement after the full amount of such Indemnifiable Loss has been paid by an
Indemnifying Party or after an Indemnifying Party has made a partial payment of
such Indemnifiable Loss and such Indemnity Reduction Amounts exceeds the
remaining unpaid balance of such Indemnifiable Loss, then the Indemnitee shall
promptly remit to the Indemnifying Party an amount equal to the excess (if any)
of (A) the amount theretofore paid by the Indemnifying Party in respect of such
Indemnifiable Loss, less (B) the amount of the indemnity payment that would have
been due if such Indemnity Reduction Amounts in respect thereof had been
received before the indemnity payment was made. An insurer or other third party
who would otherwise be obligated to pay any claim shall not be relieved of the
responsibility with respect thereto or, solely by virtue of the indemnification
provisions hereof, have any subrogation rights with respect thereto, it being
expressly understood and agreed that no insurer or any other third party shall
be entitled to any benefit they
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would not be entitled to receive in the absence of the indemnification
provisions by virtue of the indemnification provisions hereof.
(b) In determining the amount of any Indemnifiable Losses,
such amount shall be (i) reduced to take into account any net Tax benefit
realized by the Indemnitee arising from the incurrence or payment by the
Indemnitee of such Indemnifiable Losses and (ii) increased to take into account
any net Tax cost incurred by the Indemnitee as a result of the receipt or
accrual of payments hereunder (grossed-up for such increase), in each case
determined by treating the Indemnitee as recognizing all other items of income,
gain, loss, deduction or credit before recognizing any item arising from such
Indemnifiable Losses.
Section 4.05 Procedures Relating to Indemnification. (a) If a claim or
demand is made against an Indemnitee, or an Indemnitee shall otherwise learn of
an assertion, by any Person who is not a party to this Agreement (or an
Affiliate thereof) as to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement (a "Third Party Claim"), such
Indemnitee will notify the Indemnifying Party in writing, and in reasonable
detail, of the Third Party Claim reasonably promptly (and in any event within 20
business days) after becoming aware of such Third Party Claim; provided,
however, that failure to give such notification will not affect the
indemnification provided hereunder except to the extent the Indemnifying Party
shall have been actually prejudiced as a result of such failure (except that the
Indemnifying Party will not be liable for any expenses incurred during the
period in which the Indemnitee failed to give such notice). Thereafter, the
Indemnitee will deliver to the Indemnifying Party, promptly after the
Indemnitee's receipt thereof, copies of all notices and documents (including,
without limitation, court papers) received or transmitted by the Indemnitee
relating to the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnitee, the
Indemnifying Party will be entitled to participate in or to assume the defense
thereof (in either case, at the expense of the Indemnifying Party) with counsel
selected by the Indemnifying Party and reasonably satisfactory to the
Indemnitee. Should the
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Indemnifying Party so elect to assume the defense of a Third Party Claim, the
Indemnifying Party will not be liable to the Indemnitee for any legal or other
expenses subsequently incurred by the Indemnitee in connection with the defense
thereof; provided that, if in the Indemnitee's reasonable judgment a conflict of
interest exists in respect of such claim or if the Indemnifying Party shall have
assumed responsibility for such claim with any reservations or exceptions, such
Indemnitee will have the right to employ separate counsel reasonably
satisfactory to the Indemnifying Party to represent such Indemnitee and in that
event the reasonable fees and expenses of such separate counsel (but not more
than one separate counsel for all Indemnitees similarly situated) shall be paid
by such Indemnifying Party. If the Indemnifying Party assumes the defense of any
Third Party Claim, the Indemnitee will have the right to participate in the
defense thereof and to employ counsel, at its own expense, separate from the
counsel employed by the Indemnifying Party, it being understood that the
Indemnifying Party will control such defense. The Indemnifying Party will be
liable for the fees and expenses of counsel employed by the Indemnitee for any
period during which the Indemnifying Party has failed to assume the defense
thereof (other than during any period in which the Indemnitee shall have failed
to give notice of the Third Party Claim as provided above). If the Indemnifying
Party assumes the defense of any Third Party Claim, the Indemnifying Party will
promptly supply to the Indemnitee copies of all correspondence and documents
relating to or in connection with such Third Party Claim and keep the Indemnitee
fully informed of all developments relating to or in connection with such Third
Party Claim (including, without limitation, providing to the Indemnitee on
request updates and summaries as to the status thereof). If the Indemnifying
Party chooses to defend a Third Party Claim, the parties hereto will cooperate
in the defense thereof (such cooperation to be at the expense, including,
without limitation, reasonable legal fees and expenses, of the Indemnifying
Party), which cooperation shall include the retention in accordance with this
Agreement and (upon the Indemnifying Party's request) the provision to the
Indemnifying Party of records and information which are reasonably relevant to
such Third Party Claim, and making employees available on a mutually convenient
basis to provide additional information and explanation of any material provided
hereunder.
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(c) No Indemnifying Party will consent to any settlement,
compromise or discharge (including the consent to entry of any judgment) of any
Third Party Claim without the Indemnitee's prior written consent (which consent
will not be unreasonably withheld); provided, that if the Indemnifying Party
assumes the defense of any Third Party Claim, the Indemnitee will agree to any
settlement, compromise or discharge of such Third Party Claim which the
Indemnifying Party may recommend and which by its terms obligates the
Indemnifying Party to pay the full amount of Indemnifiable Losses in connection
with such Third Party Claim and unconditionally and irrevocably releases the
Indemnitee completely from all Liability in connection with such Third Party
Claim; provided, however, that the Indemnitee may refuse to agree to any such
settlement, compromise or discharge (x) that provides for injunctive or other
nonmonetary relief affecting the Indemnitee or (y) that, in the reasonable
opinion of the Indemnitee, would otherwise materially adversely affect the
Indemnitee. Whether or not the Indemnifying Party shall have assumed the defense
of a Third Party Claim, the Indemnitee will not (unless required by law) admit
any liability with respect to, or settle, compromise or discharge, such Third
Party Claim without the Indemnifying Party's prior written consent (which
consent will not be unreasonably withheld).
(d) Any claim on account of Indemnifiable Losses which does
not involve a Third Party Claim will be asserted by reasonably prompt written
notice given by the Indemnitee to the Indemnifying Party from whom such
indemnification is sought. The failure by any Indemnitee so to notify the
Indemnifying Party will not relieve the Indemnifying Party from any liability
which it may have to such Indemnitee under this Agreement, except to the extent
that the Indemnifying Party shall have been actually prejudiced by such failure.
Any notice pursuant to this Section 4.05(d) will contain a statement, in
prominent and conspicuous type, that if the Indemnifying Party does not dispute
its liability to the Indemnitee with respect to the claim made in such notice by
notice to the Indemnitee prior to the expiration of a 30-calendar-day period
following the Indemnifying Party's receipt of the second notice of such claim,
the claim shall be conclusively deemed a liability of the Indemnifying Party. If
the Indemnitee has provided the Indemnifying Party two such notices not less
than 30 days
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apart and the Indemnifying Party does not notify the Indemnitee prior to the
expiration of a 30-calendar-day period following its receipt of the second such
notice that the Indemnifying Party disputes its liability to the Indemnitee
under this Agreement, such claim specified by the Indemnitee in such notice will
be conclusively deemed a liability of the Indemnifying Party under this
Agreement and the Indemnifying Party will pay the amount of such liability to
the Indemnitee on demand or, in the case of any notice in which the amount of
the claim (or any portion thereof) is estimated, on such later date when the
amount of such claim (or such portion thereof) becomes finally determined. If
the Indemnifying Party has timely disputed its liability with respect to such
claim, as provided above, the Indemnifying Party and the Indemnitee will proceed
in good faith to negotiate a resolution of such dispute and, if not resolved
through negotiations by the 120th day after notice of such claim was given to
the Indemnifying Party, the Indemnifying Party and the Indemnitee will be free
to pursue such remedies as may be available to such parties under this Agreement
or under applicable law.
(e) In the event of payment in full by an Indemnifying Party
to any Indemnitee in connection with any Third Party Claim, such Indemnifying
Party will be subrogated to and shall stand in the place of such Indemnitee as
to any events or circumstances in respect of which such Indemnitee may have any
right or claim relating to such Third Party Claim against any claimant or
plaintiff asserting such Third Party Claim or against any other Person. Such
Indemnitee will cooperate with such Indemnifying Party in a reasonable manner,
and at the cost and expense of such Indemnifying Party, in prosecuting any
subrogated right or claim.
(f) Notwithstanding anything contained herein to the contrary,
the Company shall promptly provide Rockwell with copies of all materials
received by the Company or filed by any party in connection with the Western
Atlas Litigation and shall promptly consult with Rockwell with respect to any
material action to be taken in respect of the Western Atlas Litigation.
Section 4.06 Remedies Cumulative. The remedies provided in this Article
IV shall be cumulative and shall not preclude assertion by any Indemnitee of any
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other rights or the seeking of any and all other remedies against any
Indemnifying Party.
Section 4.07 Survival of Indemnities. The obligations of each of
Rockwell and the Company under this Article IV will not terminate at any time
and will survive the sale or other transfer by any party of any assets or
businesses or the assignment by any party of any Liabilities with respect to any
Indemnifiable Losses of the other related to such assets, businesses or
Liabilities.
Section 4.08 Exclusivity of Tax Allocation Agreement. Notwithstanding
anything in this Agreement to the contrary, the Tax Allocation Agreement will be
the exclusive agreement among the parties with respect to all Tax matters,
including, without limitation, indemnification in respect of Tax matters.
ARTICLE V
ACCESS TO INFORMATION
Section 5.01 Access to Information. From and after the Time of
Distribution, Rockwell will, and will cause each Rockwell Subsidiary to, afford
to the Company and its Representatives (at the Company's expense) reasonable
access and duplicating rights during normal business hours and upon reasonable
advance notice to all Information within Rockwell's possession or control or in
the possession or control of a Rockwell Subsidiary relating to the Company, any
Company Subsidiary or the Semiconductor Business, insofar as such access is
reasonably required by the Company or any Company Subsidiary, subject to the
provisions below regarding Privileged Information. From and after the Time of
Distribution, the Company will, and will cause each Company Subsidiary to,
afford to Rockwell and its Representatives (at Rockwell's expense) reasonable
access and duplicating rights during normal business hours and upon reasonable
advance notice to all Information within the Company's possession or control or
in the possession or control of a Company Subsidiary relating to Rockwell, any
Rockwell Subsidiary or the businesses of the Pre-Distribution Group, insofar as
such access is reasonably required by Rockwell or any Rockwell Subsidiary,
subject to the provisions below regarding Privileged Information.
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Without limiting the foregoing, Information may be requested under this Article
V for audit, accounting, claims, litigation, insurance, environmental and safety
and tax purposes, as well as for purposes of fulfilling disclosure and reporting
obligations and for performing this Agreement and the transactions contemplated
hereby.
In furtherance of the foregoing:
(a) Each party acknowledges that (i) each of Rockwell and the
Company (and the members of the Rockwell Group and the Company Group,
respectively) has or may obtain Privileged Information; (ii) there are a number
of Actions affecting one or more of the members of the Rockwell Group and the
Company Group; (iii) the parties may have a common legal interest in Actions, in
the Privileged Information, and in the preservation of the confidential status
of the Privileged Information, in each case relating to the business of the
Rockwell Group or the Company Group; and (iv) both Rockwell and the Company
intend that the transactions contemplated by the Transaction Agreements and any
transfer of Privileged Information in connection therewith shall not operate as
a waiver of any potentially applicable privilege.
(b) Each of Rockwell and the Company agrees, on behalf of
itself and each member of the Group of which it is a member, not to disclose or
otherwise waive any privilege attaching to any Privileged Information relating
to the business of the Company Group or the Rockwell Group, respectively,
without providing prompt written notice to and obtaining the prior written
consent of the other, which consent will not be unreasonably withheld. In the
event of a disagreement between any member of the Rockwell Group and any member
of the Company Group concerning the reasonableness of withholding such consent,
no disclosure will be made prior to a final, nonappealable resolution of such
disagreement.
(c) Upon any member of the Rockwell Group or any member of the
Company Group receiving any subpoena or other compulsory disclosure notice from
a court, other Governmental Entity or otherwise which requests disclosure of
Privileged Information, in each case relating to the business of the Company
Group or the Rockwell Group, respectively, the recipient of the notice will
promptly provide to the other party (following the
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notice provisions set forth herein) a copy of such notice, the intended
response, and all materials or information relating to the other Group that
might be disclosed. In the event of a disagreement as to the intended response
or disclosure, unless and until the disagreement is resolved as provided in
Section 5.01(b), the parties will cooperate to assert all defenses to disclosure
claimed by either Group, at the cost and expense of the Group claiming such
defense to disclosure, and shall not disclose any disputed documents or
information until all legal defenses and claims of privilege have been finally
determined.
Section 5.02 Production of Witnesses. Subject to Section 5.01, after
the Time of Distribution, each of Rockwell and the Company will, and will cause
each member of the Rockwell Group and the Company Group, respectively, to, make
available to the other party and its Subsidiaries, upon written request and at
the cost and expense of the party so requesting, its directors, officers,
employees and agents as witnesses to the extent that any such Person may
reasonably be required (giving consideration to business demands of such
Representatives) in connection with any Actions or other proceedings in which
the requesting party may from time to time be involved, provided that the same
shall not unreasonably interfere with the conduct of business by the Group of
which the request is made.
Section 5.03 Retention of Records. Except as otherwise required by law
or agreed to in writing, if any Information relating to the business, assets or
Liabilities of a member of a Group is retained by a member of the other Group,
each of Rockwell and the Company will, and will cause the members of the Group
of which it is a member to, retain for the period required by the applicable
Rockwell records retention policy in effect immediately prior to the Time of
Distribution all such Information in such Group's possession or under its
control. In addition, after the expiration of such required retention period, if
any member of either Group wishes to destroy or dispose of any such Information,
prior to destroying or disposing of any of such Information, (1) Rockwell or the
Company, on behalf of the member of its Group that is proposing to dispose of or
destroy any such Information, will provide no less than 30 days' prior written
notice to the other party, specifying in reasonable detail the Information
proposed
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to be destroyed or disposed of, and (2) if, prior to the scheduled date for such
destruction or disposal, the recipient of such notice requests in writing that
any of the Information proposed to be destroyed or disposed of be delivered to
such requesting party, the party whose Group is proposing to dispose of or
destroy such Information promptly will arrange for the delivery of the requested
Information to a location specified by, and at the expense of, the requesting
party
Section 5.04 Confidentiality. Subject to Section 5.01, which shall
govern Privileged Information, from and after the Time of Distribution, each of
Rockwell and the Company shall hold, and shall use reasonable efforts to cause
its Affiliates and Representatives to hold, in strict confidence all Information
concerning the other party's Group in its possession or control or furnished to
it by such other party's Group pursuant to the Transaction Agreements or the
transactions contemplated thereby and will not release or disclose such
Information to any other Person, except its Affiliates and Representatives, who
will be bound by the provisions of this Section 5.04; provided, however, that
any member of the Rockwell Group or the Company Group may disclose such
Information to the extent that (a) disclosure is compelled by judicial or
administrative process or, in the opinion of such Person's counsel, by other
requirements of law (in which case the party required to make such disclosure
will notify the other party as soon as practicable of such obligation or
requirement and cooperate with the other party to limit the Information required
to be disclosed and to obtain a protective order or other appropriate remedy
with respect to the Information ultimately disclosed), or (b) such Person can
show that such Information was (i) available to such Person on a nonconfidential
basis (other than from a member of the other party's Group) prior to its
disclosure by such Person, (ii) in the public domain through no fault of such
Person or (iii) lawfully acquired by such Person from another source after the
time that it was furnished to such Person by the other party's Group, and not
acquired from such source subject to any confidentiality obligation on the part
of such source known to the acquiror, or on the part of the acquiror. Each party
acknowledges that it will be liable for any breach of this Section 5.04 by its
Representatives to whom such Information is disclosed by such party.
Notwithstanding the foregoing, each of
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Rockwell and the Company will be deemed to have satisfied its obligations under
this Section 5.04 with respect to any Information (other than Privileged
Information) if it exercises the same care with regard to such Information as it
takes to preserve confidentiality for its own similar Information.
ARTICLE VI
MISCELLANEOUS
Section 6.01 Entire Agreement; Construction. This Agreement and the
Ancillary Agreements, including, without limitation, any annexes, schedules and
exhibits hereto or thereto, and other agreements and documents referred to
herein and therein, will together constitute the entire agreement between the
parties with respect to the subject matter hereof and thereof and will supersede
all prior negotiations, agreements and understandings of the parties of any
nature, whether oral or written, with respect to such subject matter.
Notwithstanding any other provisions in the Transaction Agreements to the
contrary, (i) in the event and to the extent that there is a conflict between
the provisions of this Agreement and the provisions of the Employee Matters
Agreement or the Tax Allocation Agreement, the provisions of the Employee
Matters Agreement or the Tax Allocation Agreement, as appropriate, will control
and (ii) in the event and to the extent that there is a conflict between the
provisions of this Agreement and the provisions of any Conveyance and Assumption
Instruments, the provisions of this Agreement will control.
Section 6.02 Survival of Agreements. Except as otherwise contemplated
by the Transaction Agreements, all covenants and agreements of the parties
contained in the Transaction Agreements will remain in full force and effect and
survive the Time of Distribution.
Section 6.03 Expenses. Except as otherwise set forth in any Transaction
Agreement, all costs and expenses incurred through the Time of Distribution in
connection with the Distribution, the preparation, execution and delivery of the
Transaction Agreements and the consummation of the transactions contemplated
thereby will be charged to and paid by Rockwell (other than
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(i) the costs and expenses of the Company's credit facilities and (ii) costs and
expenses to the extent the same relate to operations of the Semiconductor
Business subsequent to the Time of Distribution (whether the costs and expenses
described in clauses (i) or (ii) are incurred and/or paid before, at or after
the Time of Distribution), which costs and expenses described in clauses (i) and
(ii) will be charged to and paid by the Company). Except as otherwise set forth
in any Transaction Agreement, all costs and expenses incurred following the Time
of Distribution in connection with implementation of the transactions
contemplated by the Transaction Agreements will be charged to and paid by the
party for whose benefit the expenses are incurred, with any expenses which
cannot be allocated on such basis to be split equally between the parties.
Section 6.04 Governing Law. This Agreement will be governed by and
construed in accordance with the internal laws of the State of New York
applicable to contracts made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
Section 6.05 Notices. All notices, requests, claims, demands and other
communications required or permitted to be given hereunder will be in writing
and will be delivered by hand or telecopied or sent, postage prepaid, by
registered, certified or express mail or reputable overnight courier service and
will be deemed given when so delivered by hand or telecopied, or three business
days after being so mailed (one business day in the case of express mail or
overnight courier service). All such notices, requests, claims, demands and
other communications will be addressed as set forth below, or pursuant to such
other instructions as may be designated in writing by the party to receive such
notice:
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(a) If to Rockwell:
Rockwell International Corporation
600 Anton Boulevard
Costa Mesa, California 92626
Attention: Mr. W. Michael Barnes
Senior Vice President,
Finance and Planning and
Chief Financial Officer
Telecopy: (714) 424-4218
with a copy to:
Rockwell International Corporation
600 Anton Boulevard
Costa Mesa, California 92626
Attention: William J. Calise, Jr., Esq.
Senior Vice President,
General Counsel and
Secretary
Telecopy: (714) 424-4265
(b) If to the Company:
[Rockwell Semiconductor Systems, Inc.]
4311 Jamboree Road
Newport Beach, California 92658-8902
Attention: Mr. Dwight W. Decker
President
Telecopy: (949) 221-4318
with a copy to:
[Rockwell Semiconductor Systems, Inc.]
4311 Jamboree Road
Newport Beach, California 92658-8902
Attention: [ ]
[ ]
Telecopy: (949) 221-[ ]
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Section 6.06 Consent to Jurisdiction. Each of Rockwell and the Company
irrevocably submits to the exclusive jurisdiction of (i) the Court of Chancery
in and for the State of Delaware and the Superior Court in and for the State of
Delaware and (ii) the United States District Court for the District of Delaware,
for the purposes of any suit, action or other proceeding arising out of the
Transaction Agreements or any transaction contemplated thereby (and agrees not
to commence any action, suit or proceeding relating thereto except in such
courts). Each of Rockwell and the Company further agrees that service of any
process, summons, notice or document hand delivered or sent by U.S. registered
mail to such party's respective address set forth in Section 6.05 will be
effective service of process for any action, suit or proceeding in Delaware with
respect to any matters to which it has submitted to jurisdiction as set forth in
the immediately preceding sentence. Each of Rockwell and the Company irrevocably
and unconditionally waives any objection to the laying of venue of any action,
suit or proceeding arising out of the Transaction Agreements or the transactions
contemplated thereby in (i) the Court of Chancery in and for the State of
Delaware and the Superior Court in and for the State of Delaware or (ii) the
United States District Court for the District of Delaware, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
Section 6.07 Amendments. This Agreement cannot be amended, modified or
supplemented except by a written agreement executed by Rockwell and the Company.
Section 6.08 Assignment. Neither party to this Agreement will convey,
assign or otherwise transfer any of its rights or obligations under this
Agreement without the prior written consent of the other party in its sole and
absolute discretion, except that other than as expressly provided herein any
party may (without obtaining any consent) assign any of its rights hereunder to
a successor to all or any part of its business. Any such conveyance, assignment
or transfer requiring the prior written consent of another party which is made
without such consent will be void ab initio. No assignment of this Agreement
will relieve the assigning party of its obligations hereunder.
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Section 6.09 Captions; Currency. The article, section and paragraph
captions herein and the table of contents hereto are for convenience of
reference only, do not constitute part of this Agreement and will not be deemed
to limit or otherwise affect any of the provisions hereof. Unless otherwise
specified, all references herein to numbered articles or sections are to
articles and sections of this Agreement and all references herein to annexes or
schedules are to annexes and schedules to this Agreement. Unless otherwise
specified, all references contained in this Agreement, in any annex or schedule
referred to herein or in any instrument or document delivered pursuant hereto to
dollars or "$" shall mean United States Dollars.
Section 6.10 Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, will remain in full force and effect and will in no way be
affected, impaired or invalidated thereby. If the economic or legal substance of
the transactions contemplated hereby is affected in any manner adverse to any
party as a result thereof, the parties will negotiate in good faith in an effort
to agree upon a suitable and equitable substitute provision to effect the
original intent of the parties.
Section 6.11 Parties in Interest. This Agreement is binding upon and is
for the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement is not made for the benefit of any Person not
a party hereto, and no Person other than the parties hereto or their respective
successors and permitted assigns will acquire or have any benefit, right, remedy
or claim under or by reason of this Agreement, except that the provisions of
Sections 4.02 and 4.03 hereof shall inure to the benefit of the Persons referred
to therein.
Section 6.12 Schedules. All annexes and schedules attached hereto are
hereby incorporated in and made a part of this Agreement as if set forth in full
herein. Capitalized terms used in the schedules hereto but not otherwise defined
therein will have the
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respective meanings assigned to such terms in this Agreement.
Section 6.13 Termination. This Agreement may be terminated and the
Distribution abandoned at any time prior to the Time of Distribution by and in
the sole discretion of the Rockwell Board without the approval of the Company or
of Rockwell's shareowners. In the event of such termination, no party will have
any liability of any kind to any other party on account of such termination.
Section 6.14 Waivers; Remedies. The conditions to Rockwell's obligation
to consummate the Distribution are for the sole benefit of Rockwell and may be
waived in writing by Rockwell in whole or in part in Rockwell's sole discretion.
No failure or delay on the part of either Rockwell or the Company in exercising
any right, power or privilege hereunder will operate as a waiver thereof, nor
will any waiver on the part of either Rockwell or the Company of any right,
power or privilege hereunder operate as a waiver of any other right, power or
privilege hereunder, nor will any single or partial exercise of any right, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder. The rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies which the parties may otherwise have at law or in equity.
Section 6.15 Further Assurances. From time to time after the
Distribution, as and when requested by either party hereto, the other party
shall execute and deliver, or cause to be executed and delivered, all such
documents and instruments and shall take, or cause to be taken, all such actions
as the requesting party may reasonably request to consummate the transactions
contemplated by the Transaction Agreements.
Section 6.16 Counterparts. This Agreement may be executed in separate
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts will together constitute the same agreement.
Section 6.17 Performance. Each party will cause to be performed and
hereby guarantees the
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performance of all actions, agreements and obligations set forth herein to be
performed by any Subsidiary or Affiliate of such party.
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties as of the date first
hereinabove written.
ROCKWELL INTERNATIONAL CORPORATION
By:
------------------------------------------
William J. Calise, Jr.
Senior Vice President, General
Counsel and Secretary
[ROCKWELL SEMICONDUCTOR SYSTEMS,
INC.]
By:
------------------------------------------
[ ]
[ ]
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<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
ROCKWELL SEMICONDUCTOR SYSTEMS, INC.
ARTICLE I. The name of the Corporation is Rockwell Semiconductor
Systems, Inc.
ARTICLE II. The Corporation's principal office in the State of Delaware
is located at 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name and address of its resident agent is The Corporation Trust
Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801.
ARTICLE III. The nature of the business, or objects or purposes to be
transacted, promoted or carried on, are: To engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is Ten Thousand (10,000) shares,
of which Ten Thousand (10,000) shares of the par value of $1 each are to be of a
class designated Common Stock.
ARTICLE V. The name and mailing address of the Sole Incorporator are as
follows:
<PAGE> 2
Name Mailing Address
---- ---------------
S.S. McKenney Rockwell International Corporation
625 Liberty Avenue
Pittsburgh, Pennsylvania 15222
ARTICLE VI. The Corporation is to have perpetual existence.
ARTICLE VII. In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware:
A. The Board of Directors of the Corporation is expressly
authorized to adopt, alter, amend and repeal the By-Laws of the
Corporation, in any manner not inconsistent with the laws of the State
of Delaware or the Certificate of Incorporation of the Corporation.
B. The election of directors of the Corporation need not be by
ballot unless the By-Laws of the Corporation so require.
C. The books of the Corporation may be kept at such place,
within or without the State of Delaware, as the By-Laws of the
Corporation may provide or as may be designated from time to time by
the Board of Directors of the Corporation.
ARTICLE VIII. Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
2
<PAGE> 3
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
3
<PAGE> 4
ARTICLE IX. No director of the Corporation shall be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. This Article IX shall not eliminate or limit the liability of
a director for any act or omission occurring prior to the effective date of its
adoption. No repeal or modification of this Article IX, directly or by adoption
of an inconsistent provision of this Certificate of Incorporation, by the
stockholders of the Corporation shall be effective with respect to any cause of
action, suit, claim or other matter that, but for this paragraph, would accrue
or arise prior to such repeal or modification.
ARTICLE X. From time to time any of the provisions of this Certificate
of Incorporation may be amended, altered or repealed, and other provisions
authorized by the statutes of the State of Delaware at the time in force may be
added or inserted in the manner at the time prescribed by said
4
<PAGE> 5
statutes, and all rights at any time conferred upon the stockholders of the
Corporation by its Certificate of Incorporation are granted subject to the
provisions of this Article X.
IN WITNESS WHEREOF, I have signed this Certificate as of this day
of September, 1996.
-------------------
S.S. McKenney
Sole Incorporator
5
<PAGE> 1
Exhibit 3.2
ROCKWELL SEMICONDUCTOR SYSTEMS, INC.
(Delaware)
BY-LAWS
ARTICLE ONE
STOCKHOLDERS
SECTION 1.1. Annual Meeting. An annual meeting of stockholders
for the election of directors and for the transaction of such other business as
may properly be presented at the meeting, notice of which was given in the
notice of meeting, shall be held on such date and at such time as may from time
to time be designated by resolution duly adopted by the Board of Directors, at
such place (within or without the State of Delaware) as the Board of Directors,
the Executive Committee, if any, or the President may fix.
SECTION 1.2. Special Meetings. A special meeting of
stockholders may be called for any proper purpose, notice of which was given in
the notice of meeting, at any time by the Board of Directors, the Executive
Committee, if any, or the President and shall be called by any of them or by the
Secretary upon receipt of a written request to do so specifying the matter or
matters, appropriate for action at such a meeting, that are proposed to be
presented at the meeting, signed by holders of record of a majority of the
shares of stock that would be entitled to be voted on such matter or matters if
the meeting were held on the day such request is received and the record date
for such meeting were the close of business on the preceding day. Any such
meeting shall be held on such date, at such time and at such place, within or
without the State of Delaware, as shall be determined by the body or person
calling such meeting and as shall be stated in the notice of such meeting.
SECTION 1.3. Notice of Meeting. For each meeting of
stockholders written notice shall be given stating the place, date and hour and
the purpose or purposes for which the meeting is called and, if other than the
place where the meeting is to be held, the place within the city in which the
meeting is to be held where the list of stockholders required
<PAGE> 2
by Section 1.10 is to be open for examination at least 10 days prior to the
meeting. Except as otherwise provided by Delaware law, the written notice of any
meeting shall be given not less than 10 nor more than 60 days before the date of
the meeting to each stockholder entitled to vote at such meeting. If mailed,
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation.
SECTION 1.4. Quorum. Except as otherwise required by law or in
the Certificate of Incorporation, the holders of record of a majority of the
shares of stock entitled to be voted present in person or represented by proxy
at a meeting shall constitute a quorum for the transaction of business at the
meeting, but, in the absence of a quorum, the holders of record present in
person or represented by proxy at such meeting may vote to adjourn the meeting
from time to time until a quorum is obtained.
SECTION 1.5. Presiding Officer and Secretary at Meetings. Each
meeting of stockholders shall be presided over by the President or, in the
President's absence, by the person designated in writing by the President or, if
no such person is present, then by a person designated by the Board of
Directors; if no such person is present, then the stockholders at the meeting
present in person or represented by proxy shall by plurality vote elect a person
to act as chairman of the meeting. The Secretary, or in the Secretary's absence
an Assistant Secretary, shall act as secretary of the meeting, or, if no such
officer is present, a secretary of the meeting shall be designated by the
chairman of the meeting.
SECTION 1.6. Voting. Except as otherwise provided by law or in
the Certificate of Incorporation, and subject to the provisions of Section 1.11:
(a) each stockholder of record shall be entitled at
every meeting of stockholders to one vote for each share standing in
his name on the books of the Corporation;
(b) directors shall be elected by a plurality vote;
(c) each matter, other than election of directors,
properly presented to any meeting, shall be decided by a majority of
the votes cast on the matter; and
(d) election of directors and the vote on any other
matter presented to a meeting shall be by written
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ballot only if so ordered by the chairman of the meeting or if so
requested by any stockholder at the meeting present in person or
represented by proxy entitled to vote in such election or on such
matter, as the case may be.
SECTION 1.7. Proxies. Each stockholder entitled to vote at a
meeting of stockholders or to express consent or dissent to corporate action in
writing without a meeting may authorize another person or persons to act for him
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period.
SECTION 1.8. Adjourned Meetings. A meeting of stockholders may
be adjourned to another time or place as provided in Sections 1.4 or 1.6(c).
Unless the Board of Directors fixes a new record date, stockholders of record
for an adjourned meeting shall be as originally determined for the meeting from
which the adjournment was taken. If the adjournment is for more than 30 days, or
if after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. At the adjourned meeting, provided a quorum is
present, any business may be transacted that might have been transacted at the
meeting as originally called.
SECTION 1.9. Consent of Stockholders in Lieu of Meeting. Any
action that may be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if one or more
consents in writing, setting forth the action so taken and signed by the holders
of outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, are delivered to the
Corporation by delivery to its registered office in the State of Delaware by
hand or by certified or registered mail, return receipt requested, to its
principal place of business, or to an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Every consent shall bear the date of signature of each stockholder
signing the consent and no written consent shall be effective to take the
corporate action referred to therein unless written consents signed by a
sufficient number of stockholders to take the action are delivered to the
Corporation, in the manner required by law, within 60 days of the earliest dated
consent so delivered. Prompt notice of the taking of such action shall be given
to each stockholder that did not consent in writing.
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SECTION 1.10. List of Stockholders Entitled to Vote. A
complete list of the stockholders entitled to vote at every meeting of
stockholders, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder,
shall be prepared and shall be open to the examination of any stockholder for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least 10 days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. Such list shall be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present.
SECTION 1.11. Fixing of Record Date. The Board of Directors,
by resolution, may fix a date for determining the stockholders of record, which
record date shall not be earlier than the date of such resolution. The record
date shall be determined as follows:
(a) The record date for stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment
thereof shall not be more than 60 nor less than 10 days before the date
of the meeting. If no such record date is fixed by the Board of
Directors, the record date shall be the close of business on the day
immediately preceding the day on which notice is given, or, if notice
is waived, at the close of business on the day immediately preceding
the day on which the meeting is held. The record date shall apply to
any adjournment of the meeting unless the Board of Directors fixes a
new record date for the adjourned meeting.
(b) The record date for determining the stockholders
entitled to consent to corporate action in writing without a meeting
shall not be more than 10 days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. If no such
record date is fixed by the Board of Directors, the record date shall
be determined as follows:
(i) if no prior action by the Board of
Directors is required under the Delaware General Corporation
Law, the record date shall be the first date on which a signed
written consent setting forth the action taken or proposed to
be taken is delivered to the Corporation pursuant to the
requirements of Section 1.9; and
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(ii) if prior action by the Board of
Directors is required under the Delaware General Corporation
Law, the record date shall be the close of business on the day
on which the Board of Directors adopts a resolution taking
such prior action.
(c) The record date for determining the stockholders
entitled to receive payment of any dividend or other distribution or
allotment of any rights or the stockholders entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or
for the purpose of any other lawful action, shall be not more than 60
days prior to such action. If no such record date is fixed by the Board
of Directors, the record date for determining stockholders for any such
purpose shall be the close of business on the day on which the Board of
Directors adopts the resolution relating to such purpose.
ARTICLE TWO
DIRECTORS
SECTION 2.1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors.
SECTION 2.2. Number; Term of Office. The number of directors
that shall constitute the whole Board of Directors shall be determined by action
of the Board of Directors taken by the affirmative vote of a majority of the
whole Board of Directors or, if the Board of Directors shall not have taken such
action, it shall be the number of directors elected by the sole incorporator.
Directors shall be elected at the annual meeting of stockholders to hold office,
subject to Sections 2.3 and 2.4, until the next annual meeting of stockholders
and until their respective successors are elected and qualified.
SECTION 2.3. Resignation. Any director of the Corporation may
resign at any time by giving written notice of such resignation to the Board of
Directors, the President or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein or, if no time is
specified, upon receipt thereof by the Board of Directors or one of the
above-named officers. Unless specified therein, the acceptance of such
resignation shall not be necessary to make it effective. When one or more
directors shall resign from the Board of Directors effective at a future date, a
majority of the directors then in office, including those who have so resigned,
shall have power to fill such vacancy or vacancies, the vote thereon to take
effect when such
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resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in these By-Laws in the filling of other
vacancies.
SECTION 2.4. Removal. Any one or more directors may be
removed, with or without cause, by the holders of a majority of the shares
entitled to vote at an election of directors.
SECTION 2.5. Vacancies; Newly Created Directorships. Vacancies
and newly created directorships resulting from any increase in the authorized
number of directors may be filled by a vote of a majority of the directors then
in office, although less than a quorum, or by the sole remaining director, and
the directors so chosen shall hold office, subject to Sections 2.3 and 2.4,
until the next annual meeting of stockholders and until their respective
successors are elected and qualified.
SECTION 2.6. Regular and Annual Meetings; Notice. Regular
meetings of the Board of Directors shall be held at such time and at such place
(within or without the State of Delaware) as the Board of Directors may from
time to time prescribe. No notice need be given of any regular meeting, and a
notice, if given, need not specify the purposes thereof. A meeting of the Board
of Directors may be held without notice immediately after an annual meeting of
stockholders at the same place as that at which such meeting was held.
SECTION 2.7. Special Meetings; Notice. A special meeting of
the Board of Directors may be called at any time by the Board of Directors, the
Executive Committee, if any, the President or any person acting in the place of
the President and shall be called by any one of them or by the Secretary upon
receipt of a written request to do so specifying the matter or matters,
appropriate for action at such a meeting, proposed to be presented at the
meeting and signed by at least two directors. Any such meeting shall be held at
such time and at such place (within or without the State of Delaware) as shall
be determined by the body or person calling such meeting. Notice of such meeting
stating the time and place thereof shall be given (a) by deposit of the notice
in the United States mail, first class, postage prepaid, at least seven days
before the day fixed for the meeting, addressed to each director at his address
as it appears on the Corporation's records or at such other address as the
director may have furnished the Corporation for that purpose, or (b) by delivery
of the notice similarly addressed for dispatch by telex, telecopy, telegraph,
cable or radio or by delivery of the notice by telephone or in person, in each
case at least 24 hours before the time fixed for the meeting.
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SECTION 2.8. Chairman of the Board; Presiding Officer and
Secretary at Meetings. The Board of Directors may elect one of its members to
serve at its pleasure as Chairman of the Board. Each meeting of the Board of
Directors shall be presided over by the Chairman of the Board, or in the absence
of the Chairman of the Board, by the President, if a director, or if neither is
present, by such member of the Board of Directors as shall be chosen by a
majority of the directors present. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, or if
no such officer is present, a secretary of the meeting shall be designated by
the person presiding over the meeting.
SECTION 2.9. Quorum; Voting. A majority of the whole Board of
Directors shall constitute a quorum for the transaction of business, but in the
absence of a quorum a majority of those present (or if only one be present, then
that one) may adjourn the meeting, without notice other than announcement at the
meeting, until such time as a quorum is present. Except as otherwise required by
law, the Certificate of Incorporation or the By-Laws, the vote of a majority of
the directors present at a meeting at which a quorum is present shall be the act
of the Board of Directors.
SECTION 2.10. Meeting by Telephone. Members of the Board of
Directors or of any committee thereof may participate in meetings of the Board
of Directors or of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 2.11. Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board of
Directors or of such committee, as the case may be, consent thereto in writing
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or of such committee.
SECTION 2.12. Executive and Other Committees. The Board of
Directors may, by resolution passed by a majority of the whole Board of
Directors, designate an Executive Committee or one or more other committees,
each such committee to consist of one or more directors as the Board of
Directors may from time to time determine. Any such committee, to the extent
provided in such resolution or resolutions, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, including the power to authorize the seal of the
Corporation to be affixed to all papers that may require it; but no such
committee shall have such power or authority in
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reference to amending the Certificate of Incorporation (except for such
amendments as by law are expressly permitted to be made by committees of the
Board of Directors), adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the By-Laws; and unless the resolution shall expressly so provide,
no such committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock or to adopt a certificate of ownership and
merger. The Board of Directors may designate one or more directors as alternate
members of any committee who, in the absence or disqualification of a member or
members of a committee at a meeting, may replace such absent or disqualified
member or members at such meeting. In the absence of such a designation, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Each such committee other than the
Executive Committee shall have such name as may be determined from time to time
by the Board of Directors.
SECTION 2.13. Compensation. A director shall receive such
compensation, if any, for his services as a director as may from time to time be
fixed by the Board of Directors, which compensation may be based, in whole or in
part, upon his attendance at meetings of the Board of Directors or of its
committees. He may also be reimbursed for his expenses in attending any meeting.
ARTICLE THREE
OFFICERS
SECTION 3.1. Election; Qualification. The officers of the
Corporation shall be a President, one or more Vice Presidents, a Secretary and a
Treasurer, each of whom shall be elected by the Board of Directors. Two or more
offices may be held by the same person.
SECTION 3.2. Term of Office. Each officer shall hold office
from the time of such officer's election and qualification until the expiration
of the term for which such officer is elected and until the time such officer's
successor is elected and qualified, unless sooner such officer shall die or
resign or shall be removed pursuant to Section 3.4.
SECTION 3.3. Resignation. Any officer of the Corporation may
resign at any time by giving written notice of
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such resignation to the Board of Directors, the President or the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein or, if no time be specified, upon receipt thereof by the Board of
Directors or one of the above-named officers. Unless specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 3.4. Removal. Any officer of the Corporation may be
removed at any time, with or without cause, by the vote of a majority of the
whole Board of Directors.
SECTION 3.5. Vacancies. Any vacancy, however caused, in any
office of the Corporation may be filled by the Board of Directors.
SECTION 3.6. Compensation. The compensation of each officer
shall be such as the Board of Directors may from time to time determine.
SECTION 3.7. President. The President shall be the chief
executive officer of the Corporation and shall have general charge of the
business and affairs of the Corporation, subject, however, to the right of the
Board of Directors to confer specified powers on officers and subject generally
to the direction of the Board of Directors and the Executive Committee, if any.
SECTION 3.8. Vice President. Each Vice President shall have
such powers and duties as generally pertain to the office of Vice President and
as the Board of Directors or the President may from time to time prescribe.
During the absence of the President or the President's inability to act, the
Vice President, or if there shall be more than one Vice President then that one
designated by the Board of Directors, shall exercise the powers and shall
perform the duties of the President, subject to the direction of the Board of
Directors and the Executive Committee, if any.
SECTION 3.9. Secretary. The Secretary shall keep the minutes
of all meetings of stockholders and of the Board of Directors. The Secretary
shall be custodian of the corporate seal and shall affix it or cause it to be
affixed to such instruments as require such seal and attest the same and shall
exercise the powers and shall perform the duties incident to the office of
Secretary, subject to the direction of the Board of Directors and the Executive
Committee, if any.
SECTION 3.10. Treasurer. The Treasurer shall have care of all
funds and securities of the Corporation and shall exercise the powers and shall
perform the duties incident to
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the office of Treasurer, subject to the direction of the Board of Directors and
the Executive Committee, if any.
SECTION 3.11. Other Officers. The Board of Directors may
designate any other officers of the Corporation, including one or more Assistant
Secretaries and one or more Assistant Treasurers, who shall exercise the powers
and shall perform the duties incident to their offices, subject to the direction
of the Board of Directors and the Executive Committee, if any.
ARTICLE FOUR
INDEMNIFICATION
SECTION 4.1. Indemnification. (a) The Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Corporation), by reason of the fact that such person is or was
a director, officer, employee or agent of the Corporation or any of its
majority-owned subsidiaries or is or was serving at the request of the
Corporation as a director, officer, employee or agent (except in each of the
foregoing situations to the extent any agreement, arrangement or understanding
of agency contains provisions that supersede or abrogate indemnification under
this Section) of another corporation or of any partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person acted
in good faith and in a manner such person 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 his or her
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in good faith and in a manner which such person 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 reasonable cause to believe that his or her
conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation or any of its
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majority-owned subsidiaries or is or was serving at the request of the
Corporation as a director, officer, employee or agent (except in each of the
foregoing situations to the extent any agreement, arrangement or understanding
of agency contains provisions that supersede or abrogate indemnification under
this Section) of another corporation or of any partnership, joint venture, trust
or other enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery of the State of Delaware or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent
of the Corporation or any of its majority-owned subsidiaries has been successful
on the merits or otherwise in defense of any action, suit or proceeding referred
to in subsections (a) and (b) of this Section, or in defense of any claim, issue
or matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by or on behalf of such person
in connection therewith. If any such person is not wholly successful in any such
action, suit or proceeding but is successful, on the merits or otherwise, as to
one or more but less than all claims, issues or matters therein, the Corporation
shall indemnify such person against all expenses (including attorneys' fees)
actually and reasonably incurred by or on behalf of such person in connection
with each claim, issue or matter that is successfully resolved. For purposes of
this subsection and without limitation, the termination of any claim, issue or
matter by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.
(d) Notwithstanding any other provision of this Section, to
the extent any person is a witness in, but not a party to, any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is or was a director, officer, employee or agent of
the Corporation or any of its majority-owned subsidiaries, or is or was serving
at the request of the Corporation as a director, officer, employee or agent
(except
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in each of the foregoing situations to the extent any agreement, arrangement or
understanding of agency contains provisions that supersede or abrogate
indemnification under this Section) of another corporation or of any
partnership, joint venture, trust or other enterprise, such person shall be
indemnified against all expenses (including attorneys' fees) actually and
reasonably incurred by or on behalf of such person in connection therewith.
(e) Any indemnification under subsections (a) and (b) of this
Section (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because such
person has met the applicable standard of conduct set forth in subsections (a)
and (b) of this Section. Such determination shall be made (1) with respect to a
person who is a present or former director or officer of the Corporation (A) by
the Board of Directors by a majority vote of the Disinterested Directors (as
hereinafter defined), even though less than a quorum or (B) if there are no
Disinterested Directors or, even if there are Disinterested Directors, a
majority of such Disinterested Directors so directs, by (x) Independent Counsel
(as hereinafter defined) in a written opinion to the Board of Directors, a copy
of which shall be delivered to the claimant or (y) the stockholders of the
Corporation or (2) with respect to a person who is not a present or former
director or officer of the Corporation, by the chief executive officer of the
Corporation or by such other officer of the Corporation as shall be designated
from time to time by the Board of Directors. Any claimant shall be entitled to
be indemnified against the expenses (including attorneys' fees) actually and
reasonably incurred by such claimant in cooperating with the person or entity
making the determination of entitlement to indemnification (irrespective of the
determination as to the claimant's entitlement to indemnification) and, to the
extent successful, in connection with any litigation or arbitration with respect
to such claim or the enforcement thereof.
(f) Expenses (including attorneys' fees) incurred in defending
a civil, criminal, administrative or investigative action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding to a present or former director or officer of the
Corporation, promptly after receipt of a request therefor stating in reasonable
detail the expenses incurred, and to a person who is not a present or former
director or officer of the Corporation as authorized by the chief executive
officer of the Corporation or by such other officer of the Corporation as shall
be designated from time to time by the Board of Directors; provided that in each
case the
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Corporation shall have received an undertaking by or on behalf of the present or
former director, officer, employee or agent to repay such amount if it shall
ultimately be determined that such person is not entitled to be indemnified by
the Corporation as authorized in this Section.
(g) The indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this Section shall not
limit the Corporation from providing any other indemnification or advancement of
expenses permitted by law nor shall they be deemed exclusive of any other rights
to which a person seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or Disinterested
Directors or otherwise, both as to action in such person's official capacity and
as to action in another capacity while holding such office.
(h) The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such liability under the provisions of this
Section.
(i) For the purposes of this Section, references to "the
Corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Section with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued.
(j) For purposes of this Section, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or
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agent of the Corporation which imposes duties on, or involves services by, such
director, officer, employee, or agent with respect to any employee benefit plan,
its participants, or beneficiaries; and a person who acted in good faith and in
a manner such person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Section.
(k) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section shall, unless otherwise provided when
authorized or ratified by the Board of Directors or the officer of the
Corporation authorized to do so, continue as to a person who has ceased to be a
director, officer, employee or agent of the Corporation or any of its majority
owned subsidiaries and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(l) For purposes of this Section,
(1) "Disinterested Director" means a director of the
Corporation who is not and was not a party to an action, suit or proceeding in
respect of which indemnification is sought by a director, officer, employee or
agent.
(2) "Independent Counsel" means a law firm, or a member of a
law firm, that (i) is experienced in matters of corporation law; (ii) neither
presently is, nor in the past five years has been, retained to represent the
Corporation, the director, officer, employee or agent claiming indemnification
or any other party to the action, suit or proceeding giving rise to a claim for
indemnification under this Section, in any matter material to the Corporation,
the claimant or any such other party; and (iii) would not, under applicable
standards of professional conduct then prevailing, have a conflict of interest
in representing either the Corporation or such director, officer, employee or
agent in an action to determine the Corporation's or such person's rights under
this Section.
ARTICLE FIVE
CAPITAL STOCK
SECTION 5.1. Stock Certificates. The interest of each holder
of stock of the Corporation shall be evidenced by a certificate or certificates
in such form as the Board of Directors may from time to time prescribe, provided
the Board of Directors may by resolution provide that some or all of any or all
classes or series of its stock shall be uncertificated
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shares. Notwithstanding the adoption of such a resolution by the Board of
Directors, every holder of uncertificated shares, upon request, shall be
entitled to receive from the Corporation a certificate representing the number
of shares registered in such stockholder's name on the books of the Corporation.
Each stock certificate and certificate representing previously uncertificated
shares shall be signed by or in the name of the Corporation by the President or
a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary. Any or all of the signatures appearing on any such
certificate or certificates may be a facsimile. If any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon
any such certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if such officer, transfer agent or registrar were such
officer, transfer agent or registrar at the date of issue.
SECTION 5.2. Transfer of Stock. Shares of stock of the
Corporation shall be transferable on the books of the Corporation by the holder
of record thereof or by such holder's attorney, pursuant to applicable law and
such rules and regulations as the Board of Directors shall from time to time
prescribe. Any shares represented by a certificate shall be transferable only
upon surrender of the certificate with an assignment endorsed thereon or
attached thereto duly executed and with such proof of authenticity of signatures
as the Corporation may reasonably require.
SECTION 5.3. Holders of Record. Prior to due presentment for
registration of transfer, the Corporation may treat the holder of record of a
share of its stock as the complete owner thereof exclusively entitled to vote,
to receive notifications and otherwise entitled to all the rights and powers of
a complete owner thereof, notwithstanding notice to the contrary.
SECTION 5.4. Lost, Destroyed, Mutilated or Stolen
Certificates. The Corporation shall issue a new certificate of stock or
uncertificated shares to replace a certificate theretofore issued by it alleged
to have been lost, destroyed, mutilated or stolen, if the owner or his legal
representative (i) submits a written request for the replacement of the
certificate, together with the mutilated certificate or such evidence as the
Board of Directors may deem satisfactory of the loss, destruction or theft of
the certificate, and such request is received by the Corporation before the
Corporation has notice that the certificate has been acquired by a bona fide
purchaser, (ii) files with the Corporation a bond sufficient to indemnify the
Corporation against any claim that
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may be made against it on account of the alleged loss, destruction, mutilation
or theft of any such certificate or the issuance of any such new certificate and
(iii) satisfies such other terms and conditions as the Board of Directors may
from time to time prescribe.
ARTICLE SIX
MISCELLANEOUS
SECTION 6.1. Waiver of Notice. Whenever notice is required to
be given by the Certificate of Incorporation, the By-Laws or any provision of
the General Corporation Law of the State of Delaware, a written waiver thereof,
signed by the person entitled to notice, whether before or after the time
required for such notice, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
SECTION 6.2. Fiscal Year. The fiscal year of the Corporation
shall start on October 1 in each year.
SECTION 6.3. Corporate Seal. The corporate seal shall be in
such form as the Board of Directors may from time to time prescribe, and the
same may be used by causing it or a facsimile thereof to be impressed or affixed
or in any other manner reproduced.
ARTICLE SEVEN
AMENDMENT OF BY-LAWS
SECTION 7.1. Amendment. The By-Laws may be adopted, amended or
repealed by the stockholders of the Corporation or by the Board of Directors by
a majority vote of the whole Board of Directors.
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Exhibit 4.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
[ROCKWELL SEMICONDUCTOR SYSTEMS, INC.]
Pursuant to Section 245 of the General Corporation Law of the State of Delaware
[ROCKWELL SEMICONDUCTOR SYSTEMS, INC.], a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "Corporation"), does hereby certify as follows:
FIRST: The name of the Corporation is [Rockwell
Semiconductor Systems, Inc.]. The Corporation was originally incorporated under
the name Rockwell Semiconductor Systems, Inc.
SECOND: The original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware on
September 16, 1996.
THIRD: The Certificate of Incorporation of the Corporation
is hereby amended in its entirety and restated and integrated into a single
instrument to read in full as set forth in the Restated Certificate of
Incorporation of the Corporation attached hereto as Exhibit A and made a part
hereof.
<PAGE> 2
FOURTH: The Restated Certificate of Incorporation of the
Corporation shall become effective at 8:30 a.m., Eastern Time, on December [ ],
1998.
FIFTH: The Restated Certificate of Incorporation of the
Corporation was proposed by the Board of Directors of the Corporation and was
duly adopted in accordance with Section 228 of the General Corporation Law of
the State of Delaware by the sole shareowner of the Corporation in the manner
prescribed by Section 242 of the General Corporation Law of the State of
Delaware.
SIXTH: The Restated Certificate of Incorporation of the
Corporation was duly adopted in accordance with the provisions of Section 245 of
the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this
certificate to be signed by its officer thereunto duly authorized this [ ] day
of December, 1998.
[ROCKWELL SEMICONDUCTOR SYSTEMS, INC.]
By:__________________________________
Name:
Title:
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<PAGE> 3
Exhibit A
RESTATED CERTIFICATE OF INCORPORATION
OF
[ROCKWELL SEMICONDUCTOR SYSTEMS, INC.]
FIRST: The name of the Corporation is
[Rockwell Semiconductor Systems, Inc.]
SECOND: The Corporation's registered office in the State of Delaware is located
at 1209 Orange Street, in the City of Wilmington, County of New Castle. The name
and address of its registered agent is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
THIRD: The nature of the business, or objects or purposes to be transacted,
promoted or carried on, are: To engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
FOURTH: The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is 525,000,000, of which
25,000,000 shares without par value are to be of a class designated Preferred
Stock and 500,000,000 shares of the par value of $1 each are to be of a class
designated Common Stock.
In this Article Fourth, any reference to a section or paragraph, without further
attribution, within a provision relating to a particular class of stock is
intended to refer solely to the specified section or paragraph of the other
provisions relating to the same class of stock.
COMMON STOCK
The Common Stock shall have the following voting powers, designations,
preferences and relative, participating, optional and other special rights,
and qualifications, limitations or restrictions thereof:
1. Dividends. Whenever the full dividends upon any outstanding Preferred
Stock for all past dividend
<PAGE> 4
periods shall have been paid and the full dividends thereon for the
then current respective dividend periods shall have been paid, or
declared and a sum sufficient for the respective payments thereof set
apart, the holders of shares of the Common Stock shall be entitled to
receive such dividends and distributions in equal amounts per share,
payable in cash or otherwise, as may be declared thereon by the Board
of Directors from time to time out of assets or funds of the
Corporation legally available therefor.
2. Rights on Liquidation. In the event of any liquidation,
dissolution or winding-up of the Corporation, whether voluntary or
involuntary, after the payment or setting apart for payment to the
holders of any outstanding Preferred Stock of the full preferential
amounts to which such holders are entitled as herein provided or
referred to, all of the remaining assets of the Corporation shall
belong to and be distributable in equal amounts per share to the
holders of the Common Stock. For purposes of this paragraph 2, a
consolidation or merger of the Corporation with any other
corporation, or the sale, transfer or lease of all or substantially
all its assets shall not constitute or be deemed a liquidation,
dissolution or winding-up of the Corporation.
3. Voting. Except as otherwise provided by the laws of the State of
Delaware or by this Article Fourth, each share of Common Stock shall
entitle the holder thereof to one vote.
PREFERRED STOCK
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized to provide for
the issuance of shares of Preferred Stock in series and, by filing a
certificate pursuant to the applicable law of the State of Delaware
(hereinafter referred to as a "Preferred Stock Designation"), to
establish from time to time the number of shares to be included in
each such series, and to fix the designation, powers, preferences and
rights of the shares of each such series and the qualifications,
limitations and restrictions thereof. The authority of the Board of
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<PAGE> 5
Directors with respect to each series shall include, but not be
limited to, determination of the following:
(a) the designation of the series, which may be by
distinguishing number, letter or title;
(b) the number of shares of the series, which number the
Board of Directors may thereafter (except where otherwise
provided in the Preferred Stock Designation) increase or
decrease (but not below the number of shares thereof then
outstanding);
(c) whether dividends, if any, shall be cumulative or
noncumulative and the dividend rate of the series;
(d) the dates at which dividends, if any, shall be payable;
(e) the redemption rights and price or prices, if any, for
shares of the series;
(f) the terms and amount of any sinking fund provided for
the purchase or redemption of shares of the series;
(g) the amounts payable on shares of the series in the
event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the
Corporation;
(h) whether the shares of the series shall be convertible
into shares of any other class or series, or any other
security, of the Corporation or any other corporation, and,
if so, the specification of such other class or series or
such other security, the conversion price or prices or rate
or rates, any adjustments thereof, the date or dates as of
which such shares shall be convertible and all other terms
and conditions upon which such conversion may be made;
(i) restrictions on the issuance of shares of the same
series or of any other class or series; and
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<PAGE> 6
(j) the voting rights, if any, of the holders of shares of
the series.
Except as may be provided in this Certificate of Incorporation or in
a Preferred Stock Designation, the Common Stock shall have the
exclusive right to vote for the election of directors and for all
other purposes, and holders of Preferred Stock shall not be entitled
to receive notice of any meeting of shareowners at which they are not
entitled to vote. The number of authorized shares of Preferred Stock
may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a
majority of the outstanding Common Stock, without a vote of the
holders of the Preferred Stock, or of any series thereof, unless a
vote of any such holders is required pursuant to any Preferred Stock
Designation.
The Corporation shall be entitled to treat the person in whose name
any share of its stock is registered as the owner thereof for all
purposes and shall not be bound to recognize any equitable or other
claim to, or interest in, such share on the part of any other person,
whether or not the Corporation shall have notice thereof, except as
expressly provided by applicable law.
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
1. Designation and Amount. A series of Preferred Stock, without par
value, is hereby created and shall be designated as "Series A Junior
Participating Preferred Stock" (the "Series A Preferred Stock") and
the number of shares constituting the Series A Preferred Stock shall
be 1,000,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease
shall reduce the number of shares of Series A Preferred Stock to a
number less than the number of shares then outstanding plus the
number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into
Series A Preferred Stock.
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<PAGE> 7
2. Dividends and Distributions.
2.1. Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior
to the Series A Preferred Stock with respect to dividends, the
holders of shares of Series A Preferred Stock, in preference to the
holders of Common Stock and of any other junior stock of the
Corporation, shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the second Monday of
March, June, September and December in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A
Preferred Stock, in an amount per share (rounded to the nearest cent)
equal to the greater of (a) $1 or (b) subject to the provision for
adjustment hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since
the immediately preceding Quarterly Dividend Payment Date or, with
respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred
Stock. In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common Stock,
or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such
case the amount to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of
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<PAGE> 8
shares of Common Stock that were outstanding immediately prior to
such event.
2.2. The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph 2.1 immediately
after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock); provided
that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1 per share on the Series A Preferred
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
2.3. Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend
Payment Date next preceding the date of issue of such shares, unless
the date of issue of such shares is prior to the record date for the
first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the
shares of Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among
all such shares at the time outstanding. The Board of Directors may
fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be not more
than 60 days prior to the date fixed for the payment thereof.
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<PAGE> 9
3. Voting Rights. The holders of shares of Series A Preferred Stock
shall have the following voting rights:
3.1. Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
shareowners of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares
of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
3.2. Except as otherwise provided herein, in any other Preferred
Stock Designation creating a series of Preferred Stock or any similar
stock, or by law, the holders of shares of Series A Preferred Stock
and the holders of shares of Common Stock and any other capital stock
of the Corporation having general voting rights shall vote together
as one class on all matters submitted to a vote of shareowners of the
Corporation.
3.3. Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting
rights and their consent shall not be required (except to the extent
they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
4. Certain Restrictions.
4.1. Whenever quarterly dividends or other dividends or distributions
payable on the Series A
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<PAGE> 10
Preferred Stock as provided in paragraph 2 are in arrears, thereafter
and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding
shall have been paid in full, the Corporation shall not:
(a) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock;
(b) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and
all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(c) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as
to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior
(either as to dividends or upon dissolution, liquidation or
winding up) to the Series A Preferred Stock; or
(d) redeem or purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or
any shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall
determine
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<PAGE> 11
in good faith will result in fair and equitable treatment
among the respective series or classes.
4.2. The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any
shares of stock of the Corporation unless the Corporation could,
under subparagraph (c) of paragraph 4.1, purchase or otherwise
acquire such shares at such time and in such manner.
5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued shares of Preferred Stock and may be
reissued as part of a new series of Preferred Stock subject to the
conditions and restrictions on issuance set forth herein or in any
other Preferred Stock Designation creating a series of Preferred
Stock or any similar stock or as otherwise required by law.
6. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall
be made (i) to the holders of shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock unless, prior thereto, the holders of
shares of Series A Preferred Stock shall have received $100 per
share, plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such
payment, provided that the holders of shares of Series A Preferred
Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal
to 100 times the aggregate amount to be distributed per share to
holders of shares of Common Stock, or (ii) to the holders of shares
of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, except distributions made ratably on the Series A Preferred
Stock and all such parity stock in proportion to the total amounts to
which
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<PAGE> 12
the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any
time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the aggregate amount to which holders
of shares of Series A Preferred Stock were entitled immediately prior
to such event under the proviso in clause (i) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding
immediately prior to such event.
7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into
other stock or securities, cash and/or any other property, then in
any such case each share of Series A Preferred Stock shall at the
same time be similarly exchanged or changed into an amount per share,
subject to the provision for adjustment hereinafter set forth, equal
to 100 times the aggregate amount of stock, securities, cash and/or
any other property (payable in kind), as the case may be, into which
or for which each share of Common Stock is changed or exchanged. In
the event the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise
than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such
case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Series A Preferred Stock shall be
adjusted by multiplying such amount by a fraction, the numerator of
which is the number of shares of Common Stock outstanding immediately
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<PAGE> 13
after such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such
event.
8. No Redemption. The shares of Series A Preferred Stock shall not be
redeemable.
9. Rank. The Series A Preferred Stock shall rank, with respect to the
payment of dividends and the distribution of assets, junior to all
series of any other class of the Corporation's Preferred Stock.
10. Amendment. The Certificate of Incorporation of the Corporation
shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A
Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the
outstanding shares of Series A Preferred Stock, voting together as a
single class.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: The private property of the shareowners of the Corporation shall not be
subject to the payment of corporate debts to any extent whatever.
SEVENTH: Subject to the rights of the holders of any series of Preferred Stock
to elect additional directors under specified circumstances, the number of
directors of the Corporation shall be fixed from time to time exclusively by the
Board of Directors pursuant to a resolution adopted by a majority of the whole
Board. A director need not be a shareowner. The election of directors of the
Corporation need not be by ballot unless the by-laws so require.
The directors, other than those who may be elected by the holders of any series
of Preferred Stock or any other series or class of stock, as provided herein or
in any Preferred Stock Designation, shall be divided into three classes, as
nearly equal in number as possible. One class of directors shall be initially
elected for a term expiring at the annual meeting of shareowners to be held in
1999, another class shall be initially elected for a term expiring at the annual
meeting of shareowners to be held in 2000, and another class shall be initially
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<PAGE> 14
elected for a term expiring at the annual meeting of shareowners to be held in
2001. Members of each class shall hold office until their successors are duly
elected and qualified. At each annual meeting of the shareowners of the
Corporation, commencing with the 1999 annual meeting, the successors of the
class of directors whose term expires at that meeting shall be elected by a
plurality vote of all votes cast for the election of directors at such meeting
to hold office for a term expiring at the annual meeting of shareowners held in
the third year following the year of their election.
Subject to the rights of the holders of any series of Preferred Stock, and
unless the Board of Directors otherwise determines, newly created directorships
resulting from any increase in the authorized number of directors or any
vacancies on the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the directors then in office, though less than a
quorum, and directors so chosen shall hold office for a term expiring at the
annual meeting of shareowners at which the term of office of the class to which
they have been elected expires and until such director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the whole Board of Directors shall shorten the term of
any incumbent director.
Subject to the rights of the holders of any series of Preferred Stock or any
other series or class of stock, as provided herein or in any Preferred Stock
Designation, to elect additional directors under specific circumstances, any
director may be removed from office at any time, but only for cause and only by
the affirmative vote of the holders of at least 80 percent of the voting power
of the then outstanding capital stock of the Corporation (the "Capital Stock")
entitled to vote generally in the election of directors (the "Voting Stock"),
voting together as a single class.
No director of the Corporation shall be liable to the Corporation or its
shareowners for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its shareowners, (ii) for acts or omissions not in good faith or
which involve
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<PAGE> 15
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit. This paragraph shall not
eliminate or limit the liability of a director for any act or omission occurring
prior to the effective date of its adoption. No repeal or modification of this
paragraph, directly or by adoption of an inconsistent provision of this
Certificate of Incorporation, by the shareowners of the Corporation shall be
effective with respect to any cause of action, suit, claim or other matter that,
but for this paragraph, would accrue or arise prior to such repeal or
modification.
EIGHTH: Unless otherwise determined by the Board of Directors, no holder of
stock of the Corporation shall, as such holder, have any right to purchase or
subscribe for any stock of any class which the Corporation may issue or sell,
whether or not exchangeable for any stock of the Corporation of any class or
classes and whether out of unissued shares authorized by the Certificate of
Incorporation of the Corporation as originally filed or by any amendment thereof
or out of shares of stock of the Corporation acquired by it after the issue
thereof.
NINTH: Whenever a compromise or arrangement is proposed between this Corporation
and its creditors or any class of them and/or between this Corporation and its
shareowners or any class of them, any court of equitable jurisdiction within the
State of Delaware may, on the application in a summary way of this Corporation
or of any creditor or shareowner thereof, or on the application of any receiver
or receivers appointed for this Corporation under the provisions of section 291
of Title 8 of the Delaware Code or on the application of trustees in dissolution
or of any receiver or receivers appointed for this Corporation under the
provisions of section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or of the shareowners or class of
shareowners of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
shareowners or class of shareowners of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such
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<PAGE> 16
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the shareowners or class of shareowners, of this Corporation, as the case
may be, and also on this Corporation.
TENTH:
1. Amendment of Certificate of Incorporation. From time to time any of the
provisions of the Certificate of Incorporation may be amended, altered or
repealed, and other provisions authorized by the statutes of the State of
Delaware at the time in force may be added or inserted in the manner at the time
prescribed by said statutes, and all rights at any time conferred upon the
shareowners of the Corporation by its Certificate of Incorporation are granted
subject to the provisions of this Article Tenth. Notwithstanding anything
contained in this Certificate of Incorporation to the contrary, the affirmative
vote of the holders of at least 80% of the voting power of the then outstanding
Voting Stock, voting together as a single class, shall be required to amend or
repeal Article Seventh, this Article Tenth or Article Twelfth or adopt any
provision inconsistent with any of the foregoing articles.
2. By-laws. The Board of Directors is expressly authorized to make, alter, amend
and repeal the by-laws of the Corporation, in any manner not inconsistent with
the laws of the State of Delaware or of the Certificate of Incorporation of the
Corporation, subject to the power of the holders of the Capital Stock to alter
or repeal the by-laws made by the Board of Directors; provided, that any such
amendment or repeal by shareowners shall require the affirmative vote of the
holders of at least 80% of the voting power of the then outstanding Voting
Stock, voting together as a single class.
ELEVENTH: The shareowner vote required to approve Business Combinations (as
hereinafter defined) shall be as set forth in this Article Eleventh.
1. Higher Vote for Business Combinations. In addition to any
affirmative vote required by law, this Certificate of Incorporation
or the by-laws of the Corporation, and except as otherwise expressly
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<PAGE> 17
provided in Section 2 of this Article Eleventh, a Business
Combination shall not be consummated without the affirmative vote of
the holders of at least 80% of the voting power of the then
outstanding shares of the Voting Stock, voting together as a single
class. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage or
separate class vote may be specified, by law or in any agreement with
any national securities exchange or otherwise.
2. When Higher Vote Is Not Required. The provisions of Section 1 of
this Article Eleventh shall not be applicable to a Business
Combination if the conditions specified in either of the following
paragraphs A or B are met.
A. Approval by Continuing Directors. The Business
Combination shall have been approved by at least two-thirds
of the Continuing Directors (as hereinafter defined),
whether such approval is made prior to or subsequent to the
date on which the Interested Shareowner (as hereinafter
defined) became an Interested Shareowner (the
"Determination Date").
B. Price and Procedure Requirements. Each of the seven
conditions specified in the following subparagraphs (i)
through (vii) shall have been met:
(i) The aggregate amount of the cash and the Fair
Market Value (as hereinafter defined) as of the
date of the consummation of the Business
Combination (the "Consummation Date") of any
consideration other than cash to be received per
share by holders of Common Stock in such Business
Combination shall be an amount at least equal to
the higher amount determined under clauses (a)
and (b) below (the requirements of this paragraph
B(i) shall be applicable with respect to all
shares of Common Stock outstanding, whether or
not the Interested Shareowner has previously
acquired any shares of the Common Stock): (a) the
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<PAGE> 18
highest per share price (including any brokerage
commissions, transfer taxes and soliciting
dealers' fees) paid by or on behalf of the
Interested Shareowner for any shares of Common
Stock acquired beneficially by it (1) within the
two-year period immediately prior to the first
public announcement of the proposal of the
Business Combination (the "Announcement Date") or
(2) in the transaction in which it became an
Interested Shareowner, whichever is higher, plus
interest compounded annually from the
Determination Date through the Consummation Date
at the prime rate of interest of Morgan Guaranty
Trust Company of New York (or of such other major
bank headquartered in New York City selected by
at least two-thirds of the Continuing Directors)
from time to time in effect in New York City,
less the aggregate amount of any cash dividends
paid, and the Fair Market Value of any dividends
paid in other than cash, per share of Common
Stock from the Determination Date through the
Consummation Date in an amount up to but not
exceeding the amount of such interest payable per
share of Common Stock; and (b) the Fair Market
Value per share of Common Stock on the
Announcement Date or on the Determination Date,
whichever is higher.
(ii) The aggregate amount of the cash and the
Fair Market Value as of the Consummation Date of
any consideration other than cash to be received
per share by holders of shares of any class or
series of outstanding Capital Stock, other than
the Common Stock, in such Business Combination
shall be an amount at least equal to the highest
amount determined under clauses (a), (b) and (c)
below (the requirements of this paragraph B(ii)
shall be applicable with respect to all shares of
every class or series of outstanding Capital
Stock, other than the Common Stock, whether or
not the Interested Shareowner has previously
acquired any
16
<PAGE> 19
shares of a particular class or series of Capital
Stock):
(a) the highest per share price
(including any brokerage commissions,
transfer taxes and soliciting dealers'
fees) paid by or on behalf of the
Interested Shareowner for any shares
of such class or series of Capital
Stock acquired beneficially by it (1)
within the two-year period immediately
prior to the Announcement Date or (2)
in the transaction in which it became
an Interested Shareowner, whichever is
higher, plus interest compounded
annually from the Determination Date
through the Consummation Date at the
prime rate of interest of Morgan
Guaranty Trust Company of New York (or
of such other major bank headquartered
in New York City selected by at least
two-thirds of the Continuing
Directors) from time to time in effect
in New York City, less the aggregate
amount of any cash dividends paid, and
the Fair Market Value of any dividends
paid in other than cash, per share of
such class or series of Capital Stock
from the Determination Date through
the Consummation Date in an amount up
to but not exceeding the amount of
such interest payable per share of
such class or series of Capital Stock;
and
(b) the Fair Market Value per share of
such class or series of Capital Stock
on the Announcement Date or on the
Determination Date, whichever is
higher; and
(c) the highest preferential amount
per share to which the holders of
shares of such class or series of
Capital Stock would be entitled in the
event of any voluntary or involuntary
liquidation, dissolution or winding up
of the affairs of the
17
<PAGE> 20
Corporation, regardless of whether the
Business Combination to be consummated
constitutes such an event.
(iii) The consideration to be received by holders
of a particular class or series of outstanding
Capital Stock (including Common Stock) shall be
in cash or in the same form as previously has
been paid by or on behalf of the Interested
Shareowner in its direct or indirect acquisition
of beneficial ownership of shares of such class
or series of Capital Stock. If the consideration
so paid for shares of any class or series of
Capital Stock varied as to form, the form of
consideration for such class or series of Capital
Stock shall be either cash or the form used to
acquire beneficial ownership of the largest
number of shares of such class or series of
Capital Stock previously acquired by the
Interested Shareowner.
(iv) After such Interested Shareowner has become
an Interested Shareowner and prior to the
consummation of such Business Combination, such
Interested Shareowner shall not have become the
beneficial owner of any additional shares of
Capital Stock except as part of the transaction
that results in such Interested Shareowner
becoming an Interested Shareowner and except in a
transaction that, after giving effect thereto,
would not result in any increase in the
Interested Shareowner's percentage beneficial
ownership of any class or series of Capital
Stock; and, except as approved by at least
two-thirds of the Continuing Directors: (a) there
shall have been no failure to declare and pay at
the regular date therefor any full quarterly
dividends (whether or not cumulative) payable in
accordance with the terms of any outstanding
Capital Stock; (b) there shall have been no
reduction in the annual rate of dividends paid on
the Common Stock (except as necessary to
18
<PAGE> 21
reflect any stock split, stock dividend or
subdivision of the Common Stock); and (c) there
shall have been an increase in the annual rate of
dividends paid on the Common Stock as necessary
to reflect any reclassification (including any
reverse stock split), recapitalization,
reorganization or any similar transaction which
has the effect of reducing the number of
outstanding shares of Common Stock.
(v) After such Interested Shareowner has become
an Interested Shareowner, such Interested
Shareowner shall not have received the benefit,
directly or indirectly (except proportionately as
a shareowner of the Corporation), of any loans,
advances, guarantees, pledges or other financial
assistance or any tax credits or other tax
advantages provided by the Corporation, whether
in anticipation of or in connection with such
Business Combination or otherwise.
(vi) A proxy or information statement describing
the proposed Business Combination and complying
with the requirements of the Securities Exchange
Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions
replacing such Act, rules or regulations) shall
be mailed to all shareowners of the Corporation
at least 30 days prior to the consummation of
such Business Combination (whether or not such
proxy or information statement is required to be
mailed pursuant to such Act or subsequent
provisions). The proxy or information statement
shall contain on the first page thereof, in a
prominent place, any statement as to the
advisability of the Business Combination that the
Continuing Directors, or any of them, may choose
to make and, if deemed advisable by at least
two-thirds of the Continuing Directors, the
opinion of an investment banking firm selected
for and on behalf of the
19
<PAGE> 22
Corporation by at least two-thirds of the
Continuing Directors as to the fairness of the
terms of the Business Combination from a
financial point of view to the holders of the
outstanding shares of Capital Stock other than
the Interested Shareowner and its Affiliates or
Associates (as hereinafter defined).
(vii) Such Interested Shareowner shall not have
made any material change in the Corporation's
business or equity capital structure without the
approval of at least two-thirds of the Continuing
Directors.
Any Business Combination to which Section 1 of this Article
Eleventh shall not apply by reason of this Section 2 shall
require only such affirmative vote as is required by law,
any other provision of this Certificate of Incorporation,
the by-laws of the Corporation or any agreement with any
national securities exchange.
3. Certain Definitions. For the purposes of this Article Eleventh:
A. A "Business Combination" shall mean:
(i) any merger or consolidation of the
Corporation or any Subsidiary (as hereinafter
defined) with (i) any Interested Shareowner or
(ii) any other corporation (whether or not itself
an Interested Shareowner) which is, or after such
merger or consolidation would be, an Affiliate or
Associate of an Interested Shareowner; or
(ii) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction
or a series of transactions) to or with any
Interested Shareowner or any Affiliate or
Associate of any Interested Shareowner involving
any assets or securities of the Corporation, any
Subsidiary or any Interested Shareowner or any
Affiliate or Associate
20
<PAGE> 23
of any Interested Shareowner having an aggregate
Fair Market Value of $25,000,000 or more; or
(iii) the adoption of any plan or proposal for
the liquidation or dissolution of the Corporation
proposed by or on behalf of any Interested
Shareowner or any Affiliate or Associate of any
Interested Shareowner; or
(iv) any reclassification of securities
(including any reverse stock split), or
recapitalization of the Corporation, or any
merger or consolidation of the Corporation with
any of its Subsidiaries or any other transaction
(whether or not with or into or otherwise
involving an Interested Shareowner) that has the
effect, directly or indirectly, of increasing the
proportionate share of any class or series of
Capital Stock, or any securities convertible into
Capital Stock or into equity securities of any
Subsidiary, that is beneficially owned by any
Interested Shareowner or any Affiliate or
Associate of any Interested Shareowner; or
(v) any agreement, contract, arrangement or other
understanding providing for any one or more of
the actions specified in clauses (i) through (iv)
above.
B. A "person" shall mean any individual, firm, corporation or other
entity and shall include any group composed of any person and any
other person with whom such person or any Affiliate or Associate of
such person has any agreement, arrangement or understanding, directly
or indirectly, for the purpose of acquiring, holding, voting or
disposing of Capital Stock.
C. "Interested Shareowner" shall mean any person (other than the
Corporation or any Subsidiary and other than any profit-sharing,
employee stock ownership or other employee benefit plan of the
Corporation, any Subsidiary or Rockwell
21
<PAGE> 24
International Corporation or any trustee of or fiduciary with respect
to any such plan when acting in such capacity) who or which:
(i) is the beneficial owner of Voting Stock
having 10% or more of the votes entitled to be
cast by the holders of all then outstanding
shares of Voting Stock; or
(ii) is an Affiliate or Associate of the
Corporation and at any time within the two-year
period immediately prior to the date in question
was the beneficial owner of Voting Stock having
10% or more of the votes entitled to be cast by
the holders of all then outstanding shares of
Voting Stock; or
(iii) is an assignee of or has otherwise
succeeded to any shares of Voting Stock which
were at any time within the two-year period
immediately prior to the date in question
beneficially owned by any Interested Shareowner,
if such assignment or succession shall have
occurred in the course of a transaction or series
of transactions not involving a public offering
within the meaning of the Securities Act of 1933;
provided, however, that Rockwell International Corporation shall not
be an Interested Shareowner as a result of its ownership of Capital
Stock of the Corporation prior to the distribution of the shares of
Capital Stock of the Corporation to the holders of capital stock of
Rockwell International Corporation (the "Distribution").
D. A person shall be a "beneficial owner" of any Capital Stock:
(i) which such person or any Affiliate or
Associate of such person beneficially owns,
directly or indirectly; or
(ii) which such person or any Affiliate or
Associate of such person has, directly
22
<PAGE> 25
or indirectly, (a) the right to acquire (whether
such right is exercisable immediately or only
after the passage of time), pursuant to any
agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (b)
the right to vote pursuant to any agreement,
arrangement or understanding; or
(iii) which are beneficially owned, directly or
indirectly, by any other person with which such
person or any Affiliate or Associate of such
person has any agreement, arrangement or
understanding for the purpose of acquiring,
holding, voting or disposing of any shares of
Capital Stock.
E. For the purposes of determining whether a person is an Interested
Shareowner pursuant to paragraph C of this Section 3, the number of
shares of Capital Stock deemed to be outstanding shall include shares
deemed owned by the Interested Shareowner through application of
paragraph D of this Section 3 but shall not include any other shares
of Capital Stock that may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
F. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect
on December [ ], 1998 (the term "registrant" in such Rule 12b-2
meaning in this case the Corporation).
G. "Subsidiary" means any corporation of which a majority of any
class of equity security is beneficially owned by the Corporation;
provided, however, that for the purposes of the definition of
Interested Shareowner set forth in paragraph C of this Section 3, the
term "Subsidiary" shall mean only a corporation of which a majority
of each class of equity security is beneficially owned by the
Corporation.
23
<PAGE> 26
H. "Continuing Director" means any member of the Board of Directors
of the Corporation (the "Board") who is not an Affiliate or Associate
or representative of the Interested Shareowner and was a member of
the Board prior to the time that the Interested Shareowner became an
Interested Shareowner, and any successor of a Continuing Director who
is not an Affiliate or Associate or representative of the Interested
Shareowner and is recommended or elected to succeed a Continuing
Director by at least two-thirds of the Continuing Directors then
members of the Board.
I. "Fair Market Value" means: (i) in the case of cash, the amount of
such cash; (ii) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question
of a share of such stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such stock is
not listed on such Exchange, on the principal United States
securities exchange registered under the Securities Exchange Act of
1934 on which such stock is listed, or, if such stock is not listed
on any such exchange, the highest closing bid quotation with respect
to a share of such stock during the 30-day period immediately
preceding the date in question on the National Association of
Securities Dealers, Inc. Automated Quotations System or any system
then in use, or if no such quotations are available, the fair market
value on the date in question of a share of such stock as determined
in good faith by at least two-thirds of the Continuing Directors; and
(iii) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined
in good faith by at least two-thirds of the Continuing Directors.
J. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received"
as used in paragraphs B(i) and (ii) of Section 2 of this Article
Eleventh shall include the shares of Common Stock and/or the shares
of any other class or series of Capital Stock retained by the holders
of such shares.
24
<PAGE> 27
4. Powers of Continuing Directors. Any determination as to compliance
with this Article Eleventh, including without limitation (A) whether
a person is an Interested Shareowner, (B) the number of shares of
Capital Stock or other securities beneficially owned by any person,
(C) whether a person is an Affiliate or Associate of another, (D)
whether the requirements of paragraph B of Section 2 have been met
with respect to any Business Combination, and (E) whether the assets
that are the subject of any Business Combination have, or the
consideration to be received for the issuance or transfer of
securities by the Corporation or any Subsidiary in any Business
Combination has, an aggregate Fair Market Value of $25,000,000 or
more shall be made only upon action by not less than two-thirds of
the Continuing Directors of the Corporation; and the good faith
determination of at least two-thirds of the Continuing Directors on
such matters shall be conclusive and binding for all the purposes of
this Article Eleventh.
5. No Effect on Fiduciary Obligations. Nothing contained in this
Article Eleventh shall be construed to relieve the Board of Directors
or any Interested Shareowner from any fiduciary obligation imposed by
law.
6. Amendment, Repeal, etc. Notwithstanding any other provisions of
this Certificate of Incorporation or the by-laws of the Corporation
(and notwithstanding the fact that a lesser percentage or separate
class vote may be specified by law, this Certificate of Incorporation
or the by-laws of the Corporation), the affirmative vote of the
holders of at least 80% of the voting power of the then outstanding
shares of Voting Stock, voting together as a single class, shall be
required to amend or repeal, or adopt any provisions inconsistent
with, this Article Eleventh; provided, however, that the preceding
provisions of this Section 6 shall not apply to any amendment to this
Article Eleventh, and such amendment shall require only such
affirmative vote as is required by law and any other provisions of
this Certificate of Incorporation or the by-laws of the Corporation,
if such amendment shall have been approved by at least two-thirds of
the members
25
<PAGE> 28
of the Board who are persons who would be eligible to serve as
Continuing Directors.
TWELFTH: From and after the time of the Distribution, any action required or
permitted to be taken by the shareowners shall be taken only at an annual or
special meeting of such shareowners and not by consent in writing. Special
meetings of the shareowners for any purpose or purposes shall be called only by
the Board of Directors pursuant to a resolution adopted by a majority of the
whole Board.
26
<PAGE> 1
Exhibit 4.2
BY-LAWS
OF
[ROCKWELL SEMICONDUCTOR SYSTEMS, INC.]
ARTICLE I.
OFFICES
SECTION 1. REGISTERED OFFICE IN DELAWARE; RESIDENT AGENT. The address
of the Corporation's registered office in the State of Delaware and the name and
address of its resident agent in charge thereof are as filed with the Secretary
of State of the State of Delaware.
SECTION 2. OTHER OFFICES. The Corporation may also have an office or
offices at such other place or places either within or without the State of
Delaware as the Board of Directors may from time to time determine or the
business of the Corporation requires.
ARTICLE II.
MEETINGS OF SHAREOWNERS
SECTION 1. PLACE OF MEETINGS. All meetings of the shareowners of the
Corporation shall be held at such place, within or without the State of
Delaware, as may from time to time be designated by resolution passed by the
Board of Directors.
SECTION 2. ANNUAL MEETING. An annual meeting of the shareowners for the
election of directors and for the transaction of such other proper business,
notice of which was given in the notice of meeting, shall be held on a date and
at a time as may from time to time be designated by resolution passed by the
Board of Directors.
SECTION 3. SPECIAL MEETINGS. A special meeting of the shareowners for
any purpose or purposes shall be called only by the Board of Directors pursuant
to a resolution adopted by a majority of the whole Board.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise provided by law,
written notice of each meeting of the shareowners, whether annual or special,
shall be
<PAGE> 2
mailed, postage prepaid, not less than ten nor more than sixty days before the
date of the meeting, to each shareowner entitled to vote at such meeting, at the
shareowner's address as it appears on the records of the Corporation. Every such
notice shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Notice
of any adjourned meeting of the shareowners shall not be required to be given,
except when expressly required by law.
SECTION 5. LIST OF SHAREOWNERS. The Secretary shall, from information
obtained from the transfer agent, prepare and make, at least ten days before
every meeting of shareowners, a complete list of the shareowners entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each shareowner and the number of shares registered in the name of each
shareowner. Such list shall be open to the examination of any shareowner, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any shareowner
who is present. The stock ledger shall be the only evidence as to who are the
shareowners entitled to examine the stock ledger, the list referred to in this
section or the books of the Corporation, or to vote in person or by proxy at any
meeting of shareowners.
SECTION 6. QUORUM. At each meeting of the shareowners, the holders of a
majority of the issued and outstanding stock of the Corporation present either
in person or by proxy shall constitute a quorum for the transaction of business
except where otherwise provided by law or by the Certificate of Incorporation or
by these by-laws for a specified action. Except as otherwise provided by law, in
the absence of a quorum, a majority in interest of the shareowners of the
Corporation present in person or by proxy and entitled to vote shall have the
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until shareowners holding the requisite amount of
stock shall be present or represented. At any such adjourned meeting
2
<PAGE> 3
at which a quorum may be present, any business may be transacted which might
have been transacted at a meeting as originally called, and only those
shareowners entitled to vote at the meeting as originally called shall be
entitled to vote at any adjournment or adjournments thereof. The absence from
any meeting of the number of shareowners required by law or by the Certificate
of Incorporation or by these by-laws for action upon any given matter shall not
prevent action at such meeting upon any other matter or matters which may
properly come before the meeting, if the number of shareowners required in
respect of such other matter or matters shall be present.
SECTION 7. ORGANIZATION. At every meeting of the shareowners the
Chairman of the Board, or in the absence of the Chairman of the Board, a
director or an officer of the Corporation designated by the Board, shall act as
Chairman of the meeting. The Secretary, or, in the Secretary's absence, an
Assistant Secretary, shall act as Secretary at all meetings of the shareowners.
In the absence from any such meeting of the Secretary and the Assistant
Secretaries, the Chairman may appoint any person to act as Secretary of the
meeting.
SECTION 8. NOTICE OF SHAREOWNER BUSINESS AND NOMINATIONS.
(A) Annual Meetings of Shareowners. (1) Nominations of persons
for election to the Board of Directors of the Corporation and the proposal of
business to be considered by the shareowners may be made at an annual meeting of
shareowners (a) pursuant to the Corporation's notice of meeting, (b) by or at
the direction of the Board of Directors or (c) by any shareowner of the
Corporation who was a shareowner of record at the time of giving of notice
provided for in this by-law, who is entitled to vote at the meeting and who
complies with the notice procedures set forth in this by-law.
(2) For nominations or other business to be properly
brought before an annual meeting by a shareowner pursuant to clause (c) of
paragraph (A)(1) of this by-law, the shareowner must have given timely notice
thereof in writing to the Secretary of the Corporation and such other business
must otherwise be a proper matter for shareowner action. To be timely, a
shareowner's
3
<PAGE> 4
notice shall be delivered to the Secretary at the principal executive offices of
the Corporation not later than the close of business on the 90th day nor earlier
than the close of business on the 120th day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the case of the
annual meeting to be held in 1999 or in the event that the date of the annual
meeting is more than 30 days before or more than 60 days after such anniversary
date, notice by the shareowner to be timely must be so delivered not earlier
than the close of business on the 120th day prior to such annual meeting and not
later than the close of business on the later of the 90th day prior to such
annual meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made by the Corporation. In no event shall the
public announcement of an adjournment of an annual meeting commence a new time
period for the giving of a shareowner's notice as described above. Such
shareowner's notice shall set forth (a) as to each person whom the shareowner
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors in an election contest, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and Rule 14a-11 thereunder
(including such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (b) as to any other
business that the shareowner proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material interest in
such business of such shareowner and the beneficial owner, if any, on whose
behalf the proposal is made; and (c) as to the shareowner giving the notice and
the beneficial owner, if any, on whose behalf the nomination or proposal is made
(i) the name and address of such shareowner, as they appear on the Corporation's
books, and of such beneficial owner and (ii) the class and number of shares of
the Corporation which are owned beneficially and of record by such shareowner
and such beneficial owner.
Notwithstanding anything in the second sentence of paragraph
(A)(2) of this by-law to the contrary, in the event that the number of directors
to be elected to
4
<PAGE> 5
the Board of Directors of the Corporation is increased and there is no public
announcement by the Corporation naming all of the nominees for director or
specifying the size of the increased Board of Directors at least 70 days prior
to the first anniversary of the preceding year's annual meeting, a shareowner's
notice required by this by-law shall also be considered timely, but only with
respect to nominees for any new positions created by such increase, if it shall
be delivered to the Secretary at the principal executive offices of the
Corporation not later than the close of business on the 10th day following the
day on which such public announcement is first made by the Corporation.
(B) Special Meetings of Shareowners. Only such business shall
be conducted at a special meeting of shareowners as shall have been brought
before the meeting pursuant to the Corporation's notice of meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of shareowners at which directors are to be elected pursuant to the
Corporation's notice of meeting (a) by or at the direction of the Board of
Directors or (b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any shareowner of the Corporation
who is a shareowner of record at the time of giving of notice provided for in
this by-law, who shall be entitled to vote at the meeting and who complies with
the notice procedures set forth in this by-law. In the event the Corporation
calls a special meeting of shareowners for the purpose of electing one or more
directors to the Board of Directors, any such shareowner may nominate a person
or persons (as the case may be), for election to such position(s) as specified
in the Corporation's notice of meeting, if the shareowner's notice required by
paragraph (A)(2) of this by-law shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the close of
business on the 120th day prior to such special meeting and not later than the
close of business on the later of the 90th day prior to such special meeting or
the 10th day following the day on which public announcement is first made of the
date of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting. In no event shall the public
announcement of an adjournment of a special meeting commence a new time period
for the giving of a shareowner's notice as described above.
5
<PAGE> 6
(C) General. (1) Only such persons who are nominated in
accordance with the procedures set forth in this by-law shall be eligible to
serve as directors and only such business shall be conducted at a meeting of
shareowners as shall have been brought before the meeting in accordance with the
procedures set forth in this by-law. Except as otherwise provided by law, the
Certificate of Incorporation or these by-laws, the Chairman of the meeting shall
have the power and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as the case may
be, in accordance with the procedures set forth in this by-law and, if any
proposed nomination or business is not in compliance with this by-law, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this by-law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this by-law, a
shareowner shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this by-law. Nothing in this by-law shall be deemed to affect any
rights (i) of shareowners to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the
holders of any series of Preferred Stock to elect directors under specified
circumstances.
SECTION 9. BUSINESS AND ORDER OF BUSINESS. At each meeting of the
shareowners such business may be transacted as may properly be brought before
such meeting, except as otherwise provided by law or in these by-laws. The order
of business at all meetings of the shareowners shall be as determined by the
Chairman of the meeting, unless otherwise determined by a majority in interest
of the shareowners present in person or by proxy at such meeting and entitled to
vote thereat.
SECTION 10. VOTING. Except as otherwise provided by law, the
Certificate of Incorporation or
6
<PAGE> 7
these by-laws, each shareowner shall at every meeting of the shareowners be
entitled to one vote for each share of stock held by such shareowner. Any vote
on stock may be given by the shareowner entitled thereto in person or by proxy
appointed by an instrument in writing, subscribed (or transmitted by electronic
means and authenticated as provided by law) by such shareowner or by the
shareowner's attorney thereunto authorized, and delivered to the Secretary;
provided, however, that no proxy shall be voted after three years from its date
unless the proxy provides for a longer period. Except as otherwise provided by
law, the Certificate of Incorporation or these by-laws, at all meetings of the
shareowners, all matters shall be decided by the vote (which need not be by
ballot) of a majority in interest of the shareowners present in person or by
proxy and entitled to vote thereat, a quorum being present.
ARTICLE III.
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The property, affairs and business of the
Corporation shall be managed by or under the direction of its Board of
Directors.
SECTION 2. NUMBER, QUALIFICATIONS, AND TERM OF OFFICE. Subject to the
rights of the holders of any series of Preferred Stock to elect additional
directors under specified circumstances, the number of directors of the
Corporation shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the whole Board. A
director need not be a shareowner.
The directors, other than those who may be elected by the holders of
any series of Preferred Stock or any other series or class of stock, as provided
herein or in any Preferred Stock Designation (as defined in the Certificate of
Incorporation), shall be divided into three classes, as nearly equal in number
as possible. One class of directors shall be initially elected for a term
expiring at the annual meeting of shareowners to be held in 1999, another class
shall be initially elected for a term expiring at the annual meeting of
shareowners to be held in 2000, and another class shall be initially elected for
a term expiring at the annual meeting of shareowners to be held in 2001. Members
of each class
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shall hold office until their successors are elected and shall have qualified.
At each annual meeting of the shareowners of the Corporation, commencing with
the 1999 annual meeting, the successors of the class of directors whose term
expires at that meeting shall be elected by a plurality vote of all votes cast
for the election of directors at such meeting to hold office for a term expiring
at the annual meeting of shareowners held in the third year following the year
of their election.
SECTION 3. ELECTION OF DIRECTORS. At each meeting of the shareowners
for the election of directors, at which a quorum is present, the directors shall
be elected by a plurality vote of all votes cast for the election of directors
at such meeting.
SECTION 4. QUORUM AND MANNER OF ACTING. A majority of the members of
the Board of Directors shall constitute a quorum for the transaction of business
at any meeting, and the act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board of Directors
unless otherwise provided by law, the Certificate of Incorporation or these
by-laws. In the absence of a quorum, a majority of the directors present may
adjourn any meeting from time to time until a quorum shall be obtained. Notice
of any adjourned meeting need not be given. The directors shall act only as a
board and the individual directors shall have no power as such.
SECTION 5. PLACE OF MEETINGS. The Board of Directors may hold its
meetings at such place or places within or without the State of Delaware as the
Board may from time to time determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
SECTION 6. FIRST MEETING. Promptly after each annual election of
directors, the Board of Directors shall meet for the purpose of organization,
the election of officers and the transaction of other business, at the same
place as that at which the annual meeting of shareowners was held or as
otherwise determined by the Board. Notice of such meeting need not be given.
Such meeting may be held at any other time or place which shall be specified in
a notice given as hereinafter provided for special meetings of the Board of
Directors.
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SECTION 7. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such places and at such times as the Board shall from time to
time determine. If any day fixed for a regular meeting shall be a legal holiday
at the place where the meeting is to be held, then the meeting which would
otherwise be held on that day shall be held at the same hour on the next
succeeding business day not a legal holiday. Notice of regular meetings need not
be given.
SECTION 8. SPECIAL MEETINGS; NOTICE. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board and shall
be called by the Chairman of the Board or the Secretary at the written request
of three directors. Notice of each such meeting stating the time and place of
the meeting shall be given to each director by mail, telephone, other electronic
transmission or personally. If by mail, such notice shall be given not less than
five days before the meeting; and if by telephone, other electronic transmission
or personally, not less than two days before the meeting. A notice mailed at
least two weeks before the meeting need not state the purpose thereof except as
otherwise provided in these by-laws. In all other cases the notice shall state
the principal purpose or purposes of the meeting. Notice of any meeting of the
Board need not be given to a director, however, if waived by the director in
writing before or after such meeting or if the director shall be present at the
meeting, except when the director attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened.
SECTION 9. ORGANIZATION. At each meeting of the Board of Directors, the
Chairman of the Board, or, in the absence of the Chairman of the Board, a
director or an officer of the Corporation designated by the Board shall act as
Chairman. The Secretary, or, in the Secretary's absence, any person appointed by
the Chairman, shall act as Secretary of the meeting.
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SECTION 10. ORDER OF BUSINESS. At all meetings of the Board of
Directors, business shall be transacted in the order determined by the Board.
SECTION 11. RESIGNATIONS. Any director of the Corporation may resign at
any time by giving written notice to the Chairman of the Board or the Secretary
of the Corporation. The resignation of any director shall take effect at the
time specified therein, and unless otherwise specified therein, the acceptance
of such resignation shall not be necessary to make it effective.
SECTION 12. COMPENSATION. Each director shall be paid such
compensation, if any, as shall be fixed by the Board of Directors.
SECTION 13. INDEMNIFICATION. (A) The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation), by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation or any of its
majority-owned subsidiaries or is or was serving at the request of the
Corporation as a director, officer, employee or agent (except in each of the
foregoing situations to the extent any agreement, arrangement or understanding
of agency contains provisions that supersede or abrogate indemnification under
this section) of another corporation or of any partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
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 his or her conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any
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criminal action or proceeding, had reasonable cause to believe that his
or her conduct was unlawful.
(B) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, officer, employee or agent of the Corporation or any of its
majority-owned subsidiaries, or is or was serving at the request of the
Corporation as a director, officer, employee or agent (except in each of the
foregoing situations to the extent any agreement, arrangement or understanding
of agency contains provisions that supersede or abrogate indemnification under
this section) of another corporation or of any partnership, joint venture,
trust, employee benefit plan or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
with the defense or settlement of such action or suit if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery of Delaware or such other court shall deem
proper.
(C) To the extent that a director, officer, employee or agent
of the Corporation or any of its majority-owned subsidiaries has been successful
on the merits or otherwise in defense of any action, suit or proceeding referred
to in subsections (A) and (B), or in defense of any claim, issue or matter
therein, such person shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by or on behalf of such person in
connection therewith. If any such person is not wholly successful in any such
action, suit or proceeding but is successful, on the merits or otherwise, as to
one or more but less than all claims, issues or matters therein, the Corporation
shall
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indemnify such person against all expenses (including attorneys' fees) actually
and reasonably incurred by or on behalf of such person in connection with each
claim, issue or matter that is successfully resolved. For purposes of this
subsection and without limitation, the termination of any claim, issue or matter
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
(D) Notwithstanding any other provision of this section, to
the extent any person is a witness in, but not a party to, any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such person is or was a director, officer, employee or agent of
the Corporation or any of its majority-owned subsidiaries, or is or was serving
at the request of the Corporation as a director, officer, employee or agent
(except in each of the foregoing situations to the extent any agreement,
arrangement or understanding of agency contains provisions that supersede or
abrogate indemnification under this section) of another corporation or of any
partnership, joint venture, trust, employee benefit plan or other enterprise,
such person shall be indemnified against all expenses (including attorneys'
fees) actually and reasonably incurred by or on behalf of such person in
connection therewith.
(E) Indemnification under subsections (A) and (B) shall be
made only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because such person has met the applicable standard of conduct set
forth in subsections (A) and (B). Such determination shall be made (1) if a
Change of Control (as hereinafter defined) shall not have occurred, (a) with
respect to a person who is a present or former director or officer of the
Corporation, (i) by the Board of Directors by a majority vote of the
Disinterested Directors (as hereinafter defined), even though less than a
quorum, or (ii) if there are no Disinterested Directors or, even if there are
Disinterested Directors, a majority of such Disinterested Directors so directs,
by (x) Independent Counsel (as hereinafter defined) in a written opinion to the
Board of Directors, a copy of which shall be delivered to the claimant, or (y)
the shareowners of the Corporation; or (b) with respect to a person who is not a
present or former director or officer of the
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Corporation, by the chief executive officer of the Corporation or by such other
officer of the Corporation as shall be designated from time to time by the Board
of Directors; or (2) if a Change of Control shall have occurred, by Independent
Counsel selected by the claimant in a written opinion to the Board of Directors,
a copy of which shall be delivered to the claimant, unless the claimant shall
request that such determination be made by or at the direction of the Board of
Directors (in the case of a claimant who is a present or former director or
officer of the Corporation) or by an officer of the Corporation authorized to
make such determination (in the case of a claimant who is not a present or
former director or officer of the Corporation), in which case it shall be made
in accordance with clause (1) of this sentence. Any claimant shall be entitled
to be indemnified against the expenses (including attorneys' fees) actually and
reasonably incurred by such claimant in cooperating with the person or entity
making the determination of entitlement to indemnification (irrespective of the
determination as to the claimant's entitlement to indemnification) and, to the
extent successful, in connection with any litigation or arbitration with respect
to such claim or the enforcement thereof.
(F) If a Change of Control shall not have occurred, or if a
Change of Control shall have occurred and a director, officer, employee or agent
requests pursuant to clause (2) of the second sentence in subsection (E) that
the determination as to whether the claimant is entitled to indemnification be
made by or at the direction of the Board of Directors (in the case of a claimant
who is a present or former director or officer of the Corporation) or by an
officer of the Corporation authorized to make such determination (in the case of
a claimant who is not a present or former director or officer of the
Corporation), the claimant shall be conclusively presumed to have been
determined pursuant to subsection (E) to be entitled to indemnification if (1)
in the case of a claimant who is a present or former director or officer of the
Corporation, (a)(i) within fifteen days after the next regularly scheduled
meeting of the Board of Directors following receipt by the Corporation of the
request therefor, the Board of Directors shall not have resolved by majority
vote of the Disinterested Directors to submit such determination to (x)
Independent Counsel for its determination or (y) the shareowners for their
determination at the next annual
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meeting, or any special meeting that may be held earlier, after such receipt,
and (ii) within sixty days after receipt by the Corporation of the request
therefor (or within ninety days after such receipt if the Board of Directors in
good faith determines that additional time is required by it for the
determination and, prior to expiration of such sixty-day period, notifies the
claimant thereof), the Board of Directors shall not have made the determination
by a majority vote of the Disinterested Directors, or (b) after a resolution of
the Board of Directors, timely made pursuant to clause (a)(i)(y) above, to
submit the determination to the shareowners, the shareowners meeting at which
the determination is to be made shall not have been held on or before the date
prescribed (or on or before a later date, not to exceed sixty days beyond the
original date, to which such meeting may have been postponed or adjourned on
good cause by the Board of Directors acting in good faith), or (2) in the case
of a claimant who is not a present or former director or officer of the
Corporation, within sixty days after receipt by the Corporation of the request
therefor (or within ninety days after such receipt if an officer of the
Corporation authorized to make such determination in good faith determines that
additional time is required for the determination and, prior to expiration of
such sixty-day period, notifies the claimant thereof), an officer of the
Corporation authorized to make such determination shall not have made the
determination; provided, however, that this sentence shall not apply if the
claimant has misstated or failed to state a material fact in connection with his
or her request for indemnification. Such presumed determination that a claimant
is entitled to indemnification shall be deemed to have been made (I) at the end
of the sixty-day or ninety-day period (as the case may be) referred to in clause
(1)(a)(ii) or (2) of the immediately preceding sentence or (II) if the Board of
Directors has resolved on a timely basis to submit the determination to the
shareowners, on the last date within the period prescribed by law for holding
such shareowners meeting (or a postponement or adjournment thereof as permitted
above).
(G) Expenses (including attorneys' fees) incurred in defending
a civil, criminal, administrative or investigative action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding to a present or former
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director or officer of the Corporation, promptly after receipt of a request
therefor stating in reasonable detail the expenses incurred, and to a person who
is not a present or former director or officer of the Corporation as authorized
by the chief executive officer of the Corporation or such other officer of the
Corporation as shall be designated from time to time by the Board of Directors;
provided that in each case the Corporation shall have received an undertaking by
or on behalf of the present or former director, officer, employee or agent to
repay such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation as authorized in this section.
(H) The Board of Directors shall establish reasonable
procedures for the submission of claims for indemnification pursuant to this
section, determination of the entitlement of any person thereto and review of
any such determination. Such procedures shall be set forth in an appendix to
these by-laws and shall be deemed for all purposes to be a part hereof.
(I) For purposes of this section,
(1) "Change of Control" means any of the following occurring
at any time after the distribution of the shares of capital stock of the
Corporation to the holders of capital stock of Rockwell International
Corporation (the "Distribution"):
(a) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (i) the then outstanding shares of common
stock of the Corporation (the "Outstanding Corporation Common Stock") or (ii)
the combined voting power of the then outstanding voting securities of the
Corporation entitled to vote generally in the election of directors (the
"Outstanding Corporation Voting Securities"); provided, however, that for
purposes of this subparagraph (a), the following acquisitions shall not
constitute a Change of Control: (w) any acquisition directly from the
Corporation, (x) any acquisition by the Corporation, (y) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Corporation, Rockwell International Corporation or any corporation controlled by
the
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Corporation or Rockwell International Corporation or (z) any acquisition
pursuant to a transaction which complies with clauses (i), (ii) and (iii) of
subsection (c) of this Paragraph 13(I)(1); or
(b) Individuals who, as of the date of the Distribution,
constitute the Board of Directors (the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board of Directors; provided, however,
that any individual becoming a director subsequent to that date whose election,
or nomination for election by the Corporation's shareowners, was approved by a
vote of at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board of Directors; or
(c) Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Corporation or the acquisition of assets of another entity (a "Corporate
Transaction"), in each case, unless, following such Corporate Transaction, (i)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Corporation Common Stock and
Outstanding Corporation Voting Securities immediately prior to such Corporate
Transaction beneficially own, directly or indirectly, more than 60% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Corporate Transaction (including, without limitation, a
corporation which as a result of such transaction owns the Corporation or all or
substantially all of the Corporation's assets either directly or through one or
more subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Corporate Transaction, of the Outstanding Corporation
Common Stock and Outstanding Corporation Voting Securities, as the case may be,
(ii) no Person (excluding any employee
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benefit plan (or related trust) of the Corporation, of Rockwell International
Corporation or of such corporation resulting from such Corporate Transaction)
beneficially owns, directly or indirectly, 20% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Corporate Transaction or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Corporate Transaction and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Corporate Transaction were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board of Directors,
providing for such Corporate Transaction; or
(d) Approval by the Corporation's shareowners of a complete
liquidation or dissolution of the Corporation.
(2) "Disinterested Director" means a director of the
Corporation who is not and was not a party to an action, suit or proceeding in
respect of which indemnification is sought by a director, officer, employee or
agent.
(3) "Independent Counsel" means a law firm, or a
member of a law firm, that (i) is experienced in matters of corporation law;
(ii) neither presently is, nor in the past five years has been, retained to
represent the Corporation, the director, officer, employee or agent claiming
indemnification or any other party to the action, suit or proceeding giving rise
to a claim for indemnification under this section, in any matter material to the
Corporation, the claimant or any such other party; and (iii) would not, under
applicable standards of professional conduct then prevailing, have a conflict of
interest in representing either the Corporation or such director, officer,
employee or agent in an action to determine the Corporation's or such person's
rights under this section.
(J) The indemnification and advancement of expenses herein
provided, or granted pursuant hereto, shall not be deemed exclusive of any other
rights to which any of those indemnified or eligible for advancement of expenses
may be entitled under any agreement, vote of shareowners or Disinterested
Directors
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or otherwise, both as to action in such person's official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
Notwithstanding any amendment, alteration or repeal of this section or any of
its provisions, or of any of the procedures established by the Board of
Directors pursuant to subsection (H) hereof, any person who is or was a
director, officer, employee or agent of the Corporation or any of its
majority-owned subsidiaries or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of any partnership, joint venture, employee benefit plan or other enterprise
shall be entitled to indemnification in accordance with the provisions hereof
and thereof with respect to any action taken or omitted prior to such amendment,
alteration or repeal except to the extent otherwise required by law.
(K) No indemnification shall be payable pursuant to this
section with respect to any action against the Corporation commenced by an
officer, director, employee or agent unless the Board of Directors shall have
authorized the commencement thereof or unless and to the extent that this
section or the procedures established pursuant to subsection (H) shall
specifically provide for indemnification of expenses relating to the enforcement
of rights under this section and such procedures.
ARTICLE IV.
COMMITTEES
SECTION 1. APPOINTMENT AND POWERS. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of two or more directors of the
Corporation, which, to the extent provided in said resolution or in these
by-laws and not inconsistent with Section 141 of the Delaware General
Corporation Law, as amended, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Such committee or committees shall have such
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name or names as may be determined from time to time by resolution adopted by
the Board of Directors.
SECTION 2. TERM OF OFFICE AND VACANCIES. Each member of a committee
shall continue in office until a director to succeed him or her shall have been
elected and shall have qualified, or until he or she ceases to be a director or
until he or she shall have resigned or shall have been removed in the manner
hereinafter provided. Any vacancy in a committee shall be filled by the vote of
a majority of the whole Board of Directors at any regular or special meeting
thereof.
SECTION 3. ALTERNATES. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee.
SECTION 4. ORGANIZATION. Unless otherwise provided by the Board of
Directors, each committee shall appoint a chairman. Each committee shall keep a
record of its acts and proceedings and report the same from time to time to the
Board of Directors.
SECTION 5. RESIGNATIONS. Any regular or alternate member of a committee
may resign at any time by giving written notice to the Chairman of the Board or
the Secretary of the Corporation. Such resignation shall take effect at the time
of the receipt of such notice or at any later time specified therein, and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
SECTION 6. REMOVAL. Any regular or alternate member of a committee may
be removed with or without cause at any time by resolution passed by a majority
of the whole Board of Directors at any regular or special meeting.
SECTION 7. MEETINGS. Regular meetings of each committee, of which no
notice shall be necessary, shall be held on such days and at such places as the
chairman of the committee shall determine or as shall be fixed by a resolution
passed by a majority of all the members of such committee. Special meetings of
each committee will be called by the Secretary at the request of any two members
of such committee, or in such other manner as may
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be determined by the committee. Notice of each special meeting of a committee
shall be mailed to each member thereof at least two days before the meeting or
shall be given personally or by telephone or other electronic transmission at
least one day before the meeting. Every such notice shall state the time and
place, but need not state the purposes of the meeting. No notice of any meeting
of a committee shall be required to be given to any alternate.
SECTION 8. QUORUM AND MANNER OF ACTING. Unless otherwise provided by
resolution of the Board of Directors, a majority of a committee (including
alternates when acting in lieu of regular members of such committee) shall
constitute a quorum for the transaction of business and the act of a majority of
those present at a meeting at which a quorum is present shall be the act of such
committee. The members of each committee shall act only as a committee and the
individual members shall have no power as such.
SECTION 9. COMPENSATION. Each regular or alternate member of a
committee shall be paid such compensation, if any, as shall be fixed by the
Board of Directors.
ARTICLE V.
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a
Chairman of the Board of Directors, who shall be chosen from the members of the
Board of Directors, one or more Vice Presidents (one or more of whom may be
Executive Vice Presidents, Senior Vice Presidents or otherwise as may be
designated by the Board), a Secretary and a Treasurer, all of whom shall be
elected by the Board of Directors. Any two or more offices may be held by the
same person. The Board of Directors may also from time to time elect such other
officers as it deems necessary.
SECTION 2. TERM OF OFFICE. Each officer shall hold office until his or
her successor shall have been duly elected and qualified in his or her stead, or
until his or her death or until he or she shall have resigned or shall have been
removed in the manner hereinafter provided.
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SECTION 3. ADDITIONAL OFFICERS; AGENTS. The Chairman of the Board may
from time to time appoint and remove such additional officers and agents as may
be deemed necessary. Such persons shall hold office for such period, have such
authority, and perform such duties as in these by-laws provided or as the
Chairman of the Board may from time to time prescribe. The Board of Directors or
the Chairman of the Board may from time to time authorize any officer to appoint
and remove agents and employees and to prescribe their powers and duties.
SECTION 4. SALARIES. Unless otherwise provided by resolution passed by
a majority of the whole Board, the salaries of all officers elected by the Board
of Directors shall be fixed by the Board of Directors.
SECTION 5. REMOVAL. Except where otherwise expressly provided in a
contract authorized by the Board of Directors, any officer may be removed,
either with or without cause, by the vote of a majority of the Board at any
regular or special meeting or, except in the case of an officer elected by the
Board, by any superior officer upon whom the power of removal may be conferred
by the Board or by these by-laws.
SECTION 6. RESIGNATIONS. Any officer elected by the Board of Directors
may resign at any time by giving written notice to the Chairman of the Board or
the Secretary. Any other officer may resign at any time by giving written notice
to the Chairman of the Board. Any such resignation shall take effect at the date
of receipt of such notice or at any later time specified therein, and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 7. VACANCIES. A vacancy in any office because of death,
resignation, removal or otherwise, shall be filled for the unexpired portion of
the term in the manner provided in these by-laws for regular election or
appointment to such office.
SECTION 8. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors shall be chief executive officer of the Corporation and,
subject to the control of the Board of Directors, shall have general and overall
charge of the business and affairs of the Corporation and of its officers. The
Chairman of the Board shall keep the Board of Directors appropriately informed
on the business and affairs of the Corporation. The Chairman of the Board
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shall preside at all meetings of the shareowners and the Board of Directors and
shall enforce the observance of the rules of order for the meetings of the Board
of Directors and the shareowners and the by-laws of the Corporation.
SECTION 9. EXECUTIVE AND SENIOR VICE PRESIDENTS. One or more Executive
or Senior Vice Presidents shall, subject to the control of the Chairman of the
Board, have lead accountability for components or functions of the Corporation
as and to the extent designated by the Chairman of the Board. Each Executive or
Senior Vice President shall keep the Chairman of the Board appropriately
informed on the business and affairs of the designated components or functions
of the Corporation.
SECTION 10. VICE PRESIDENTS. The Vice Presidents shall perform such
duties as may from time to time be assigned to them or any of them by the
Chairman of the Board.
SECTION 11. SECRETARY. The Secretary shall keep or cause to be kept in
books provided for the purpose the minutes of the meetings of the shareowners,
of the Board of Directors and of any committee constituted pursuant to Article
IV of these by-laws. The Secretary shall be custodian of the corporate seal and
see that it is affixed to all documents as required and attest the same. The
Secretary shall perform all duties incident to the office of Secretary and such
other duties as from time to time may be assigned to him or her.
SECTION 12. ASSISTANT SECRETARIES. At the request of the Secretary, or
in the Secretary's absence or disability, the Assistant Secretary designated by
the Secretary shall perform all the duties of the Secretary and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Secretary. The Assistant Secretaries shall perform such other duties as from
time to time may be assigned to them.
SECTION 13. TREASURER. The Treasurer shall have charge of and be
responsible for the receipt, disbursement and safekeeping of all funds and
securities of the Corporation. The Treasurer shall deposit all such funds in the
name of the Corporation in such banks, trust companies or other depositories as
shall be selected in accordance with the provisions of these by-laws. From time
to time and whenever requested to do so, the Treasurer shall render statements
of the condition of the
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<PAGE> 23
finances of the Corporation to the Board of Directors. The Treasurer shall
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him or her.
SECTION 14. ASSISTANT TREASURERS. At the request of the Treasurer, or
in the Treasurer's absence or disability, the Assistant Treasurer designated by
the Treasurer shall perform all the duties of the Treasurer and, when so acting,
shall have all the powers of, and be subject to all the restrictions upon, the
Treasurer. The Assistant Treasurers shall perform such other duties as from time
to time may be assigned to them.
SECTION 15. CERTAIN AGREEMENTS. The Board of Directors shall have power
to authorize or direct the proper officers of the Corporation, on behalf of the
Corporation, to enter into valid and binding agreements in respect of
employment, incentive or deferred compensation, stock options, and similar or
related matters, notwithstanding the fact that a person with whom the
Corporation so contracts may be a member of its Board of Directors. Any such
agreement may validly and lawfully bind the Corporation for a term of more than
one year, in accordance with its terms, notwithstanding the fact that one of the
elements of any such agreement may involve the employment by the Corporation of
an officer, as such, for such term.
ARTICLE VI.
AUTHORIZATIONS
SECTION 1. CONTRACTS. The Board of Directors, except as in these
by-laws otherwise provided, may authorize any officer, employee or agent of the
Corporation to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Corporation, and such authority may be general
or confined to specific instances.
SECTION 2. LOANS. No loan shall be contracted on behalf of the
Corporation and no negotiable paper shall be issued in its name, unless
authorized by the Board of Directors.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or
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<PAGE> 24
other evidences of indebtedness issued in the name of the Corporation shall be
signed by such officer or officers, employee or employees, of the Corporation as
shall from time to time be determined in accordance with authorization of the
Board of Directors.
SECTION 4. DEPOSITS. All funds of the Corporation shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies or other depositories as the Board of Directors may from time to time
designate, or as may be designated by any officer or officers of the Corporation
to whom such power may be delegated by the Board, and for the purpose of such
deposit the officers and employees who have been authorized to do so in
accordance with the determinations of the Board may endorse, assign and deliver
checks, drafts, and other orders for the payment of money which are payable to
the order of the Corporation.
SECTION 5. PROXIES. Except as otherwise provided in these by-laws or in
the Certificate of Incorporation, and unless otherwise provided by resolution of
the Board of Directors, the Chairman of the Board or any other officer may from
time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the votes
which the Corporation may be entitled to cast as a shareowner or otherwise in
any other corporation any of whose stock or other securities may be held by the
Corporation, at meetings of the holders of the stock or other securities of such
other corporations, or to consent in writing to any action by such other
corporation, and may instruct the person or persons so appointed as to the
manner of casting such vote or giving such consent, and may execute or cause to
be executed in the name and on behalf of the Corporation and under its corporate
seal, or otherwise, all such written proxies or other instruments as such
officer may deem necessary or proper in the premises.
ARTICLE VII.
SHARES AND THEIR TRANSFER
SECTION 1. SHARES OF STOCK. Certificates for shares of the stock of the
Corporation shall be in such form as shall be approved by the Board of
Directors. They shall be numbered in the order of their issue, by
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<PAGE> 25
class and series, and shall be signed by the Chairman of the Board or a Vice
President, and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary, of the Corporation. If a share certificate is countersigned
(1) by a transfer agent other than the Corporation or its employee, or (2) by a
registrar other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
share certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if such person were such officer, transfer agent, or
registrar at the date of issue. The Board of Directors may by resolution or
resolutions provide that some or all of any or all classes or series of the
shares of stock of the Corporation shall be uncertificated shares.
Notwithstanding the preceding sentence, every holder of uncertificated shares,
upon request, shall be entitled to receive from the Corporation a certificate
representing the number of shares registered in such shareowner's name on the
books of the Corporation.
SECTION 2. RECORD OWNERSHIP. A record of the name and address of each
holder of the shares of the Corporation, the number of shares held by such
shareowner, the number or numbers of any share certificate or certificates
issued to such shareowner and the number of shares represented thereby, and the
date of issuance of the shares held by such shareowner shall be made on the
Corporation's books. The Corporation shall be entitled to treat the holder of
record of any share of stock (including any holder registered in a book-entry or
direct registration system maintained by the Corporation or a transfer agent or
a registrar designated by the Board of Directors) as the holder in fact thereof
and accordingly shall not be bound to recognize any equitable or other claim to
or interest in such share on the part of any other person, whether or not it
shall have express or other notice thereof, except as required by law.
SECTION 3. TRANSFER OF STOCK. Shares of stock shall be transferable on
the books of the Corporation by the holder of record of such stock in person or
by such person's attorney or other duly constituted representative, pursuant to
applicable law and such rules and regulations as the Board of Directors shall
from time
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<PAGE> 26
to time prescribe. Any shares represented by a certificate shall be transferable
upon surrender of such certificate with an assignment endorsed thereon or
attached thereto duly executed and with such guarantee of signature as the
Corporation may reasonably require.
SECTION 4. LOST, STOLEN AND DESTROYED CERTIFICATES. The Corporation may
issue a new certificate of stock or may register uncertificated shares, if then
authorized by the Board of Directors, in the place of any certificate
theretofore issued by it, alleged to have been lost, stolen or destroyed, and
the Corporation may require the owner of the lost, stolen or destroyed
certificate, or such person's legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate, the
issuance of such new certificate or the registration of such uncertificated
shares.
SECTION 5. TRANSFER AGENT AND REGISTRAR; REGULATIONS. The Corporation
shall, if and whenever the Board of Directors shall so determine, maintain one
or more transfer offices or agencies, each in charge of a transfer agent
designated by the Board of Directors, where the shares of the stock of the
Corporation shall be directly transferable, and also one or more registry
offices, each in charge of a registrar designated by the Board of Directors,
where such shares of stock shall be registered, and no certificate for shares of
the stock of the Corporation, in respect of which a registrar and transfer agent
shall have been designated, shall be valid unless countersigned by such transfer
agent and registered by such registrar. The Board of Directors may also make
such additional rules and regulations as it may deem expedient concerning the
issue, transfer and registration of shares of stock of the Corporation and
concerning the registration of pledges of uncertificated shares.
SECTION 6. FIXING RECORD DATE. For the purpose of determining the
shareowners entitled to notice of or to vote at any meeting of shareowners or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the
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<PAGE> 27
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action. If
no record date is fixed (1) the record date for determining shareowners entitled
to notice of or to vote at a meeting of shareowners shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held and (2) the record date for determining shareowners
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. A determination of
shareowners of record entitled to notice of or to vote at a meeting of
shareowners shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 7. EXAMINATION OF BOOKS BY SHAREOWNERS. The Board of Directors
shall, subject to the laws of the State of Delaware, have power to determine
from time to time, whether and to what extent and under what conditions and
regulations the accounts and books of the Corporation, or any of them, shall be
open to the inspection of the shareowners; and no shareowner shall have any
right to inspect any book or document of the Corporation, except as conferred by
the laws of the State of Delaware, unless and until authorized so to do by
resolution of the Board of Directors or of the shareowners of the Corporation.
ARTICLE VIII.
NOTICE
SECTION 1. MANNER OF GIVING WRITTEN NOTICE. Any notice in writing
required by law or by these by-laws to be given to any person may be delivered
personally, may be transmitted by electronic means or may be given by depositing
the same in the post office or letter box in a postpaid envelope addressed to
such person at such address as appears on the books of the Corporation. Notice
by mail shall be deemed to be given at the time when the same shall be mailed,
and notice by other means shall be deemed given when actually delivered (and in
the
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<PAGE> 28
case of notice transmitted by electronic means, when authenticated if and as
required by law).
SECTION 2. WAIVER OF NOTICE. Whenever any notice is required to be
given to any person, a waiver thereof by such person in writing or transmitted
by electronic means (and authenticated if and as required by law), whether
before or after the time stated therein, shall be deemed equivalent thereto.
ARTICLE IX.
SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal" and
"Delaware".
ARTICLE X.
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of October in
each year.
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APPENDIX
PROCEDURES FOR SUBMISSION AND
DETERMINATION OF CLAIMS FOR INDEMNIFICATION
PURSUANT TO ARTICLE III, SECTION 13 OF THE BY-LAWS.
SECTION 1. PURPOSE. The Procedures for Submission and Determination of
Claims for Indemnification Pursuant to Article III, Section 13 of the by-laws
(the "Procedures") are to implement the provisions of Article III, Section 13 of
the by-laws of the Corporation (the "by-laws") in compliance with the
requirement of subsection (H) thereof.
SECTION 2. DEFINITIONS. For purposes of these Procedures:
(A) All terms that are defined in Article III, Section 13 of the
by-laws shall have the meanings ascribed to them therein when used in these
Procedures unless otherwise defined herein.
(B) "Expenses" include all reasonable attorneys' fees, court costs,
transcript costs, fees of experts, witness fees, travel expenses, duplicating
costs, printing and binding costs, telephone charges, postage, delivery service
fees, and all other disbursements or expenses of the types customarily incurred
in connection with prosecuting, defending, preparing to prosecute or defend,
investigating, or being or preparing to be a witness in, a Proceeding; and shall
also include such retainers as counsel may reasonably require in advance of
undertaking the representation of an indemnitee in a Proceeding.
(C) "Indemnitee" includes any person who was or is, or is threatened to
be made, a witness in or a party to any Proceeding by reason of the fact that
such person is or was a director, officer, employee or agent of the Corporation
or any of its majority-owned subsidiaries or is or was serving at the request of
the Corporation as a director, officer, employee or agent (except in each of the
foregoing situations to the extent any agreement, arrangement or understanding
of agency contains provisions that supersede or abrogate indemnification under
Article III, Section 13 of the by-laws) of another corporation or of any
partnership,
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<PAGE> 30
joint venture, trust, employee benefit plan or other enterprise.
(D) "Proceeding" includes any action, suit, arbitration, alternative
dispute resolution mechanism, investigation, administrative hearing or any other
proceeding, whether civil, criminal, administrative or investigative, except one
initiated by an Indemnitee unless the Board of Directors shall have authorized
the commencement thereof.
SECTION 3. SUBMISSION AND DETERMINATION OF CLAIMS.
(A) To obtain indemnification or advancement of Expenses under Article
III, Section 13 of the by-laws, an Indemnitee shall submit to the Secretary of
the Corporation a written request therefor, including therein or therewith such
documentation and information as is reasonably available to the Indemnitee and
is reasonably necessary to permit a determination as to whether and what extent
the Indemnitee is entitled to indemnification or advancement of Expenses, as the
case may be. The Secretary shall, promptly upon receipt of a request for
indemnification, advise the Board of Directors (if the Indemnitee is a present
or former director or officer of the Corporation) or the officer of the
Corporation authorized to make the determination as to whether an Indemnitee is
entitled to indemnification (if the Indemnitee is not a present or former
director or officer of the Corporation) thereof in writing if a determination in
accordance with Article III, Section 13(E) of the by-laws is required.
(B) Upon written request by an Indemnitee for indemnification pursuant
to Section 3(A) hereof, a determination with respect to the Indemnitee's
entitlement thereto in the specific case, if required by the by-laws, shall be
made in accordance with Article III, Section 13(E) of the by-laws, and, if it is
so determined that the Indemnitee is entitled to indemnification, payment to the
Indemnitee shall be made within ten days after such determination. The
Indemnitee shall cooperate with the person, persons or entity making such
determination, with respect to the Indemnitee's entitlement to indemnification,
including providing to such person, persons or entity upon reasonable advance
request any documentation or information which is not
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<PAGE> 31
privileged or otherwise protected from disclosure and which is reasonably
available to the Indemnitee and reasonably necessary to such determination.
(C) If entitlement to indemnification is to be made by Independent
Counsel pursuant to Article III, Section 13(E) of the by-laws, the Independent
Counsel shall be selected as provided in this Section 3(C). If a Change of
Control shall not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Corporation shall give written notice to the
Indemnitee advising the Indemnitee of the identity of the Independent Counsel so
selected. If a Change of Control shall have occurred, the Independent Counsel
shall be selected by the Indemnitee (unless the Indemnitee shall request that
such selection be made by the Board of Directors, in which event the immediately
preceding sentence shall apply), and the Indemnitee shall give written notice to
the Corporation advising it of the identity of the Independent Counsel so
selected. In either event, the Indemnitee or the Corporation, as the case may
be, may, within seven days after such written notice of selection shall have
been given, deliver to the Corporation or to the Indemnitee, as the case may be,
a written objection to such selection. Such objection may be asserted only on
the ground that the Independent Counsel so selected does not meet the
requirements of "Independent Counsel" as defined in Article III, Section 13 of
the by-laws, and the objection shall set forth with particularity the factual
basis of such assertion. If such written objection is made, the Independent
Counsel so selected may not serve as Independent Counsel unless and until a
court has determined that such objection is without merit. If, within twenty
days after the next regularly scheduled Board of Directors meeting following
submission by the Indemnitee of a written request for indemnification pursuant
to Section 3(A) hereof, no Independent Counsel shall have been selected and not
objected to, either the Corporation or the Indemnitee may petition the Court of
Chancery of the State of Delaware or other court of competent jurisdiction for
resolution of any objection which shall have been made by the Corporation or the
Indemnitee to the other's selection of Independent Counsel and/or for the
appointment as Independent Counsel of a person selected by the Court or by such
other person as the Court shall designate, and the person with respect to whom
an objection is favorably resolved or the person so appointed shall act as
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<PAGE> 32
Independent Counsel under Article III, Section 13(E) of the by-laws. The
Corporation shall pay any and all reasonable fees and expenses (including
without limitation any advance retainers reasonably required by counsel) of
Independent Counsel incurred by such Independent Counsel in connection with
acting pursuant to Article III, Section 13(E) of the by-laws, and the
Corporation shall pay all reasonable fees and expenses (including without
limitation any advance retainers reasonably required by counsel) incident to the
procedures of Article III, Section 13(E) of the by-laws and this Section 3(C),
regardless of the manner in which Independent Counsel was selected or appointed.
Upon the delivery of its opinion pursuant to Article III, Section 13 of the
by-laws or, if earlier, the due commencement of any judicial proceeding or
arbitration pursuant to Section 4(A)(3) of these Procedures, Independent Counsel
shall be discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then prevailing).
(D) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification under the by-laws,
the person, persons or entity making such determination shall presume that an
Indemnitee is entitled to indemnification under the by-laws if the Indemnitee
has submitted a request for indemnification in accordance with Section 3(A)
hereof, and the Corporation shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
SECTION 4. REVIEW AND ENFORCEMENT OF DETERMINATION.
(A) In the event that (1) advancement of Expenses is not timely made
pursuant to Article III, Section 13(G) of the by-laws, (2) payment of
indemnification is not made pursuant to Article III, Section 13(C) or (D) of the
by-laws within ten days after receipt by the Corporation of written request
therefor, (3) a determination is made pursuant to Article III, Section 13(E) of
the by-laws that an Indemnitee is not entitled to indemnification under the
by-laws, (4) the determination of entitlement to indemnification is to be made
by Independent Counsel pursuant to Article III,
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Section 13(E) of the by-laws and such determination shall not have been made and
delivered in a written opinion within ninety days after receipt by the
Corporation of the written request for indemnification, or (5) payment of
indemnification is not made within ten days after a determination has been made
pursuant to Article III, Section 13(E) of the by-laws that an Indemnitee is
entitled to indemnification or within ten days after such determination is
deemed to have been made pursuant to Article III, Section 13(F) of the by-laws,
the Indemnitee shall be entitled to an adjudication in an appropriate court of
the State of Delaware, or in any other court of competent jurisdiction, of the
Indemnitee's entitlement to such indemnification or advancement of Expenses.
Alternatively, the Indemnitee, at his or her option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the rules of the
American Arbitration Association. The Indemnitee shall commence such proceeding
seeking an adjudication or an award in arbitration within one year following the
date on which the Indemnitee first has the right to commence such proceeding
pursuant to this Section 4(A). The Corporation shall not oppose the Indemnitee's
right to seek any such adjudication or award in arbitration.
(B) In the event that a determination shall have been made pursuant to
Article III, Section 13(E) of the by-laws that an Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 4 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and the Indemnitee shall not be prejudiced by reason
of that adverse determination. If a Change of Control shall have occurred, the
Corporation shall have the burden of proving in any judicial proceeding or
arbitration commenced pursuant to this Section 4 that the Indemnitee is not
entitled to indemnification or advancement of Expenses, as the case may be.
(C) If a determination shall have been made or deemed to have been made
pursuant to Article III, Section 13(E) or (F) of the by-laws that an Indemnitee
is entitled to indemnification, the Corporation shall be bound by such
determination in any judicial proceeding or arbitration commenced pursuant to
this Section 4, absent (1) a misstatement or omission of a material fact in
connection with the Indemnitee's request for
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indemnification, or (2) a prohibition of such indemnification under applicable
law.
(D) The Corporation shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 4 that the
procedures and presumptions of these Procedures are not valid, binding and
enforceable, and shall stipulate in any such judicial proceeding or arbitration
that the Corporation is bound by all the provisions of these Procedures.
(E) In the event that an Indemnitee, pursuant to this Section 4, seeks
to enforce the Indemnitee's rights under, or to recover damages for breach of,
Article III, Section 13 of the by-laws or these Procedures in a judicial
proceeding or arbitration, the Indemnitee shall be entitled to recover from the
Corporation, and shall be indemnified by the Corporation against, any and all
expenses (of the types described in the definition of Expenses in Section 2 of
these Procedures) actually and reasonably incurred in such judicial proceeding
or arbitration, but only if the Indemnitee prevails therein. If it shall be
determined in such judicial proceeding or arbitration that the Indemnitee is
entitled to receive part but not all of the indemnification or advancement of
Expenses sought, the expenses incurred by the Indemnitee in connection with such
judicial proceeding or arbitration shall be appropriately prorated.
SECTION 5. AMENDMENTS. These Procedures may be amended at any time and
from time to time in the same manner as any by-law of the Corporation in
accordance with the Certificate of Incorporation; provided, however, that
notwithstanding any amendment, alteration or repeal of these Procedures or any
provision hereof, any Indemnitee shall be entitled to utilize these Procedures
with respect to any claim for indemnification arising out of any action taken or
omitted prior to such amendment, alteration or repeal except to the extent
otherwise required by law.
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Exhibit 4.4
[ROCKWELL SEMICONDUCTOR SYSTEMS, INC.]
and
CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS
RIGHTS AGENT
Rights Agreement
Dated as of [_______________], 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Certain Definitions........................................................................ 2
Section 2. Appointment of Rights Agent................................................................ 8
Section 3. Issue of Right Certificates................................................................ 8
Section 4. Form of Right Certificates................................................................. 13
Section 5. Countersignature and Registration.......................................................... 13
Section 6. Transfer, Split Up, Combination and Exchange of Right Certificates;
Mutilated, Destroyed, Lost or Stolen Right Certificates.................................... 15
Section 7. Exercise of Rights; Purchase Price; Expiration Date of Rights.............................. 17
Section 8. Cancellation and Destruction of Right Certificates......................................... 19
Section 9. Availability of Preferred Shares........................................................... 20
Section 10. Preferred Shares Record Date............................................................... 21
Section 11. Adjustment of Purchase Price, Number of Shares or Number of Rights......................... 22
Section 12. Certificate of Adjusted Purchase Price or Number of Shares................................. 39
Section 13. Consolidation, Merger or Sale or Transfer of Assets or Earning Power....................... 40
Section 14. Fractional Rights and Fractional Shares.................................................... 42
Section 15. Rights of Action........................................................................... 45
Section 16. Agreement of Right Holders................................................................. 46
Section 17. Right Holder Not Deemed a Shareowner....................................................... 47
Section 18. Concerning the Rights Agent................................................................ 47
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C>
Section 19. Merger or Consolidation or Change of Name of Rights Agent.................................. 49
Section 20. Duties of Rights Agent..................................................................... 50
Section 21. Change of Rights Agent..................................................................... 55
Section 22. Issuance of New Right Certificates......................................................... 57
Section 23. Redemption................................................................................. 57
Section 24. Exchange................................................................................... 59
Section 25. Notice of Certain Events................................................................... 62
Section 26. Notices.................................................................................... 64
Section 27. Supplements and Amendments................................................................. 66
Section 28. Successors................................................................................. 67
Section 29. Benefits of this Agreement................................................................. 67
Section 30. Severability............................................................................... 67
Section 31. Governing Law.............................................................................. 68
Section 32. Counterparts............................................................................... 68
Section 33. Descriptive Headings....................................................................... 68
Exhibit A - Form of Right Certificate
</TABLE>
ii
<PAGE> 4
RIGHTS AGREEMENT
Agreement, dated as of [______________], 1998, between
[Rockwell Semiconductor Systems, Inc.], a Delaware corporation (the "Company"),
and ChaseMellon Shareholder Services, L.L.C. (the "Rights Agent").
The Board of Directors of the Company has authorized and
declared a dividend of one preferred share purchase right (a "Right") for each
Common Share (as hereinafter defined) of the Company to be issued in the
distribution of Common Shares of the Company (the "Spin-Off") by Rockwell
International Corporation, a Delaware corporation ("Rockwell"), to Rockwell's
shareowners, each Right representing the right to purchase one one-hundredth of
a Preferred Share (as hereinafter defined), upon the terms and subject to the
conditions herein set forth, and has further authorized and directed the
issuance of one Right with respect to each Common Share of the Company that
shall become outstanding between the effective date of the Spin-Off (the "Record
Date") and the earliest of the Distribution Date, the Redemption Date and the
Final Expiration Date (as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
<PAGE> 5
Section 1. Certain Definitions. For purposes of this
Agreement, the following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which, together with all Affiliates and
Associates (as such terms are hereinafter defined) of such Person,
shall be the Beneficial Owner (as such term is hereinafter defined) of
20% or more of the Common Shares of the Company then outstanding, but
shall not include the Company, any Subsidiary (as such term is
hereinafter defined) of the Company, any employee benefit plan of
Rockwell, the Company or any Subsidiary of the Company, or any entity
holding Common Shares for or pursuant to the terms of any such plan.
Notwithstanding the foregoing, no Person shall become an "Acquiring
Person" as the result of an acquisition of Common Shares by the Company
which, by reducing the number of shares outstanding, increases the
proportionate number of shares beneficially owned by such Person to 20%
or more of the Common Shares of the Company then outstanding; provided,
however, that if a Person shall become the Beneficial Owner of 20% or
more of the Common Shares of the Company then outstanding by reason of
share
2
<PAGE> 6
purchases by the Company and shall, after such share purchases by
the Company, become the Beneficial Owner of any additional Common
Shares of the Company (other than an acquisition that does not directly
or indirectly increase the proportionate share of the Common Shares of
the Company beneficially owned by such Person), then such Person shall
be deemed to be an "Acquiring Person". Notwithstanding the foregoing,
if the Board of Directors of the Company determines in good faith that
a Person who would otherwise be an "Acquiring Person", as defined
pursuant to the foregoing provisions of this paragraph (a), has become
such inadvertently, and such Person divests as promptly as practicable
a sufficient number of Common Shares so that such Person would no
longer be an "Acquiring Person", as defined pursuant to the foregoing
provisions of this paragraph (a), then such Person shall not be deemed
to be an "Acquiring Person" for any purposes of this Agreement.
Notwithstanding the foregoing provisions of this paragraph (a),
Rockwell shall not be deemed to be an Acquiring Person as a result of
its ownership of capital stock of the Company prior to the Spin-Off.
3
<PAGE> 7
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as in effect on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and
shall be deemed to have "Beneficial Ownership" of and to "beneficially
own" any securities:
(i) which such Person or any of such Person's
Affiliates or Associates beneficially owns, directly or
indirectly;
(ii) which such Person or any of such Person's
Affiliates or Associates has (A) the right to acquire (whether
such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or
understanding (other than customary agreements with and
between underwriters and selling group members with respect to
a bona fide public offering of securities), or upon the
exercise of conversion rights, exchange rights, rights (other
than the Rights), warrants or options, or otherwise; provided,
however, that a Person shall
4
<PAGE> 8
not be deemed the Beneficial Owner of, or to beneficially own,
securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's
Affiliates or Associates until such tendered securities are
accepted for purchase or exchange; or (B) the right to vote
pursuant to any agreement, arrangement or understanding;
provided, however, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security if
the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent
given to such Person in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the
applicable rules and regulations promulgated under the
Exchange Act and (2) is not also then reportable on Schedule
13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person or any
of such Person's Affiliates or Associates has any agreement,
arrangement or understanding (other than customary agreements
5
<PAGE> 9
with and between underwriters and selling group members with
respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent
contemplated by the proviso to Section l(c)(ii)(B)) or
disposing of any securities of the Company.
Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding", when used with reference
to a Person's Beneficial Ownership of securities of the Company, shall
mean the number of such securities then issued and outstanding together
with the number of such securities not then actually issued and
outstanding which such Person would be deemed to own beneficially
hereunder.
(d) "Business Day" shall mean any day other than a Saturday, a
Sunday, or a day on which banking institutions in New York are
authorized or obligated by law or executive order to close.
(e) "close of business" on any given date shall mean 5:00
P.M., New York City time, on such date; provided, however, that if such
date is not a Business
6
<PAGE> 10
Day it shall mean 5:00 P.M., New York City time, on the next succeeding
Business Day.
(f) "Common Shares" when used with reference to the Company
shall mean the shares of Common Stock (as such term is hereinafter
defined). "Common Shares" when used with reference to any Person other
than the Company shall mean the capital stock (or equity interest) with
the greatest voting power of such other Person or, if such other Person
is a Subsidiary of another Person, the Person or Persons which
ultimately control such first-mentioned Person.
(g) "Common Stock" shall mean the Common Stock, par value $1
per share, of the Company.
(h) "Distribution Date" shall have the meaning set forth in
Section 3 hereof.
(i) "Final Expiration Date" shall have the meaning set forth
in Section 7 hereof.
(j) "Person" shall mean any individual, firm, corporation or
other entity, and shall include any successor (by merger or otherwise)
of such entity.
(k) "Preferred Shares" shall mean shares of Series A Junior
Participating Preferred Stock, without par value, of the Company having
the rights and
7
<PAGE> 11
preferences set forth in the Certificate of Incorporation of the
Company.
(l) "Redemption Date" shall have the meaning set forth in
Section 7 hereof.
(m) "Shares Acquisition Date" shall mean the first date of
public announcement by the Company or an Acquiring Person that an
Acquiring Person has become such.
(n) "Subsidiary" of any Person shall mean any corporation or
other entity of which a majority of the voting power of the voting
equity securities or equity interest is owned, directly or indirectly,
by such Person.
Section 2. Appointment of Rights Agent. The Company hereby
appoints the Rights Agent to act as agent for the Company in accordance with the
terms and conditions hereof, and the Rights Agent hereby accepts such
appointment. The Company may from time to time appoint such co-Rights Agents as
it may deem necessary or desirable.
Section 3. Issue of Right Certificates. (a) Until the earlier
of (i) the tenth day after the Shares Acquisition Date or (ii) the tenth
Business Day (or such later date as may be determined by action of the Board of
Directors prior to such time as any Person becomes an
8
<PAGE> 12
Acquiring Person) after the date of the commencement by any Person (other than
the Company, any Subsidiary of the Company, any employee benefit plan of the
Company or of any Subsidiary of the Company or any entity holding Common Shares
for or pursuant to the terms of any such plan) of, or of the first public
announcement of the intention of any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company or any entity holding Common Shares for or pursuant to
the terms of any such plan) to commence, a tender or exchange offer the
consummation of which would result in any Person becoming the Beneficial Owner
of Common Shares aggregating 20% or more of the then outstanding Common Shares
(the earlier of such dates being herein referred to as the "Distribution Date"),
(x) the Rights will be attached to (subject to the provisions of Section 3(b)
hereof) the Common Shares (whether in book-entry, uncertificated or certificated
form) issued and outstanding and the Rights will be owned by the registered
holders of the Common Shares and will not be evidenced by separate Right
Certificates, and (y) any transfer of Common Shares (or any interest therein,
including the creation of a security interest) will also effect a transfer of
the associated Rights (or the equivalent interest therein) and
9
<PAGE> 13
neither the Rights nor any interest therein may be transferred otherwise than by
transfer of the associated Common Shares (or the equivalent interest therein).
As soon as practicable after the Distribution Date, the Company will prepare and
execute, the Rights Agent will countersign, and the Company will send or cause
to be sent (and the Rights Agent will, if requested, send) by first-class,
insured, postage-prepaid mail, to each record holder of Common Shares as of the
close of business on the Distribution Date, at the address of such holder shown
on the records of the Company, a Right Certificate, in substantially the form of
Exhibit A hereto (a "Right Certificate"), evidencing one Right for each Common
Share so held, subject, in the case of Common Shares held in uncertificated form
on the Distribution Date, to the rights provided by law to a registered pledgee
whose security interest has been duly registered with the Company. As of the
Distribution Date, the Rights will be evidenced solely by such Right
Certificates.
(b) Until the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date, certificates for Common Shares
shall have impressed on, printed on, written on or otherwise affixed to them
substantially the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in a Rights
10
<PAGE> 14
Agreement between [Rockwell Semiconductor Systems, Inc.] and
ChaseMellon Shareholder Services, L.L.C., dated as of [___________],
1998 (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 [Rockwell Semiconductor Systems, Inc.]
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. [Rockwell Semiconductor Systems, Inc.]
will mail to the holder of this certificate a copy of the Rights
Agreement without charge after receipt of a written request therefor.
Under certain circumstances, as set forth in the Rights Agreement,
Rights issued to any Person who becomes an Acquiring Person (as defined
in the Rights Agreement) may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
(c) Until the earliest of the Distribution Date, the
Redemption Date or the Final Expiration Date, confirmations and account
statements sent to holders of Common Shares in book-entry form and initial
transaction statements relating to the registration, pledge or release from
pledge of Common Shares in uncertificated form shall have impressed on, printed
on, written on or otherwise affixed to them substantially the following legend:
11
<PAGE> 15
The shares of the Common Stock, par value $1 per share, of [Rockwell
Semiconductor Systems, Inc.] to which this statement relates also
evidence and entitle the holder thereof to certain Rights as set forth
in a Rights Agreement between [Rockwell Semiconductor Systems, Inc.]
and ChaseMellon Shareholder Services, L.L.C., dated as of [_________],
1998 (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 [Rockwell Semiconductor Systems, Inc.].
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 the shares to which this statement relates. [Rockwell
Semiconductor Systems, Inc.] will mail to the holder of the shares to
which this statement relates and any registered pledgee of
uncertificated shares a copy of the Rights Agreement without charge
after receipt of a written request therefor. Under certain
circumstances, as set forth in the Rights Agreement, Rights issued to
any Person who becomes an Acquiring Person (as defined in the Rights
Agreement) may become null and void.
With respect to Common Shares in book-entry form for which there has been sent a
confirmation or account statement and Common Shares in uncertificated form for
which there has been sent an initial transaction statement containing the
foregoing legend, until the Distribution Date, the Rights associated with such
Common Shares shall be evidenced by such Common Shares alone, and the
registration of transfer or pledge, or the release from pledge, of any such
Common Shares shall also constitute the registration of transfer or pledge, or
the release from pledge, as the case may be, of the Rights associated with such
Common Shares.
12
<PAGE> 16
(d) In the event that the Company purchases or acquires any
Common Shares after the Record Date but prior to the Distribution Date, any
Rights associated with such Common Shares shall be deemed canceled and retired
so that the Company shall not be entitled to exercise any Rights associated with
the Common Shares which are no longer outstanding.
Section 4. Form of Right Certificates. Subject to the
provisions of Section 22 hereof, the Right Certificates (and the forms of
election to purchase Preferred Shares and of assignment to be printed on the
reverse thereof) shall be substantially the same as Exhibit A hereto and may
have such marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the Rights
may from time to time be listed, or to conform to usage.
Section 5. Countersignature and Registration. The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, any of its Vice
13
<PAGE> 17
Presidents, or its Treasurer, either manually or by facsimile signature, shall
have affixed thereto the Company's seal or a facsimile thereof, and shall be
attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be
countersigned by the Rights Agent, either manually or by facsimile signature,
and shall not be valid for any purpose unless countersigned. In case any officer
of the Company who shall have signed any of the Right Certificates shall cease
to be such officer of the Company before countersignature by the Rights Agent
and issuance and delivery by the Company, such Right Certificates, nevertheless,
may be countersigned by the Rights Agent and issued and delivered by the Company
with the same force and effect as though the person who signed such Right
Certificates had not ceased to be such officer of the Company; and any Right
Certificate may be signed on behalf of the Company by any person who, at the
actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Rights Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at an office designated for
14
<PAGE> 18
such purpose (the "Designated Office"), books for registration and transfer of
the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates, the number of
Rights evidenced on its face by each of the Right Certificates and the date of
each of the Right Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of
Right Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
Subject to the provisions of Section 14 hereof, at any time after the close of
business on the Distribution Date, and at or prior to the close of business on
the earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) hereof or that have
been exchanged pursuant to Section 24 hereof) may be transferred, split up,
combined or exchanged for another Right Certificate or Right Certificates,
entitling the registered holder of the Rights evidenced thereby to purchase a
like number of one one-hundredths of a Preferred Share as the Right Certificate
or Right Certificates surrendered then entitled such holder to purchase. Any
registered holder desiring to transfer, split up, combine or exchange any Right
Certificate or Right Certificates shall
15
<PAGE> 19
make such request in writing delivered to the Rights Agent, and shall surrender
the Right Certificate or Right Certificates to be transferred, split up,
combined or exchanged at the Designated Office of the Rights Agent. Thereupon
the Rights Agent shall countersign and deliver to the person entitled thereto a
Right Certificate or Right Certificates, as the case may be, as so requested.
The Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Right Certificates.
Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Right Certificate, and, in case of loss, theft or destruction, of indemnity or
security satisfactory to them, and, at the Company's request, reimbursement to
the Company and the Rights Agent of all reasonable expenses incidental thereto,
and upon surrender to the Rights Agent and cancellation of the Right Certificate
if mutilated, the Company will make and deliver a new Right Certificate of like
tenor to the Rights Agent for delivery to the registered holder in lieu of the
Right Certificate so lost, stolen, destroyed or mutilated.
16
<PAGE> 20
Section 7. Exercise of Rights; Purchase Price; Expiration Date
of Rights. (a) Each Right (other than Rights that have become void pursuant to
Section 11(a)(ii) hereof or that have been exchanged pursuant to Section 24
hereof) shall initially entitle the registered holder thereof to purchase one
one-hundredth of a Preferred Share, subject to adjustment from time to time as
provided in Section 11 or 13 hereof. The purchase price (the "Purchase Price")
for each one one-hundredth of a Preferred Share purchasable pursuant to the
exercise of a Right shall initially be $[___.__], and shall be subject to
adjustment from time to time as provided in Section 11 or 13 hereof and shall be
payable in lawful money of the United States of America in accordance with
paragraph (c) below.
(b) The registered holder of any Right Certificate may
exercise the Rights evidenced thereby (except as otherwise provided herein) in
whole or in part at any time after the Distribution Date upon surrender of the
Right Certificate evidencing such Rights, with the form of election to purchase
on the reverse side thereof duly executed, to the Rights Agent at the Designated
Office of the Rights Agent, together with payment of the Purchase Price for each
one one-hundredth of a Preferred Share as to which the Rights are exercised, at
or prior to the earliest
17
<PAGE> 21
of (i) the close of business on the tenth anniversary of the Record Date (the
"Final Expiration Date"), (ii) the time at which the Rights are redeemed as
provided in Section 23 hereof (the "Redemption Date"), or (iii) the time at
which such Rights are exchanged as provided in Section 24 hereof.
(c) Upon receipt of a Right Certificate representing
exercisable Rights, with the form of election to purchase duly executed,
accompanied by payment of the Purchase Price for the shares to be purchased and
an amount equal to any applicable transfer tax required to be paid by the holder
of the Rights evidenced by such Right Certificate in accordance with Section 9
hereof by certified check, cashier's check or money order payable to the order
of the Company, the Rights Agent shall thereupon promptly (i) (A) requisition
from any transfer agent of the Preferred Shares certificates for the number of
Preferred Shares to be purchased and the Company hereby irrevocably authorizes
its transfer agent to comply with all such requests, or (B) requisition from the
depositary agent depositary receipts representing such number of one
one-hundredths of a Preferred Share as are to be purchased (in which case
certificates for the Preferred Shares represented by such receipts shall be
deposited by the transfer agent with the depositary agent) and the Company
hereby directs the
18
<PAGE> 22
depositary agent to comply with such request, (ii) when appropriate, requisition
from the Company the amount of cash to be paid in lieu of issuance of fractional
shares in accordance with Section 14 hereof, (iii) after receipt of such
certificates or depositary receipts, cause the same to be delivered to or upon
the order of the registered holder of the Rights evidenced by such Right
Certificate, registered in such name or names as may be designated by such
holder and (iv) when appropriate, after receipt, deliver such cash to or upon
the order of the registered holder of the Rights evidenced by such Right
Certificate.
(d) In case the registered holder of the Rights evidenced by
any Right Certificate shall exercise less than all the Rights evidenced thereby,
a new Right Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent to the registered holder of such
Rights or to his duly authorized assigns, subject to the provisions of Section
14 hereof.
Section 8. Cancellation and Destruction of Right Certificates.
All Right Certificates surrendered for the purpose of exercise, transfer, split
up, combination or exchange shall, if surrendered to the Company or to any of
its agents, be delivered to the Rights Agent for cancellation or in canceled
form, or, if surrendered to the
19
<PAGE> 23
Rights Agent, shall be canceled by it, and no Right Certificates shall be issued
in lieu thereof except as expressly permitted by any of the provisions of this
Rights Agreement. The Company shall deliver to the Rights Agent for cancellation
and retirement, and the Rights Agent shall so cancel and retire, any other Right
Certificate purchased or acquired by the Company otherwise than upon the
exercise thereof. The Rights Agent shall deliver all canceled Right Certificates
to the Company, or shall, at the written request of the Company, destroy such
canceled Right Certificates, and in such case shall deliver a certificate of
destruction thereof to the Company.
Section 9. Availability of Preferred Shares. The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7 hereof.
The Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
(subject to payment of the Purchase Price), be duly and
20
<PAGE> 24
validly authorized and issued and fully paid and nonassessable shares.
The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Rights or the Right
Certificates or of any Preferred Shares upon the exercise of Rights. The Company
shall not, however, be required to pay any transfer tax which may be payable in
respect of any transfer or delivery of Rights or Right Certificates to a person
other than, or the issuance or delivery of certificates or depositary receipts
for the Preferred Shares in a name other than that of, the registered holder of
the Rights evidenced by Right Certificates surrendered for exercise or to issue
or to deliver any certificates or depositary receipts for Preferred Shares upon
the exercise of any Rights until any such tax shall have been paid (any such tax
being payable by the holder of such Rights at the time of surrender of the
related Right Certificates) or until it has been established to the Company's
reasonable satisfaction that no such tax is due.
Section 10. Preferred Shares Record Date. Each person in whose
name any Preferred Shares are issued upon the exercise of Rights shall for all
purposes be deemed to
21
<PAGE> 25
have become the holder of record of such Preferred Shares on, and the date of
issuance of such Preferred Shares and the date of any certificate for such
Preferred Shares shall be, the date upon which the Right Certificate evidencing
such Rights was duly surrendered and payment of the Purchase Price (and any
applicable transfer taxes) was made; provided, however, that if the date of such
surrender and payment is a date upon which the Preferred Shares transfer books
of the Company are closed, such person shall be deemed to have become the record
holder of such shares on, and the date of issuance of such Preferred Shares and
the date of any such certificate shall be, the next succeeding Business Day on
which the Preferred Shares transfer books of the Company are open. Prior to the
exercise of any Rights, the holder thereof shall not be entitled to any rights
of a holder of Preferred Shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights. The Purchase Price, the number of Preferred Shares covered by
each Right and the
22
<PAGE> 26
number of Rights outstanding are subject to adjustment from time to time as
provided in this Section 11.
(a) (i) In the event the Company shall at any time after the
Record Date (A) declare a dividend on the Preferred Shares payable in Preferred
Shares, (B) subdivide the outstanding Preferred Shares, (C) combine the
outstanding Preferred Shares into a smaller number of Preferred Shares or (D)
issue any shares of its capital stock in a reclassification of the Preferred
Shares (including any such reclassification in connection with a consolidation
or merger in which the Company is the continuing or surviving corporation),
except as otherwise provided in this Section 11(a), the Purchase Price in effect
at the time of the record date for such dividend or of the effective date of
such subdivision, combination or reclassification, and the number and kind of
shares of capital stock issuable on such date, shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Shares transfer books of the Company were open, such holder would have
owned upon such exercise and been entitled to receive by virtue of such
23
<PAGE> 27
dividend, subdivision, combination or reclassification; provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right.
(ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person, each registered holder of a Right shall
thereafter have a right to receive, upon exercise thereof at a price equal to
the then current Purchase Price multiplied by the number of one one-hundredths
of a Preferred Share for which a Right is then exercisable, in accordance with
the terms of this Agreement and in lieu of Preferred Shares, such number of
shares of Common Stock as shall equal the result obtained by (x) multiplying the
then current Purchase Price by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable and dividing that product by (y) 50%
of the then current per share market price of the Common Stock (determined
pursuant to Section 11(d) hereof) on the date of the occurrence of such event.
In the event that any Person shall become an Acquiring Person and the Rights
shall then be outstanding, the Company shall not take any action which would
eliminate or diminish the benefits intended to be afforded by the Rights.
24
<PAGE> 28
From and after the occurrence of such event, any Rights that
are or were acquired or beneficially owned by any Acquiring Person (or any
Associate or Affiliate of such Acquiring Person) shall be void and any holder of
such Rights shall thereafter have no right to exercise such Rights under any
provision of this Agreement. No Right Certificate shall be issued pursuant to
Section 3 hereof that evidences Rights beneficially owned by an Acquiring Person
(or any Associate or Affiliate of such Acquiring Person) whose Rights would be
void pursuant to the preceding sentence thereof and any Right Certificate
evidencing Rights beneficially owned by any such Acquiring Person (or any
Associate or Affiliate of such Acquiring Person) shall be void; no Right
Certificate shall be issued at any time upon the transfer of any Rights to an
Acquiring Person (or any Associate or Affiliate of such Acquiring Person) whose
Rights would be void pursuant to the preceding sentence or to any nominee of
such Acquiring Person, Associate or Affiliate; and any Right Certificate
delivered to the Rights Agent for transfer to an Acquiring Person (or any
Associate or Affiliate of such Acquiring Person) whose Rights would be void
pursuant to the preceding sentence shall be canceled.
(iii) In the event that there shall not be sufficient shares
of Common Stock issued but not outstanding
25
<PAGE> 29
or authorized but unissued to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii), the Company shall take all such
action as may be necessary to authorize additional shares of Common Stock for
issuance upon exercise of the Rights. In the event the Company shall, after good
faith effort, be unable to take all such action as may be necessary to authorize
such additional shares of Common Stock, the Company shall substitute, for each
share of Common Stock that would otherwise be issuable upon exercise of a Right,
a number of Preferred Shares or fraction thereof such that the current per share
market price of one Preferred Share multiplied by such number or fraction is
equal to the current per share market price of one share of Common Stock as of
the date of issuance of such Preferred Shares or fraction thereof.
(b) In case the Company shall fix a record date for the
issuance of rights, options or warrants to all holders of Preferred Shares
entitling them (for a period expiring within 45 calendar days after such record
date) to subscribe for or purchase Preferred Shares (or shares having the same
rights, privileges and preferences as the Preferred Shares ("equivalent
preferred shares")) or securities convertible into Preferred Shares or
equivalent preferred shares at a price per Preferred Share or equivalent
26
<PAGE> 30
preferred share (or having a conversion price per share, if a security
convertible into Preferred Shares or equivalent preferred shares) less than the
then current per share market price (as defined in Section 11(d)) of the
Preferred Shares on such record date, the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of Preferred Shares outstanding on such record date plus the
number of Preferred Shares which the aggregate offering price of the total
number of Preferred Shares and/or equivalent preferred shares so to be offered
(and/or the aggregate initial conversion price of the convertible securities so
to be offered) would purchase at such current market price and the denominator
of which shall be the number of Preferred Shares outstanding on such record date
plus the number of additional Preferred Shares and/or equivalent preferred
shares to be offered for subscription or purchase (or into which the convertible
securities so to be offered are initially convertible); provided, however, that
in no event shall the consideration to be paid upon the exercise of one Right be
less than the aggregate par value of the shares of capital stock of the Company
issuable upon exercise of one Right. In case such subscription price may
27
<PAGE> 31
be paid in a consideration part or all of which shall be in a form other than
cash, the value of such consideration shall be as determined in good faith by
the Board of Directors of the Company, whose determination shall be described in
a statement filed with the Rights Agent. Preferred Shares owned by or held for
the account of the Company shall not be deemed outstanding for the purpose of
any such computation. Such adjustment shall be made successively whenever such a
record date is fixed; and in the event that such rights, options or warrants are
not so issued, the Purchase Price shall be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making
of a distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b) hereof), the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior
28
<PAGE> 32
to such record date by a fraction, the numerator of which shall be the then
current per share market price of the Preferred Shares on such record date, less
the fair market value (as determined in good faith by the Board of Directors of
the Company, whose determination shall be described in a statement filed with
the Rights Agent) of the portion of the assets or evidences of indebtedness so
to be distributed or of such subscription rights or warrants applicable to one
Preferred Share and the denominator of which shall be such current per share
market price of the Preferred Shares; provided, however, that in no event shall
the consideration to be paid upon the exercise of one Right be less than the
aggregate par value of the shares of capital stock of the Company issuable upon
exercise of one Right. Such adjustments shall be made successively whenever such
a record date is fixed; and in the event that such distribution is not so made,
the Purchase Price shall be adjusted to be the Purchase Price which would then
be in effect if such record date had not been fixed.
(d) (i) For the purpose of any computation hereunder, the
"current per share market price" of any security (a "Security" for the purpose
of this Section 11(d)(i)) on any date shall be deemed to be the average of the
daily closing prices per share of such Security for the
29
<PAGE> 33
30 consecutive Trading Days (as such term is hereinafter defined) immediately
prior to but not including such date; provided, however, that in the event that
the current per share market price of the Security is determined during a period
following the announcement by the issuer of such Security of (A) a dividend or
distribution on such Security payable in shares of such Security or securities
convertible into such shares, or (B) any subdivision, combination or
reclassification of such Security and prior to the expiration of 30 Trading Days
after but not including the ex-dividend date for such dividend or distribution,
or the record date for such subdivision, combination or reclassification, then,
and in each such case, the current per share market price shall be appropriately
adjusted to reflect the current market price per share equivalent of such
Security; and provided, further, that in the event that the current per share
market price of the shares of Common Stock is determined as of a date prior to
the expiration of 30 Trading Days following the Record Date, the current per
share market price of the Common Stock shall be deemed to be the average of the
daily closing prices per share of Common Stock for the period of Trading Days
commencing with the Record Date and ending immediately prior to such date. The
closing price of a Security for each day shall be the last
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sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Security is not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Security is listed or admitted to trading or, if the Security is
not listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National Association
of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") or such other
system then in use, or, if on any such date the Security is not quoted by any
such organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Security selected by the
Board of Directors of the Company. The term "Trading Day" shall mean a day on
which the principal national securities exchange on which the Security is listed
or admitted to trading is open for
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the transaction of business or, if the Security is not listed or admitted to
trading on any national securities exchange, a Business Day.
(ii) For the purpose of any computation hereunder, the
"current per share market price" of the Preferred Shares shall be determined in
accordance with the method set forth in Section 11(d)(i). If the Preferred
Shares are not publicly traded, the "current per share market price" of the
Preferred Shares shall be conclusively deemed to be the current per share market
price of the Common Stock as determined pursuant to Section 11(d)(i)
(appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof), multiplied by one hundred. If
neither the shares of Common Stock nor the Preferred Shares are publicly held or
so listed or traded, "current per share market price" shall mean the fair value
per share as determined in good faith by the Board of Directors of the Company,
whose determination shall be described in a statement filed with the Rights
Agent.
(e) No adjustment in the Purchase Price shall be required
unless such adjustment would require an increase or decrease of at least 1% in
the Purchase Price; provided, however, that any adjustments which by reason of
this
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<PAGE> 36
Section 11(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 11 shall be made to the nearest cent or to the nearest one one-millionth
of a Preferred Share or one ten-thousandth of any other share or security as the
case may be. Notwithstanding the first sentence of this Section 11(e), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which requires such
adjustment or (ii) the date of the expiration of the right to exercise any
Rights.
(f) If as a result of an adjustment made pursuant to Section
11(a) hereof, the holder of any Right thereafter exercised shall become entitled
to receive any shares of capital stock of the Company other than Preferred
Shares, thereafter the number of such other shares so receivable upon exercise
of any Right shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in Section 11(a) through (c), inclusive, and the
provisions of Sections 7, 9, 10 and 13 with respect to the Preferred Shares
shall apply on like terms to any such other shares.
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<PAGE> 37
(g) All Rights originally issued by the Company subsequent to
any adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-hundredths of a
Preferred Share purchasable from time to time hereunder upon exercise of the
Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as
provided in Section 11(i), upon each adjustment of the Purchase Price as a
result of the calculations made in Sections 11(b) and (c), each Right
outstanding immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number of
one one-hundredths of a Preferred Share (calculated to the nearest one
one-millionth of a Preferred Share) obtained by (i) multiplying (x) the number
of one one-hundredths of a share covered by a Right immediately prior to this
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(i) The Company may elect on or after the date of any
adjustment of the Purchase Price to adjust the number of
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<PAGE> 38
Rights, in substitution for any adjustment in the number of one one-hundredths
of a Preferred Share purchasable upon the exercise of a Right. Each of the
Rights outstanding after such adjustment of the number of Rights shall be
exercisable for the number of one one-hundredths of a Preferred Share for which
a Right was exercisable immediately prior to such adjustment. Each Right held of
record prior to such adjustment of the number of Rights shall become that number
of Rights (calculated to the nearest one ten-thousandth) obtained by dividing
the Purchase Price in effect immediately prior to adjustment of the Purchase
Price by the Purchase Price in effect immediately after adjustment of the
Purchase Price. The Company shall make a public announcement of its election to
adjust the number of Rights, indicating the record date for the adjustment, and,
if known at the time, the amount of the adjustment to be made. This record date
may be the date on which the Purchase Price is adjusted or any day thereafter,
but, if the Right Certificates have been issued, shall be at least 10 days later
than the date of the public announcement. If Right Certificates have been
issued, upon each adjustment of the number of Rights pursuant to this Section
11(i), the Company shall, as promptly as practicable, cause to be distributed to
registered holders of Rights on such record date Right
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Certificates evidencing, subject to Section 14 hereof, the additional Rights to
which such holders shall be entitled as a result of such adjustment, or, at the
option of the Company, shall cause to be distributed to such registered holders
in substitution and replacement for the Right Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Right Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Right Certificates so to be distributed
shall be issued, executed and countersigned in the manner provided for herein
and shall be registered in the names of the registered holders of the Rights on
the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase
Price or the number of one one-hundredths of a Preferred Share issuable upon the
exercise of the Rights, the Right Certificates theretofore and thereafter issued
may continue to express the Purchase Price and the number of one one-hundredths
of a Preferred Share which were expressed in the initial Right Certificates
issued hereunder.
(k) Before taking any action that would cause an adjustment
reducing the Purchase Price below one one-hundredth of the then par value, if
any, of the Preferred
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<PAGE> 40
Shares issuable upon exercise of the Rights, the Company shall take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully paid and nonassessable
Preferred Shares at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the registered holder of any Right exercised after such
record date of the Preferred Shares and other capital stock or securities of the
Company, if any, issuable upon such exercise over and above the Preferred Shares
and other capital stock or securities of the Company, if any, issuable upon such
exercise on the basis of the Purchase Price in effect prior to such adjustment;
provided, however, that the Company shall deliver to such holder a due bill or
other appropriate instrument evidencing such holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
Purchase Price, in addition to those adjustments expressly required by this
Section 11, as and to
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the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the current market price,
issuance wholly for cash of Preferred Shares or securities which by their terms
are convertible into or exchangeable for Preferred Shares, dividends on
Preferred Shares payable in Preferred Shares or issuance of rights, options or
warrants referred to hereinabove in Section 11(b), hereafter made by the Company
to holders of its Preferred Shares shall not be taxable to such shareowners.
(n) In the event that at any time after the Record Date and
prior to the Distribution Date, the Company shall (i) declare or pay any
dividend on the Common Shares payable in Common Shares or (ii) effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares)
into a greater or lesser number of Common Shares, then in any such case (A) the
number of one one-hundredths of a Preferred Share purchasable after such event
upon proper exercise of each Right shall be determined by multiplying the number
of one one-hundredths of a Preferred Share so purchasable immediately prior to
such event by a fraction, the numerator of which is the number of Common
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<PAGE> 42
Shares outstanding immediately before such event and the denominator of which is
the number of Common Shares outstanding immediately after such event, and (B)
each Common Share outstanding immediately after such event shall have issued
with respect to it that number of Rights which each Common Share outstanding
immediately prior to such event had issued with respect to it. The adjustments
provided for in this Section 11(n) shall be made successively whenever such a
dividend is declared or paid or such a subdivision, combination or consolidation
is effected.
Section 12. Certificate of Adjusted Purchase Price or Number
of Shares. Whenever an adjustment is made as provided in Section 11 or 13
hereof, the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each registered holder of a Right in accordance with Section
25 hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained and shall have no duty with
respect to and shall not be deemed to have knowledge of any
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adjustment unless and until it shall have received such a certificate.
Section 13. Consolidation, Merger or Sale or Transfer of
Assets or Earning Power. In the event, directly or indirectly, at any time after
a Person has become an Acquiring Person, (a) the Company shall consolidate with,
or merge with and into, any other Person, (b) any Person shall consolidate with
the Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person other than the Company or one or more of its wholly-owned
Subsidiaries, then, and in each such case, proper provision shall be made so
that (i) each registered holder of a Right (except as otherwise provided herein)
shall thereafter have the right to receive, upon the exercise thereof at a price
equal to the then current
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Purchase Price multiplied by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable, in accordance with the terms of
this Agreement and in lieu of Preferred Shares, such number of Common Shares of
such other Person (including the Company as successor thereto or as the
surviving corporation) as shall equal the result obtained by (A) multiplying the
then current Purchase Price by the number of one one-hundredths of a Preferred
Share for which a Right is then exercisable and dividing that product by (B) 50%
of the then current per share market price of the Common Shares of such other
Person (determined pursuant to Section 11(d) hereof) on the date of consummation
of such consolidation, merger, sale or transfer; (ii) the issuer of such Common
Shares shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be
deemed to refer to such issuer; and (iv) such issuer shall take such steps
(including, but not limited to, the reservation of a sufficient number of its
Common Shares in accordance with Section 9 hereof) in connection with such
consummation as may be necessary to assure that the provisions hereof shall
thereafter be applicable, as nearly
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as reasonably may be, in relation to its Common Shares thereafter deliverable
upon the exercise of the Rights. The Company shall not consummate any such
consolidation, merger, sale or transfer unless prior thereto the Company and
such issuer shall have executed and delivered to the Rights Agent a supplemental
agreement so providing. The Company shall not enter into any transaction of the
kind referred to in this Section 13 if at the time of such transaction there are
any rights, warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights. The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers.
Section 14. Fractional Rights and Fractional Shares. (a) The
Company shall not be required to issue fractions of Rights or to distribute
Right Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Rights with regard
to which such fractional Rights would otherwise be issuable, an amount in cash
equal to the same fraction of the current market value of a whole Right. For the
purposes of this Section 14(a), the current
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market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is
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making a market in the Rights, the fair value of the Rights on such date as
determined in good faith by the Board of Directors of the Company shall be used.
(b) The Company shall not be required to issue fractions of
Preferred Shares (other than fractions which are integral multiples of one
one-hundredth of a Preferred Share) upon exercise of the Rights or to distribute
certificates which evidence fractional Preferred Shares (other than fractions
which are integral multiples of one one-hundredth of a Preferred Share).
Fractions of Preferred Shares in integral multiples of one one-hundredth of a
Preferred Share may, at the election of the Company, be evidenced by depositary
receipts, pursuant to an appropriate agreement between the Company and a
depositary selected by it; provided, that such agreement shall provide that the
holders of such depositary receipts shall have all the rights, privileges and
preferences to which they are entitled as beneficial owners of the Preferred
Shares represented by such depositary receipts. In lieu of fractional Preferred
Shares that are not integral multiples of one one-hundredth of a Preferred
Share, the Company shall pay to the registered holders of Rights at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of
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one Preferred Share. For the purposes of this Section 14(b), the current market
value of a Preferred Share shall be the closing price of a Preferred Share (as
determined pursuant to the second sentence of Section 11(d)(i) hereof) for the
Trading Day immediately prior to the date of such exercise.
(c) The holder of a Right by the acceptance of the Right
expressly waives his right to receive any fractional Rights or any fractional
shares upon exercise of a Right (except as provided above).
Section 15. Rights of Action. All rights of action in respect
of this Agreement, excepting the rights of action given to the Rights Agent
under Section 18 hereof, are vested in the respective registered holders of the
Rights and any registered holder of any Right, without the consent of the Rights
Agent or of the holder of any other Right, may, in his or her own behalf and for
his or her own benefit, enforce, and may institute and maintain any suit, action
or proceeding against the Company to enforce, or otherwise act in respect of,
his or her right to exercise the Rights registered in his or her name in the
manner provided in the Right Certificates and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that
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<PAGE> 49
the holders of Rights would not have an adequate remedy at law for any breach of
this Agreement and will be entitled to specific performance of the obligations
under, and injunctive relief against actual or threatened violations of the
obligations of any Person subject to, this Agreement.
Section 16. Agreement of Right Holders. Every holder of a
Right, by accepting the same, consents and agrees with the Company and the
Rights Agent and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be
transferable only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Rights are transferable
only on the registry books of the Rights Agent upon surrender of the
Right Certificates evidencing such Rights at the Designated Office of
the Rights Agent, duly endorsed or accompanied by a proper instrument
of transfer; and
(c) the Company and the Rights Agent may deem and treat the
person in whose name the Right is registered as the absolute owner
thereof (notwithstanding any notations of ownership or writing on the
Right Certificates evidencing such Rights or any certificate for the
associated Common Shares made by anyone other
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than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent shall be affected by any
notice to the contrary, except as required by law.
Section 17. Right Holder Not Deemed a Shareowner. No holder,
as such, of any Right shall be entitled to vote, receive dividends or be deemed
for any purpose the holder of the Preferred Shares or any other securities of
the Company which may at any time be issuable on the exercise of such Rights,
nor shall anything contained herein or in any Right Certificate be construed to
confer upon the holder of any Right, as such, any of the rights of a shareowner
of the Company or any right to vote for the election of directors or upon any
matter submitted to shareowners at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting shareowners (except as provided in Section 25 hereof), or to
receive dividends or subscription rights, or otherwise, until such Right or
Rights shall have been exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent. The Company agrees to
pay to the Rights Agent reasonable compensation for all services rendered by it
hereunder and, from time to time, on demand of the Rights Agent, its
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<PAGE> 51
reasonable expenses and counsel fees and other disbursements incurred in the
execution, delivery, administration and amendment of this Agreement and the
exercise and performance of its duties hereunder. The Company also agrees to
indemnify the Rights Agent for, and to hold it harmless against, any loss,
liability, damage, judgment, fine, penalty, claim, demand, settlement, cost or
expense, incurred without negligence, bad faith or willful misconduct on the
part of the Rights Agent, for anything done or omitted by the Rights Agent in
connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of liability in the
premises. Anything to the contrary notwithstanding, in no event shall the Rights
Agent be liable for special, indirect, consequential or incidental loss or
damage of any kind whatsoever (including, without limitation, lost profits),
even if the Rights Agent has been advised of the likelihood of such loss or
damage.
The Rights Agent shall be protected and shall incur no
liability for, or in respect of any action taken, suffered or omitted by it in
connection with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Company,
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instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, instruction, notice, direction, consent, certificate, statement, or
other paper or document believed by it to be genuine and to be signed, executed
and, where necessary, verified or acknowledged, by the proper person or persons,
or otherwise upon the advice of counsel as set forth in Section 20 hereof.
Section 19. Merger or Consolidation or Change of Name of
Rights Agent. Any Person into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any Person
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any Person succeeding to the stock
transfer or corporate trust powers of the Rights Agent or any successor Rights
Agent, shall be the successor to the Rights Agent under this Agreement without
the execution or filing of any paper or any further act on the part of any of
the parties hereto; provided, that such Person would be eligible for appointment
as a successor Rights Agent under the provisions of Section 21 hereof. In case
at the time such successor Rights Agent shall succeed to the agency created by
this Agreement, any of the Right Certificates shall have been countersigned but
not delivered, any such successor Rights Agent may adopt the
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<PAGE> 53
countersignature of the predecessor Rights Agent and deliver such Right
Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in all such cases the
Rights evidenced by such Right Certificates shall have the full force provided
in the Right Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be
changed and at such time any of the Right Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the countersignature
under its prior name and deliver Right Certificates so countersigned; and in
case at that time any of the Right Certificates shall not have been
countersigned, the Rights Agent may countersign such Right Certificates either
in its prior name or in its changed name; and in all such cases the Rights
evidenced by such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent
undertakes only the duties and obligations expressly imposed by this Agreement
upon the following terms and
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conditions, by all of which the Company and the holders of Rights, by their
acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may
be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights
Agent as to any action taken or omitted by it in good faith and in
accordance with such opinion.
(b) Whenever in the performance of its duties under this
Agreement the Rights Agent shall deem it necessary or desirable that
any fact or matter be proved or established by the Company prior to
taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed)
may be deemed to be conclusively proved and established by a
certificate signed by any one of the Chairman of the Board, any Vice
President, the Treasurer or the Secretary of the Company and delivered
to the Rights Agent; and such certificate shall be full authorization
to the Rights Agent for any action taken or suffered in good faith by
it under the provisions of this Agreement in reliance upon such
certificate.
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(c) The Rights Agent shall be liable hereunder to the Company
and any other Person only for its own negligence, bad faith or willful
misconduct.
(d) The Rights Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this Agreement
or in the Right Certificates (except its countersignature thereof) or
be required to verify the same, but all such statements and recitals
are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Rights Agent) or in
respect of the validity or execution of any Right Certificate (except
its countersignature thereof); nor shall it be responsible for any
breach by the Company of any covenant or condition contained in this
Agreement or in any Right Certificate; nor shall it be responsible for
any change in the exercisability of the Rights (including the Rights
becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment
in the terms of the Rights (including the manner, method or amount
thereof) provided for in Section 3, 11, 13, 23
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or 24, or the ascertaining of the existence of facts that would require
any such change or adjustment (except with respect to the exercise of
Rights evidenced by Right Certificates after actual notice that such
change or adjustment is required); nor shall it by any act hereunder be
deemed to make any representation or warranty as to the authorization
or reservation of any Preferred Shares to be issued pursuant to this
Agreement or any Right Certificate or as to whether any Preferred
Shares will, when issued, be validly authorized and issued, fully paid
and nonassessable.
(f) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts, instruments
and assurances as may reasonably be required by the Rights Agent for
the carrying out or performing by the Rights Agent of the provisions of
this Agreement.
(g) The Rights Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties
hereunder from any one of the Chairman of the Board, any Vice
President, the Secretary or the Treasurer of the Company, and to apply
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to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered by
it in good faith in accordance with instructions of any such officer or
for any delay in acting while waiting for those instructions.
(h) The Rights Agent and any shareowner, affiliate, director,
officer or employee of the Rights Agent may buy, sell or deal in any of
the Rights or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested,
or contract with or lend money to the Company or otherwise act as fully
and freely as though it were not Rights Agent under this Agreement.
Nothing herein shall preclude the Rights Agent from acting in any other
capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the
rights or powers hereby vested in it or perform any duty hereunder
either itself or by or through its attorneys or agents, and the Rights
Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys or agents or for any loss
to the Company resulting from any such act,
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default, neglect or misconduct, provided reasonable care was exercised
in the selection and continued employment thereof.
Section 21. Change of Rights Agent. The Rights Agent or any
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon 30 days' notice in writing mailed to the Company and to each
transfer agent of the Common Shares or Preferred Shares by registered or
certified mail, and to the registered holders of the Rights by first-class mail.
The Company may remove the Rights Agent or any successor Rights Agent upon 30
days' notice in writing, mailed to the Rights Agent or successor Rights Agent,
as the case may be, and to each transfer agent of the Common Shares or Preferred
Shares by registered or certified mail, and to the registered holders of the
Rights by first-class mail. If the Rights Agent shall resign or be removed or
shall otherwise become incapable of acting, the Company shall appoint a
successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the registered holder of a Right
(who shall, with such notice, submit his or her Right Certificate, if any, or
his
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or her certificate, if any, for the associated Common Shares for inspection
by the Company), then the registered holder of any Right Certificate may apply
to any court of competent jurisdiction for the appointment of a new Rights
Agent. Any successor Rights Agent, whether appointed by the Company or by such a
court, shall be a Person, or an affiliate of such a Person, organized and doing
business under the laws of the United States or of the State of New York (or of
any other state of the United States so long as such corporation is authorized
to do business as a banking institution in the State of New York), in good
standing, having an office in the State of New York, which is authorized under
such laws to exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50 million. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not
56
<PAGE> 60
later than the effective date of any such appointment the Company shall file
notice thereof in writing with the predecessor Rights Agent and each transfer
agent of the Common Shares or Preferred Shares, and mail a notice thereof in
writing to the registered holders of the Rights. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. Issuance of New Right Certificates.
Notwithstanding any of the provisions of this Agreement or of the Right
Certificates to the contrary, the Company may, at its option, issue new Right
Certificates evidencing Rights in such form as may be approved by its Board of
Directors to reflect any adjustment or change in the Purchase Price and the
number or kind or class of shares or other securities or property purchasable
upon exercise of a Right made in accordance with the provisions of this
Agreement.
Section 23. Redemption. (a) The Board of Directors of the
Company may, at its option, at any time prior to such time as any Person becomes
an Acquiring Person, redeem all but not less than all the then
57
<PAGE> 61
outstanding Rights at a redemption price of $.01 per Right, appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price"). The redemption of the Rights by the
Board of Directors of the Company may be made effective at such time, on such
basis and with such conditions as the Board of Directors in its sole discretion
may establish.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the redemption of the Rights pursuant to paragraph (a) of
this Section 23, and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided, however, that the
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights, the Company shall mail a notice of
redemption to all the registered holders of the then outstanding Rights at their
last addresses as they appear upon the registry books of the Rights Agent or,
prior to the Distribution Date, on the registry books of the transfer
58
<PAGE> 62
agent for the Common Shares. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of redemption will state the method by which the payment of the
Redemption Price will be made. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any time in
any manner other than that specifically set forth in this Section 23 or in
Section 24 hereof, and other than in connection with the purchase of Common
Shares prior to the Distribution Date.
Section 24. Exchange. (a) The Board of Directors of the
Company may, at its option, at any time after any Person becomes an Acquiring
Person, exchange all or part of the then outstanding and exercisable Rights
(which shall not include Rights that have become void pursuant to the provisions
of Section 11(a)(ii) hereof) for shares of Common Stock at an exchange ratio of
one share of Common Stock per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the Record Date
(such exchange ratio being hereinafter referred to as the "Exchange Ratio").
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after the Record Date if any Person (other than
the Company, any
59
<PAGE> 63
Subsidiary of the Company, any employee benefit plan of Rockwell, the Company or
any such Subsidiary, or any entity holding Common Shares for or pursuant to the
terms of any such plan), together with all Affiliates and Associates of such
Person, becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 24 and without any further action and without any notice, the right
to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of shares of Common Stock
equal to the number of such Rights held by such holder multiplied by the
Exchange Ratio. The Company shall promptly give public notice of any such
exchange; provided, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company shall
promptly mail a notice of any such exchange to all of the registered holders of
such Rights at their last addresses as they appear upon the registry books of
the Rights Agent. Any notice which is mailed in the manner herein provided shall
be deemed given, whether or not the holder receives the notice. Each such notice
of exchange will state the method by which the
60
<PAGE> 64
exchange of the shares of Common Stock for Rights will be effected and, in the
event of any partial exchange, the number of Rights which will be exchanged. Any
partial exchange shall be effected pro rata based on the number of Rights (other
than Rights which have become void pursuant to the provisions of Section
11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient shares of
Common Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
shares of Common Stock for issuance upon exchange of the Rights. In the event
the Company shall, after good faith effort, be unable to take all such action as
may be necessary to authorize such additional shares of Common Stock, the
Company shall substitute, for each share of Common Stock that would otherwise be
issuable upon exchange of a Right, a number of Preferred Shares or fraction
thereof such that the current per share market price of one Preferred Share
multiplied by such number or fraction is equal to the current per share market
price of one share of Common Stock as of the date of issuance of such Preferred
Shares or fraction thereof.
61
<PAGE> 65
(d) The Company shall not be required to issue fractions of
shares of Common Stock or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of such fractional shares of Common Stock, the
Company shall pay to the registered holders of the Rights with regard to which
such fractional shares of Common Stock would otherwise be issuable an amount in
cash equal to the same fraction of the current market value of a whole share of
Common Stock. For the purposes of this paragraph (d), the current market value
of a whole share of Common Stock shall be the closing price of a share of Common
Stock (as determined pursuant to the second sentence of Section 11(d)(i) hereof)
for the Trading Day immediately prior to the date of exchange pursuant to this
Section 24.
Section 25. Notice of Certain Events. (a) In case at any time
after the Record Date the Company shall propose (i) to pay any dividend payable
in stock of any class to the holders of its Preferred Shares or to make any
other distribution to the holders of its Preferred Shares (other than a regular
quarterly cash dividend), (ii) to offer to the holders of its Preferred Shares
rights or warrants to subscribe for or to purchase any additional Preferred
Shares or shares of stock of any class or any other securities, rights or
options, (iii) to effect any
62
<PAGE> 66
reclassification of its Preferred Shares (other than a reclassification
involving only the subdivision of outstanding Preferred Shares), (iv) to effect
any consolidation or merger into or with, or to effect any sale or other
transfer (or to permit one or more of its Subsidiaries to effect any sale or
other transfer), in one or more transactions, of 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to, any
other Person, (v) to effect the liquidation, dissolution or winding up of the
Company, or (vi) to declare or pay any dividend on the Common Shares payable in
Common Shares or to effect a subdivision, combination or consolidation of the
Common Shares (by reclassification or otherwise than by payment of dividends in
Common Shares), then, in each such case, the Company shall give to each
registered holder of a Right, in accordance with Section 26 hereof, a notice of
such proposed action, which shall specify the record date for the purposes of
such stock dividend, or distribution of rights or warrants, or the date on which
such reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed,
63
<PAGE> 67
and such notice shall be so given in the case of any action covered by clause
(i) or (ii) above at least 10 days prior to the record date for determining
holders of the Preferred Shares for purposes of such action, and in the case of
any such other action, at least 10 days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of the
Common Shares and/or Preferred Shares, whichever shall be the earlier.
(b) In case the event set forth in Section 11(a)(ii) hereof
shall occur, then the Company shall as soon as practicable thereafter give to
each registered holder of a Right, in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii)
hereof.
Section 26. Notices. Notices or demands authorized by this
Agreement to be given or made by the Rights Agent or by the holder of any Right
to or on the Company shall be sufficiently given or made if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing with
the Rights Agent) as follows:
[Rockwell Semiconductor Systems, Inc.]
4311 Jamboree Road
Newport Beach, California 92660-3095
Attention: Corporate Secretary
64
<PAGE> 68
Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right to or on the Rights Agent shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Company) as follows:
ChaseMellon Shareholder Services, L.L.C.
4 Station Square, 3rd Floor
Pittsburgh, Pennsylvania 15219
Attention: Manager of Administration
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right shall be sufficiently
given or made if sent by first-class mail, postage prepaid, addressed to such
holder at the address of such holder as shown on the registry books of the
Company or the registry books of the holders of the Rights maintained by the
Rights Agent after the Distribution Date as herein provided. Any notice or
demand given prior to the Distribution Date by the Company or the Rights Agent
to the holders of the Rights shall also be given to any registered pledgee of
any uncertificated Common Share by first-class mail, postage prepaid, addressed
to such registered pledgee at the address of such registered pledgee as shown on
the registry books of the Company.
65
<PAGE> 69
Section 27. Supplements and Amendments. The Company may from
time to time supplement or amend this Agreement without the approval of any
holders of Rights in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights or
in regard to matters or questions arising hereunder which the Company may deem
necessary or desirable, any such supplement or amendment to be evidenced by a
writing signed by the Company and the Rights Agent; provided, however, that
nothing herein shall obligate the Rights Agent to execute such a supplement or
amendment if such supplement or amendment changes or increases the rights,
duties or obligations of the Rights Agent; and further provided that from and
after such time as any Person becomes an Acquiring Person, this Agreement shall
not be amended in any manner which would adversely affect the interests of the
holders of Rights. Without limiting the foregoing, the Company may at any time
prior to such time as any Person becomes an Acquiring Person amend this
Agreement to lower the thresholds set forth in Sections 1(a) and 3(a) to not
less than the greater of (i) the sum of .001% and the largest percentage of the
outstanding Common Shares then known by the Company to be beneficially owned by
66
<PAGE> 70
any Person (other than the Company, any Subsidiary of the Company, any employee
benefit plan of Rockwell, the Company or any Subsidiary of the Company, or any
entity holding Common Shares for or pursuant to the terms of any such plan) and
(ii) 10%.
Section 28. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 29. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give to any person or corporation other than the
Company, the Rights Agent and the registered holders of the Rights any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights.
Section 30. Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this
67
<PAGE> 71
Agreement shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
Section 31. Governing Law. This Agreement and each Right
Certificate issued hereunder shall be deemed to be a contract made under the
laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to contracts to
be made and performed entirely within such State.
Section 32. Counterparts. This Agreement may be executed in
any number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
68
<PAGE> 72
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and attested, all as of the day and year first
above written.
[ROCKWELL SEMICONDUCTOR SYSTEMS, INC.]
Attest:
By By
-------------------------- -----------------------------------
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C., as Rights
Agent
Attest:
By By
-------------------------- -----------------------------------
69
<PAGE> 73
Exhibit A
Form of Right Certificate
Certificate No. R- _____ Rights
NOT EXERCISABLE AFTER ________, 2008 OR EARLIER IF REDEMPTION
OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT
$.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE
RIGHTS AGREEMENT.
Right Certificate
[ROCKWELL SEMICONDUCTOR SYSTEMS, INC.]
This certifies that ________________, or registered assigns,
is the registered owner of the number of Rights set forth above, each of which
entitles the owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement, dated as of [ ], 1998 (the "Rights Agreement"), between
[Rockwell Semiconductor Systems, Inc.], a Delaware corporation (the "Company"),
and ChaseMellon Shareholder Services, L.L.C. (the "Rights Agent"), to purchase
from the Company at any time after the Distribution Date (as such term is
defined in the Rights Agreement) and prior to 5:00 P.M., New York City time, on
, 2008 at the principal office of the Rights Agent, or at the office
of its successor as Rights Agent, one one-hundredth of a fully paid
non-assessable share of Series A Junior Participating Preferred Stock, without
par value (the "Preferred Shares"), of the Company, at a purchase price of
$[______] per one one-hundredth of a Preferred Share (the "Purchase Price"),
upon presentation and surrender of this Right Certificate with the Form of
Election to Purchase duly executed. The number of Rights evidenced by this Right
Certificate (and the number of one one-hundredths of a Preferred Share which may
be purchased upon exercise thereof) set forth above, and the Purchase Price set
forth above, are the number and Purchase Price as of __________, 1998, based on
the Preferred Shares as constituted at such date. As provided in the Rights
Agreement, the Purchase
A-1
<PAGE> 74
Price and the number of one one-hundredths of a Preferred Share which
may be purchased upon the exercise of the Rights evidenced by this Right
Certificate are subject to modification and adjustment upon the happening of
certain events.
This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by reference and made a part hereof
and to which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities hereunder
of the Rights Agent, the Company and the holders of the Rights. Copies of the
Rights Agreement are on file at the principal executive offices of the Company
and the above-mentioned offices of the Rights Agent.
This Right Certificate, with or without other Right
Certificates, upon surrender at the principal office of the Rights Agent, may be
exchanged for another Right Certificate or Right Certificates of like tenor and
date evidencing Rights entitling the holder to purchase a like aggregate number
of Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If the
Rights evidenced by this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Right Certificate (i) may be redeemed by the Company at a
redemption price of $.01 per Right or (ii) may be exchanged in whole or in part
for Preferred Shares or shares of the Company's Common Stock, par value $1 per
share.
No fractional Preferred Shares will be issued upon the
exercise of any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share, which may, at the
election of the Company, be evidenced by depositary receipts), but in lieu
thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of Rights evidenced by this Right Certificate shall
be entitled to vote or receive dividends
A-2
<PAGE> 75
or be deemed for any purpose the holder of the Preferred Shares or of any other
securities of the Company which may at any time be issuable on the exercise
thereof, nor shall anything contained in the Rights Agreement or herein be
construed to confer upon the holder of any Rights evidenced hereby, as such, any
of the rights of a shareowner of the Company or any right to vote for the
election of directors or upon any matter submitted to shareowners at any meeting
thereof, or to give or withhold consent to any corporate action, or to receive
notice of meetings or other actions affecting shareowners (except as provided in
the Rights Agreement), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by this Right Certificate shall
have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for
any purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the
Company and its corporate seal.
Dated as of ____________.
ATTEST: [ROCKWELL SEMICONDUCTOR
SYSTEMS, INC.]
____________________ By:______________________
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
as Rights Agent
By:__________________________
Authorized Signature
A-3
<PAGE> 76
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Rights evidenced by this Right
Certificate.)
FOR VALUE RECEIVED ___________________________________ hereby
sells, assigns and transfers unto _____________________________________________
________________________________________________________ (Please print name and
address of transferee) Rights evidenced by this Right Certificate, together with
all right, title and interest therein, and does hereby irrevocably constitute
and appoint __________________ attorney, to transfer the said Rights on the
books of the within-named Company, with full power of substitution.
Dated:________________
___________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States, in each case, participating in a Medallion
program approved by the Securities Transfer Association, Inc.
- --------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
___________________________
Signature
- --------------------------------------------------------------------------------
A-4
<PAGE> 77
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise
Rights evidenced by the Right Certificate.)
To: [Rockwell Semiconductor Systems, Inc.]
The undersigned hereby irrevocably elects to exercise
___________________ Rights evidenced by this Right Certificate to purchase the
Preferred Shares issuable upon the exercise of such Rights and requests that
certificates for such Preferred Shares be issued in the name of:
Please insert social security
or other identifying number
----------------------------------------------
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
If such number of Rights shall not be all the Rights evidenced
by this Right Certificate, a new Right Certificate for the balance remaining of
such Rights shall be registered in the name of and delivered to:
Please insert social security
or other identifying number
----------------------------------------------
- -------------------------------------------------------------------------------
(Please print name and address)
- -------------------------------------------------------------------------------
Dated:
------------------------
----------------------------
Signature
Signature Guaranteed:
Signatures must be guaranteed by a member firm of a registered national
securities exchange, a member of the
A-5
<PAGE> 78
National Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office or correspondent in the United States, in each case,
A-6
<PAGE> 79
Form of Reverse Side of Right Certificate -- continued
- -------------------------------------------------------------------------------
participating in a Medallion program approved by the Securities Transfer
Association, Inc.
- -------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
Signature
----------------------------
- -------------------------------------------------------------------------------
NOTICE
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, the Company and the Rights Agent will deem the beneficial owner of
the Rights evidenced by this Right Certificate to be an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement) and such
Assignment or Election to Purchase will not be honored.
A-7
<PAGE> 1
Exhibit 10.3
EMPLOYEE MATTERS AGREEMENT
by and between
ROCKWELL INTERNATIONAL CORPORATION
and
[ROCKWELL SEMICONDUCTOR SYSTEMS, INC.]
[ ], 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS.............................................................................. 1
Section 1.01 General .................................................................... 1
ARTICLE II EMPLOYEES............................................................................... 7
Section 2.01 Employees................................................................... 7
Section 2.02 Collective Bargaining Agreements............................................ 8
ARTICLE III PENSION PLANS.......................................................................... 10
Section 3.01 Rockwell Pension Plan....................................................... 10
Section 3.02 Semiconductor Newport Beach Pension Plan.................................... 11
Section 3.03 U.S. Nonqualified Pension Plans............................................. 12
Section 3.04 Semiconductor VERP.......................................................... 12
Section 3.05 U.K. Pension Plan........................................................... 13
Section 3.06 German Stand-Alone Pension Plan............................................. 14
ARTICLE IV SAVINGS PLANS........................................................................... 14
Section 4.01 U.S. Savings Plan........................................................... 14
Section 4.02 Newport Beach Savings Plan.................................................. 16
Section 4.03 Rockwell El Paso Savings Sub-Plan........................................... 17
Section 4.04 Nonqualified Savings Plans.................................................. 17
ARTICLE V STOCK PLANS.............................................................................. 18
Section 5.01 Stock Plans................................................................. 18
ARTICLE VI OTHER EMPLOYEE PLANS AND MATTERS........................................................ 20
Section 6.01 Welfare Plans .............................................................. 20
Section 6.02 Long-Term Incentive Plan and Incentive Compensation Plans................... 22
Section 6.03 Deferred Compensation Plans................................................. 23
Section 6.04 Severance Pay .............................................................. 24
Section 6.05 Employment, Consulting and Other Employee Related Agreements................ 25
Section 6.06 Rockwell VEBA and CLIR Fund................................................. 25
Section 6.07 Other Liabilities........................................................... 25
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE VII MISCELLANEOUS.......................................................................... 26
Section 7.01 Indemnification............................................................. 26
Section 7.02 Sharing of Information...................................................... 26
Section 7.03 Entire Agreement; Construction.............................................. 27
Section 7.04 Survival of Agreements...................................................... 27
Section 7.05 Governing Law .............................................................. 27
Section 7.06 Notices .................................................................... 27
Section 7.07 Amendments.................................................................. 28
Section 7.08 Assignment.................................................................. 28
Section 7.09 Captions; Currency.......................................................... 28
Section 7.10 Severability................................................................ 28
Section 7.11 Parties in Interest......................................................... 28
Section 7.12 Schedules................................................................... 29
Section 7.13 Termination................................................................. 29
Section 7.14 Change of Name.............................................................. 29
Section 7.15 Waivers; Remedies........................................................... 29
Section 7.16 Counterparts................................................................ 30
Section 7.17 Performance................................................................. 30
</TABLE>
SCHEDULES
Schedule 2.01 - Certain Semiconductor Employees
Schedule 2.02(a) - Semiconductor Collective Bargaining
Agreements
ii
<PAGE> 4
EMPLOYEE MATTERS AGREEMENT
EMPLOYEE MATTERS AGREEMENT (this "Agreement"), dated as of
[ ], 1998, by and between ROCKWELL INTERNATIONAL CORPORATION, a Delaware
corporation ("Rockwell"), and [ROCKWELL SEMICONDUCTOR SYSTEMS, INC.], a Delaware
corporation and, as of the date hereof, a wholly-owned subsidiary of Rockwell
(the "Company").
WHEREAS, the Rockwell Board has determined that it is
appropriate and desirable to distribute all outstanding shares of Semiconductor
Common Stock on a pro rata basis to the holders of Rockwell Common Stock (the
"Distribution"); and
WHEREAS, Rockwell and the Company are entering into a
Distribution Agreement dated as of the date hereof (the "Distribution
Agreement") which, among other things, sets forth the principal corporate
transactions required to effect the Distribution and certain other agreements
that will govern certain matters relating to the Distribution; and
WHEREAS, in connection with the Distribution, Rockwell and the
Company have determined that it is appropriate and desirable to provide for the
allocation of certain assets and liabilities and certain other matters relating
to employees, employee benefit plans and compensation arrangements;
NOW, THEREFORE, in consideration of the premises and of the
respective agreements and covenants contained in this Agreement, the parties
hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 General. Capitalized terms used in this Agreement
but not defined herein (other than the names of employee benefit plans) shall
have the meanings ascribed to such terms in the Distribution Agreement. As used
in this Agreement, the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
<PAGE> 5
"Average Price of Semiconductor Common Stock" means the
average of the daily closing prices per share of Semiconductor Common
Stock as reported on Nasdaq for the five consecutive Nasdaq trading
days ending on and including the Distribution Date (the "Nasdaq
Pre-Distribution Period"), assuming that "when-issued" trading in
Semiconductor Common Stock occurs during the Nasdaq Pre-Distribution
Period in daily volume of not less than 10,000 shares (and if on any
day (a "Semiconductor Excluded Day") during the Nasdaq Pre-Distribution
Period such trading does not occur in such volume, then for purposes of
this definition trading on each Semiconductor Excluded Day shall not be
considered and trading on up to five Nasdaq trading days immediately
following the Distribution Date shall be included so that a total of
five trading days are included in the averaging period); provided, that
if a committee appointed by the Board of Directors of Rockwell shall
determine on or before 12:00 noon (New York City time) on the first
Nasdaq trading day following the Distribution Date that,
notwithstanding satisfaction of the 10,000 share per day minimum
trading volume requirement, "when-issued" trading on one or more days
during the Nasdaq Pre-Distribution Period does not fairly represent the
value of Semiconductor Common Stock, then for purposes of this
definition, each such day so determined shall be treated as a
Semiconductor Excluded Day, trading on each Semiconductor Excluded Day
shall not be considered and trading on up to five Nasdaq trading days
(as determined by such committee) immediately following the
Distribution Date shall be included so that a total of five trading
days are included in the averaging period.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor legislation.
"Ex-Distribution Average Price of Rockwell Common Stock" means
the average of the daily closing prices per share of Rockwell Common
Stock trading on an "ex-distribution when-issued" basis as reported on
the NYSE Composite Transactions reporting system for the five
consecutive NYSE trading days ending on and including the Distribution
Date (the "NYSE Pre-Distribution Period"), assuming that
"ex-distribution when-issued" trading in Rockwell Common Stock occurs
during the NYSE Pre-Distribution Period in daily volume of not less
than 10,000 shares (and if on any day (a "Rockwell
2
<PAGE> 6
Excluded Day") during the NYSE Pre-Distribution Period such trading
does not occur in such volume, then for purposes of this definition
trading on each Rockwell Excluded Day shall not be considered and
trading on up to five NYSE trading days immediately following the
Distribution Date shall be included so that a total of five trading
days are included in the averaging period); provided, that if a
committee appointed by the Board of Directors of Rockwell shall
determine on or before 12:00 noon (New York City time) on the first
NYSE trading day following the Distribution Date that, notwithstanding
satisfaction of the 10,000 share per day minimum trading volume
requirement, "ex-distribution when-issued" trading on one or more days
during the NYSE Pre-Distribution Period does not fairly represent the
value of Rockwell Common Stock (excluding the value of the
Semiconductor Common Stock to be distributed in respect thereof), then
for purposes of this definition, each such day so determined shall be
treated as a Rockwell Excluded Day, trading on each Rockwell Excluded
Day shall not be considered and trading on up to five NYSE trading days
(as determined by such committee) immediately following the
Distribution Date shall be included so that a total of five trading
days are included in the averaging period.
"Ex-Distribution Rockwell Option Spread" means, with respect
to any Rockwell Split Option (after its being adjusted pursuant to
Section 5.01(b)), the Ex-Distribution Average Price of Rockwell Common
Stock, minus the per-share exercise price of such adjusted Rockwell
Split Option.
"German Stand-Alone Pension Plan" shall have the meaning
ascribed thereto in Section 3.06.
"Incentive Compensation Plan" means the Rockwell International
Corporation Incentive Compensation Plan, as amended through the
Distribution Date.
"LTIP" shall have the meaning ascribed thereto in Section
6.02.
"Nasdaq" means the Nasdaq Stock Market, Inc. National Market
System.
"NYSE" means the New York Stock Exchange.
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"Pre-Distribution Average Price of Rockwell Common Stock"
means the average of the daily closing prices per share of Rockwell
Common Stock trading on a "regular way" basis (i.e., including the
value of the Semiconductor Common Stock to be distributed in respect
thereof) as reported on the NYSE Composite Transactions reporting
system for the NYSE Pre-Distribution Period.
"Pre-Distribution Rockwell Option Spread" means, with respect
to any Rockwell Split Option (prior to its being adjusted pursuant to
Section 5.01(b)), the Pre-Distribution Average Price of Rockwell Common
Stock, minus the per-share exercise price of such unadjusted Rockwell
Split Option.
"Rockwell CLIR Fund" shall have the meaning ascribed thereto
in Section 6.07(a).
"Rockwell Deferred Compensation Plan" shall have the meaning
ascribed thereto in Section 6.03.
"Rockwell El Paso Savings Sub-Plan" means Sub-Plan 153; El
Paso Employees of the Rockwell Retirement Savings Plan - Plan No. 133,
as amended through the Distribution Date.
"Rockwell Employee" means any individual who will be employed
by a member of the Rockwell Group as of the Time of Distribution
pursuant to Section 2.01.
"Rockwell Former Employee" means any individual who was, at
any time prior to the Time of Distribution, employed by any member of
the Pre-Distribution Group, who is not as of the Time of Distribution a
Rockwell Employee or a Semiconductor Employee, and whose most recent
active employment with a member of the Pre-Distribution Group was with
a business other than the Semiconductor Business.
"Rockwell Newport Beach Pension Sub-Plan" means the Retirement
Plan for Production Employees - IBEW Newport Beach Local 2125 sub-plan
of the Rockwell Pension Plan, as amended through the Distribution Date.
"Rockwell Newport Beach Savings Sub-Plan" means Sub-Plan 150;
International Brotherhood of Electrical Workers, Local 2125 of the
Rockwell Retirement Savings Plan - Plan No. 133, as amended through the
Distribution Date.
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"Rockwell Nonqualified Pension Plans" shall have the meaning
ascribed thereto in Section 3.04.
"Rockwell Nonqualified Savings Plans" shall have the meaning
ascribed thereto in Section 4.04.
"Rockwell Option" means an option to purchase from Rockwell
shares of Rockwell Common Stock granted pursuant to one of the Rockwell
Stock Plans.
"Rockwell Option Ratio" means the amount obtained by dividing
(i) the Ex-Distribution Average Price of Rockwell Common Stock by (ii)
the Pre-Distribution Average Price of Rockwell Common Stock.
"Rockwell Participants" means Rockwell Employees, Rockwell
Former Employees and their respective beneficiaries.
"Rockwell Pension Plan" means the Rockwell International
Corporation Retirement Plan for Eligible Employees, as amended through
the Distribution Date. The Rockwell Pension Plan shall include, without
limitation, each of the following subplans thereof, in each case, as
amended through the Distribution Date: (i) the Retirement Plan for
Hourly Employees, El Paso Facility, (ii) the Retirement Income Plan for
Certain Salaried Employees, (iii) the Salaried Employees' Retirement
Plan - Electronic Operations and (iv) the Rockwell Newport Beach
Pension Sub-Plan.
"Rockwell Savings Plan" means the Rockwell International
Corporation Savings Plan, as amended through the Distribution Date.
"Rockwell Split Option" means a Rockwell Option granted
between January 1, 1990 and August 31, 1998.
"Rockwell Stock Plans" means, collectively, the Rockwell 1995
Long-Term Incentives Plan and the Rockwell 1988 Long-Term Incentives
Plan, in each case, as amended through the Distribution Date.
"Rockwell U.K. Pension Plan" means, collectively, the Rockwell
Collins U.K. Pension Scheme and the Rockwell U.K. Executive Plan, in
each case, as amended through the Distribution Date.
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<PAGE> 9
"Rockwell Welfare Plans" shall have the meaning ascribed
thereto in Section 6.01(a).
"Semiconductor CLIR Fund" shall have the meaning ascribed
thereto in Section 6.07(a).
"Semiconductor Employee" means any individual who will be
employed by a member of the Company Group as of the Time of
Distribution pursuant to Section 2.01.
"Semiconductor Former Employee" means any individual who was,
at any time prior to the Time of Distribution, employed by any member
of the Pre-Distribution Group, who is not as of the Time of
Distribution a Rockwell Employee or a Semiconductor Employee, and whose
most recent active employment with such member of the Pre-Distribution
Group was with the Semiconductor Business.
"Semiconductor Newport Beach Pension Plan" shall have the
meaning ascribed thereto in Section 3.02(a).
"Semiconductor Newport Beach Savings Plan" shall have the
meaning ascribed thereto in Section 4.02(a).
"Semiconductor Option" means an option to purchase from the
Company shares of Semiconductor Common Stock provided to a holder of a
Rockwell Option pursuant to Section 5.01.
"Semiconductor Option Ratio" means the amount obtained by
dividing (i) the Average Price of Semiconductor Common Stock by (ii)
the Pre-Distribution Average Price of Rockwell Common Stock.
"Semiconductor Option Spread" means, with respect to any
Semiconductor Option received by a holder of a Rockwell Split Option
pursuant to Section 5.01(b), the Pre-Distribution Rockwell Option
Spread of the corresponding Rockwell Split Option, minus the
Ex-Distribution Rockwell Option Spread of such Rockwell Split Option.
"Semiconductor Participants" means Semiconductor Employees,
Semiconductor Former Employees and their respective beneficiaries.
"Semiconductor Savings Plan" shall have the meaning ascribed
thereto in Section 4.01(a).
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"Semiconductor VERP" means a voluntary early retirement
program in the form of a nonqualified defined benefit pension plan
established by the Company at or prior to the Time of Distribution
which covers Semiconductor Employees who (i) receive a written offer to
retire early from employment with the Company and (ii) accept such
offer to retire early from employment with the Company. The parties
acknowledge that the benefit to be provided to each Semiconductor
Employee covered by the Semiconductor VERP will equal the difference
between (a) the pension benefit which such Semiconductor Employee would
be entitled to receive under the Rockwell Pension Plan, calculated
under the benefit formula provided for under the Rockwell Pension Plan
as if such Semiconductor Employee had an additional five years of age
and an additional five years of service on December 15, 1998, minus (b)
the pension benefit which such Semiconductor Employee is entitled to
receive under the Rockwell Pension Plan (as determined under Section
3.01).
"Semiconductor Welfare Plans" shall have the meaning ascribed
thereto in Section 6.01(a).
"Welfare Plan" means an employee welfare benefit plan as
defined in Section 3(1) of ERISA, including, without limitation,
medical, vision, dental and other health plans, retiree health plans,
life insurance plans, retiree life insurance plans, accidental death
and dismemberment plans, long-term disability plans and severance pay
plans.
ARTICLE II
EMPLOYEES
Section 2.01 Employees. (a) Each individual (other than those
engaged primarily in the businesses of Rockwell and its Subsidiaries (including
Rockwell's Electronic Commerce Division and Rockwell Science Center) other than
the Semiconductor Business) who is employed by any member of the Company Group
immediately prior to the Time of Distribution (including, without limitation,
those who are actively employed or on lay-off, leave, short-term or long-term
disability or other permitted absence from employment) will continue to be
employed by such member of the Company Group as of the Time of Distribution and
will be a Semiconductor Employee. In addition, each individual who
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<PAGE> 11
is employed by Rockwell or any of its Subsidiaries (other than by members of the
Company Group) immediately prior to the Time of Distribution and (x) who is
engaged primarily in the Semiconductor Business or (y) who Rockwell consents to
becoming a Semiconductor Employee, it being understood that Rockwell has granted
such consent in respect of individuals identified on the attached Schedule 2.01
(including, in the case of both clauses (x) and (y), those who are actively
employed or on lay-off, leave, short-term or long-term disability or other
permitted absence from employment) will be employed by a member of the Company
Group as of the Time of Distribution and will be a Semiconductor Employee.
(b) Each individual (other than those engaged primarily in the
Semiconductor Business and those who Rockwell consents to becoming a
Semiconductor Employee) who is employed by any member of the Rockwell Group
immediately prior to the Time of Distribution (including, without limitation,
those who are actively employed or on lay-off, leave, short-term or long-term
disability or other permitted absence from employment) will continue to be
employed by a member of the Rockwell Group as of the Time of Distribution and
will be a Rockwell Employee. In addition, each individual who is employed by any
member of the Company Group immediately prior to the Time of Distribution and
who is engaged primarily in businesses of Rockwell and its Subsidiaries
(including Rockwell's Electronic Commerce Division and Rockwell Science Center)
other than the Semiconductor Business (including those who are actively employed
or on lay-off, leave, short-term or long-term disability or other permitted
absence from employment) will be employed by a member of the Rockwell Group as
of the Time of Distribution and will be a Rockwell Employee.
(c) Nothing contained in this Section 2.01 is intended to
confer upon any employee of the Rockwell Group or the Company Group any right to
continued employment after the Distribution Date.
Section 2.02 Collective Bargaining Agreements. (a) Effective
as of the Time of Distribution, the Company will, or will cause one or more
Company Subsidiaries to, unconditionally assume or retain (as applicable) all
Liabilities (including, without limitation, those relating to wages, hours or
other terms and conditions of employment) relating to Semiconductor Participants
under each of the collective bargaining agreements of the Pre-Distribution Group
relating to the Semiconductor Business and collateral agreements related
thereto, including, without limitation,
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<PAGE> 12
those listed on Schedule 2.02(a). From and after the Time of Distribution, none
of Rockwell, the Rockwell Subsidiaries or their Affiliates will have any
Liabilities with respect to Semiconductor Participants under collective
bargaining agreements relating to the Semiconductor Business or collateral
agreements relating thereto. Rockwell and the Company will take, or cause to be
taken, all such action as may be necessary or appropriate to establish,
effective as of the Time of Distribution, the Company or one or more Company
Subsidiaries as successors to Rockwell and the Rockwell Subsidiaries as to all
rights, duties and Liabilities under, or with respect to, such collective
bargaining agreements and collateral agreements.
(b) Effective as of the Time of Distribution, Rockwell will,
or will cause one or more Rockwell Subsidiaries to, unconditionally assume or
retain (as applicable) all Liabilities (including, without limitation, those
relating to wages, hours or other terms and conditions of employment) relating
to Rockwell Participants under each of the collective bargaining agreements of
the Pre-Distribution Group relating to businesses of Rockwell and its
Subsidiaries other than the Semiconductor Business and collateral agreements
related thereto. From and after the Time of Distribution, none of the Company,
the Company Subsidiaries or their Affiliates will have any Liabilities with
respect to Rockwell Participants under collective bargaining agreements relating
to businesses of Rockwell and its Subsidiaries other than the Semiconductor
Business or collateral agreements relating thereto. Rockwell and the Company
will take, or cause to be taken, all such action as may be necessary or
appropriate to establish, effective as of the Time of Distribution, Rockwell or
one or more Rockwell Subsidiaries as successors to members of the Company Group
as to all rights, duties and Liabilities under, or with respect to, such
collective bargaining agreements and collateral agreements.
(c) Rockwell and the Company will cooperate in engaging in all
appropriate negotiations, implementing all appropriate communications,
transferring appropriate records and taking all other actions as may be
necessary or appropriate to implement the provisions of this Section 2.02.
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ARTICLE III
PENSION PLANS
Section 3.01 Rockwell Pension Plan. (a) Effective as of the
Time of Distribution, the Semiconductor Employees who participated in the
Rockwell Pension Plan immediately prior to the Time of Distribution will cease
to accrue service credits for benefit, benefit eligibility, vesting, and all
other purposes under the Rockwell Pension Plan and will have the right to
receive such Semiconductor Employee's benefit, if any, payable at normal
retirement age under the Rockwell Pension Plan accrued as of the Time of
Distribution in accordance with the terms of the Rockwell Pension Plan;
provided, however, that, effective as of the Time of Distribution, Semiconductor
Employees who participated in the Rockwell Pension Plan immediately prior to the
Time of Distribution will have a nonforfeitable right to such benefit, if any,
under the Rockwell Pension Plan. Notwithstanding anything to the contrary
contained herein, no provision of this Agreement shall be construed to provide
any Semiconductor Employee additional credit for purposes of determining
eligibility for any early retirement benefit under the Rockwell Pension Plan.
None of the Company or the Company Subsidiaries or the Affiliates of any thereof
will have or acquire any interest in or right to any of the assets of the
Rockwell Pension Plan, and Rockwell will retain full power and authority with
respect to the amendment and termination of the Rockwell Pension Plan and the
investment and disposition of assets held in the Rockwell Pension Plan to the
extent permitted by law. From and after the Time of Distribution, none of
Rockwell or the Rockwell Subsidiaries, the Affiliates of any thereof, the
Rockwell Pension Plan or the trust thereunder will have any Liabilities with
respect to benefits and entitlements of Semiconductor Participants under the
Rockwell Pension Plan, except with respect to benefits accrued under the
Rockwell Pension Plan prior to the Time of Distribution.
(b) Semiconductor and Rockwell will cooperate in making all
appropriate filings required under the Code or ERISA, the regulations thereunder
and any other applicable laws, implementing all appropriate communications with
participants, exchanging and sharing appropriate records and taking such other
actions as may be necessary or appropriate to implement the provisions of this
Section 3.01.
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Section 3.02 Semiconductor Newport Beach Pension Plan. (a) As
of the Time of Distribution, the Company will have established, and will cover
Semiconductor Employees who participated in the Rockwell Newport Beach Pension
Sub-Plan immediately prior to the Time of Distribution under, a defined benefit
pension plan (the "Semiconductor Newport Beach Pension Plan"), which will be
qualified under Section 401(a) of the Code, and will have established a related
trust which will be exempt from taxation under Section 501(a) of the Code. The
Semiconductor Newport Beach Pension Plan will be substantially similar in all
material respects to the Rockwell Newport Beach Pension Sub-Plan as of the Time
of Distribution, and will provide a benefit formula for Semiconductor Employees
which will be substantially similar in all material respects to the benefit
formula that the Rockwell Newport Beach Pension Sub-Plan provides as of the Time
of Distribution. The Semiconductor Newport Beach Pension Plan will credit each
Semiconductor Employee for purposes of eligibility to participate, vesting,
benefit accruals and all other plan purposes with all service which had been
credited to such Semiconductor Employee for such purposes under the Rockwell
Newport Beach Pension Sub-Plan immediately prior to the Time of Distribution
(excluding any such service which was not counted under the Rockwell Newport
Beach Pension Sub-Plan by operation of its "break in service" rules).
Notwithstanding the above, the Semiconductor Newport Beach Pension Plan will
provide that the benefit of each Semiconductor Employee under the Semiconductor
Newport Beach Pension Plan will be reduced by the amount of the benefit to which
the Semiconductor Employee would be entitled under the Rockwell Newport Beach
Pension Sub-Plan if the Semiconductor Employee commenced receipt of benefits
from the Rockwell Newport Beach Pension Sub-Plan at the same time as from the
Semiconductor Newport Beach Pension Plan, based on the Semiconductor Employee's
service and salary history under the Rockwell Newport Beach Pension Sub-Plan at
the Time of Distribution. Within 180 days after the Time of Distribution,
Rockwell will provide the Company with the following information for each
Semiconductor Employee who was an active participant in the Rockwell Newport
Beach Pension Sub-Plan at the Time of Distribution: (i) the amount of the
accrued vested benefit payable at normal retirement age from the Rockwell
Newport Beach Pension Sub-Plan as of the Time of Distribution and (ii) the years
of credited service and vesting service as of the Time of Distribution.
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(b) The parties acknowledge and agree that the provisions of
Section 3.01 are applicable to all Semiconductor Employees who participated in
the Rockwell Newport Beach Pension Sub-Plan immediately prior to the Time of
Distribution.
(c) The Company and Rockwell will cooperate in making all
appropriate filings required under the Code or ERISA, the regulations thereunder
and any other applicable laws, implementing all appropriate communications with
participants, exchanging and sharing appropriate records and taking such other
actions as may be necessary or appropriate to implement the provisions of this
Section 3.02.
Section 3.03 U.S. Nonqualified Pension Plans. Rockwell will
retain all Liabilities for and will pay when due all benefits accrued as of the
Time of Distribution by, and attributable to, Semiconductor Employees under the
Rockwell International Corporation Supplemental Retirement Plan for Highly
Compensated Employees and the Rockwell International Corporation Excess Benefit
Retirement Plan, in each case, as amended through the Time of Distribution
(collectively, the "Rockwell Nonqualified Pension Plans"). Effective as of the
Time of Distribution, the Semiconductor Employees who participated in the
Rockwell Nonqualified Pension Plans immediately prior to the Time of
Distribution will cease to accrue service credits for benefit, benefit
eligibility and all other purposes under the Rockwell Nonqualified Pension Plans
and will have the right to receive such Semiconductor Employee's benefit, if
any, payable at normal retirement age under the Rockwell Nonqualified Pension
Plans accrued as of the Time of Distribution in accordance with the terms of the
Rockwell Nonqualified Pension Plans. Rockwell will retain full power and
authority with respect to the amendment and termination of the Rockwell
Nonqualified Pension Plans to the extent permitted by law. From and after the
Time of Distribution, none of Rockwell or the Rockwell Subsidiaries, the
Affiliates of any thereof or the Rockwell Nonqualified Pension Plans will have
any Liabilities with respect to benefits and entitlements of Semiconductor
Participants under the Rockwell Nonqualified Pension Plans, except with respect
to benefits accrued under the Rockwell Nonqualified Pension Plans prior to the
Time of Distribution.
Section 3.04 Semiconductor VERP. Effective as of the Time of
Distribution, the Company will or will cause one or more Company Subsidiaries to
(i) assume and adopt sponsorship of the Semiconductor VERP, and all Liabilities
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related thereto, and (ii) agree to fully perform, pay and discharge all of the
Pre-Distribution Group's Liabilities with respect to the Semiconductor VERP.
Rockwell and the Company will take, or cause to be taken, all such action as may
be necessary or appropriate to establish, effective as of the Time of
Distribution, the Company and the Company Subsidiaries as successors to Rockwell
and the Rockwell Subsidiaries as to all rights, assets, duties and Liabilities
under, or with respect to, the Semiconductor VERP. From and after the Time of
Distribution, none of Rockwell or the Rockwell Subsidiaries or their Affiliates
will have any Liabilities with respect to the Semiconductor VERP. Rockwell and
the Company will cooperate in making all appropriate filings required by law,
implementing all appropriate communications with participants, transferring
appropriate records and taking all other actions as may be necessary or
appropriate to implement the provisions of this Section 3.04.
Section 3.05 U.K. Pension Plan. (a) Effective as of the Time
of Distribution, the Semiconductor Employees who participated in the Rockwell
U.K. Pension Plan immediately prior to the Time of Distribution will cease to
accrue service credits for benefit, benefit eligibility, vesting, and all other
purposes under the Rockwell U.K. Pension Plan and will have the right to receive
such Semiconductor Employee's benefit, if any, payable at normal retirement age
under the Rockwell U.K. Pension Plan accrued as of the Time of Distribution in
accordance with the terms of the Rockwell U.K. Pension Plan; provided, however,
that, effective as of the Time of Distribution, Semiconductor Employees who
participated in the Rockwell U.K. Pension Plan immediately prior to the Time of
Distribution will have a nonforfeitable right to such benefit, if any, under the
Rockwell U.K. Pension Plan. Notwithstanding anything to the contrary contained
herein, no provision of this Agreement shall be construed to provide any
Semiconductor Employee additional credit for purposes of determining eligibility
for any early retirement benefit under the Rockwell U.K. Pension Plan. None of
the Company or the Company Subsidiaries, or the Affiliates of any thereof will
have or acquire any interest in or right to any of the assets of the Rockwell
U.K. Pension Plan, and Rockwell will retain full power and authority with
respect to the amendment and termination of the Rockwell U.K. Pension Plan and
the investment and disposition of assets held in the Rockwell U.K. Pension Plan
to the extent permitted by law. From and after the Time of Distribution, none of
Rockwell or the Rockwell Subsidiaries, the Affiliates of any thereof, the
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<PAGE> 17
Rockwell U.K. Pension Plan or the trust thereunder will have any Liabilities
with respect to benefits and entitlements of Semiconductor Participants under
the Rockwell U.K. Pension Plan, except with respect to benefits accrued under
the Rockwell U.K. Pension Plan prior to the Time of Distribution.
(b) The Company and Rockwell will cooperate in making all
appropriate filings required under applicable laws, implementing all appropriate
communications with participants, exchanging and sharing appropriate records and
taking such other actions as may be necessary or appropriate to implement the
provisions of this Section 3.05.
Section 3.06 German Stand-Alone Pension Plan. Effective as of
the Time of Distribution, the Company will or will cause one or more Company
Subsidiaries to (i) assume and adopt sponsorship of the Rockwell International
GmbH, Martinsried-Munchen, as amended through the Time of Distribution (the
"German Stand-Alone Pension Plan"), and all Liabilities related thereto, and
(ii) fully perform, pay and discharge all of the Pre-Distribution Group's
Liabilities with respect to the German Stand-Alone Pension Plan. From and after
the Time of Distribution, none of Rockwell or the Rockwell Subsidiaries or their
Affiliates will have any Liabilities with respect to the German Stand-Alone
Pension Plan. Rockwell and the Company will take, or cause to be taken, all such
action as may be necessary or appropriate to establish, effective as of the Time
of Distribution, the Company and the Company Subsidiaries as successors to
Rockwell and the Rockwell Subsidiaries as to all rights, duties and Liabilities
under, or with respect to, the German Stand-Alone Pension Plan. Rockwell and the
Company will cooperate in making all appropriate filings required by law,
implementing all appropriate communications with participants, transferring
appropriate records, replacing any trustees under the German Stand-Alone Pension
Plan with trustees designated by the Company and taking all other actions as may
be necessary or appropriate to implement the provisions of this Section 3.06.
ARTICLE IV
SAVINGS PLANS
Section 4.01 U.S. Savings Plan. (a) As of the Time of
Distribution, the Company will have established, and will cover the
Semiconductor Employees who participated in
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the Rockwell Savings Plan immediately prior to the Time of Distribution under, a
defined contribution plan (the "Semiconductor Savings Plan"), which will be
qualified pursuant to Sections 401(a) and 401(k) of the Code, and will have
established a related trust which shall be exempt from taxation under Section
501(a) of the Code. The Semiconductor Savings Plan will credit each
Semiconductor Employee for purposes of vesting and eligibility with all service
which had been credited to such Semiconductor Employee for such purposes under
the Rockwell Savings Plan immediately prior to the Time of Distribution
(excluding any such service which was not counted under the Rockwell Savings
Plan by operation of its "break in service" rules).
(b) Effective as of the Time of Distribution, Semiconductor
Employees who participated in the Rockwell Savings Plan immediately prior to the
Time of Distribution will be treated as terminated, fully vested participants
under the Rockwell Savings Plan, except that they will not be treated as having
terminated employment for purposes of entitlement to distributions or the
repayment of outstanding loans solely as a result of becoming Semiconductor
Employees. Effective as of the Time of Distribution, Semiconductor Employees
will cease to be eligible to contribute to, or receive contributions in respect
of, their Rockwell Savings Plan accounts. None of the Company or the Company
Subsidiaries, the Affiliates of any thereof, the Semiconductor Savings Plan or
the trust thereunder will have or acquire any interest in or right to any of the
assets of the Rockwell Savings Plan, and Rockwell will retain full power and
authority with respect to the amendment and termination of the Rockwell Savings
Plan and the investment and disposition of assets held in the Rockwell Savings
Plan to the extent permitted by law. From and after the Time of Distribution,
none of Rockwell or the Rockwell Subsidiaries, the Affiliates of any thereof,
the Rockwell Savings Plan or the trust thereunder will have any Liabilities with
respect to benefits and entitlements of Semiconductor Participants under the
Rockwell Savings Plan, except with respect to benefits accrued under the
Rockwell Savings Plan prior to the Time of Distribution.
(c) The Company and Rockwell will cooperate in making all
appropriate filings required under the Code or ERISA, the regulations thereunder
and any other applicable laws, implementing all appropriate communications with
participants, exchanging and sharing appropriate records and taking all other
actions as may be necessary or appropriate to implement the provisions of this
Section 4.01.
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Section 4.02 Newport Beach Savings Plan.
(a) Effective as of the Time of Distribution, Rockwell will
cause each Semiconductor Participant who participated in the Rockwell Newport
Beach Savings Sub-Plan immediately prior to the Time of Distribution to have a
fully nonforfeitable right to such person's account balances, if any, under the
Rockwell Newport Beach Savings Sub-Plan. As of the Time of Distribution, the
Company will extend coverage under a new defined contribution plan (the
"Semiconductor Newport Beach Savings Plan") to the Semiconductor Participants
who have account balances under the Rockwell Newport Beach Savings Sub-Plan as
of the Time of Distribution. The Semiconductor Newport Beach Savings Plan will
credit each Semiconductor Participant for purposes of vesting and eligibility
with all service which had been credited to such Semiconductor Participant for
such purposes under the Rockwell Newport Beach Savings Sub-Plan immediately
prior to the Time of Distribution (excluding any such service which was not
counted under the Rockwell Newport Beach Savings Sub-Plan by operation of its
"break in service" rules). As soon as practicable following (i) the Time of
Distribution, (ii) the establishment of the Semiconductor Newport Beach Savings
Plan and (iii) the receipt by the Company of a favorable determination letter
issued by the Internal Revenue Service for the Semiconductor Newport Beach
Savings Plan or an opinion of counsel of the Company reasonably satisfactory to
Rockwell opining that the Semiconductor Newport Beach Savings Plan is qualified
under Section 401(a) of the Code, Rockwell shall cause to be transferred from
the trust for the Rockwell Newport Beach Savings Sub-Plan to the trust for the
Semiconductor Newport Beach Savings Plan an amount in cash or in kind (as
determined by Rockwell) equal to the aggregate account balances of Semiconductor
Participants who have account balances under the Rockwell Newport Beach Savings
Sub-Plan at the Time of Distribution determined in accordance with the
procedures and methods of valuation set forth in the Rockwell Newport Beach
Savings Sub-Plan; provided, that to the extent (A) any Semiconductor
Participant's accounts under the Rockwell Newport Beach Savings Sub-Plan are
invested in shares of Rockwell Common Stock, an in-kind transfer of such stock
shall be made in lieu of a transfer of cash and (B) any Semiconductor
Participant owes any amount to the Rockwell Newport Beach Savings Sub-Plan
pursuant to the terms of a loan from the Rockwell Newport Beach Savings Sub-Plan
to such Semiconductor Participant, an in-kind transfer of such loan shall be
made in lieu of a transfer of cash. From and after the date of such transfer,
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the Company shall cause the Semiconductor Newport Beach Savings Plan to assume
the obligations of the Rockwell Newport Beach Savings Sub-Plan with respect to
the benefits so transferred. Rockwell shall cause the transfers contemplated
pursuant to this Section 4.02 to be made in compliance with the provisions of
the Rockwell Newport Beach Savings Sub-Plan and applicable law (including,
without limitation, Treasury Regulation 1.411(d)-4).
(b) The Company and Rockwell will cooperate in making all
appropriate filings required under the Code or ERISA, the regulations thereunder
and any other applicable laws, implementing all appropriate communications with
participants, exchanging and sharing appropriate records and taking all other
actions as may be necessary or appropriate to implement the provisions of this
Section 4.02.
Section 4.03 Rockwell El Paso Savings Sub-Plan.
(a) Effective as of the Time of Distribution, Rockwell will
cause each Semiconductor Participant who participated in the Rockwell El Paso
Savings Sub-Plan immediately prior to the Time of Distribution to have a fully
nonforfeitable right to such person's account balances, if any, under the
Rockwell El Paso Savings Sub-Plan. As of the Time of Distribution, the Company
will extend coverage under the Semiconductor Savings Plan to the Semiconductor
Participants who are eligible to participate under the Rockwell El Paso Savings
Sub-Plan as of the Time of Distribution. The Semiconductor Savings Plan will
credit each Semiconductor Participant for purposes of vesting and eligibility
with all service which had been credited to such Semiconductor Participant for
such purposes under the Rockwell El Paso Savings Sub-Plan immediately prior to
the Time of Distribution (excluding any such service which was not counted under
the Rockwell El Paso Savings Sub-Plan by operation of its "break in service"
rules).
(b) The Company and Rockwell will cooperate in making all
appropriate filings required under the Code or ERISA, the regulations thereunder
and any other applicable laws, implementing all appropriate communications with
participants, exchanging and sharing appropriate records and taking all other
actions as may be necessary or appropriate to implement the provisions of this
Section 4.03.
Section 4.04 Nonqualified Savings Plans. Rockwell will retain
all Liabilities for and will pay when due all benefits accrued as of the Time of
Distribution by,
17
<PAGE> 21
and attributable to, Semiconductor Employees under the Rockwell International
Corporation Supplemental Savings Plan for Highly Compensated Employees and the
Rockwell International Corporation Excess Benefit Savings Plan, in each case as
amended through the Time of Distribution (collectively, the "Rockwell
Nonqualified Savings Plans"). From and after the Time of Distribution, none of
Rockwell or the Rockwell Subsidiaries, the Affiliates of any thereof or the
Rockwell Nonqualified Savings Plans will have any Liabilities with respect to
benefits and entitlements of Semiconductor Employees under the Rockwell
Nonqualified Savings Plans, except with respect to benefits accrued (including
earnings thereon) under the Rockwell Nonqualified Savings Plans prior to the
Time of Distribution. Rockwell will retain full power and authority with respect
to the amendment and termination of the Rockwell Nonqualified Savings Plans to
the extent permitted by law.
ARTICLE V
STOCK PLANS
Section 5.01 Stock Plans.
(a) Rockwell and the Company will take all action necessary or
appropriate so that each Rockwell Option held by a Semiconductor Employee that
is outstanding as of the Time of Distribution will be and become a Semiconductor
Option pursuant to the equitable adjustment provisions of the applicable
Rockwell Stock Plan under which such Rockwell Option was granted. The number of
shares of Semiconductor Common Stock subject to the Semiconductor Option will
equal the number of shares subject to such Rockwell Option being replaced
immediately prior to the Time of Distribution, multiplied by the reciprocal of
the Semiconductor Option Ratio, and then, if any resultant fractional share of
Semiconductor Common Stock exists, rounded down to the nearest whole share. The
Semiconductor Option shall have a per-share exercise price equal to the
per-share exercise price of such Rockwell Option being replaced immediately
prior to the Time of Distribution, multiplied by the Semiconductor Option Ratio.
Such Semiconductor Option will otherwise have substantially the same terms and
conditions as the corresponding Rockwell Option being replaced, except that
references to Rockwell will be changed to refer to the Company.
18
<PAGE> 22
(b) Rockwell and the Company will take all action necessary or
appropriate so that each Rockwell Split Option held by any person (other than a
Semiconductor Employee) that is outstanding as of the Time of Distribution is
adjusted pursuant to the equitable adjustment provisions of the applicable
Rockwell Stock Plan under which such Rockwell Split Option was granted so that
the per-share exercise price of such Rockwell Split Option will equal the
per-share exercise price of such Rockwell Split Option immediately prior the
Time of Distribution and prior to such adjustment, multiplied by the Rockwell
Option Ratio, subject to the provisions of Section 5.01(c). The number of shares
subject to the adjusted Rockwell Split Option will equal the number of shares
subject to such Rockwell Split Option immediately prior to the Time of
Distribution. Such adjusted Rockwell Split Option will otherwise have the same
terms and conditions as those in effect prior to the adjustment. In addition,
each person (other than a Semiconductor Employee) holding a Rockwell Split
Option will receive a Semiconductor Option pursuant to the equitable adjustment
provisions of the applicable Rockwell Stock Plan under which such Rockwell Split
Option was granted. The number of shares of Semiconductor Common Stock subject
to such Semiconductor Option will equal [ ] of the number of shares subject to
such Rockwell Split Option, and then rounded down to the nearest whole share.
Subject to the provisions of Section 5.01(c), the Semiconductor Option will have
a per-share exercise price equal to (i) the Average Price of Semiconductor
Common Stock, minus (ii) the amount obtained by multiplying the Semiconductor
Option Spread of such Semiconductor Option by [ ]. Such Semiconductor Option
will otherwise have substantially the same terms and conditions as the
corresponding Rockwell Split Option being adjusted, except that references to
Rockwell will be changed to refer to the Company.
(c) Notwithstanding anything to the contrary contained herein,
if the per-share exercise price of the Semiconductor Option determined in
accordance with Section 5.01(b) results in a number less than zero, the
per-share exercise price of such Semiconductor Option shall be deemed to be
$1.00 and the per-share exercise price of the corresponding Rockwell Split
Option shall be determined in accordance with this Section 5.01(c). In such
case, the per-share exercise price of the Rockwell Split Option will be adjusted
to equal the sum of (i) the remainder of the Ex-Distribution Average Price of
Rockwell Common Stock, minus the Pre-Distribution Rockwell Option Spread of the
Rockwell Split Option, plus (ii) an amount equal to [ ] the
19
<PAGE> 23
remainder of the Average Price of Semiconductor Common Stock, minus $1.00.
ARTICLE VI
OTHER EMPLOYEE PLANS AND MATTERS
Section 6.01 Welfare Plans. (a) As of the Time of
Distribution, the Company and the Company Subsidiaries will have established or
assumed, and will cover Semiconductor Participants under, Welfare Plans and
other employee welfare benefit and fringe benefit arrangements (collectively,
"Semiconductor Welfare Plans") that are comparable in the aggregate to the
Welfare Plans and other employee welfare benefit and fringe benefit arrangements
maintained by Rockwell and its Subsidiaries (including members of the Company
Group) immediately prior to the Time of Distribution ("Rockwell Welfare Plans")
for the benefit of Semiconductor Participants, with such changes or amendments
thereto as the Company may deem appropriate.
(b) The Semiconductor Welfare Plans will provide for the
immediate participation of those Semiconductor Participants who participated in
the Rockwell Welfare Plans immediately prior to the Time of Distribution. The
Semiconductor Welfare Plans will credit each Semiconductor Participant for all
Semiconductor Welfare Plan purposes with all service and any other item which
had been credited to or otherwise accumulated for the benefit of such
Semiconductor Participant under the Rockwell Welfare Benefit Plans immediately
prior to the Time of Distribution, including service credited toward any waiting
periods and amounts credited toward any medical or health insurance deductible
or co-payment. Without limiting the generality of the foregoing, each
Semiconductor Welfare Plan, to the extent applicable: (i) will recognize all
amounts applied to deductibles, co-payments, out-of-pocket maximums and lifetime
maximum benefits with respect to Semiconductor Participants under the
corresponding Rockwell Welfare Plan for the plan year that includes the Time of
Distribution and for prior periods (if applicable); (ii) will recognize all
service credited to waiting periods with respect to Semiconductor Participants
under the corresponding Rockwell Welfare Plan; (iii) will not impose any
limitations on coverage of pre-existing conditions of Semiconductor Participants
except to the extent such limitations applied to such Semiconductor Participants
under the corresponding Rockwell Welfare Plan immediately before such
Semiconductor
20
<PAGE> 24
Welfare Plan became effective; and (iv) will not impose any other conditions
(such as proof of good health, evidence of insurability or a requirement of a
physical examination) upon the participation by Semiconductor Participants who
were participating in the corresponding Rockwell Welfare Plan immediately before
such Semiconductor Welfare Plan became effective.
(c) The Company and the Company Subsidiaries will credit each
Semiconductor Employee with the unused vacation days and personal and sickness
days accrued in accordance with the vacation and personnel policies and labor
agreements of Rockwell and its Subsidiaries (including members of the Company
Group) applicable to such employees in effect immediately prior to the Time of
Distribution.
(d) From and after the Time of Distribution, except as
specifically set forth in this Agreement, the Company and the Company
Subsidiaries will assume or retain, as the case may be, and will be solely
responsible for and will fully perform, pay and discharge, all Liabilities in
respect of Semiconductor Participants (and claims by or relating to
Semiconductor Participants) with respect to employee welfare and fringe benefits
(including, without limitation, medical, dental, life, travel, accident, short-
and long-term disability, hospitalization, workers' compensation and other
insurance benefits), whether under the Rockwell Welfare Plans, the Semiconductor
Welfare Plans or otherwise, whether incurred, or arising in connection with
incidents occurring, before, at or after the Time of Distribution and whether
any claim is made with respect thereto before, at or after the Time of
Distribution. Without limiting the generality of the foregoing, from and after
the Time of Distribution, the Company and the Company Subsidiaries (or where
appropriate, the Semiconductor Welfare Plans) will assume, will be solely
responsible for and will fully perform, pay and discharge all Liabilities in
respect of Semiconductor Participants (and claims by or relating to
Semiconductor Participants) with respect to retiree health benefits and retiree
life insurance benefits, whether under the Rockwell Welfare Plans, the
Semiconductor Welfare Plans or otherwise, whether incurred, or arising in
connection with incidents occurring, before, at or after the Time of
Distribution and whether any claim is made with respect thereto before, at or
after the Time of Distribution.
(e) From and after the Time of Distribution, except as
specifically set forth in this Agreement, Rockwell
21
<PAGE> 25
and the Rockwell Subsidiaries will assume or retain, as the case may be, and
will be solely responsible for and will fully perform, pay and discharge, all
Liabilities in respect of Rockwell Participants (and claims by or relating to
Rockwell Participants) with respect to employee welfare and fringe benefits
(including, without limitation, medical, dental, life, travel, accident, short-
and long-term disability, hospitalization, workers' compensation and other
insurance benefits), whether under the Rockwell Welfare Plans or otherwise,
whether incurred, or arising in connection with incidents occurring, before, at
or after the Time of Distribution and whether any claim is made with respect
thereto before, at or after the Time of Distribution. Without limiting the
generality of the foregoing, from and after the Time of Distribution, Rockwell
and the Rockwell Subsidiaries (or where appropriate, the Rockwell Welfare Plans)
will assume or retain, as the case may be, will be solely responsible for and
will fully perform, pay and discharge all Liabilities in respect of Rockwell
Participants (and claims by or relating to Rockwell Participants) with respect
to retiree health benefits and retiree life insurance benefits, whether under
the Rockwell Welfare Plans or otherwise, whether incurred before, at or after
the Time of Distribution and whether any claim is made with respect thereto
before, at or after the Time of Distribution.
(f) The Company and Rockwell will cooperate in making all
appropriate filings required by law, implementing all appropriate communications
with participants, exchanging and sharing appropriate records and taking such
other actions as may be necessary or appropriate to implement the provisions of
this Section 6.01.
Section 6.02 Long-Term Incentive Plan and Incentive
Compensation Plans. Effective as of the Time of Distribution, the Company hereby
assumes and agrees to fully perform, pay and discharge all Liabilities
(including, but not limited to, liability for earned but unpaid incentive
payments) for, due to and/or attributable to Semiconductor Participants under
the Rockwell International Business Unit Long-Term Incentive Plan (the "LTIP"),
the Incentive Compensation Plan and all other long-term and annual incentive
compensation plans of Rockwell and its Subsidiaries (including members of the
Company Group) in effect at or prior to the Time of Distribution. Rockwell and
the Company will cooperate in taking all actions necessary or appropriate to
adjust the performance goals and other terms and conditions of awards under the
LTIP and such
22
<PAGE> 26
other incentive compensation plans for performance periods that begin before and
end after the Distribution Date as appropriate to reflect the Distribution. From
and after the Time of Distribution, none of Rockwell or the Rockwell
Subsidiaries or their Affiliates will have any Liabilities with respect to
benefits of Semiconductor Participants under the LTIP, the Incentive
Compensation Plan and such other incentive compensation plans. Rockwell and the
Company will cooperate in making all appropriate filings required by law,
implementing all appropriate communications with participants, exchanging and
sharing appropriate records and taking all other actions as may be necessary or
appropriate to implement the provisions of this Section 6.02.
Section 6.03 Deferred Compensation Plans. Effective as of the
Time of Distribution, the Company hereby assumes and agrees to fully perform,
pay and discharge all Liabilities (including but not limited to the obligation
to pay when due all benefits accrued and not paid as of the Time of
Distribution) for, due to and/or attributable to Semiconductor Participants
under the Rockwell International Corporation Deferred Compensation Plan (the
"Rockwell Deferred Compensation Plan"), as in effect immediately prior to the
Time of Distribution. From and after the Time of Distribution, none of Rockwell
or the Rockwell Subsidiaries or their Affiliates will have any Liabilities with
respect to benefits of Semiconductor Participants under the Rockwell Deferred
Compensation Plan. Rockwell and the Company will cooperate in making all
appropriate filings required by law, implementing all appropriate communications
with participants, exchanging and sharing appropriate records and taking all
other actions as may be necessary or appropriate to implement the provisions of
this Section 6.03.
23
<PAGE> 27
Section 6.04 Severance Pay. (a) Rockwell and the Company
acknowledge and agree that the transactions contemplated by the Transaction
Agreements will not constitute a severance of employment of any Semiconductor
Employee or Rockwell Employee prior to or as a result of the transactions
contemplated thereby, and that individuals who, in connection with the
Distribution, become Semiconductor Employees or Rockwell Employees pursuant to
this Agreement will not be deemed to have experienced a termination, layoff or
severance of employment from Rockwell and its Subsidiaries (including members of
the Company Group), in each case for purposes of any policy, plan, program or
agreement of Rockwell or any of its Subsidiaries (including members of the
Company Group) that provides for the payment of severance, salary continuation
or similar benefits.
(b) The Company and the Company Subsidiaries will assume or
retain (as applicable) and be solely responsible for, and will fully perform,
pay and discharge, all Liabilities in connection with claims made by or on
behalf of Semiconductor Participants in respect of severance pay, salary
continuation and similar obligations relating to the termination or alleged
termination (whether voluntary or involuntary) of any such person's employment,
whether such termination or alleged termination occurred before, at or after the
Time of Distribution and whether any claim is made with respect thereto before,
at or after the Time of Distribution (whether or not such claim is based on any
severance policy, agreement, arrangement or program which may exist or arise
under any contract, employment agreement or collective bargaining agreement or
under any Federal, state, local, provincial or foreign law).
(c) Rockwell and the Rockwell Subsidiaries will assume or
retain (as applicable) and be solely responsible for, and will fully perform,
pay and discharge, all Liabilities in connection with claims made by or on
behalf of Rockwell Participants in respect of severance pay, salary continuation
and similar obligations relating to the termination or alleged termination
(whether voluntary or involuntary) of any such person's employment, whether such
termination or alleged termination occurred before, at or after the Time of
Distribution and whether any claim is made with respect thereto before, at or
after the Time of Distribution (whether or not such claim is based on any
severance policy, agreement, arrangement or program which may exist or arise
under any contract, employment agreement or collective bargaining agreement or
under any Federal, state, local, provincial or foreign law).
24
<PAGE> 28
Section 6.05 Employment, Consulting and Other Employee Related
Agreements. Effective as of the Time of Distribution, the Company will or will
cause one or more Company Subsidiaries to assume or retain (as applicable) all
Liabilities relating to Semiconductor Participants under their respective
employment, consulting, separation, agreements to arbitrate, and other employee
related agreements with any member of the Pre-Distribution Group, as the same
are in effect immediately prior to the Time of Distribution. Effective as of the
Time of Distribution, Rockwell will or will cause one or more Rockwell
Subsidiaries to assume or retain (as applicable) all Liabilities relating to
Rockwell Participants under their respective employment, consulting, separation,
agreements to arbitrate, and other employee related agreements with any member
of the Pre-Distribution Group, as the same are in effect immediately prior to
the Time of Distribution.
Section 6.06 Rockwell VEBA and CLIR Fund. As of and after the
Time of Distribution, Rockwell will retain all assets of and related to (i) the
Trust for Employee Welfare Benefit Programs of Rockwell International
Corporation and (ii) the Rockwell Continued Life Insurance Reserve Fund.
Section 6.07 Other Liabilities. (a) From and after the Time of
Distribution, except as specifically set forth in this Agreement, the Company
and the Company Subsidiaries will assume or retain, as the case may be, and be
solely responsible for, and will fully perform, pay and discharge, all
Liabilities in respect of Semiconductor Participants arising out of or relating
to employment by any member of the Pre-Distribution Group, whether pursuant to
benefit plans or otherwise and whether such Liabilities arose before, at or
after the Time of Distribution or any claim is made with respect thereto before,
at or after the Time of Distribution. From and after the Time of Distribution,
except as specifically set forth in this Agreement, Rockwell and the Rockwell
Subsidiaries will assume or retain, as the case may be, and be solely
responsible for, and will fully perform, pay and discharge, all Liabilities in
respect of Rockwell Participants arising out of or relating to employment by any
member of the Pre-Distribution Group, whether pursuant to benefit plans or
otherwise and whether such Liabilities arose before, at or after the Time of
Distribution or any claim is made with respect thereto before, at or after the
Time of Distribution.
25
<PAGE> 29
(b) The Company shall be solely responsible for and shall pay
when due any and all direct or indirect Liabilities based upon, arising out of,
relating to or otherwise in connection with any differences between employee
benefits provided to Semiconductor Participants by any member of the
Pre-Distribution Group prior to the Time of Distribution and employee benefits
provided to Semiconductor Participants by any member of the Company Group after
the Time of Distribution, including, without limitation, all Liabilities arising
out of claims made by any Semiconductor Participant based upon, arising out of,
relating to or otherwise in connection with a change in benefits provided to
such Semiconductor Participant after the Time of Distribution, whether or not
such Liabilities are asserted against, imposed on or incurred by any member of
the Company Group or any member of the Rockwell Group.
ARTICLE VII
MISCELLANEOUS
Section 7.01 Indemnification. All Liabilities retained or
assumed by or allocated to the Company or any Company Subsidiary pursuant to
this Agreement will be deemed to be Semiconductor Liabilities (as defined in the
Distribution Agreement), and all Liabilities retained or assumed by or allocated
to Rockwell or any Rockwell Subsidiary pursuant to this Agreement will be deemed
to be Liabilities of Rockwell which do not constitute such Semiconductor
Liabilities, and, in each case, will be subject to the indemnification
provisions set forth in Article IV of the Distribution Agreement.
Section 7.02 Sharing of Information. Each of Rockwell and the
Company will, and will cause each of their respective Subsidiaries to, provide
to the other all such Information in its possession as the other may reasonably
request to enable the requesting party to administer its employee benefit plans
and programs, and to determine the scope of, and fulfill, its obligations under
this Agreement. Such Information will, to the extent reasonably practicable, be
provided in the format and at the times and places requested, but in no event
will the party providing such Information be obligated to incur any direct
expense not reimbursed by the party making such request, nor to make such
Information available outside its normal business hours and premises. The right
of the parties to receive Information hereunder will, without limiting the
generality
26
<PAGE> 30
of the foregoing, extend to any and all reports, and the data underlying such
reports. Any Information shared or exchanged pursuant to this Agreement will be
subject to the same confidentiality requirements set forth in the Distribution
Agreement.
Section 7.03 Entire Agreement; Construction. This Agreement,
the Distribution Agreement and the other Ancillary Agreements, including any
annexes, schedules and exhibits hereto or thereto, and other agreements and
documents referred to herein and therein, will together constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and will supersede all prior negotiations, agreements and understandings
of the parties of any nature, whether oral or written, with respect to such
subject matter. Notwithstanding any other provisions in this Agreement to the
contrary, in the event and to the extent that there is a conflict between the
provisions of this Agreement and the provisions of the Distribution Agreement,
the provisions of this Agreement will control.
Section 7.04 Survival of Agreements. Except as otherwise
contemplated by this Agreement, all covenants and agreements of the parties
contained in this Agreement will remain in full force and effect and survive the
Time of Distribution.
Section 7.05 Governing Law. This Agreement will be governed by
and construed in accordance with the internal laws of the State of New York
applicable to contracts made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State.
Section 7.06 Notices. All notices, requests, claims, demands
and other communications required or permitted to be given hereunder will be in
writing and will be delivered by hand or telecopied or sent, postage prepaid, by
registered, certified or express mail or reputable overnight courier service and
will be deemed given when so delivered by hand or telecopied, or three business
days after being so mailed (one business day in the case of express mail or
overnight courier service). All such notices, requests, claims, demands and
other communications will be addressed as set forth in Section 6.05 of the
Distribution Agreement, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice.
27
<PAGE> 31
Section 7.07 Amendments. This Agreement cannot be amended,
modified or supplemented except by a written agreement executed by Rockwell and
the Company.
Section 7.08 Assignment. Neither party to this Agreement will
convey, assign or otherwise transfer any of its rights or obligations under this
Agreement without the prior written consent of the other party in its sole and
absolute discretion, except that any party may (without obtaining any consent)
assign any of its rights hereunder to a successor to all or any part of its
business. Any such conveyance, assignment or transfer requiring the prior
written consent of another party which is made without such consent will be void
ab initio. No assignment of this Agreement will relieve the assigning party of
its obligations hereunder.
Section 7.09 Captions; Currency. The article, section and
paragraph captions herein and the table of contents hereto are for convenience
of reference only, do not constitute part of this Agreement and will not be
deemed to limit or otherwise affect any of the provisions hereof. Unless
otherwise specified, all references herein to numbered articles or sections are
to articles and sections of this Agreement and all references herein to
schedules are to schedules to this Agreement. Unless otherwise specified, all
references contained in this Agreement, in any schedule referred to herein or in
any instrument or document delivered pursuant hereto to dollars will mean United
States Dollars.
Section 7.10 Severability. If any provision of this Agreement
or the application thereof to any Person or circumstance is determined by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions hereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, will remain in full force and effect and will in no way be
affected, impaired or invalidated thereby. If the economic or legal substance of
the transactions contemplated hereby is affected in any manner adverse to any
party as a result thereof, the parties will negotiate in good faith in an effort
to agree upon a suitable and equitable substitute provision to effect the
original intent of the parties.
Section 7.11 Parties in Interest. This Agreement is binding
upon and is for the benefit of the parties hereto and their respective
successors and permitted assigns. This
28
<PAGE> 32
Agreement is not made for the benefit of any Person not a party hereto, and no
Person other than the parties hereto or their respective successors and
permitted assigns will acquire or have any benefit, right, remedy or claim under
or by reason of this Agreement. No provision of this Agreement will be construed
(a) to limit the right of Rockwell, any Rockwell Subsidiary, the Company or any
Company Subsidiary to amend any plan or terminate any plan, or (b) to create any
right or entitlement whatsoever in any employee, former employee or beneficiary
including, without limitation, a right to continued employment or to any benefit
under a plan or any other benefit or compensation.
Section 7.12 Schedules. All schedules attached hereto are
hereby incorporated in and made a part of this Agreement as if set forth in full
herein. Capitalized terms used in the schedules hereto but not otherwise defined
therein will have the respective meanings assigned to such terms in this
Agreement.
Section 7.13 Termination. This Agreement may be terminated and
the Distribution abandoned at any time prior to the Time of Distribution by and
in the sole discretion of the Rockwell Board without the approval of the Company
or of Rockwell's shareowners. In the event of such termination, no party will
have any liability of any kind to any other party on account of such
termination.
Section 7.14 Change of Name. On or promptly after the
Distribution Date, the Company will take such actions as may be required to
change the names of all employee benefit plans sponsored or maintained by it or
its Affiliates to eliminate therefrom any reference to "Rockwell", "Rockwell
International", "Collins" or any derivative thereof.
Section 7.15 Waivers; Remedies. No failure or delay on the
part of either Rockwell or the Company in exercising any right, power or
privilege hereunder will operate as a waiver thereof, nor will any waiver on the
part of either Rockwell or the Company of any right, power or privilege
hereunder operate as a waiver of any other right, power or privilege hereunder,
nor will any single or partial exercise of any right, power or privilege
hereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies which
the parties may otherwise have at law or in equity.
Section 7.16 Counterparts. This Agreement may be executed in
separate counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts will together constitute the same
agreement.
Section 7.17 Performance. Each party will cause to be
performed and hereby guarantees the performance of all actions, agreements and
obligations set forth herein to be performed by any Subsidiary or Affiliate of
such party.
29
<PAGE> 33
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties as of the date first
hereinabove written.
ROCKWELL INTERNATIONAL
CORPORATION
By:
----------------------------------
[ ]
[ROCKWELL SEMICONDUCTOR
SYSTEMS, INC.]
By:
----------------------------------
[ ]
30
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE COMPANY
Rockwell Semiconductor Systems Colorado Springs, Inc. (Delaware)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED
BALANCE SHEET AT SEPTEMBER 30, 1997 AND JUNE 30, 1998, COMBINED STATEMENT OF
OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND FOR THE NINE MONTHS ENDED
JUNE 30, 1998 AND NOTES TO THE COMBINED FINANCIAL STATEMENTS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH COMBINED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1997
<PERIOD-END> SEP-30-1997 JUN-30-1998
<CASH> 14 14
<SECURITIES> 0 0
<RECEIVABLES> 223 195
<ALLOWANCES> 23 31
<INVENTORY> 223 333
<CURRENT-ASSETS> 521 612
<PP&E> 802 840
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 1,486 1,590
<CURRENT-LIABILITIES> 299 233
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 1,107 1,276
<TOTAL-LIABILITY-AND-EQUITY> 1,486 1,590
<SALES> 1,412 936
<TOTAL-REVENUES> 1,412 936
<CGS> 220 556
<TOTAL-COSTS> 1,245 998
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 180 (52)
<INCOME-TAX> 54 (24)
<INCOME-CONTINUING> 126 (28)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 126 (28)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
