<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 7, 1999
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CONEXANT SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C> <C>
DELAWARE 4311 JAMBOREE ROAD 25-1799439
(STATE OR OTHER JURISDICTION OF NEWPORT BEACH, CALIFORNIA (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) 92660-3095 IDENTIFICATION NO.)
(949) 483-4600
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
DENNIS E. O'REILLY, ESQ.
SENIOR VICE PRESIDENT,
GENERAL COUNSEL AND SECRETARY
CONEXANT SYSTEMS, INC.
4311 JAMBOREE ROAD
NEWPORT BEACH, CALIFORNIA 92660-3095
(949) 483-4600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
PETER R. KOLYER, ESQ.
CHADBOURNE & PARKE LLP
30 ROCKEFELLER PLAZA
NEW YORK, NEW YORK 10112
(212) 408-5100
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after this registration statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE OFFERING OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
4 1/4% Convertible Subordinated Notes
Due May 1, 2006.................... $350,000,000 100% $350,000,000 $97,300
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Common Stock, par value $1 per share
(including the associated Preferred
Share Purchase Rights)............. 7,576,413 shares(2) -- -- --
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</TABLE>
(1) Equals the aggregate principal amount of the notes being registered.
Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act.
(2) Represents the number of shares of common stock, including the associated
preferred share purchase rights, that are currently issuable upon conversion
of the notes. Pursuant to Rule 416 under the Securities Act, the registrant
is also registering such indeterminate number of shares of common stock,
including the associated preferred share purchase rights, as may be issued
from time to time upon conversion of the notes as a result of the
antidilution provisions relating to the notes. No additional consideration
will be received for the common stock or the associated preferred share
purchase rights, and therefore no registration fee is required pursuant to
Rule 457(i).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS INCOMPLETE AND MAY BE CHANGED. THE SELLING
SECURITYHOLDERS MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS
IS NOT AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 7, 1999
PROSPECTUS
$350,000,000
CONEXANT SYSTEMS, INC.
4 1/4% CONVERTIBLE SUBORDINATED NOTES DUE MAY 1, 2006
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES
------------------------
On May 12, 1999, we issued and sold $350,000,000 aggregate principal amount
of our 4 1/4% Convertible Subordinated Notes Due May 1, 2006 in a private
offering. This prospectus will be used by selling securityholders to resell the
notes and the common stock issuable upon conversion of the notes. Interest on
the notes is payable in arrears on May 1 and November 1 of each year, beginning
on November 1, 1999. The notes mature on May 1, 2006 unless earlier converted or
redeemed. The notes are unsecured and rank junior to our existing and future
senior indebtedness.
The holders of the notes may convert all or any portion of a note in
multiples of $1,000 into our common stock at a conversion price of $46.196 per
share, subject to adjustment in certain events. Our common stock is traded on
the Nasdaq National Market under the symbol "CNXT". On July 6, 1999, the last
reported sale price for our common stock on the Nasdaq National Market was
$57 11/16 per share.
Prior to May 6, 2002, we may not redeem the notes. Beginning May 6, 2002,
we may redeem all or a portion of the notes. Holders of the notes also have an
option to require us to repurchase the notes should our business undergo certain
fundamental changes. You can find a more extensive description of the notes, as
well as a list of the prices at which the notes may be redeemed, beginning on
page 33.
We will not receive any proceeds from the sale by the selling
securityholders of the notes or the common stock issuable upon conversion of the
notes. Other than selling commissions and fees and stock transfer taxes, we will
pay all expenses of the registration and sale of the notes and the common stock.
INVESTING IN THE NOTES OR THE COMMON STOCK INTO WHICH THE NOTES ARE
CONVERTIBLE INVOLVES A HIGH DEGREE OF RISK. PLEASE CONSIDER THE "RISK FACTORS"
BEGINNING ON PAGE 6 OF THIS PROSPECTUS.
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 PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this prospectus is , 1999.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 6
Ratio of Earnings to Fixed Charges.......................... 19
Use of Proceeds............................................. 20
Price Range of Common Stock................................. 20
Dividend Policy............................................. 20
Selected Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Description of Notes........................................ 33
Description of Capital Stock................................ 43
Certain Federal Income Tax Considerations................... 47
Selling Securityholders..................................... 53
Plan of Distribution........................................ 55
Legal Matters............................................... 57
Experts..................................................... 57
How to Obtain More Information.............................. 57
Forward-Looking Statements.................................. 58
</TABLE>
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2
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PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
and our financial statements, including the related notes, included or
incorporated by reference in this prospectus. You should carefully consider,
among other things, the matters set forth in "Risk Factors" beginning on page 6.
For presentation purposes, references made to any fiscal year ending September
30 relate to the fiscal year ending on the nearest Friday to September 30 of
that year, and references made to the fiscal quarters and six months ended March
31, 1998 and March 31, 1999 relate to the fiscal quarters and six months ended
April 3, 1998 and April 2, 1999, respectively.
CONEXANT SYSTEMS, INC.
Conexant Systems, Inc., which may be referred to as Conexant, we, us or
our, is the world's largest independent company focused exclusively on providing
semiconductor products for communications electronics. With more than 30 years
of experience in developing analog modem technology, we draw upon our expertise
in mixed-signal processing and communications technology to deliver
semiconductor integrated circuit products and system-level solutions for a broad
range of communications applications. These 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. We have aligned our business into five platforms:
- Personal Computing
- Personal Imaging
- Wireless Communications
- Digital Infotainment
- Network Access
Before December 31, 1998, Conexant was a wholly-owned subsidiary of
Rockwell International Corporation and, together with certain other subsidiaries
and divisions of Rockwell, operated Rockwell's semiconductor systems business
("Semiconductor Systems"). On December 31, 1998, all of the then outstanding
shares of our common stock were distributed to Rockwell shareowners and Conexant
became an independent, publicly-held corporation. Our principal offices are
located at 4311 Jamboree Road, Newport Beach, California 92660-3095.
Unless the context otherwise indicates, as used in this prospectus, all
references to Conexant, we, us and our are to Semiconductor Systems for periods
prior to our spin-off from Rockwell and to Conexant Systems, Inc. and its
subsidiaries for periods following the spin-off.
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SUMMARY FINANCIAL DATA
The following summary financial data have been derived from financial
statements of ours and, for periods prior to January 1, 1999, of Semiconductor
Systems as a part of Rockwell. The data should be read in conjunction with the
selected financial data under "Selected Financial Data" and our financial
statements and the related notes incorporated by reference into this prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
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1998 1997 1996 1995 1994 1999 1998
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(IN MILLIONS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED AND COMBINED
STATEMENT OF OPERATIONS DATA:
Net sales....................... $1,200 $1,412 $1,470 $ 784 $ 599 $612 $657
Gross margin.................... 311 679 622 301 252 208 301
Operating (loss) earnings....... (440)(1) 169(2) 195(2) 107 99 (87)(1) 3
Net (loss) income............... (262)(1) 126(2) 84(2) 76 67 (50)(1) 5
OTHER DATA:
Ratio of earnings to fixed
charges(3).................... -- 46.1x 98.5x 71.6x 79.9x -- 4.4x
Capital expenditures............ $ 270 $ 317 $ 380 $ 166 $ 148 $ 33 $122
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
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AS
ACTUAL ADJUSTED(4)
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(MILLIONS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 159 $ 400
Working capital............................................. 239 580
Property, net............................................... 651 651
Total assets................................................ 1,317 1,567
Total debt.................................................. 100 350
Shareholders' equity........................................ 911 911
</TABLE>
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(1) In September 1998, we recorded special charges of approximately $147 million
related to our decision to close and dispose of our wafer fabrication
facilities in Colorado Springs, Colorado, a worldwide workforce reduction
and certain other actions. In the first quarter of fiscal 1999, we recorded
additional special charges of $18 million related to the restructuring
initiated in the fourth quarter of 1998 and an additional asset impairment
charge of $20 million for the Colorado Springs wafer fabrication facility as
a result of Rockwell's decision to further write-down the facility.
(2) In fiscal 1997 and 1996, we incurred charges of $30 million and $121 million
for purchased research and development relating to the acquisitions of the
Hi-Media broadband communication chipset business of ComStream Corporation
and Brooktree Corporation, respectively.
(3) Computed by dividing (a) earnings before taxes adjusted for fixed charges by
(b) fixed charges, which include interest expense plus the portion of
interest expense under operating leases deemed by us to be representative of
the interest factor plus amortization of debt issuance costs. In the fiscal
year ended September 30, 1998 and the six months ended March 31, 1999 our
losses before taxes of $430 million and $87 million, respectively, were not
adequate to cover fixed charges of $6 million and $4 million, respectively.
(4) Reflects the issuance of the notes and the application of the net proceeds
therefrom (after deducting expenses of the offering), including the
repayment of $100 million of short-term borrowings under our existing bank
credit facility.
4
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THE OFFERING
SECURITIES OFFERED............ $350,000,000 aggregate principal amount of our
4 1/4% convertible subordinated notes due May
1, 2006 and shares of our common stock issuable
upon conversion of the notes.
MATURITY DATE................. May 1, 2006, unless earlier redeemed or
converted.
INTEREST...................... 4 1/4% per year. We will pay interest on May 1
and November 1 of each year, commencing
November 1, 1999.
CONVERSION.................... Holders of the notes may convert all or any
part of the notes at any time prior to
redemption or maturity at a conversion price of
$46.196 per share, subject to adjustment in
certain circumstances. You should read the
information under the heading "Description of
Notes -- Conversion of Notes" on page 35 for
more information on the conversion of the
notes.
SUBORDINATION................. The notes are subordinated to all existing and
future senior indebtedness, as described in
"Description of Notes -- Subordination of
Notes". The amount of indebtedness, including
senior indebtedness, that we may incur is not
limited by the notes or the indenture.
OPTIONAL REDEMPTION........... At any time on or after May 6, 2002, we may at
our option redeem the notes on at least 30
days' notice, in whole or in part, at the
redemption prices set forth in this prospectus
under "Description of Notes -- Optional
Redemption by Conexant", together with accrued
interest.
FUNDAMENTAL CHANGE............ Upon the occurrence of certain fundamental
changes in our business as described in
"Description of Notes -- Redemption at Option
of the Holder", each holder of a note will have
the right to require us to redeem all or any
part of the holder's notes at a redemption
price equal to 100% of the outstanding
principal amount of the notes being redeemed,
plus accrued interest.
USE OF PROCEEDS............... We will not receive any of the proceeds from
the sale of the notes or the common stock
issuable upon conversion of the notes offered
by this prospectus.
REGISTRATION RIGHTS........... Under the registration rights agreement we
entered into with the initial purchasers of the
notes, we have agreed to register the notes and
the common stock issuable upon conversion of
the notes, subject to certain conditions. For a
discussion of these conditions and the
circumstances under which we are required to
pay liquidated damages to holders of the notes
upon our failure to fulfill our registration
obligations, see "Description of
Notes -- Registration Rights of Holders of the
Notes" beginning on page 41.
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RISK FACTORS
You should carefully consider and evaluate all of the information in this
prospectus, including the risk factors listed below. Any of these risks could
materially and adversely affect our business, financial condition and results of
operations, which in turn could materially and adversely affect the price of the
notes and the common stock.
WE HAVE INCURRED SUBSTANTIAL LOSSES IN THE RECENT PAST.
We experienced rapid growth in sales and operating earnings during the five
fiscal years ended September 30, 1996. However, in fiscal 1997 sales declined
$58 million, or 4 percent, to $1,412 million and operating earnings declined
$117 million, or 37 percent, to $199 million, before acquisition-related charges
in both fiscal 1996 and 1997. Moreover, for the fiscal year ended September 30,
1998, we had sales of $1,200 million and incurred an operating loss of $440
million.
In September 1998, we announced a comprehensive plan to restructure our
business to position us for future profitability. This plan resulted in fourth
quarter fiscal 1998 special charges of approximately $147 million and included
workforce reductions, facility closures and other actions. Our fiscal 1998
full-year net loss was $262 million, including inventory write-offs of $66
million, a charge for intellectual property matters of $43 million and the
fourth quarter special charges.
For the six months ended March 31, 1999, our net loss was $50 million,
which included $18 million of restructuring charges and a $20 million additional
asset impairment writedown related to the Colorado Springs wafer fabrication
facilities which were distributed to Rockwell in December 1998. Although we
reported net income of $8 million for the second quarter of fiscal 1999, we
cannot assure you we will be able to sustain profitability.
WE MAY NOT BE ABLE TO OFFSET THE DECLINING CONTRIBUTION OF OUR ANALOG PC MODEM
BUSINESS.
While we are the world's leading supplier of analog PC (personal computer)
modem chipsets for personal computing applications, revenues and gross margin
from sales of these products have been declining. This decline is attributable
to a number of factors, including:
- competitive price pressures as modem chipset suppliers aggressively
compete for market share,
- the transition to lower-priced, host-controlled or software modems and
- the lack of a next generation upgrade path due to technological
limitations on analog modem technology.
Revenues of our Personal Computing platform declined from $1,173 million
(approximately 80 percent of sales) in fiscal 1996 to $640 million
(approximately 53 percent of sales) in fiscal 1998. For the first six months of
fiscal 1999, revenues of our Personal Computing platform were $302 million
(approximately 49 percent of sales) compared to $382 million (approximately 58
percent of sales) for the first six months of fiscal 1998. Our revenues and
margins from sales of analog PC modem products are expected to decline further
as unit growth in the markets for these products is not anticipated to offset
continued price erosion.
Recently, as a result of the significant price erosion for PCs, PC OEMs
(original equipment manufacturers) have been demanding less expensive modem
devices. This has placed significant pricing pressure on our traditional
hardware-based modem chipset products, as well as our software modem products.
Our 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 our business, financial condition and results of operations.
6
<PAGE> 8
OUR FUTURE FINANCIAL PERFORMANCE AND OVERALL SUCCESS ARE DEPENDENT ON
TIMELY SUCCESS OF OUR EXPANSION PLATFORMS.
We are dependent on the success of our plan, begun in 1995, to diversify
our business and expand into the following selected related product platforms:
- Personal Imaging
- Wireless Communications
- Digital Infotainment
- Network Access
These platforms offer higher growth prospects than our analog PC modem
business. Our future financial performance and overall success, particularly in
the long term, will depend largely on two factors:
- first, the rate of sales growth and margin contribution of these
expansion platforms, and
- second, whether these platforms will increase their contribution to
financial performance sufficiently and soon enough to offset the
anticipated continued declining financial contribution of analog PC modem
chipset products.
There are numerous risks inherent in this diversification and expansion
strategy, many of which are beyond our control. In certain product lines within
these expansion platforms, we currently have minimal market presence relative to
other more established competitors. Moreover, success with these expansion
platforms will depend, in part, on our customers' ability to develop new and
enhanced products and to successfully market those products to end users. We
cannot assure you that our diversification and expansion program will be
successful. A failure of this program would have a material adverse effect on
our business, financial condition and results of operations.
WE MAY NOT BE ABLE TO KEEP ABREAST OF THE RAPID TECHNOLOGICAL CHANGES IN
OUR MARKETS.
The demand for our products can change quickly and in ways we may not
anticipate because our markets generally exhibit the following characteristics:
- 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.
Our products could become obsolete sooner than anticipated because of a
faster than anticipated change in one or more of the technologies related to our
products or in market demand for products based on a particular technology,
particularly due to the introduction of new technology that represents a
substantial advance over current technology. Such an event could have a material
adverse effect on our business, financial condition and results of operations.
For example, increased market demand for sub-$1,000 PCs is causing PC OEMs to
require less expensive modem devices, such as software modems. These software
modems require fewer semiconductor components than our traditional modem
chipsets. As a result, these devices may render obsolete the traditional
hardware upgrade path for our modem products.
Currently accepted industry standards are also subject to change and may
potentially contribute to the obsolescence of our products.
7
<PAGE> 9
OUR OPERATING RESULTS AND COMPETITIVE POSITION DEPEND ON NEW PRODUCT DEVELOPMENT
AND PRODUCT COST REDUCTIONS.
Our operating results will depend largely on our ability to continue to
introduce new and enhanced semiconductor products on a timely basis. Successful
product development and introduction depends on numerous factors, including:
- our 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 competitors and
- market acceptance.
Furthermore, we need to continually evaluate expenditures for planned
product development and to choose among alternative technologies based upon our
expectations of future market growth. We cannot assure you that we will be able
to develop and introduce new or enhanced products in a timely and cost-
effective manner, that our products will satisfy customer requirements or
achieve market acceptance, or that we will be able to anticipate new industry
standards and technological changes. We also cannot assure you that we will be
able to respond successfully to new product announcements and introductions by
competitors.
In addition, the prices of established products decline, sometimes
significantly, over time. To remain competitive, we must continue to reduce the
cost of producing and delivering existing products at the same time that we
develop and introduce new or enhanced products. We cannot assure you that we
will be able to continue to reduce the cost of our products to remain
competitive.
WE FACE A RISK THAT CAPITAL NEEDED FOR OUR BUSINESS WILL NOT BE AVAILABLE WHEN
WE NEED IT.
For several years, we obtained significant investments from Rockwell to
help satisfy our capital needs. We can no longer rely on these investments from
Rockwell. However, we have a three-year $350 million secured revolving credit
facility which is available for working capital and other general corporate
purposes.
We believe that anticipated improved cash flows from operations resulting
in part from the recently completed restructuring actions announced in September
1998, available borrowings under our credit facility and the proceeds of the
initial private placement of the notes will be sufficient to satisfy our future
research and development, capital expenditure, working capital and other
financing requirements. However, we cannot assure you that this will occur or
that we will have access to alternative sources of liquidity.
WE MUST INCUR SUBSTANTIAL RESEARCH AND DEVELOPMENT EXPENSES.
To remain competitive, we must continue to make substantial investments in
research and development to develop new and enhanced products. The semiconductor
industry requires substantial investment in research and development. We cannot
assure you that we will have sufficient resources to develop new and enhanced
technologies and competitive products.
As part of the plan we announced in September 1998 to restructure our
business, we reduced research and development expenditures for the first six
months of fiscal 1999 to $140 million from $164 million for the first six months
of fiscal 1998. Our failure to continue to make sufficient investments in
research and development programs could have a material adverse effect on our
business, financial condition and results of operations.
WE MUST INCUR SIGNIFICANT CAPITAL EXPENDITURES FOR MANUFACTURING CAPACITY.
To remain competitive, we need to make significant capital expenditures for
manufacturing technology and equipment. The semiconductor industry is capital
intensive. Semiconductor manufacturing requires a
8
<PAGE> 10
constant upgrading of process technology to remain competitive, particularly as
new and enhanced semiconductor processes are developed allowing for smaller,
more efficient and more powerful semiconductor devices.
Our manufacturing, assembly and test facilities 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, we expect capital expenditures in fiscal 1999 to be
approximately 20 to 30 percent less than in fiscal 1998. For the first six
months of fiscal 1999, capital expenditures were $33 million, compared to $122
million for the first six months of fiscal 1998. We cannot assure you that we
will have sufficient capital resources to make necessary investments in
manufacturing technology and equipment.
OUR OPERATING RESULTS ARE SUBJECT TO SUBSTANTIAL QUARTERLY AND ANNUAL
FLUCTUATIONS AND TO MARKET DOWNTURNS.
These fluctuations are due to a number of factors, many of which are beyond
our control. These factors include:
- the effects of competitive pricing pressures,
- decreases in average selling prices of our products,
- production capacity levels and fluctuations in manufacturing yields,
- availability and cost of products from our suppliers,
- the gain or loss of significant customers,
- our ability to develop, introduce and market new products and
technologies on a timely basis,
- new product and technology introductions by competitors,
- changes in the mix of products produced and sold,
- market acceptance of our products and those of our customers,
- intellectual property disputes,
- seasonal customer demand,
- the timing of significant orders and
- the timing and extent of product development costs.
General economic or other conditions causing a downturn in the market for
semiconductor products, affecting the timing of customer orders or causing
cancellations or rescheduling of orders, could also adversely affect our
operating results. Moreover, our 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, as well as other
factors, could materially adversely affect our quarterly or annual operating
results. If our operating results fail to meet the expectations of analysts or
investors, it could materially and adversely affect the price of the notes and
of the common stock.
OUR BANK CREDIT FACILITY MAY RESTRICT OUR OPERATING AND FINANCIAL FLEXIBILITY.
Our credit facility is guaranteed by each of our domestic subsidiaries.
Substantially all of our assets, the assets of our domestic subsidiaries and the
stock of our domestic and foreign subsidiaries, subject to certain exceptions,
have been pledged as collateral to secure repayment of the facility. The credit
facility includes restrictions on capital expenditures, indebtedness,
acquisitions, mergers, asset sales and liens on assets that apply to us and our
subsidiaries. We also must meet certain financial tests and maintain certain
financial ratios. Although we believe that we will be able to comply with these
requirements, compliance with these requirements may restrict our operating and
financial flexibility. We cannot assure you that we will in fact be
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<PAGE> 11
able to satisfy all of the requirements in the credit facility. If we do not
satisfy the financial ratios or comply with the other covenants included in the
credit facility, the lenders under the credit facility could declare all amounts
owed to them due and payable and proceed against their collateral. A foreclosure
on the collateral would have a material adverse effect on our business,
financial condition and results of operations.
WE ENGAGE IN LITIGATION TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND TO
DEFEND OURSELVES AGAINST CLAIMS OF INFRINGEMENT BY OTHERS.
Our business faces risks of intellectual property obsolescence,
infringement and litigation. The semiconductor industry is characterized by
vigorous protection and pursuit of intellectual property rights. In the past, we
have found it necessary to engage in litigation to enforce our intellectual
property rights, protect our trade secrets or determine the validity and scope
of proprietary rights of others, including our customers. We expect future
litigation on similar grounds.
We have received, and may receive in the future, claims of infringement of
intellectual property rights of others. There are pending proceedings involving
such claims. We cannot assure you that:
- we will prevail in pending actions,
- other actions alleging the infringement by us of third-party patents or
the invalidity of our patents will not be asserted or prosecuted against
us, or
- any assertions of infringement or actions seeking to establish the
invalidity of our patents will not materially and adversely affect our
business, financial condition and results of operations.
Even if we are successful in such matters, the attempted enforcement of
intellectual property rights by or against us could result in significant costs
and diversion of resources. It could also have a material adverse effect on our
business, financial condition and results of operations. If claims or actions
are asserted or commenced against us, we may seek to obtain licenses under a
third-party's intellectual property rights to avert or resolve a controversy. We
cannot assure you that under such circumstances a license would be available on
commercially reasonable terms, if at all.
WE MAY NOT BE SUCCESSFUL IN PROTECTING OUR INTELLECTUAL PROPERTY RIGHTS.
We rely primarily on patent, copyright, trademark and trade secret laws, as
well as nondisclosure and confidentiality agreements and other methods, to
protect our proprietary technologies and processes. In addition, we often
incorporate the intellectual property of our customers into our designs and have
certain obligations with respect to the non-use and non-disclosure of their
intellectual property. We cannot assure you that:
- the steps that we take to prevent misappropriation or infringement of our
intellectual property or the intellectual property of our customers will
be successful,
- any existing or future patents will not be challenged, invalidated or
circumvented, or
- any of the protective measures described above would provide meaningful
protection.
Despite these precautions, it may be possible for a third-party to copy or
otherwise obtain and use our technology without authorization, develop similar
technology independently or design around our patents. If any of our patents
fail to protect our technology it will be easier for our competitors to offer
similar products. In addition, effective copyright, trademark and trade secret
protection may be unavailable or limited in certain countries.
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<PAGE> 12
OUR INTELLECTUAL PROPERTY INDEMNIFICATION POLICY MAY ADVERSELY IMPACT OUR
BUSINESS.
We have historically indemnified customers for certain of the costs and
damages of patent infringement where our product is the factor creating the
customer's infringement exposure. This policy generally excludes circumstances
where infringement arises out of the combination of our products with products
of others. This indemnification policy could have a material adverse effect on
our business, financial condition and results of operations, particularly in
situations where our products are designed for use in devices manufactured by
our customers that comply with international standards. These international
standards are often covered by patent rights held by our competitors or
customers. 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 our business, financial condition and results of operations.
WE ARE SUBJECT TO INTENSE COMPETITION.
We currently face significant competition in our markets and expect that
intense price and product competition will continue. This competition has
resulted and is expected to continue to result in declining average selling
prices for our products. We also anticipate that additional competitors will
enter our markets as a result of growth opportunities in communications
electronics, 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.
We currently enjoy substantial market shares in our analog data and fax
modem chipset product lines. However, as we pursue our diversification strategy
and develop expansion platforms, we will be competing in certain new markets in
which we have little or no market share and where existing competitors have
dominant market positions. Moreover, as with many companies in the semiconductor
industry, certain of our customers offer products that compete with similar
products offered by us.
We believe that the principal competitive factors in our 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 we compete vary by product platform.
We compete with a number of U.S. and international semiconductor
manufacturers. Many of our current and potential competitors have certain
advantages, including:
- 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 we have.
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<PAGE> 13
As a result, these competitors may be able to adapt more quickly to new or
emerging technologies and changes in customer requirements. These competitors
may be able to devote greater resources to the development, promotion and sale
of their products than Conexant.
These competitors also have established or may establish financial or
strategic relationships among themselves or with our existing or potential
customers, resellers or other third parties. These relationships may affect
customers' purchasing decisions. Accordingly, it is possible that new
competitors or alliances among competitors could emerge and rapidly acquire
significant market share. We cannot assure you that we will be able to compete
successfully against these competitors. We also cannot assure you that
competition will not have a material adverse effect on our business, financial
condition and results of operations.
Many of our competitors have combined with each other and consolidated
their businesses, including the consolidation of competitors with our customers.
This is attributable to a number of factors, including the high-growth nature of
the communications electronics industry and the "time-to-market" pressures on
suppliers to decrease the time required for product conception, research and
development, sampling and production launch prior to the product reaching the
market. This consolidation trend is expected to continue, since investments,
alliances and acquisitions may enable semiconductor suppliers, including
Conexant and our competitors, to augment technical capabilities or to achieve
faster time-to-market for their products than would be possible solely through
internal development.
Consolidations by industry participants are creating entities with
increased market share, customer base, technology and marketing expertise in
markets in which we compete. These developments may significantly and adversely
affect our current markets, the markets we want to serve and our ability to
compete successfully in those markets.
WE ARE SUBJECT TO NUMEROUS RISKS IN OUR MANUFACTURING OPERATIONS.
Our manufacturing operations are complex and subject to disruption due to
causes beyond our control. The fabrication of integrated circuits is an
extremely complex and precise process consisting of hundreds of separate steps.
It requires 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 a substantial number of die
on each wafer not to function.
We operate our own manufacturing, assembly and test facilities. We also
have arrangements with third parties, including entities outside the United
States, for the production, assembly and testing of semiconductor products. Our
assembly and test facility in Mexicali, Mexico and our international subcontract
manufacturing arrangements are subject to a number of risks of operating abroad.
We, as well as the semiconductor industry in general, have in the past
experienced periods of excess wafer fabrication capacity. When there is excess
wafer fabrication capacity in the industry in general, outside foundries
typically reduce their prices significantly, thereby creating large pricing
advantages for our competitors who rely primarily on outside foundries. If we
experience an excess of our own wafer fabrication capacity, we could also be at
a relative disadvantage to certain of our competitors who rely primarily on
outside foundries because our wafer fabrication facilities involve substantial
fixed costs and investment.
We continue to increase our use of outside foundries worldwide as an
integral part of our wafer manufacturing strategy. In addition, we will explore
alternative strategic alliances to secure an assured source of wafer supply
going forward. We cannot assure you that we will succeed in implementing any
such alternatives.
Our operations may be affected by lengthy or recurring disruptions at any
of our production facilities or those of our subcontractors. These disruptions
may include labor strikes, work stoppages, fire, earthquake, flooding or other
natural disasters. These disruptions could cause significant delays in shipments
until we are able to shift the products from an affected facility or
subcontractor to another facility or subcontractor.
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<PAGE> 14
In the event of these types of delays, we cannot assure you that required
alternate capacity, particularly wafer production capacity, would be available
on a timely basis or at all. Even if capacity is available, we cannot assure you
that it could be obtained on favorable terms. If we cannot obtain alternate
capacity on favorable terms we could lose customers. If we cannot obtain
sufficient manufacturing capacities to meet demand, either at our own facilities
or through foundry or similar arrangements with others, our business, financial
condition and results of operations could be materially and adversely affected.
Certain of our manufacturing facilities are located near major earthquake
fault lines, including our Newport Beach, California wafer fabrication facility
and our Mexicali, Mexico assembly and test facility. We have only minimal
earthquake insurance coverage with respect to these facilities.
The gallium arsenide semiconductor manufacturing process used at our
Newbury Park, California wafer fabrication facility is highly specialized in
nature. In the event of a disruption, alternate gallium arsenide production
capacity would not be readily available from third-party sources. In addition,
we are currently dependent on a single source supplier for epitaxial wafers used
in the gallium arsenide 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.
Any disruption of operations at our Newbury Park, California wafer
fabrication facility or the interruption in the supply of epitaxial wafers used
in its gallium arsenide process could have a material adverse effect on our
business, financial condition and results of operations, particularly with
respect to our Wireless Communications and Network Access products.
In the past, we have not had any significant difficulties in obtaining an
adequate supply of raw materials and components necessary for our manufacturing
operations. However, 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 our business, financial condition and
results of operations.
WE ARE SUBJECT TO ORDER AND SHIPMENT UNCERTAINTIES WHICH MAY RESULT IN OBSOLETE
OR EXCESS INVENTORY.
We are subject to inventory risks because we do not control the timing or
volume of orders placed by our customers. We typically make sales through
individual purchase orders. We generally do not have long-term supply
arrangements with our customers. Our policy is to allow customers to cancel
orders until 30 days before the shipping date. In addition, we sell some
products through distributors who have certain rights to return unsold products
to us.
Moreover, semiconductor companies, including Conexant, routinely
manufacture or purchase inventory based on estimates of customer demand for
their products, which is often difficult to predict. We could hold excess or
obsolete inventory resulting from the cancellation or deferral of product
orders, the return of previously sold products or overproduction due to
over-estimating orders. This excess or obsolete inventory could have a material
adverse effect on our business, financial condition and results of operations.
WE ARE SUBJECT TO THE 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 connected 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.
We have recently experienced these conditions in our analog PC modem
chipset business and may experience downturns in the future. In fiscal 1998,
average selling prices for our PC products fell by approximately 50 percent, the
annual growth rate for such products fell to approximately 20 percent and, in
the fourth quarter, we made a provision for excess and obsolete inventories of
$66 million. Any future
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<PAGE> 15
downturns of this nature could have a material adverse effect on our business,
financial condition and results of operations.
WE DEPEND ON OUR KEY PERSONNEL.
Our future success depends largely upon the continued service of our
executive officers and other key management and technical personnel. Our success
also depends on our ability to continue to attract, retain and motivate
qualified personnel. We are dependent on key technical personnel. They represent
a significant asset, as the source of our technological and product innovations.
The competition for such personnel is intense in the semiconductor industry. We
cannot assure you that we will be able to attract and retain qualified
management and other personnel necessary for the design, development,
manufacture and sale of our products.
We may have difficulty attracting and retaining key personnel during
periods of poor operating performance given the significant use of incentive
compensation both by us and our competitors. The loss of one or more of our key
employees or our inability to attract, retain and motivate qualified personnel
could have a material adverse effect on our business, financial condition and
results of operations. In particular, the loss of the services of Dwight W.
Decker, our Chairman and Chief Executive Officer, or certain key design and
technical personnel, could materially and adversely affect us.
WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL SALES AND OPERATIONS.
Our international sales and operations are subject to a number of risks
inherent in selling and operating abroad. These include risks regarding:
- 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.
For the six months ended March 31, 1999, we made approximately 65 percent
of our total sales to customers located outside the United States, primarily in
Japan, other Asian-Pacific countries and Europe. In addition, we have facilities
and suppliers located outside the United States. These include our assembly and
test facility in Mexicali, Mexico and third-party foundries located in the
Asia-Pacific region.
Most of our international sales are currently denominated in U.S. dollars.
As a result, our products could become less competitive in international markets
if the value of the U.S. dollar increases relative to foreign currencies. Sales
to Japan, which are denominated principally in Japanese yen, are not affected to
the same extent.
Moreover, we may be competitively disadvantaged relative to our competitors
located outside the United States, including Japan, who may benefit from a
devaluation of their local currency. The above factors may
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<PAGE> 16
have a material adverse effect on our ability to increase or maintain our
foreign sales or on our business, financial condition and results of operations.
The economic situation in Japan and the Asia-Pacific region in fiscal 1998
impacted several of our businesses, most notably the Personal Imaging platform.
Although the economic situation appears to be improving, we cannot assure you
that these regions will achieve a full economic recovery. Sales to customers in
Japan and other countries in the Asia-Pacific region, principally Taiwan, South
Korea and Hong Kong, represented approximately 54 percent of our total sales for
the six months ended March 31, 1999.
We use 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. We have not entered into foreign currency forward exchange contracts
for other purposes, and our financial condition and results of operations could
be affected (negatively or positively) by currency fluctuations.
WE FACE RISKS ASSOCIATED WITH INVESTMENTS, ALLIANCES AND ACQUISITIONS.
Although we invest significant resources in research and development
activities, the complexity and rapidity of technological changes make it
impractical for us to pursue development of all technological solutions on our
own. Accordingly, we will review on an ongoing basis investment, alliance and
acquisition prospects that would complement our existing product offerings,
augment our market coverage or enhance our technological capabilities. However,
we cannot assure you that we will be able to identify and consummate suitable
investment, alliance or acquisition transactions in the future.
Moreover, if we consummate such transactions, they could result in:
- the diversion of management resources,
- 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 these events could materially adversely affect our business, financial
condition and results of operations and the price of the notes and common stock.
The ultimate success of any such investments, alliances or acquisitions in
achieving the purposes for which they are undertaken will depend on our ability
to integrate successfully any acquired business and to retain key personnel, as
well as a variety of other factors.
OUR MANAGEMENT FACES SIGNIFICANT DEMANDS ON THEIR RESOURCES.
Our management currently faces a variety of challenges. These include
implementing our ongoing diversification and expansion strategy and expanding
the infrastructure and systems necessary for us to operate as an independent
public company. While we believe that we have sufficient management resources to
execute each of these initiatives, we cannot assure you that we will have these
resources or that our initiatives will be successfully implemented. Failure to
implement these initiatives successfully could have a material adverse effect on
our business, financial condition and results of operations.
WE ARE SUBJECT TO ENVIRONMENTAL REGULATIONS AND THE RISK OF ENVIRONMENTAL
LIABILITY.
We use a variety of chemicals in our manufacturing operations and are
subject to a wide range of environmental protection regulations in the United
States and Mexico. While we have not experienced any material adverse effect on
our operations as a result of such regulations, we cannot assure you that
current or
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<PAGE> 17
future regulations would not have a material adverse effect on our business,
financial condition and results of operations.
In the United States, environmental regulations often require parties to
fund remedial action regardless of fault. Consequently, it is often difficult to
estimate the future impact of environmental matters, including potential
liabilities. We cannot assure you that the amount of expense and capital
expenditures that might be required to complete remedial actions and to continue
to comply with applicable environmental laws will not have a material adverse
effect on our business, financial condition and results of operations. We have
been designated as a potentially responsible party, together with two additional
potentially responsible parties who are insolvent, at one site in Parker Ford,
Pennsylvania for which we have accrued approximately $3 million at March 31,
1999 for the cost of groundwater remediation. In addition, we are engaged in two
other remediations of groundwater contaminations at our Newport Beach and
Newbury Park, California facilities for which we have accrued approximately $5
million for the costs of remediation at March 31, 1999.
WE COULD BE ADVERSELY IMPACTED BY YEAR 2000 ISSUES.
We believe, based on available information, that we will be able to manage
our total year 2000 transition without any material adverse effect on our
business, financial condition and results of operations. However, we could be
adversely impacted by the year 2000 issues faced by major suppliers,
distributors, customers, vendors and financial services organizations with which
we interact. In addition, we may be adversely affected by the failure of
federal, state, local and international governments to address year 2000 issues
affecting their systems.
Our greatest area of uncertainty centers primarily in the supplier area,
due to the number of materials suppliers involved and their various stages of
readiness for year 2000. In particular, we are dependent on suppliers to upgrade
their systems to ensure an uninterrupted supply of materials. A year
2000-related failure by a significant materials supplier could result in the
temporary slowdown of our production. We estimate this slowdown would not last
more than a few days.
WE HAVE A LIMITED HISTORY AS AN INDEPENDENT COMPANY.
We have a limited operating history as an independent company. Accordingly,
the financial information presented in or incorporated into this prospectus for
periods prior to January 1, 1999 may not necessarily reflect the results of
operations, financial position and cash flows we would have had if we had
operated independently during the periods presented.
We cannot assure you that we will be profitable on an ongoing basis as a
stand-alone company. We have historically relied on Rockwell for cash
investments and various financial and administrative services. Rockwell
continues to provide us with certain transitional services. However, we must
maintain our own sources of funding, banking relationships and administrative
functions and eventually develop functions covered by the transitional services
from Rockwell.
THE VALUE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED BY ITS LIMITED TRADING
HISTORY, MARKET VOLATILITY AND THE SUBSTANTIAL NUMBER OF SHARES WHICH MAY BE
SOLD TO THE PUBLIC.
The notes are convertible into common stock, which has a limited trading
history and has fluctuated widely in price. The market value of the notes will
be affected by the fluctuations in the price of the common stock. The common
stock began trading on the Nasdaq National Market on January 4, 1999. We cannot
assure you that an active trading market in the common stock will be sustained
in the future.
The trading price of the common stock fluctuates significantly. Since the
common stock began trading publicly, the reported closing price of the common
stock on the Nasdaq National Market has been as high as $61 3/8 and as low as
$14 3/8 per share. This price may be influenced by many factors, including:
- our performance and prospects,
- the depth and liquidity of the market for the common stock,
- investor perception of Conexant and the industry in which it operates,
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<PAGE> 18
- 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 common stock.
The Rockwell International Corporation Salaried Retirement Savings Plan,
which as of December 31, 1998 held approximately 19.5 percent of the outstanding
shares of the common stock, provides plan participants (including our employees
who maintain account balances in the Rockwell savings plan) with the authority
to determine if and when shares of common stock held in participant accounts
will be sold and reinvested in accordance with the provisions of the Rockwell
savings plan. Under the Rockwell savings plan, subject to certain limitations,
dispositions of common stock will be effected only at the direction and on
behalf of individual participants.
THE NOTES ARE SUBORDINATED TO OUR SENIOR INDEBTEDNESS.
The notes are unsecured and subordinated in right of payment to all
existing and future senior indebtedness. In the event of our bankruptcy,
liquidation or reorganization or upon acceleration of the notes due to an event
of default under the indenture relating to the notes and in certain other
events, our assets will be available to pay obligations on the notes only after
all senior indebtednesss has been paid, and there may not be sufficient assets
remaining to pay amounts due on any or all of the notes then outstanding. The
notes also are effectively subordinated to the liabilities, including trade
payables, of any of our subsidiaries. The indenture does not prohibit or limit
the incurrence of senior indebtednesss or the incurrence of other indebtedness
and other liabilities by us or any of our subsidiaries. The incurrence of
additional indebtedness and other liabilities by us or any of our subsidiaries
could adversely affect our ability to pay our obligations on the notes. As of
June 30, 1999, we had approximately $70 million of senior indebtednesss
outstanding under foreign exchange contracts, certain leases and letters of
credit. We anticipate that from time to time we will incur additional
indebtedness, including senior indebtednesss, and that our subsidiaries will
from time to time incur other additional indebtedness and liabilities. See
"Description of Notes -- Subordination of Notes".
WE MAY BE UNABLE TO REDEEM THE NOTES WHEN REQUIRED TO DO SO.
Upon a fundamental change, you may, at your option, require us to redeem
all or a portion of your notes. If a fundamental change were to occur, we cannot
assure you that we would have sufficient funds to pay the redemption price for
all notes tendered by the holders of the notes. In addition, in many cases, a
fundamental change would result in an event of default under our existing credit
facility. Any future credit agreements or other agreements relating to other
indebtedness, including other senior indebtedness, to which we become a party
may contain similar provisions, may expressly prohibit the repurchase of the
notes upon a fundamental change or may provide that a fundamental change
constitutes an event of default under that agreement.
If a fundamental change occurs at a time when we are prohibited from
purchasing or redeeming notes, we could seek the consent of our lenders to the
redemption of notes or could attempt to refinance the borrowings that contain
such prohibition. If we do not obtain a consent to repay those borrowings, we
could not purchase or redeem the notes. Our failure to redeem tendered notes
would constitute an event of default under the indenture, which might constitute
a default under the terms of our other indebtedness. In such circumstances, or
if a fundamental change would constitute an event of default under our senior
indebtednesss, the subordination provisions of the indenture would restrict
payments to the holders of notes.
The term "fundamental change" is limited to certain specified transactions
and may not include other events that might adversely affect our financial
condition. Our obligation to offer to redeem the notes upon a
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fundamental change would not necessarily afford holders of the notes protection
in the event of a highly leveraged transaction, reorganization, merger or
similar transaction involving Conexant. See "Description of Notes -- Redemption
at Option of the Holder".
THERE MAY BE A LIMITED MARKET FOR YOUR NOTES.
In May 1999, we issued the notes to the initial purchasers in a private
placement. The notes are eligible to trade on the PORTAL market. However, the
notes resold pursuant to this prospectus will no longer trade on the PORTAL
market. As a result, there may be a limited market for your notes. We do not
intend to list the notes on any national securities exchange or on the Nasdaq
National Market.
A public market may not develop for the notes. Although the investment
banking firms who were the initial purchasers of the notes advised us that they
intend to make a market in the notes, they are not obligated to do so and may
discontinue such market making at any time without notice. In addition, the
Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of
1934 (the "Exchange Act") impose limitations on market making activities.
Accordingly, we cannot assure you that any market for the notes will develop or,
if one does develop, that it will be maintained. If an active market for the
notes fails to develop or be sustained, the trading price of the notes could be
materially adversely affected.
PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND BY-LAWS, OUR RIGHTS AGREEMENT
AND DELAWARE LAW MAY DETER TAKEOVER ATTEMPTS.
We have established certain anti-takeover measures that may affect the
common stock and the notes. Our certificate of incorporation, our by-laws, the
Rights Agreement, as defined below, and the General Corporation Law of the State
of Delaware (the "DGCL") contain several provisions that would make it more
difficult to acquire control of Conexant in a transaction not approved by our
board of directors. Our certificate and by-laws include provisions such as:
- the ability of our board of directors to issue shares of preferred stock
in one or more series without further authorization of our shareholders,
- a fair price provision,
- a prohibition on shareholder action by written consent,
- a requirement that shareholders provide advance notice of any shareholder
nominations of directors or any proposal of new business to be considered
at any meeting of shareholders,
- a requirement that a supermajority vote be obtained to remove a director
for cause or to amend or repeal certain provisions of our certificate or
by-laws,
- elimination of the right of shareholders to call a special meeting of
shareholders and
- the division of our board of directors into three classes to be elected
on a staggered basis, one class each year.
We also have a rights agreement with ChaseMellon Shareholder Services,
L.L.C., as rights agent, dated as of November 30, 1998 (the "Rights Agreement"),
which gives our shareholders certain rights that would substantially increase
the cost of acquiring us in a transaction not approved by our board of
directors.
In addition to the Rights Agreement and the provisions in our certificate
and by-laws, Section 203 of the DGCL provides that, subject to certain
exceptions, a corporation shall not engage in any business combination with any
interested shareholder during the three-year period following the time that such
shareholder becomes an interested shareholder. The restrictions of Section 203
of the DGCL, in certain circumstances, make it more difficult for a person who
would be an interested shareholder to effect various business combinations with
a corporation during that three-year period. The provisions of Section 203 of
the DGCL provide that the shareholder approval requirement may be avoided if a
majority of the directors then in office approved either the business
combination or the transaction that resulted in the shareholder becoming an
interested shareholder.
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WE MAY BE RESPONSIBLE FOR CERTAIN FEDERAL INCOME TAX LIABILITIES RELATING TO OUR
SPIN-OFF FROM ROCKWELL.
In connection with our spin-off from Rockwell, the IRS issued a tax ruling
to Rockwell stating that the spin-off would qualify as a tax-free reorganization
within the meaning of Section 368(a)(1)(D) of the Internal Revenue Code. While
the tax ruling generally is binding on the IRS, the continuing validity of the
tax ruling is subject to certain factual representations and assumptions. We are
not aware of any facts or circumstances that would cause such representations
and assumptions to be untrue.
The Tax Allocation Agreement dated as of December 31, 1998 (the "Tax
Allocation Agreement") between Conexant and Rockwell provides that we will be
responsible for any taxes imposed on Rockwell, Conexant or Rockwell shareholders
as a result of either:
- the failure of the spin-off from Rockwell to qualify as a tax-free
reorganization within the meaning of Section 368(a)(1)(D) of the Internal
Revenue Code, or
- the subsequent disqualification of the spin-off from Rockwell as a
tax-free transaction to Rockwell under Section 361(c)(2) of the Internal
Revenue Code,
if the failure or disqualification is attributable to certain post-spin-off
actions by or in respect of Conexant (including its subsidiaries) or its
shareholders, such as our acquisition by a third-party at a time and in a manner
that would cause the failure or disqualification.
The Tax Allocation Agreement also provides, among other things, that
neither Rockwell nor Conexant 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
unless:
- required to do so by law,
- the other party has given its prior written consent, or
- in certain circumstances, a supplemental ruling permitting the action is
obtained.
Rockwell and Conexant have indemnified each other for any tax liability
resulting from each entity's failure to comply with these provisions.
In addition, we effected various tax-free intragroup spin-offs as a result
of Rockwell's spin-off of Meritor Automotive, Inc. on September 30, 1997. The
Tax Allocation Agreement provides that we will be responsible for any taxes
imposed on Rockwell, Conexant or Rockwell shareholders in respect of those
intragroup spin-offs if the taxes are attributable to certain post-spin-off
actions by or in respect of Conexant (including its subsidiaries) or its
shareholders, such as our acquisition by a third-party at a time and in a manner
that would cause the taxes to be incurred.
If we were required to pay any of the taxes described above, the payment
would have a material adverse effect on our financial position, results of
operations and cash flow.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is computed by dividing (1) earnings
before taxes adjusted for fixed charges by (2) fixed charges, which include
interest expense plus the portion of interest expense under operating leases
deemed by us to be representative of the interest factor plus amortization of
debt issuance costs.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
------------------------------------- ----------------
1998 1997 1996 1995 1994 1999 1998
----- ----- ----- ----- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges....... -- 46.1 98.5 71.6 79.9 -- 4.4
</TABLE>
In the fiscal year ended September 30, 1998 and the six months ended March 31,
1999 our losses before taxes of $430 million and $87 million, respectively, were
not adequate to cover fixed charges of $6 million and $4 million, respectively.
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USE OF PROCEEDS
The selling securityholders will receive all of the proceeds from the sale
under this prospectus of the notes and the common stock issuable upon conversion
of the notes. We will not receive any proceeds from these sales.
PRICE RANGE OF COMMON STOCK
The common stock began trading on the Nasdaq National Market under the
symbol "CNXT" on January 4, 1999. The following table lists the high and low per
share sale prices for the common stock as reported by the Nasdaq National Market
for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year ending September 30, 1999:
Second quarter............................................ $28 7/8 $13 11/16
Third quarter............................................. $68 3/8 $25 1/4
Fourth quarter (through July 6, 1999)..................... $61 3/8 $57 1/2
</TABLE>
On July 6, 1999, the reported last bid price of the common stock as
reported on the Nasdaq National Market was $57 1/2 per share. As of May 28,
1999, there were approximately 56,000 holders of record of common stock.
DIVIDEND POLICY
We have never paid cash dividends on our common stock and do not anticipate
paying any cash dividends in the foreseeable future. In addition, our existing
credit facility limits our ability to declare and pay dividends.
20
<PAGE> 22
SELECTED FINANCIAL DATA
The following selected financial data have been derived from financial
statements and financial information of ours and, for periods prior to January
1, 1999, of Semiconductor Systems as part of Rockwell. The data should be read
in conjunction with our financial statements and the notes thereto incorporated
by reference into this prospectus. The statement of operations data for the
years ended September 30, 1998, 1997, 1996 and 1995 and the balance sheet data
as of September 30, 1998, 1997 and 1996 have been derived from the audited
combined financial statements of Semiconductor Systems as a part of Rockwell.
The statement of operations data for the year ended September 30, 1994 and the
balance sheet data as of September 30, 1995 and 1994 have been derived from
unaudited combined financial information of Semiconductor Systems as a part of
Rockwell. The statement of operations data for the six months ended March 31,
1998 and the balance sheet data as of March 31, 1998 have been derived from
unaudited combined financial information of Semiconductor Systems as a part of
Rockwell. The statement of operations data for the six months ended March 31,
1999 and the balance sheet data as of March 31, 1999 have been derived from our
unaudited consolidated financial information which, in the opinion of
management, include all adjustments necessary for a fair presentation of
financial position as of such dates and results of operations for such period.
Results for the six months ended March 31, 1999 are not necessarily indicative
of the results that may be expected for the entire year ending September 30,
1999.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
-------------------------------------- ---------------
1998 1997 1996 1995 1994 1999 1998
------ ------ ------ ---- ---- ------ ------
(IN MILLIONS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED AND COMBINED STATEMENT OF
OPERATIONS DATA:
Net sales............................. $1,200 $1,412 $1,470 $784 $599 $612 $657
Cost of sales......................... 889 733 848 483 347 404 356
------ ------ ------ ---- ---- ---- ----
Gross margin.......................... 311 679 622 301 252 208 301
Research and development.............. 342 280 155 91 74 140 164
Selling, general and administrative... 251 191 150 103 79 113 128
Amortization of intangibles........... 11 9 1 -- -- 4 6
Purchased research and
development(1)...................... -- 30 121 -- -- -- --
Special charges(2).................... 147 -- -- -- -- 38 --
------ ------ ------ ---- ---- ---- ----
Operating (loss) earnings............. (440) 169 195 107 99 (87) 3
Other income, net..................... 10 11 3 4 1 -- 6
------ ------ ------ ---- ---- ---- ----
(Loss) income before income taxes..... (430) 180 198 111 100 (87) 9
------ ------ ------ ---- ---- ---- ----
(Benefit) provision for income
taxes............................... (168) 54 114 35 33 (37) 4
------ ------ ------ ---- ---- ---- ----
Net (loss) income..................... $ (262) $ 126 $ 84 $ 76 $ 67 $(50) $ 5
====== ====== ====== ==== ==== ==== ====
OTHER DATA:
Ratio of earnings to fixed
charges(3).......................... -- 46.1x 98.5x 71.6x 79.9x -- 4.4x
Capital expenditures.................. $ 270 $ 317 $ 380 $166 $148 $ 33 $122
</TABLE>
21
<PAGE> 23
<TABLE>
<CAPTION>
AS OF
FISCAL YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------------------- ---------------
1998 1997 1996 1995 1994 1999 1998
------ ------ ------ ---- ---- ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED AND COMBINED STATEMENT
OF OPERATIONS DATA:(4)
Cash and cash equivalents........... $ 14 $ 14 $ 14 $ 14 $ 14 $ 159 $ 14
Working capital..................... 256 222 229 130 95 239 308
Property, net....................... 713 802 656 351 215 651 836
Total assets........................ 1,418 1,486 1,383 671 448 1,317 1,567
Total debt.......................... 14 14 14 14 14 100 14
Shareholders' equity/Rockwell's net
investment........................ 1,009 1,107 899 478 301 911 1,242
</TABLE>
- ---------------
(1) In fiscal 1997 and 1996, we incurred charges of $30 million and $121 million
for purchased research and development relating to the acquisitions of the
Hi-Media broadband communication chipset business of ComStream Corporation
and Brooktree Corporation, respectively.
(2) In September 1998, we recorded special charges of approximately $147 million
related to our decision to close and dispose of our wafer fabrication
facilities in Colorado Springs, Colorado, a worldwide workforce reduction
and certain other actions. In the first quarter of fiscal 1999, we recorded
additional special charges of $18 million related to the restructuring
initiated in the fourth quarter of 1998 and an additional asset impairment
charge of $20 million for the Colorado Springs wafer fabrication facility as
a result of Rockwell's decision to further write-down the facility.
(3) Computed by dividing (a) earnings before taxes adjusted for fixed charges by
(b) fixed charges, which includes interest expense plus the portion of
interest expense under operating leases deemed by us to be representative of
the interest factor plus amortization of debt issuance costs. In the fiscal
year ended September 30, 1998 and the six months ended March 31, 1999 our
losses before taxes of $430 million and $87 million, respectively, were not
adequate to cover fixed charges of $6 million and $4 million, respectively.
(4) In December 1998, we distributed our wafer fabrication facilities in
Colorado Springs, Colorado (and the related tax benefit) to Rockwell. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview." Also in December 1998, Rockwell contributed $64
million in cash to us, which was placed in an escrow account and used in
February 1999 to satisfy our obligation with respect to the judgment
rendered against us in the intellectual property litigation brought by
Celeritas Technologies, Ltd.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain of our
statement of operations data:
<TABLE>
<CAPTION>
1999 FISCAL
1998 FISCAL QUARTERS QUARTERS
---------------------------------- ---------------
FIRST SECOND THIRD FOURTH FIRST SECOND
----- ------ ----- ------ ----- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................. $383 $274 $278 $ 265 $295 $317
Cost of sales.............................. 203 153 184 349 217 187
---- ---- ---- ----- ---- ----
Gross margin............................... 180 121 94 (84) 78 130
Research and development................... 84 80 91 87 71 69
Selling, general and administrative........ 59 69 62 61 65 48
Amortization of intangibles................ 3 3 3 2 2 2
Special charges............................ -- -- -- 147 38 --
---- ---- ---- ----- ---- ----
Operating earnings (loss).................. 34 (31) (62) (381) (98) 11
Other income, net.......................... 4 2 1 3 -- --
---- ---- ---- ----- ---- ----
Income (loss) before income taxes.......... 38 (29) (61) (378) (98) 11
Provision (benefit) for income taxes....... 17 (13) (28) (144) (40) 3
---- ---- ---- ----- ---- ----
Net income (loss).......................... $ 21 $(16) $(33) $(234) $(58) $ 8
==== ==== ==== ===== ==== ====
</TABLE>
22
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We are the world's largest company focused exclusively on providing
semiconductor products for communications electronics. We continue to implement
a strategic transition from a narrow offering of primarily analog PC modem
products to a more broadly diversified product portfolio. Our product portfolio
is now comprised of our Personal Computing platform, which includes analog PC
modems, and the following expansion platforms which generated over 50% of our
total sales during the six months ended March 31, 1999:
- Personal Imaging
- Digital Infotainment
- Wireless Communications
- Network Access
During the second quarter of 1999, we returned to profitability with net
income of $8 million, compared to a net loss of $58 million in the prior
quarter. This was attributable to:
- sequential revenue growth in each of the expansion platforms,
- unseasonally strong performance in the Personal Computing platform
attributable to continued market-share gains at PC OEMs, sustained demand
in the PC retail aftermarkets and reduced price erosion in this product
category,
- operation of both the Newport Beach and Newbury Park wafer fabrication
facilities at full factory loading throughout the second quarter of
fiscal 1999, and
- reduced operating expenses driven by the elimination of costs associated
with our restructuring and spin-off activities.
We reported an operating loss of $98 million in the first fiscal quarter of
1999. The operating loss included a special charge for an additional asset
impairment of $20 million for the Colorado Springs wafer fabrication facilities
as a result of Rockwell's decision to further write-down the facilities, which
were distributed to Rockwell in connection with our spin-off. The non-cash
charge was required to be reported in our last quarter as a subsidiary of
Rockwell. Also included in the first fiscal quarter 1999 operating loss is a
special charge of $18 million primarily related to the voluntary early
retirement program we offered in September 1998. The first quarter charge
related to those employees who accepted our offer after September 30, 1998. The
operating loss also included higher advertising costs related to the
introduction of our new identity campaign, corporate set-up expenses and higher
operating costs related to the residual effects of lower manufacturing capacity
utilization over the last four months of fiscal 1998. We were able to increase
production to near full capacity in the first quarter of fiscal 1999 and were
able to meet inventory reduction goals by quarter's end.
After five years of rapid growth, with average annual revenue growth of
nearly 30 percent, our operating performance during fiscal year 1998 was
disappointing. The decline in operating performance was attributable to a number
of factors, including greatly intensified price competition in the markets for
our K56Flex(TM) product and our older V.34 modems which resulted in:
- greater than expected price declines,
- lower than expected demand for these products and
- increasing investments in our expansion product platforms and
manufacturing process technology.
This decline in operating performance was exacerbated by worldwide excess
capacity in the semiconductor industry and the weakened economic environment in
the Asia-Pacific region.
23
<PAGE> 25
Our full-year fiscal 1998 pre-tax loss was $430 million ($262 million after
tax). The fourth quarter pre-tax loss was $378 million ($234 million after tax)
and included $275 million associated with the following:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Special charges............................................. $147(1)
Included in cost of sales:
Inventory write-offs...................................... 66(2)
Intellectual property matters............................. 43(3)
Manufacturing capacity underutilization................... 19(4)
----
Total.................................................. $275
====
</TABLE>
- ---------------
(1) In September 1998, we implemented a comprehensive plan to restructure our
business to position it for future profitability. A key element of this plan
was the decision to close and dispose of our wafer fabrication facilities in
Colorado Springs, Colorado. In addition, management decided to reduce our
worldwide workforce by 10 percent and to curtail certain market and product
development activities. This plan resulted in special charges of $147
million, including $103 million related to the write-down of the Colorado
Springs facilities to fair value, $15 million for employee severance costs
and costs associated with a voluntary early retirement program, $11 million
for intangible asset write-offs, and $18 million of other costs, principally
lease termination costs, contractual liabilities and other asset write-offs.
(2) In the first quarter of fiscal 1998, we experienced strong demand for our
modem products, particularly our older V.34 products. As a result of this
first quarter demand and forecasts of high demand throughout the balance of
fiscal 1998, we substantially increased production levels, including the
expanded use of external foundries. In the second half of fiscal 1998,
market acceptance of the V.90 standard for 56 kilobits per second (Kbps)
modem technology, coupled with the precipitous drop in V.90 modem prices due
to intensified competition, substantially reduced the demand for our V.34
modem inventory, much of which was produced in early 1998. Lower than
anticipated modem sales in the third and fourth quarters of fiscal 1998 and
downward revisions to forecasted demand for certain of our products over the
next six months, particularly for the V.34 modems, caused us to record
additional inventory reserves of $66 million in the fourth quarter of fiscal
1998.
(3) On July 20, 1998, the U.S. Court of Appeals for the Federal Circuit affirmed
a trial court's judgment of $57 million, plus interest, related to our
dispute with Celeritas Technologies, Ltd. As a result, we recorded a charge
of $35 million to increase our reserve for this matter to $65 million. We
also recorded additional provisions of $8 million in the fourth quarter
related to other intellectual property matters.
(4) In July 1998, we reduced production at our manufacturing facilities to
levels significantly below capacity, in order to align inventory levels with
anticipated market demand. We estimate the cost of this manufacturing
capacity underutilization in the fourth quarter of fiscal 1998 was
approximately $19 million.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, our net sales by
product platform:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------- ----------------
1998 1997 1996 1999 1998
------ ------ ------ ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Personal Computing............................. $ 640 $ 861 $1,173 $302 $382
Personal Imaging............................... 102 131 113 37 59
Wireless Communications........................ 170 115 45 102 76
Digital Infotainment........................... 145 112 32 82 77
Network Access................................. 143 193 107 89 63
------ ------ ------ ---- ----
Total..................................... $1,200 $1,412 $1,470 $612 $657
====== ====== ====== ==== ====
</TABLE>
24
<PAGE> 26
The following table sets forth, for the periods indicated, certain of our
statement of operations data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------- -----------------
1998 1997 1996 1999 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..................................... 74.1 51.9 57.7 66.0 54.1
----- ----- ----- ----- -----
Gross margin...................................... 25.9 48.1 42.3 34.0 45.9
Research and development.......................... 28.5 19.9 10.5 22.9 25.0
Selling, general and administrative............... 20.9 13.5 10.2 18.5 19.5
Amortization of intangibles....................... 0.9 0.6 0.1 0.6 0.9
Purchased research and development................ -- 2.1 8.2 -- --
Special charges................................... 12.2 -- -- 6.2 --
----- ----- ----- ----- -----
Operating (loss) earnings......................... (36.6) 12.0 13.3 (14.2) 0.5
Other income, net................................. 0.8 0.7 0.2 -- 0.9
----- ----- ----- ----- -----
(Loss) income before income taxes................. (35.8) 12.7 13.5 (14.2) 1.4
(Benefit) provision for income taxes.............. (14.0) 3.8 7.8 (6.0) 0.6
----- ----- ----- ----- -----
Net (loss) income................................. (21.8)% 8.9% 5.7% (8.2)% 0.8%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED MARCH 31, 1999 COMPARED TO SIX MONTHS ENDED MARCH 31, 1998
Net sales. For the six months ended March 31, 1999, net sales of $612
million were 7 percent less than net sales of $657 million for the six months
ended March 31, 1998, on a 34 percent increase in unit shipments. Net sales
declined in two of the five product platforms during the six months ended March
31, 1999 compared to the same period in fiscal 1998. Net sales for Personal
Computing decreased 21 percent. Personal Computing sales comprised 49 percent of
our net sales compared to 58 percent for the same period in the previous year.
Net sales declined due to a shift towards lower priced products such as the Host
Controllerless (HCF) product line and a decline in average selling prices. Net
sales for Personal Imaging declined 37 percent. This decrease was primarily
related to a reduction in facsimile modem shipments to the Asian market. The
decline in net sales from Personal Computing and Personal Imaging compared to
the first six months of fiscal 1998 were partially offset by unit shipment and
revenue growth in the other three product platforms. Net sales for Wireless
Communications increased from $76 million to $102 million, or 34 percent. This
growth was due primarily to the CDMA (Code Division Multiple Access) power
amplifier product line. Net sales for Network Access increased from $63 million
to $89 million, or 41 percent. Net sales for Digital Infotainment increased from
$77 million to $82 million, or 6 percent, and was driven by increased shipments
of encoder/decoder products and set-top box tuners.
Gross margin. Cost of sales consists predominantly of purchased materials,
labor and overhead (including depreciation) associated with product
manufacturing, royalty and other intellectual property costs, warranty and
sustaining engineering expenses pertaining to products sold. Gross margin for
the six months ended March 31, 1999 decreased 31 percent to $208 million, from
$301 million for the six months ended March 31, 1998. As a percentage of net
sales, gross margin decreased to 34 percent from 46 percent in the same period
of the prior year, primarily due to pricing pressure in Personal Computing and
unusually high inventory costs associated with lower manufacturing capacity
utilization in the first fiscal quarter of 1999.
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. These expenses for the six months ended March 31, 1999 were
$140 million, 14.8 percent lower than the $164 million in the six months ended
March 31, 1998. The decrease in research and development expenses for the fiscal
1999 period was driven principally by cost reduction actions initiated in the
fourth quarter of
25
<PAGE> 27
fiscal 1998 to reduce our overall cost structure. These actions included
headcount reductions, design center closures and project cancellations.
Selling, general and administrative. Selling, general and administrative
expenses consist mainly of employee expenses not related to product
manufacturing or research and development, commissions to sales representatives,
advertising, marketing expenses, legal costs and provisions for doubtful
accounts. These expenses for the six months ended March 31, 1999 were $113
million, 12 percent lower than the $128 million for the same period of the prior
year. The decline was due to reductions in headcount, advertising and consulting
expenses.
Amortization of intangibles. Amortization of intangibles consists
primarily of the amortization of goodwill related to the various acquisitions
made by us. Amortization of intangibles for the six months ended March 31, 1999
was $4 million, 27 percent lower than the $6 million for the same period of the
prior year. The decline was due to a write-off of goodwill related to the
acquisition of certain technologies that were abandoned in the fourth quarter of
fiscal 1998 in conjunction with the restructuring activities.
Special charges. In the first six months of fiscal 1999, we recorded
special charges of $38 million. In the first fiscal quarter of 1999, we recorded
a special charge for an additional asset impairment of $20 million for the
Colorado Springs wafer fabrication facilities as a result of Rockwell's decision
to further write-down the facilities, which were retained by Rockwell as part of
the spin-off. This non-cash charge was required to be reported in our last
fiscal quarter as a subsidiary of Rockwell. Other special charges were $18
million. These special charges included approximately $17 million related to a
voluntary early retirement program and $1 million related to equipment
decommission and contract cancellation at the Colorado Springs wafer fabrication
facilities.
Operating (loss) earnings. We incurred an operating loss of $87 million
for the first six months of fiscal 1999, compared to operating earnings of $3
million for the first six months of fiscal 1998.
Other income, net. Other income, net for the six months ended March 31,
1999 of $240,000 decreased from $6 million in the first six months of fiscal
1998 primarily due to a $3 million cash payment that was received in the first
quarter of fiscal 1998 in connection with a contract cancellation as well as the
interest expense of $2 million recorded in the six months ended March 31, 1999.
1998 COMPARED TO 1997
Net sales. Net sales decreased 15 percent to $1,200 million in fiscal 1998
from $1,412 million in fiscal 1997. This decrease was principally due to a
decline in sales of $221 million from PC modems in Personal Computing and $50
million from central site modems in Network Access. The decrease in modem sales
in 1998 was due to significant price declines of our V.34 and 56 Kbps products,
partially offset by an 18 percent increase in modem unit volume. Personal
Imaging sales also declined 22 percent to $102 million, reflecting lower product
demand, principally as a result of the protracted Asia-Pacific recession. These
sales declines were partially offset by an increase in sales from Wireless
Communications and Digital Infotainment. Wireless Communications sales grew 48
percent to $170 million, driven by increased volume of digital cordless
telephone chipsets and power amplifier components. Digital Infotainment sales
grew 30 percent to $145 million as a result of increased demand for video
encoders/decoders and broadband communications products.
Gross margin. Gross margin decreased 54 percent to $311 million in fiscal
1998 from $679 million in fiscal 1997. As a percentage of net sales, gross
margin declined to 26 percent in 1998 from 48 percent in fiscal 1997. This
decline was due primarily to a 45 percent reduction in average selling prices of
PC modem products, slightly offset by higher margins on Wireless Communications
and Digital Infotainment products. Gross margin was also adversely impacted by
the fourth quarter fiscal 1998 inventory write-off of $66 million (5.5 percent
of net sales), the $43 million charge (3.6 percent of net sales) for
intellectual property matters and $19 million (1.6 percent of net sales) related
to the underutilization of manufacturing capacity. The 50-day strike that ended
in July 1998 had little or no effect on our full-year operating results.
Research and development. Investments in new product and process
development increased 22 percent to $342 million in fiscal 1998 from $280
million in fiscal 1997. This increase was due primarily to investments
26
<PAGE> 28
in expansion platform products, including the expanded use of technology
licensing agreements with external partners. Significant product investments
were made in audio/telephony modem products, higher density central site modems,
ATM (Asynchronous Transfer Mode), T1/E1 (high speed digital transmission) and
SONET (Synchronous Optical Network) portfolio expansion, GSM (Global System for
Mobile Communications) and CDMA radio frequency integrated circuits, GSM
systems, broadband communication products, including cable modems, and
multifunction peripheral products. We also continued our investments in
specialty process development activities, including Bipolar, BiCMOS (Bipolar
Complementary Metal-Oxide Semiconductor) and gallium arsenide processes.
Selling, general and administrative expenses. These expenses increased 31
percent to $251 million in fiscal 1998 from $191 million in fiscal 1997. This
increase was primarily due to higher costs of cooperative advertising programs
associated with various channel and brand development campaigns of approximately
$26 million and $11 million related to the growth of the worldwide sales
organization to support our expanding product portfolio, offset by a reduction
in the allowance for doubtful accounts in fiscal 1997, due to favorable
resolution of accounts which were previously reserved.
Amortization of intangibles. Fiscal year 1998 amortization of intangibles
increased by $2 million over fiscal 1997 due to the full year impact of the
acquisition of the Hi-Media broadband communication chipset business of
ComStream Corporation which was completed in May 1997.
Operating (loss) earnings. We incurred an operating loss of $440 million,
including special charges of $147 million, in fiscal 1998, compared to operating
earnings of $169 million, including a $30 million charge for purchased research
and development, in fiscal 1997.
Other income, net. Other income consists of royalty income from technology
license agreements, gains and losses on sales of property and investments and
other non-operating income and expense.
Net (loss) income. The net loss for fiscal 1998 was $262 million, compared
to fiscal 1997's net income of $126 million.
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 Corporation at the end of fiscal 1996.
Personal Computing sales decreased $312 million due to severe price declines in
all of our PC modem products, primarily in connection with the introduction of
our K56Flex(TM) product. Average selling prices for PC modem products declined
by 34 percent compared to fiscal 1996, partially offset by a modem unit volume
increase of 23 percent. This sales decrease was partially offset by sales
increases in our expansion platforms. Personal Imaging sales grew 16 percent to
$131 million, led by a strong demand for fax modem chipsets. Network Access
sales grew 80 percent to $193 million, related to sales of remote access
concentrators. Digital Infotainment sales grew 250 percent to $112 million,
driven by video encoder/decoder product rollouts and the introduction of radio
frequency tuner products. Sales in Wireless Communications increased $70 million
(or 156 percent) over the prior year primarily due to growth in sales of our
digital cordless telephone products and power amplifier components.
Gross margin. Gross margin increased 9.2 percent to $679 million in fiscal
1997 from $622 million in fiscal 1996. As a percentage of sales, gross margin
increased to 48 percent from 42 percent. This increase was due to $107 million
of lower costs of intellectual property matters in fiscal 1997 compared to
fiscal 1996, partially offset by the impact of approximately 25 percent lower
average selling prices for modem products.
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, Hi-Media and
our other acquisitions.
Selling, general and administrative. These expenses increased 27 percent
to $191 million in fiscal 1997 from $150 million in fiscal 1996. The increase
was due to the inclusion of selling, general and administrative
27
<PAGE> 29
costs from Brooktree, costs of $6 million related to the growth in our worldwide
sales organization and a $7 million increase in advertising costs for the
K56Flex(TM) campaign. The increase was partially offset by a decrease in bad
debt expense of $24 million associated with receipt of payments for accounts
which were previously reserved.
Amortization of intangibles. Amortization of intangibles increased to $9
million in fiscal 1997 compared to $1 million in fiscal 1996 due to the impact
of the Brooktree acquisition which was consummated in September 1996.
Operating earnings. Operating earnings, including a $30 million charge for
purchased research and development in connection with the acquisition of
Hi-Media, were $169 million in fiscal 1997, a decrease of $26 million from
operating earnings, including a $121 million charge for purchased research and
development in connection with the Brooktree acquisition, of $195 million in
fiscal 1996.
Other income, net. Other income increased $8 million from 1996 to 1997,
principally resulting from $7 million of income related to the favorable
settlement of a technology license dispute in 1997.
Net income (loss). Net income in 1997 was $126 million, compared with net
income of $84 million in 1996.
INCOME TAXES
Our effective income tax rates determined on a stand-alone basis were 39.1
percent in 1998, 30.0 percent in 1997 and 57.6 percent in 1996.
The effective tax rates are generally lower than the statutory rate due to
tax benefits we utilized 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.
The income tax provision for the six months ended March 31, 1999 was a
benefit of $37 million, or 43 percent of the loss before income taxes. For the
six months ended March 31, 1998, an income tax provision of $4 million, or 46
percent of income before income taxes, was provided. The effective tax rate for
the remainder of the fiscal year is expected to remain at 30 percent, down from
earlier quarters, primarily due to the positive impact of various tax credits
available to us. The effective tax rate includes state tax credits and federal
research and experimentation tax credits.
ACQUISITIONS
In September 1996, we acquired Brooktree, a designer and supplier of
mixed-signal integrated circuits for high-speed digital communications and media
processing applications, for $254 million, net of cash acquired. The excess of
the purchase price over the fair value of tangible net assets of $178 million
was allocated to intangible assets, including $50 million for developed
technology, $7 million for assembled workforce and $121 million for purchased
research and development. Developed technology and assembled workforce are being
amortized on a straight-line basis over eight and ten years, respectively.
Purchased research and development, which represented the value assigned to
projects in process at Brooktree at the date of acquisition which had not yet
reached technological feasibility and had no alternative future use, was charged
immediately to expense. The research and development projects related to three
categories of products in process:
- Communications, which includes products for the telecommunications
industry and high-speed T1/E1 applications, as well as WAN (wide area
network) and ATM products,
- Graphics and Imaging, which includes integrated circuits that enable PC
vendors to offer cost-effective graphic and video processing, and
- Multimedia, which includes products that enable PCs to simultaneously
control graphics, text, animation, sound and video through use of
"packeted data".
28
<PAGE> 30
At the date of the acquisition, Brooktree had several projects in process
at various stages of completion. The efforts to complete these projects included
finalization of design, device layout, fabrication, testing and systems
integration. At the date of the acquisition, the estimated amount and timing of
effort to complete these projects varied by product platform and averaged
approximately $40 million annually for the first five years after the
acquisition, declining steadily thereafter.
In May 1997, we acquired Hi-Media for $42 million in cash. The purchase
price allocation included $30 million ($19 million after-tax) for purchased
research and development. The projects in process at Hi-Media at the date of
acquisition which had not yet reached technological feasibility and had no
alternative future use related to integrated circuits for the direct broadcast
satellite, wireless (MMDS) and cable modem markets. The efforts to complete
these projects included finalization of design, device layout, fabrication,
testing and systems integration. At the date of the acquisition, the estimated
amount and timing of effort to complete these projects varied by product
platform and averaged approximately $11 million annually for the first five
years after the acquisition.
LIQUIDITY AND CAPITAL RESOURCES
In December 1998, Conexant and three of our subsidiaries entered into a
bank credit facility with a group of banks. The credit facility includes
facilities for revolving loans and swingline loans in multiple currencies and
letters of credit. The credit facility is guaranteed by substantially all of our
domestic subsidiaries. It is also secured by (1) a first-priority security
interest in substantially all of our domestic assets and our domestic
subsidiaries and (2) a pledge of the stock of our domestic and foreign
subsidiaries, subject to certain exceptions.
Prior to our spin-off from Rockwell, we 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
to Rockwell from us totaled $45 million for the first six months of fiscal 1999
and net transfers of cash from Rockwell were $172 million in fiscal 1998, $86
million in fiscal 1997 and $341 million in fiscal 1996.
Cash provided by operating activities was $134 million for the six months
ended March 31, 1999, compared to $8 million of cash used by operating
activities in the same period of fiscal 1998. Net operating cash flows were
favorably impacted due to a net decrease in inventories of $54 million in the
first six months of fiscal 1999, as compared to a net increase of $87 million in
the same period for the prior year, reflecting the results of our efforts to
reduce inventory quantities and unit costs. In addition, net receivables were
reduced by $20 million during the six months ended March 31, 1999, driven by an
improved rate of collections. Net income in the first six months of fiscal 1999
was reduced by non-cash special charges of $38 million and non-cash charges for
depreciation and amortization of $104 million. These items were partially offset
by a $22 million decrease in trade payables and a $17 million decrease in other
current liabilities from September 30, 1998.
Cash provided by operating activities was $98 million in fiscal 1998, $296
million in fiscal 1997 and $315 million in fiscal 1996. Our fiscal 1998
operating activities generated almost $100 million in cash despite the
significant net loss, due in part to improvement in accounts receivable
collections and the non-cash special and other charges included in 1998's net
loss. Fiscal 1997's operating cash flow was due to our strong profitability,
offset somewhat by the settlement of certain intellectual property matters.
Fiscal 1996's operating cash flow was driven by explosive revenue growth
principally for our V.34 PC modem products, partially offset by increases in
receivables and inventories of $205 million, related to this strong market
demand.
Investing activities used $33 million in cash during the six months ended
March 31, 1999, compared to $122 million in the same period of fiscal 1998.
Lower current period investments relate to the timing of capital expenditures
for additional capacity and new process technologies. Capital expenditures for
the entire 1999 fiscal year, previously expected to be approximately $160
million, are currently expected to be approximately $195 million.
We have made significant investments in product and process technology,
including capital expenditures of $270 million in fiscal 1998, $317 million in
fiscal 1997 and $380 million in fiscal 1996. The capital
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expenditures included capacity expansion at our main fabrication facility in
Newport Beach, California and investments in manufacturing process technology to
reduce manufacturing costs. We also made several strategic acquisitions to
broaden our product portfolio and market positions. These acquisitions included
Brooktree, 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 1996 through fiscal 1998 also included approximately $128 million of
cash used for our wafer fabrication facilities in Colorado Springs, Colorado.
These investments have historically been funded by cash from operations and
transfers by Rockwell.
Our financing activities provided cash of $45 million during the six months
ended March 31, 1999, compared to $131 million during the same period of fiscal
1998. Financing sources of cash for the first six months of fiscal 1999 were
$100 million of short-term borrowings under our bank credit facility. These
items were partially offset by the repayment of a loan at our Japanese
subsidiary and net transfers to Rockwell. In fiscal 1998, the financing sources
of cash were predominantly transfers of cash from Rockwell.
The net proceeds of $340,375,000 from the initial private placement of the
notes were used to repay $100 million of short-term borrowings, plus accrued
interest, under our credit facility. We expect to use the remainder of these
proceeds to acquire additional manufacturing equipment, to make strategic
investments to secure long-term access to advanced silicon wafer fabrication
capacity from third parties and for general corporate purposes.
We believe that our existing sources of liquidity and cash expected to be
generated from future operations are sufficient to fund operations, capital
expenditures and research and development efforts for the foreseeable future.
YEAR 2000 READINESS DISCLOSURE
We are addressing the impact of the year 2000 on each of five major areas:
- products,
- business systems (our computer systems that handle business processes),
- infrastructure (our servers, desktop computers, networks, telecom systems
and software),
- manufacturing systems (our computer systems used in our manufacturing
process), and
- suppliers (our critical materials suppliers to the business).
Each of the five areas is undergoing the following process to ensure
readiness for the year 2000:
- first, in the inventory phase, all of our 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; and
- finally, in the certification phase, all upgraded items receive final
certification testing to verify year 2000 readiness.
We have completed the inventory phase for all five areas. In addition, we
have completed the assessment and strategy phases and are currently in the
conversion and certification phases for the products, business systems,
infrastructure and manufacturing systems areas. We have completed the assessment
and strategy phases and are now in the remediation and certification phases for
the suppliers area. We have begun auditing those suppliers who did not perform
up to standards during the assessment phase. We are integrating our testing
efforts with SEMATECH, a consortium of semiconductor manufacturing companies, to
ensure best
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practice testing. The manufacturing systems, hardware systems and software
applications areas are being tested under the SEMATECH guidelines.
Our greatest area of uncertainty centers primarily in the supplier area,
due to the number of equipment and materials suppliers involved and their
various stages of readiness for year 2000. In particular, we are dependent on
suppliers to upgrade their systems to ensure an uninterrupted supply of
materials. Approximately 95 percent of our manufacturing tools have achieved
certification. A year 2000-related failure by a significant materials supplier
could result in the temporary slowdown of our production, the duration of which
we reasonably estimate would be not more than a few days. As a result, our
contingency plan centers heavily on the supplier area. For the top five to ten
percent of our critical materials and manufacturing suppliers, we are performing
on-site audits and intend to monitor specific year 2000-based milestones to
ensure readiness. We have completed our assessment of all Tier 1 critical
suppliers and have begun our audit process. In the event a supplier has not met
our milestones for year 2000 readiness, we have identified specific target dates
for all critical materials suppliers and have implemented a contingency plan
that includes alternate sourcing and stockpiling of materials.
Part of our initial assessment phase included a detailed year 2000
questionnaire which was sent to all critical materials and manufacturing
suppliers. This questionnaire included questions on products, services, internal
operating systems and the supplier's own supply chain. We have received
responses from all of those questioned. We are following up the questionnaires,
where necessary, with on-site audits to ensure year 2000 readiness. We have also
contacted our major customers with respect to their year 2000 readiness efforts
and do not believe that customers will have any year 2000 readiness problems
that would have a material adverse effect on our business.
In connection with our receipt of transition services pursuant to the
Transition Agreement entered into with Rockwell, we will rely on certain of
Rockwell's computer systems, including our payroll and benefits administration
systems, for a period of up to two years after our spin-off. We believe that the
Rockwell systems on which we rely for transition services will be year 2000
ready, such that our reliance thereon will not have a material adverse effect on
our financial position or results of operations.
Overall, utilizing both internal and external resources to address the year
2000 issue, we have substantially completed our year 2000 certification as of
June 30, 1999 and expect to be completed by December 31, 1999. The current
estimate of total project cost is approximately $6 million, which includes the
cost of purchasing certain hardware and software. Approximately $5 million of
this amount is for capital investments, with the remainder being expenses,
primarily salary costs. As of March 31, 1999, approximately $2 million had been
spent, with the majority of the remaining amount to be spent by the end of this
fiscal year. We continue to evaluate the estimated costs associated with these
efforts based on actual experience. Management believes, based on available
information, that we will be able to remediate year 2000-related issues in the
products, business systems and infrastructure areas without any material adverse
effect on our business operations, products or financial condition. However, we
could be adversely impacted by the year 2000 issues faced by major suppliers,
distributors, customers, vendors and financial services organizations with which
we interact. Any disruption in our operations as a result of the failure of any
of these third parties to be year 2000 ready could have a material adverse
effect on our business operations, products and financial condition.
We have begun initial preparation of a year 2000 contingency plan for the
entire company, with an expectation to complete this plan by September 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our financial instruments include cash and short-term debt. At March 31,
1999, the carrying values of our financial instruments approximated their fair
values based on current market prices and rates.
It is our policy not to enter into derivative financial instruments for
speculative purposes. We enter into foreign currency forward exchange contracts
to protect ourself from adverse currency rate fluctuations on foreign currency
commitments entered into in the ordinary course of business. These commitments
are
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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 our outstanding
foreign currency forward exchange contracts aggregated $14 million at March 31,
1999, $17 million at September 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. We believe that any gain or loss incurred on
foreign currency forward exchange contracts is offset by the effects of currency
movements on the respective underlying hedged transactions.
Based on our overall currency rate exposure at March 31, 1999, a 10 percent
change in currency rates would not have had a material effect on our financial
position, results of operations or cash flows.
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DESCRIPTION OF NOTES
The notes are issued under an indenture dated as of May 1, 1999 between us
and The First National Bank of Chicago, as trustee. This section summarizes
certain provisions of the notes, the indenture and the registration rights
agreement that we entered into with the initial purchasers of the notes. This
section is not a complete description of all the provisions of the notes and is
subject to, and qualified by reference to, the indenture and the registration
rights agreement, including the definitions in those documents of certain terms
which are not otherwise defined in this prospectus. You may obtain a copy of the
indenture and the registration rights agreement from the trustee. Wherever
particular provisions or defined terms of the indenture, or of the form of note
which is a part of the indenture, or the registration rights agreement are
referred to, those provisions or defined terms are incorporated by reference
into this prospectus. The terms we, us, our and Conexant in this section refer
solely to Conexant and do not include our subsidiaries. The term you in this
section refers to record holders of notes in registered form or owners of
beneficial interests in a global note held by The Depository Trust Company, as
the context may require.
GENERAL
We issued $350,000,000 aggregate principal amount of the notes on May 12,
1999 in a private placement. The notes:
- bear interest at an annual rate of 4 1/4%, payable semiannually, as
described below under "-- Interest",
- mature on May 1, 2006, unless earlier converted or redeemed,
- are convertible, at your option, into our common stock, as described
under "-- Conversion of Notes",
- are redeemable, at our option, as described under "-- Optional Redemption
by Conexant" and at your option as described under "-- Redemption at
Option of the Holder",
- are unsecured general obligations and are subordinate in right of payment
to certain other indebtedness, as described under "-- Subordination of
Notes", and
- are issued only in multiples of $1,000.
The indenture does not contain any financial covenants or restrictions on
the payment of dividends, the incurrence of indebtedness, including senior
indebtedness, or the issuance or repurchase of our securities. The indenture
does not protect you in the event of a highly leveraged transaction or a change
in control of Conexant except to the extent described below under "-- Redemption
at Option of the Holder".
INTEREST
The notes bear interest at an annual rate of 4 1/4% from May 12, 1999, or
from the most recent payment date on which we have paid interest. We compute
interest on the basis of a 360-day year composed of twelve 30-day months. We
will make interest payments semiannually on May 1 and November 1, beginning on
November 1, 1999, to holders of record at the close of business on the preceding
April 15 and October 15, respectively. There are exceptions to the payment to
record holders in certain situations involving redemptions and conversions, as
described under "-- Optional Redemption by Conexant", "-- Redemption at Option
of the Holder" and "-- Conversion of Notes".
We will pay interest at the office we maintain for that purpose in the
Borough of Manhattan, the City of New York, which initially is an office of the
trustee. We may pay you interest (1) by check mailed to you, (2) if you own
notes with an aggregate principal amount in excess of $5 million, at your
election, by wire transfer in immediately available funds, or (3) to an account
maintained by you located in the United States. In addition, we will make
payments to The Depository Trust Company, New York, New York by wire transfer of
immediately available funds to the account of the Depository Trust Company or
its nominee.
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FORM, DENOMINATION AND REGISTRATION
We issued the notes in fully registered form, without coupons, in
denominations of $1,000 principal amount and integral multiples thereof.
Global Note, Book-Entry Form. The notes that were sold to "qualified
institutional buyers" as defined in Rule 144A under the Securities Act are
evidenced by global notes which were deposited with the Depository Trust Company
and registered in the name of Cede & Co. as the nominee of the DTC. The notes
sold pursuant to this prospectus may be evidenced in whole or in part by one or
more global notes deposited with the DTC and registered in the name of Cede &
Co. as the nominee of the DTC. Except as set forth below, a global note may be
transferred, in whole or in part, only to another nominee of the DTC or to a
successor of the DTC or its nominee.
You may hold an interest in a global note directly through the DTC if you
are a participant in the DTC, or indirectly through organizations which are
participants in the DTC. Transfers between the DTC participants are effected in
the ordinary way in accordance with the DTC rules and are settled in clearing
house funds.
If you are not a DTC participant you may own a beneficial interest in a
global note held by the DTC only through participants, or certain banks,
brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a participant. So long as Cede & Co., as
the nominee of the DTC, is the registered owner of a global note, Cede & Co. for
all purposes will be considered the sole holder of the global note. Except as
provided below, owners of beneficial interests in a global note do not have
certificates registered in their names, do not receive or are not entitled to
receive physical delivery of certificates in definitive registered form, and are
not considered the holders of the notes.
We will pay interest on and the redemption price of a global note to Cede &
Co., the nominee for the DTC as the registered owner of the global note, by wire
transfer of immediately available funds on each interest payment date or the
redemption or repurchase date, as the case may be. Neither we, the trustee nor
any paying agent will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a global note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
The DTC has informed us that its practice is to credit participants'
accounts on the payment date for any payment of interest or redemption price
with amounts proportionate to their respective beneficial interests in the
principal amount of a global note, unless the DTC has reason to believe that it
will not receive payment. Payments by participants to owners of beneficial
interests in a global note held through the participants will be the
responsibility of the participants.
Because the DTC can only act on behalf of participants, who in turn act on
behalf of indirect participants and certain banks, if you hold a beneficial
interest in a global note, rather than registered notes evidenced by a physical
certificate, your ability to pledge that interest to persons or entities that do
not participate in the DTC system, or take other actions in respect of that
interest, may be affected by the lack of a physical certificate evidencing such
interest.
Neither we nor the trustee (nor any registrar, paying agent or conversion
agent under the indenture) are responsible for the performance by the DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations. The DTC has advised us that it
will take any action permitted to be taken by a holder of notes only at the
direction of one or more of its participants with an interest in a global note,
and then only in respect of the principal amount of the notes as to which
directions have been given by those participants.
The DTC has advised us that it is:
- a limited purpose trust company organized under the laws of the State of
New York,
- a member of the Federal Reserve System,
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- a "clearing corporation" within the meaning of the Uniform Commercial
Code and
- a "clearing agency" registered pursuant to the provisions of Section 17A
of the Exchange Act.
The DTC was created to hold securities for its participants and to facilitate
the clearance and settlement of securities transactions between participants
through electronic book-entry changes to the accounts of its participants,
thereby eliminating the need for physical movement of certificates. The DTC's
participants include securities brokers and dealers, banks, trust companies and
clearing corporations, and may include certain other organizations such as the
initial purchasers of the notes. Certain of the DTC's participants or their
representatives, together with other entities, own the DTC. Indirect access to
the DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through, or maintain a custodial relationship with, a
participant, either directly or indirectly.
Although the DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in a global note among participants, it is
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. If the DTC is at any time unwilling
or unable to continue as depositary and a successor depositary is not appointed
by us within 90 days, we will issue notes in definitive registered form in
exchange for global notes.
Certificated Notes. The notes that were sold to institutional "accredited
investors", as defined in Rule 501 (a) (1), (2), (3) or (7) under the Securities
Act, were issued in definitive registered form. We will issue certificated notes
in exchange for notes represented by a global note upon request by the DTC. As
described above, the DTC has informed us that it will request such an exchange
only to the extent requested by a participant with respect to its interest in a
global note.
CONVERSION OF NOTES
You are entitled at any time before the close of business on May 1, 2006,
subject to prior redemption, to convert all or any portion of a note, in
multiples of $1,000, into common stock. The conversion price is $46.196 per
share, subject to adjustment as described below. Except as described below, we
will not make any payment or other adjustment on conversion of any notes for
accrued interest or for dividends on the common stock.
If you convert any notes during the period from, but excluding, a record
date for any interest payment date to, but excluding, the interest payment date,
you must provide us with funds equal to the interest payable on that interest
payment date on the principal amount being converted unless those notes have
been called for redemption on a redemption date that occurs during that period
or those notes are to be redeemed in connection with a fundamental change on a
repurchase date that occurs during that period. If you convert any notes during
that period and those notes have been called for redemption on a redemption date
that occurs during that period or those notes are to be redeemed in connection
with a fundamental change on a repurchase date that occurs during that period,
those notes will be deemed to have been redeemed and you will be entitled to
interest on those notes as described below under "-- Optional Redemption by
Conexant" and "-- Redemption at Option of the Holder".
We will not issue fractional shares of common stock upon conversion of
notes. Instead, we will pay a cash adjustment based upon the market price of
common stock on the last business day prior to the date of conversion.
Conversion rights on notes called for redemption will expire at the close
of business on the business day preceding the redemption date unless we default
in the payment of the redemption price. If you exercise your option to require
redemption upon a fundamental change, you may convert your note only if you
withdraw your election to require redemption in accordance with the terms of the
indenture.
We will adjust the conversion price in certain events, including:
(a) the issuance of common stock as a dividend or distribution on
common stock;
(b) the issuance to all holders of common stock of certain rights or
warrants to purchase common stock;
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(c) certain subdivisions and combinations of common stock;
(d) the distribution to all holders of common stock of capital stock
(other than our common stock) or evidences of indebtedness of Conexant or
of assets, including securities, but excluding those rights, warrants,
dividends and distributions referred to in clauses (a) and (b) above or
paid in cash;
(e) distributions consisting of cash, excluding any quarterly cash
dividend on common stock to the extent that the aggregate cash dividend per
share of common stock in any quarter does not exceed the greater of:
(1) the amount per share of common stock of the last quarterly cash
dividend on common stock to the extent that the last quarterly dividend
did not require an adjustment of the conversion price pursuant to this
clause (e), as adjusted to reflect subdivisions or combinations of
common stock, and
(2) 3.75% of the average of the last reported sale prices of common
stock during the ten trading days immediately prior to the date of
declaration of such dividend, and excluding any dividend or distribution
in connection with the liquidation, dissolution or winding up of
Conexant.
If an adjustment is required to be made under this clause (e) as a
result of a distribution that is a quarterly dividend, that adjustment
would be based upon the amount by which such distribution exceeds the
amount of the quarterly cash dividend permitted to be excluded as described
above. If an adjustment is required to be made under this clause (e) as a
result of a distribution that is not a quarterly dividend, the adjustment
would be based upon the full amount of the distribution;
(f) payment in respect of a tender offer or exchange offer by us or
any of our subsidiaries for our common stock to the extent that the cash
and value of any other consideration included in such payment per share of
common stock exceeds the current market price per share of common stock on
the trading day next following the last date for tenders or exchanges; and
(g) payment in respect of a tender offer or exchange offer by a person
other than us or any of our subsidiaries in which, as of the closing date
of the offer, our board of directors is not recommending rejection of the
offer. This adjustment will only be made if the tender offer or exchange
offer is for an amount that increases the offeror's ownership of our common
stock to more than 25% of the total shares of common stock outstanding, and
if the cash and value of any other consideration included in such payment
per share of common stock exceeds the current market price per share of
common stock on the trading day next succeeding the last date for tenders
or exchanges. The adjustment described in this clause (g) will generally
not be made, if, as of the closing of the offer, the offering documents
with respect to the tender or exchange offer disclose a plan or an
intention to cause us to engage in a consolidation or merger or a sale of
all or substantially all of our assets.
The indenture includes certain rules for determining the current market
price of our common stock and valuing other consideration for purposes of the
conversion price adjustments summarized above.
Under the indenture, we have agreed to use all reasonable efforts to amend
the Rights Agreement described below to provide that upon conversion of the
notes into common stock, to the extent that the Rights Agreement and any rights
granted thereunder remain outstanding and in effect upon conversion, you will
receive, in addition to common stock, our preferred share purchase rights as
more fully described below under "Description of Capital Stock -- Conexant
Rights Plan". Subject to certain limited customary exceptions, you will receive
the preferred share purchase rights whether or not such rights have separated
from common stock at the time of conversion. We have also agreed that any future
shareholder rights plan adopted by us will contain similar provisions with
respect to the receipt of preferred share purchase rights.
If we reclassify the common stock, complete a consolidation, merger or
combination involving Conexant or sell or convey to another person our property
and assets as an entirety or substantially as an entirety, and as a result the
holders of common stock are entitled to receive stock, other securities, other
property or assets (including cash) with respect to or in exchange for such
common stock, then you may convert your notes into the kind and amount of shares
of stock, other securities or other property or assets (including cash) that you
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would have owned or been entitled to receive had you converted your notes into
common stock immediately prior to such transaction, assuming that you had not
exercised any rights of election as to the stock, other securities or other
property or assets (including cash).
In the event of a taxable distribution to holders of common stock or in
certain circumstances requiring an adjustment to the conversion price, you may
be deemed to have received a distribution subject to U.S. income tax as a
dividend. In certain other circumstances, the absence of such an adjustment may
result in a taxable dividend to the holders of common stock. See "Certain
Federal Income Tax Considerations" for a discussion of such income tax matters.
To the extent permitted by law, we may reduce the conversion price by any
amount for any period of at least 20 days. If we do so, we will give you at
least 15 days' notice. We may, at our option, make additional reductions in the
conversion price, as our board of directors deems advisable to avoid or diminish
any income tax to holders of common stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes. See "Certain Federal Income Tax Considerations"
for a discussion of such income tax matters.
We are not required to make any adjustment in the conversion price unless
it would change the conversion price by at least 1%. We will carry forward any
adjustment that would otherwise be required and take it into account in any
future adjustment. Except as stated above, we will not adjust the conversion
price for the issuance of common stock or any securities convertible into or
exchangeable for common stock or carrying the right to purchase any of the
foregoing.
OPTIONAL REDEMPTION BY CONEXANT
The notes are not entitled to any sinking fund. At any time on or after May
6, 2002, we may redeem the notes as a whole or in part. We will give you at
least 30 days' notice of any redemptions by us. The redemption will be made at
the following prices (expressed as a percentage of the principal amount),
together with accrued interest to, but excluding, the redemption date:
<TABLE>
<CAPTION>
REDEMPTION
PERIOD PRICE
- ------ ----------
<S> <C>
Beginning on May 6, 2002 and ending on April 30, 2003....... 102.429%
Beginning on May 1, 2003 and ending on April 30, 2004....... 101.821
Beginning on May 1, 2004 and ending on April 30, 2005....... 101.214
Beginning on May 1, 2005 and ending on April 30, 2006....... 100.607
</TABLE>
and 100.000% on May 1, 2006. Accrued interest due on the redemption date will be
paid to you upon surrender of your redeemed notes, unless the redemption date is
an interest payment date. If the redemption date is an interest payment date,
the interest due on the redeemed notes will instead be paid to the registered
holder of the notes on the record date for interest payments.
If we redeem less than all of the outstanding notes, the trustee will
select the notes to be redeemed in principal amounts of $1,000 or integral
multiples thereof by lot, pro rata or by another method the trustee considers
fair and appropriate. If a portion of your notes is selected for partial
redemption and you convert a portion of these notes, the trustee will consider
the converted portion to be of the portion selected for redemption for all
purposes hereof, notwithstanding that any such note is converted as a whole or
in part before the mailing of the notice of redemption.
We may not give notice of any redemption of notes if we have defaulted in
the payment of interest or premium on the notes and the default is continuing.
Upon the issuance of a notice regarding our intent to redeem the notes, we will
issue a press release announcing the redemption.
REDEMPTION AT OPTION OF THE HOLDER
If a fundamental change, as described below, occurs at any time prior to
May 1, 2006, you may require us to redeem any or all of your notes 30 days after
the date of our notice of the fundamental change (the
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"repurchase date"). We will redeem the notes in multiples of $1,000 principal
amount at a price equal to 100% of the principal amount to be redeemed plus
accrued interest to, but excluding, the repurchase date. If the repurchase date
is an interest payment date, then we will pay the interest due to the
recordholder of the notes on the relevant record date for interest payments.
The indenture defines a "fundamental change" as any transaction or event in
connection with which all or substantially all common stock shall be exchanged
for, converted into, acquired for or constitute solely the right to receive,
consideration (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization or
otherwise) which is not all or substantially all common stock listed (or, upon
consummation of or immediately following such transaction or event, which will
be listed) on a U.S. national securities exchange or approved for quotation on
the Nasdaq National Market or any similar U.S. system of automated dissemination
of quotations of securities prices.
We will mail you a notice of the occurrence of a fundamental change on or
before the tenth day after the fundamental change occurs advising you of your
redemption right. We will also issue a press release announcing the occurrence
of a fundamental change simultaneously with the issuance of the notice to you
and will give the trustee a copy of that notice.
To exercise the redemption right, you must deliver to us or our designated
agent, on or before the 30th day after the date of our notice of a fundamental
change, written notice of your exercise, together with the notes to be redeemed,
duly endorsed for transfer. We will make payment for notes surrendered for
redemption promptly following the repurchase date, unless you withdraw the
redemption request prior to the expiration of this 30-day period.
We will comply with the provisions of Rule 13e-4 and any other tender offer
rules under the Exchange Act to the extent then applicable in connection with
your redemption rights in the event of a fundamental change.
These redemption rights could discourage a potential acquiror of Conexant.
The fundamental change redemption feature, however, is not the result of our
knowledge of any specific effort to obtain control of Conexant by means of a
merger, tender offer, solicitation or otherwise. The term "fundamental change"
is limited to specified transactions and does not include other events that
might adversely affect our financial condition. The redemption rights do not
necessarily afford you protection in the event of a highly leveraged
transaction, reorganization, merger or similar transaction.
If a fundamental change were to occur, we cannot assure you that we would
have sufficient funds to pay the redemption price for all the notes tendered for
redemption. In addition, in many cases, a fundamental change would result in an
event of default under our existing credit facility. Any future credit
agreements or other agreements relating to other indebtedness, including senior
indebtedness, to which we become a party may contain similar provisions or may
expressly prohibit the repurchase of the notes on a fundamental change or may
provide that a fundamental change constitutes an event of default. If we are
prohibited from redeeming the notes, we could seek the consent of our lenders to
the redemption of the notes or could attempt to refinance the borrowings
containing that prohibition. If we do not obtain consent or repay these
borrowings, we would remain prohibited from redeeming the notes. In that case,
our failure to redeem tendered notes would be an event of default under the
indenture and may be a default under the terms of other indebtedness that we may
enter into from time to time. In these circumstances, or if the occurrence of a
fundamental change itself is an event of default under senior indebtedness, the
subordination provisions in the indenture would restrict or prohibit us from
making payments to the holders of notes.
SUBORDINATION OF NOTES
The notes are subordinated to the extent provided in the indenture to the
prior payment in full of all of our senior indebtedness, as described below. The
notes also are effectively subordinated to all indebtedness and other
liabilities, including trade payables and lease obligations, if any, of our
subsidiaries. Upon any distribution of our assets upon any dissolution, winding
up, liquidation or reorganization, the payment of the principal of, or premium,
if any, and interest, including the liquidated damages set forth in the
indenture, if
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any, on the notes is subordinated to the extent provided in the indenture in
right of payment to the prior payment in full of all of our senior indebtedness.
In the event of any acceleration of the notes because of an event of default,
the holders of any senior indebtedness then outstanding would be entitled to
payment in full of all obligations in respect of such senior indebtedness before
you or other holders of the notes are entitled to receive any payment or
distribution. The indenture requires that we promptly notify holders of senior
indebtedness if payment of the notes is accelerated because of an event of
default.
We also may not make any payment on the notes, including upon redemption,
if:
- a default in the payment of the principal of, premium, if any, interest,
rent or other obligations in respect of senior indebtedness occurs and is
continuing beyond any applicable period of grace, or
- any other default occurs and is continuing with respect to designated
senior indebtedness, as described below, that permits a holder of
designated senior indebtedness to accelerate its maturity and the trustee
receives a notice of that default from us or another person permitted to
give that notice under the indenture.
We will resume payments on the notes:
- in case of a payment default, upon the date on which the default is
cured, waived or ceases to exist, and
- in case of a default other than a payment default, as described above,
the earlier of the date on which the non-payment default is cured, waived
or ceases to exist or 179 days after the date on which the applicable
notice of default delivered to the trustee is received.
No new period of payment blockage for a non-payment default may be
commenced unless and until:
- 365 days have elapsed since the initial effectiveness of the immediately
prior default notice blocking payment on the notes for a non-payment
default, and
- all scheduled payments of principal, premium, if any, and interest,
including any liquidated damages, on the notes that have come due have
been paid in full in cash. No non-payment default that existed or was
continuing on the date of delivery of any default notice to the trustee
can be the basis for a subsequent default notice.
If the trustee, any paying agent on our behalf or any holder of the notes
receives any payment or distribution of our assets of any kind in contravention
of any of the subordination provisions of the indenture, in respect of the notes
before all senior indebtedness is paid in full, then the recipient must hold
such payment or distribution in trust for the benefit of holders of senior
indebtedness or their representatives to the extent necessary to make payment in
full of all senior indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to or for the holders
of senior indebtedness.
By reason of the subordination provisions described above, in the event of
our bankruptcy, dissolution or reorganization, holders of senior indebtedness
may receive more, ratably, and holders of the notes may receive less, ratably,
than our other creditors. That subordination will not prevent the occurrence of
any event of default under the indenture.
The term "senior indebtedness" is defined in the indenture and includes
principal, premium, interest, rent, fees, costs, expenses and other amounts
accrued or due on our existing or future indebtedness, as defined below, or any
existing or future indebtedness guaranteed or in effect guaranteed by us,
subject to certain exceptions. The term does not include:
- any indebtedness that by its express terms is not senior to the notes or
is pari passu or junior to the notes, or
- any indebtedness we owe to a subsidiary in which we directly or
indirectly own a majority of the voting stock.
The term "indebtedness" is also defined in the indenture and includes, in
general terms, our liabilities in respect of borrowed money, notes, bonds,
debentures, letters of credit, bank guarantees, bankers' acceptances,
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capital and certain other leases, interest rate and foreign currency derivative
contracts or similar arrangements, guarantees and certain other obligations
described in the indenture, subject to certain exceptions. The term does not
include, for example, any account payable or other accrued current liability or
obligation incurred in the ordinary course of business in connection with the
obtaining of materials or services.
The term "designated senior indebtedness" is defined in the indenture and
includes, in general terms, our credit facility and any other senior
indebtedness that by its terms expressly provides that it is "designated senior
indebtedness" for purposes of the indenture.
As of June 30, 1999, we had approximately $70 million of indebtedness
outstanding under foreign exchange contracts, certain leases and letters of
credit, that would have constituted senior indebtedness. The indenture does not
limit us or any of our subsidiaries from incurring or guaranteeing additional
indebtedness, including additional senior indebtedness.
We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against certain losses, liabilities or expenses incurred
by it in connection with its duties relating to the notes. The trustee's claims
for such payments will generally be senior to those of the holders of the notes
in respect of all funds collected or held by the trustee.
EVENTS OF DEFAULT; NOTICE AND WAIVER
The indenture provides that each of the following constitutes an event of
default:
- default in payment of the principal of or premium, if any, upon
redemption or otherwise, on the notes, whether or not such payment is
permitted to be made under the subordination provisions described above,
- default for 30 days in payment of any installment of interest, including
any liquidated damages, on the notes, whether or not such payment is
permitted to be made under the subordination provisions described above,
- default by us for 60 days after notice in the observance or performance
of any other covenants in the indenture, or
- certain events involving the bankruptcy, insolvency or reorganization of
Conexant or certain of our significant subsidiaries, as defined in the
indenture.
The indenture provides that the trustee may withhold notice to the holders of
the notes of any default except in payment of principal or premium, if any, or
interest, including any liquidated damages, with respect to the notes if the
trustee considers it in the interest of the holders of the notes to do so.
If an event of default occurs and is continuing, the trustee or the holders
of not less than 25% in principal amount of the outstanding notes may declare
the principal of, premium, if any, and accrued interest, including any
liquidated damages, on the notes to be due and payable immediately. In the case
of certain events of bankruptcy or insolvency of Conexant, the notes
automatically become immediately due and payable. However, if we cure all
defaults, except the nonpayment of amounts which have become due by acceleration
and certain other conditions are met, with certain exceptions, the acceleration
may be canceled and past defaults may be waived by the holders of a majority of
the principal amount of the outstanding notes.
Any payment of principal, premium, if any, or interest, including any
liquidated damages, that is not made when due will accrue interest, to the
extent legally permissible, at an annual rate of 4 1/4% from the date on which
such payment was required under the terms of the indenture until the date of
payment. This interest amount will accrue whether or not payment of the other
amount is permitted under the subordination provisions described above.
The holders of a majority in principal amount of the notes then outstanding
have the right to direct the time, method and place of conducting any
proceedings for any remedy available to the trustee, subject to limitations
specified in the indenture.
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No holder of the notes may pursue any remedy under the indenture, except in
the case of certain payment defaults, unless:
- the holder has previously given to the trustee written notice of a
continuing event of default,
- the holders of at least 25% in principal amount of the outstanding notes
make a written request and offer reasonable indemnity to the trustee to
pursue the remedy,
- the trustee does not receive from the holders of a majority in principal
amount of the outstanding notes a direction inconsistent with such
request, and
- the trustee fails to comply with such request within 60 days after
receipt.
MODIFICATION OF THE INDENTURE
With the consent of the holders of a majority in principal amount of the
outstanding notes, we and the trustee may modify the indenture or any
supplemental indenture or the rights of the holders of the notes. Without the
consent of the holder of each affected note, no such modification will:
- extend the fixed maturity of any note,
- reduce the rate or extend the time for payment of interest,
- reduce the principal amount or premium, if any,
- reduce any amount payable upon redemption,
- change our redemption obligation upon the happening of any fundamental
change in a manner adverse to the holders of the notes,
- impair the right of a holder to institute suit for payment,
- change the currency in which the notes are payable,
- impair the right to convert the notes into common stock subject to the
terms in the indenture, or
- modify the provisions of the indenture with respect to the subordination
of the notes in a manner adverse to the holders of the notes.
No modification may reduce the percentage of notes required for consent to
any modification of the indenture or any supplemental indenture without the
consent of the holders of all of the notes then outstanding. The indenture also
provides for certain modifications of its terms without the consent of the
holders of the notes.
REGISTRATION RIGHTS OF THE HOLDERS OF THE NOTES
On May 12, 1999, we entered into a registration rights agreement with the
initial purchasers of the notes. If you sell the notes or common stock issued on
conversion of the notes pursuant to this prospectus, you generally will be
required to be named as a selling securityholder, deliver this prospectus to
purchasers and be bound by certain provisions of the registration rights
agreement.
Under the registration rights agreement, we are required to keep the shelf
registration statement of which this prospectus is a part effective until the
earlier of:
- the sale of all the securities registered under this prospectus and
- the expiration of the holding period applicable for the securities held
by persons who are not our affiliates under Rule 144(k) under the
Securities Act, subject to certain permitted exceptions.
We may suspend the use of this prospectus under certain circumstances
relating to pending corporate developments, public filings with the Securities
and Exchange Commission and similar events. We are not permitted to do this more
than once in any three-month period or four times in any 12-month period. A
single period of suspension generally may not exceed 30 days. In the aggregate,
these suspension periods may not
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exceed 60 days in any three-month period or 90 days in any 12-month period. We
are permitted to suspend the use of the prospectus for a period not to exceed 60
days under certain circumstances relating to possible acquisitions,
acquisitions, financings or similar transactions. If the prospectus is
unavailable for periods in excess of those permitted above, we must pay
liquidated damages (1) in respect of the notes, at a rate per annum equal to
0.5% of the principal amount of the notes, and (2) in respect of any shares of
common stock, at a rate per annum equal to 0.5% of the then applicable
conversion price.
We will pay all expenses of the shelf registration statement, provide to
each registered holder copies of the prospectus and take certain other actions
as are required to permit unrestricted resales of the notes and the common
stock.
INFORMATION CONCERNING THE TRUSTEE
We have appointed The First National Bank of Chicago, trustee under the
indenture, as paying agent, conversion agent, registrar and custodian with
regard to the notes. The trustee is a lender under our existing credit facility.
The indenture contains certain limitations on the rights of the trustee, as long
as it or any of its affiliates remains our creditor, to obtain payment of claims
in certain cases or to realize on certain property received in respect of any
such claim as security or otherwise. The trustee and its affiliates are
permitted to engage in other transactions with us. If the trustee or any
affiliate of the trustee continues to have any conflicting interest (as defined)
and a default occurs with respect to the notes, the trustee must eliminate that
conflict or resign.
RATING OF NOTES
One or more rating agencies may rate the notes. We cannot assure you that
an agency or agencies will rate the notes or, if they do, what rating or ratings
they will assign to the notes. The market price of the notes and common stock
could be materially adversely affected if rating agencies assign the notes a
rating lower than that expected by investors.
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DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock, as amended or superseded by
any applicable prospectus supplement, includes a summary of certain provisions
of our certificate of incorporation and our by-laws. This description is subject
to the detailed provisions of, and is qualified by reference to, our certificate
of incorporation and our by-laws, copies of which have been filed as exhibits to
the registration statement of which this prospectus is a part.
We are authorized to issue (1) 500,000,000 shares of common stock, of which
96,785,795 shares of common stock were outstanding as of May 28, 1999, and (2)
25,000,000 shares of preferred stock, without par value, of which our board of
directors has designated 1,500,000 shares as Series A Junior Participating
Preferred Stock for issuance in connection with the exercise of our preferred
share purchase rights. For a more detailed discussion of our preferred share
purchase rights and how they relate to our common stock, see "-- Conexant
Preferred Share Purchase Rights Plan". The authorized shares of common stock and
preferred stock will be available for issuance without further action by our
shareholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which our securities may be
listed or traded. If the approval of our shareholders is not so required, our
board of directors may determine not to seek shareholder approval.
Certain of the provisions described under this section entitled
"Description of Capital Stock" could have the effect of discouraging
transactions that might lead to a change of control of Conexant.
COMMON STOCK
Our certificate of incorporation and by-laws:
- establish a classified board of directors,
- require shareholders to provide advance notice of any shareholder
nominations of directors or any proposal of new business to be considered
at any meeting of shareholders,
- require a supermajority vote to remove a director or to amend or repeal
certain provisions of our certificate of incorporation or by-laws and
- preclude shareholders from calling a special meeting of shareholders.
Holders of common stock are entitled to such dividends as may be declared
by our board of directors out of funds legally available therefor. Dividends may
not be paid on common stock unless all accrued dividends on preferred stock, if
any, have been paid or set aside. In the event of our liquidation, dissolution
or winding up, the holders of 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
preferred stock. Each holder of common stock will be entitled to one vote for
each such share outstanding in such holder's name. No holder of common stock
will be entitled to cumulate votes in voting for directors. Our certificate
provides that, unless otherwise determined by our board of directors, no holder
of common stock will have any right to purchase or subscribe for any stock of
any class which we may issue or sell.
ChaseMellon Shareholder Services, L.L.C. is the transfer agent and
registrar for our common stock.
PREFERRED STOCK
Our certificate of incorporation authorizes our board of directors to
establish one or more series of preferred stock of up to an aggregate of
25,000,000 shares and to determine, with respect to any series of our preferred
stock, the terms and rights of the series. Although our board of directors has
no intention at the present time of doing so, it could issue a series of
preferred stock that could, depending on the terms of such series, impede the
completion of a merger, tender offer or other takeover attempt.
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CERTAIN PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BY-LAWS
Our certificate and by-laws contain various provisions intended to (1)
promote the stability of our shareholder base and (2) render more difficult
certain unsolicited or hostile attempts to take over Conexant which could
disrupt Conexant, divert the attention of our directors, officers and employees
and adversely affect the independence and integrity of our business.
Pursuant to our certificate, the number of directors is fixed by our board
of directors. Other than directors elected by the holders of any series of
preferred stock or any other series or class of stock except common stock, our
directors are divided into three classes, each class to consist as nearly as
possible of one-third of the directors. Directors elected by shareholders at an
annual meeting of shareholders will be elected by a plurality of all votes cast.
Initially, the terms of office of the three classes of directors expire,
respectively, at our annual meetings in 2000, 2001 and 2002. The term of the
successors of each such class of directors expires three years from the year of
election.
Our certificate of incorporation contains a fair price provision pursuant
to which a Business Combination (as defined in our certificate of incorporation)
between Conexant or one of our subsidiaries and an Interested Shareowner (as
defined in our certificate of incorporation) requires approval by the
affirmative vote of the holders of not less than 80 percent of the voting power
of all the outstanding capital stock of Conexant entitled to vote generally in
the election of directors, voting together as a single class, unless the
Business Combination is approved by at least two-thirds of the Continuing
Directors (as defined in our certificate of incorporation) or certain fair price
criteria and procedural requirements specified in the fair price provision are
met. If either the requisite approval of our board of directors or the fair
price criteria and procedural requirements were met, the Business Combination
would be subject to the voting requirements otherwise applicable under the DGCL,
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 Conexant
entitled to vote thereon. 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
of all the outstanding capital stock of Conexant entitled to vote generally in
the election of directors, 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 our
capital stock entitled to vote thereon.
Our certificate of incorporation and by-laws provide that a special meeting
of shareholders may be called only by a resolution adopted by a majority of the
entire board of directors. Shareholders are not permitted to call, or to require
that the board of directors call, a special meeting of shareholders. Moreover,
the business permitted to be conducted at any special meeting of shareholders is
limited to the business brought before the meeting pursuant to the notice of the
meeting given by us. In addition, our certificate provides that any action taken
by our shareholders must be effected at an annual or special meeting of
shareholders and may not be taken by written consent in lieu of a meeting. Our
by-laws establish an advance notice procedure for shareholders to nominate
candidates for election as directors or to bring other business before meetings
of our shareholders.
Our certificate of incorporation provides that the affirmative vote of at
least 80 percent of the voting power of all of our outstanding capital stock
entitled vote generally in the election of directors, voting together as a
single class, would be required to:
- amend or repeal the provisions of our certificate with respect to (a) the
election of directors, (b) the right to call a special shareholders'
meeting or (c) the right to act by written consent,
- adopt any provision inconsistent with such provisions, or
- amend or repeal the provisions of our certificate of incorporation with
respect to amendments to our certificate of incorporation or by-laws.
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In addition, our certificate of incorporation provides that our board of
directors may make, alter, amend and repeal our by-laws and that the amendment
or repeal by shareholders of any of our by-laws would require the affirmative
vote of at least 80 percent of the voting power described above, voting together
as a single class.
CONEXANT RIGHTS PLAN
Each outstanding share of common stock also evidences one preferred share
purchase right. Each preferred share purchase right entitles the registered
holder to purchase from us one one-hundredth of a share of Series A Junior
Participating Preferred Stock, at $75, subject to adjustment. The description
and terms of the preferred share purchase rights are set forth in the Rights
Agreement.
Until the earlier to occur of (1) 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
common stock or (2) 10 business days, or such later date as may be determined by
our 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 common stock, preferred share purchase rights will be attached to
common stock and will be owned by the registered owners of common stock.
The Rights Agreement provides that, until the preferred share purchase
rights are no longer attached to the common stock, or until the earlier
redemption or expiration of the preferred share purchase rights:
- the preferred share purchase rights will be transferred with and only
with common stock,
- certificates representing common stock and statements in respect of
shares of common stock registered in book-entry or uncertificated form
will contain a notation incorporating the terms of the preferred share
purchase rights by reference, and
- the transfer of any shares of common stock will also constitute the
transfer of the associated preferred share purchase rights.
As soon as practicable following the date the preferred share purchase rights
are no longer attached to the common stock, separate certificates evidencing
preferred share purchase rights will be mailed to holders of record of common
stock as of the close of business on the date the preferred share purchase
rights are no longer attached to the common stock and the separate certificates
alone will evidence preferred share purchase rights.
Preferred share purchase rights will not be exercisable until the date the
preferred share purchase rights are no longer attached to the common stock.
Preferred share purchase rights will expire on December 31, 2008, unless this
expiration date is extended or unless preferred share purchase rights are
earlier redeemed by us, in each case, as described below.
The purchase price payable, and the number of shares of Series A junior
preferred stock or other securities or property issuable, upon exercise of the
preferred share purchase rights will be subject to adjustment from time to time
to prevent dilution upon the occurrence of the following events:
- in the event of a stock dividend on, or a subdivision, combination or
reclassification of, Series A junior preferred stock,
- upon the grant to holders of shares of Series A junior preferred stock of
certain rights or warrants to subscribe for or purchase shares of Series
A junior preferred stock at a price, or securities convertible into
shares of Series A junior preferred stock with a conversion price, less
than the then current market price of the shares of Series A junior
preferred stock, or
- upon the distribution to holders of shares of Series A junior preferred
stock of evidences of indebtedness or assets (excluding regular periodic
cash dividends or dividends payable in shares of Series A junior
preferred stock) or of subscription rights or warrants (other than those
referred to above).
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The number of outstanding preferred share purchase rights and the number of
one one-hundredths of a share of Series A junior preferred stock issuable upon
exercise of each preferred share purchase right will also be subject to
adjustment in the event of a stock split of common stock or a stock dividend on
common stock payable in common stock or subdivisions, consolidations or
combinations of common stock occurring, in any such case, prior to the date the
preferred share purchase rights are no longer attached to the common stock.
We cannot redeem shares of Series A junior preferred stock purchasable upon
exercise of preferred share purchase rights. Each share of Series A 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 common stock whenever such dividend is
declared. In the event of liquidation, the holders of Series A 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 common stock. Each share of Series A junior preferred stock will
have 100 votes, voting together with common stock. In the event of any merger,
consolidation or other transaction in which shares of common stock are
exchanged, each share of Series A junior preferred stock will be entitled to
receive 100 times the amount received per share of common stock. These rights
will be protected by customary antidilution provisions.
Because of the nature of the Series A junior preferred stock's dividend,
liquidation and voting rights, the value of the one one-hundredth interest in a
share of Series A junior preferred stock purchasable upon exercise of each
preferred share purchase right should approximate the value of one share of
common stock.
In the event that, at any time after a person has become an Acquiring
Person, we are acquired in a merger or other business combination transaction or
50% or more of our consolidated assets or earning power is sold, proper
provision will be made so that each holder of a preferred share purchase right
will thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of a preferred share purchase 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 a
preferred share purchase right. In the event that any person becomes an
Acquiring Person, proper provision shall be made so that each holder of a
preferred share purchase right, other than preferred share purchase 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 Series
A junior preferred stock, that number of shares of common stock having a market
value of two times the exercise price of a preferred share purchase 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 common stock, our board of
directors may exchange preferred share purchase rights (other than preferred
share purchase rights owned by such person or group, which will have become void
after such person became an Acquiring Person) for common stock or Series A
junior preferred stock, in whole or in part, at an exchange ratio of one share
of common stock, or one hundredth of a share of Series A junior preferred stock
(or of a share of another series of preferred stock having equivalent rights,
preferences and privileges), per preferred share purchase 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%. No
fractional shares of Series A junior preferred stock will be issued, other than
fractions which are integral multiples of one one-hundredth of a share of Series
A junior preferred stock, which may, at our election, be evidenced by depository
receipts. Instead, an adjustment in cash will be made based on the market price
of Series A 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 common stock, our board of directors may redeem preferred share
purchase rights in whole, but not in part, at a price of $.01 per preferred
share purchase right. The redemption of preferred share purchase rights may be
made effective at such time, on such basis and with such conditions as our board
of directors may determine, in its sole discretion. Immediately upon any
redemption of preferred share purchase rights, the right to exercise preferred
share purchase rights will
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terminate and the only right of the holders of preferred share purchase rights
will be to receive the redemption price.
The terms of preferred share purchase rights may be amended by our board of
directors without the consent of the holders of preferred share purchase 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 preferred share purchase rights.
Until a preferred share purchase right is exercised, the holder thereof, as
such, will have no rights as a shareholder of Conexant, including, without
limitation, the right to vote or to receive dividends.
The foregoing summary of the material terms of preferred share purchase
rights is qualified by reference to the Rights Agreement, a copy of which has
been filed as an exhibit to the registration statement of which this prospectus
is a part.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain U.S. federal income tax
considerations relating to the purchase, ownership and disposition of the notes
and common stock into which the notes may be converted. This discussion is based
on laws, regulations, rulings and decisions now in effect, all of which are
subject to change or differing interpretation (possibly with retroactive
effect). We cannot assure you that the IRS will not challenge one or more of the
tax consequences described in this discussion, and we have not obtained, and do
not intend to obtain, a ruling from the IRS with respect to the U.S. federal
income tax consequences of acquiring or holding notes or common stock.
This discussion does not deal with all aspects of U.S. federal income
taxation that may be important to holders of the notes or common stock and does
not deal with tax consequences arising under the laws of any foreign, state or
local jurisdiction. This discussion is for general information purposes only,
and does not purport to address all tax consequences that may be important to
particular holders in light of their personal circumstances (for example,
persons subject to the alternative minimum tax provisions of the Internal
Revenue Code), or to certain types of holders (such as certain financial
institutions, insurance companies, tax-exempt entities, dealers in securities or
persons who hold the notes or common stock as part of a hedging or conversion
transaction or straddle or persons deemed to sell notes or common stock under
the constructive sale provisions of the Internal Revenue Code) that may be
subject to special rules. This discussion assumes that each holder holds the
notes and any common stock received upon conversion of the notes as capital
assets under Section 1221 of the Internal Revenue Code.
For purposes of this discussion, a "U.S. holder" refers to any holder that
is a U.S. person, and a "non-U.S. holder" refers to any holder that is not a
U.S. person. The term "U.S. person" means:
- a citizen or resident of the United States,
- a corporation, partnership (or other entity treated as a corporation or a
partnership for U.S. federal income tax purposes) created or organized in
the United States or any state of the United States or the District of
Columbia,
- an estate the income of which is subject to U.S. federal income taxation
regardless of its source, or
- a trust subject to the primary supervision of a court in the United
States and controlled by one or more U.S. persons.
WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF YOUR OWNERSHIP AND DISPOSITION OF THE
NOTES, INCLUDING CONVERSION OF THE NOTES, AND THE EFFECT THAT YOUR PARTICULAR
CIRCUMSTANCES MAY HAVE ON THESE TAX CONSEQUENCES.
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<PAGE> 49
U.S. HOLDERS
THE FOLLOWING DISCUSSION APPLIES ONLY TO A U.S. HOLDER OF NOTES OR COMMON
STOCK INTO WHICH THE NOTES MAY BE CONVERTED.
Taxation of Interest
You must generally include stated interest on the notes in gross income as
ordinary income at the time it is treated as received or accrued, in accordance
with your regular method of accounting for U.S. federal income tax purposes.
Under Treasury Regulations promulgated under the Internal Revenue Code, the
possibility of an additional payment under a note may be disregarded for
purposes of determining the amount of interest or original issue discount income
to be recognized by you in respect of such note (or the timing of such
recognition) if the likelihood of the payment, as of the date the notes are
issued, is remote. Our failure to file or cause to be declared effective the
shelf registration statement as described under "Description of
Notes -- Registration Rights of the Noteholders" may result in the payment of
predetermined liquidated damages in the manner described therein. In addition,
you may require us to redeem any and all of your notes in the event of a
fundamental change. We believe that the likelihood of a liquidated damages
payment with respect to the notes is remote and do not intend to treat such
possibility as affecting the yield to maturity of any note. Similarly, we intend
to take the position that a "fundamental change" is remote under the Treasury
Regulations, and likewise do not intend to treat the possibility of a
"fundamental change" as affecting the yield to maturity of any note. There can
be no assurance that the Internal Revenue Service will agree with these
positions. In the event either contingency occurs, it would affect the amount
and timing of the income that must be recognized by you.
Sale, Exchange or Redemption of the Notes
Upon your sale, exchange (other than a conversion), retirement, redemption
or other disposition of a note, you generally will recognize gain or loss equal
to the difference between:
- the amount of cash proceeds and the fair market value of any property you
receive on the sale, exchange, retirement, redemption or other
disposition (except to the extent such amount is attributable to accrued
interest income not previously included in income, which will be taxable
as ordinary income, or is attributable to accrued interest that was
previously included in income, which amount may be received without
generating further income) and
- your adjusted tax basis in the note.
Your adjusted tax basis in a note generally will equal your cost of the note,
increased by the amount of any market discount (as discussed below) you
previously took into income or decreased by any bond premium you amortized with
respect to the note. Any gain or loss recognized on the sale, exchange,
retirement, redemption or other disposition of a note should be capital gain or
loss and will generally be long-term capital gain or loss if you held the note
or were deemed to have held the note for more than one year at the time of the
sale, exchange, retirement, redemption or other disposition. Long-term capital
gains recognized by certain noncorporate U.S. holders, including individuals,
will generally be subject to a maximum rate of tax of 20%. The deductibility of
capital losses is subject to limitations.
Market Discount
The market discount rules discussed below apply to any note purchased after
its original issuance at a price which is less than its principal amount as well
as to any note purchased at its original issuance for an amount which is less
than the price at which a substantial amount of the notes were originally sold.
If you purchase a note at a market discount you generally will be required
to treat any principal payments on, or any gain on the disposition or maturity
of, such note as ordinary income to the extent of the accrued market discount
(not previously included in income) at the time of such payment or disposition.
In general, subject to a de minimis exception, market discount is the amount by
which the note's principal amount exceeds your tax basis in the note immediately
after the note is acquired. A note is not treated as purchased at
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<PAGE> 50
a market discount, however, if the market discount is less than .25 percent of
the principal amount of the note multiplied by the number of complete years to
maturity from the date when you acquired the note. Market discount on a note
will accrue on a straight-line basis, unless you elect to accrue such discount
on a constant yield to maturity basis. This election is irrevocable and applies
only to the note for which it is made. You may also elect to include market
discount in income currently as it accrues. This election, once made, applies to
all market discount obligations acquired on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the IRS. If you dispose of a note acquired at a market discount in
any non-taxable transaction (other than a nonrecognition transaction defined in
Section 1276(c) of the Internal Revenue Code), accrued market discount will be
includible in your income as ordinary income as if you had sold the note at its
fair market value. You may be required to defer until the maturity of the note
or, in certain circumstances, its earlier disposition, the deduction or all or a
portion of the interest expense attributable to debt incurred or continued to
purchase or carry a note with market discount, unless you make an election to
include the market discount on a current basis.
Amortizable Bond Premium
If you purchase a note for an amount in excess of its principal amount, you
generally will be considered to have purchased the note with "amortizable bond
premium". You generally may elect to amortize such premium using the constant
yield to maturity method. The amount amortized in any year will generally be
treated as a reduction of your interest income on the note. If the amortizable
bond premium allocable to a year exceeds the amount of interest allocable to
that year, the excess would be allowed as a deduction for that year but only to
the extent of your prior interest inclusions on the note. If you do not make
such an election, the premium on the note will decrease the gain or increase the
loss otherwise recognized on the sale, redemption, retirement or other
disposition of the note. The election to amortize the premium on a constant
yield to maturity method, once made, generally applies to all bonds held or
subsequently acquired by you on or after the first day of the first taxable year
to which the election applies and may not be revoked without the consent of the
Internal Revenue Service.
Conversion of the Notes
You generally will not recognize any income, gain or loss upon conversion
of a note into common stock except to the extent the common stock is considered
attributable to accrued interest not previously included in income (which will
be taxable as ordinary income) or with respect to cash received in lieu of a
fractional share of common stock. Your tax basis in common stock received on
conversion of a note will be the same as your adjusted tax basis in the note at
the time of conversion (reduced by any basis allocable to a fractional share
interest), and your holding period for common stock received on conversion will
generally include the holding period of the note converted. However, your tax
basis in shares of common stock considered attributable to accrued interest
generally will equal the amount of such accrued interest included in income, and
the holding period for such shares will begin on the date of conversion.
Cash received in lieu of a fractional share of common stock upon conversion
will be treated as a payment in exchange for the fractional share of common
stock. Accordingly, the receipt of cash in lieu of a fractional share of common
stock generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and your adjusted tax basis
in the fractional share).
Dividends
Distributions, if any, made on common stock after a conversion generally
will be included in your income as ordinary dividend income to the extent of our
current or accumulated earnings and profits. Distributions in excess of our
current and accumulated earnings and profits will be treated as a return of
capital to the extent of your basis in common stock and thereafter as capital
gain.
You may, in certain circumstances, be deemed to have received a
constructive distribution where the conversion price of a note is adjusted.
Adjustments to the conversion price made pursuant to a bona fide reasonable
adjustment formula which has the effect of preventing the dilution of your
interest in a note,
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however, will generally not be considered to result in a constructive
distribution of stock. Certain of the possible adjustments provided in the notes
(including, without limitation, adjustments in respect of taxable dividends to
our shareholders) will not qualify as being pursuant to a bona fide reasonable
adjustment formula. If such an adjustment is made, you will be deemed to have
received a constructive distribution taxable as a dividend to the extent of our
current and accumulated earnings and profits even though you have not received
any cash or property as a result of the adjustment. In certain circumstances the
failure to provide for such an adjustment may result in taxable dividend income
to you.
Sale of Common Stock
Upon the sale or exchange of common stock you generally will recognize
capital gain or loss equal to the difference between:
- the amount of cash and the fair market value of any property received
upon the sale or exchange and
- your adjusted tax basis in the common stock.
Such capital gain or loss will be long-term capital gain or loss if your holding
period in the common stock is more than one year at the time of the sale or
exchange. Long-term capital gains recognized by certain non-corporate U.S.
holders, including individuals, will generally be subject to a maximum rate of
tax of 20%. Your basis and holding period in common stock received upon
conversion of a note are determined as discussed above under "Conversion of the
Notes". The deductibility of capital losses is subject to limitations.
SPECIAL TAX RULES APPLICABLE TO NON-U.S. HOLDERS
THE FOLLOWING DISCUSSION APPLIES ONLY TO A NON-U.S. HOLDER OF NOTES OR
COMMON STOCK INTO WHICH THE NOTES MAY BE CONVERTED.
In general, subject to the discussion below concerning backup withholding:
- Payments of principal or interest on the notes to you will not be subject
to U.S. withholding tax, provided that, in the case of interest,
- you do not own, actually or constructively, 10% or more of the total
combined voting power of all classes of our stock entitled to vote,
within the meaning of Section 871(h)(3) of the Internal Revenue Code,
- you are not a "controlled foreign corporation" with respect to which
we are a "related person" within the meaning of the Internal Revenue
Code,
- you are not a bank receiving interest described in Section
881(c)(3)(A) of the Internal Revenue Code, and
- the certification requirements under Section 871(h) or Section 881(c)
of the Internal Revenue Code and the Treasury Regulations (discussed
below) are satisfied.
- You will not be subject to U.S. federal income tax on gains realized on
the sale, exchange or other disposition of a note or common stock into
which the notes may be converted unless
- you are an individual who is present in the United States for 183 days
or more in the taxable year of sale, exchange or other disposition,
and certain conditions are met,
- the gain is effectively connected with the conduct by you of a trade
or business in the United States and, if certain U.S. income tax
treaties apply, is attributable to a U.S. permanent establishment
maintained by you,
- you are subject to Internal Revenue Code provisions applicable to
certain U.S. expatriates, or
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- in the case of common stock, you hold more than 5% of such stock and
we are or have been, at any time within the shorter of the five-year
period preceding such sale or other disposition or the period you held
the common stock, a U.S. real property holding corporation for U.S.
federal income tax purposes. We do not believe that we are currently a
U.S. real property holding corporation or that we will become one in
the future.
- Interest on notes not excluded from U.S. withholding tax as described
above and dividends on common stock after conversion generally will be
subject to U.S. withholding tax at a 30% rate, except where an applicable
tax treaty provides for the reduction or elimination of such withholding
tax.
To satisfy the certification requirements referred to above, Sections
871(h) and 881(c) of the Internal Revenue Code and the currently effective
Treasury Regulations thereunder require that either:
- the beneficial owner of a note must certify, under penalties of perjury,
to us or our paying agent, that the owner is a non-U.S. holder and must
provide its name and address and U.S. taxpayer identification number, if
any, or
- a securities clearing organization, bank or other financial institution
that holds customer securities in the ordinary course of its trade or
business and holds the note on behalf of the beneficial owner thereof
must certify, under penalties of perjury, to us or our paying agent, that
such certificate has been received from the beneficial owner and must
furnish the payor with a copy thereof.
Such requirement will be fulfilled if the beneficial owner of a note
certifies on Internal Revenue Service Form W-8, under penalties of perjury, that
it is a non-U.S. holder and provides its name and address or any such financial
institution holding the note on behalf of the beneficial owner files a statement
with the withholding agent to the effect that it has received such a statement
from the beneficial owner (and furnishes the withholding agent with a copy of
the beneficial owner's statement).
Treasury Regulations effective for payments made after December 31, 1999,
will provide alternative methods for satisfying the certification requirements
described above and below, subject to certain grandfathering provisions. These
new regulations also require, in the case of notes held by a foreign
partnership, that
- the certification be provided by the partners rather than by the foreign
partnership and
- the partnership provide certain information, including a taxpayer
identification number.
A look-through rule will apply in the case of tiered partnerships.
If you are engaged in a trade or business in the United States and if
interest on the note, dividends on common stock, or gain realized on the sale,
exchange or other disposition of the note or common stock is effectively
connected with the conduct of such trade or business (and, if certain tax
treaties apply, is attributable to a U.S. permanent establishment maintained by
you in the United States), although you are exempt from U.S. withholding tax
(provided that the certification requirements discussed in the next sentence are
met), you will generally be subject to U.S. federal income tax on such interest,
dividends or gain on a net income basis in the same manner as if you were a U.S.
holder. In lieu of the certificate described above, you will be required, under
currently effective Treasury Regulations, to provide us with a properly executed
IRS Form 4224 in order to claim an exemption from withholding tax. In addition,
if you are a foreign corporation, you may be subject to a branch profits tax
equal to 30% (or such lower rate provided by an applicable treaty) of your
effectively connected earnings and profits for the taxable year, subject to
certain adjustments.
U.S. Federal Estate Tax
A note held by an individual who at the time of death is not a citizen or
resident of the United States (as specially defined for U.S. federal estate tax
purposes) will not be subject to U.S. federal estate tax if the individual did
not actually or constructively own 10% or more of the total combined voting
power of all classes of our stock and, at the time of the individual's death,
payments with respect to such note would not have been effectively connected
with the conduct by such individual of a trade or business in the United States.
Common
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stock held by an individual who at the time of death is not a citizen or
resident of the United States (as specially defined for U.S. federal estate tax
purposes) will be included in such individual's estate for U.S. federal estate
tax purposes, unless an applicable estate tax treaty otherwise applies.
IF YOU ARE A NON-U.S. HOLDER, YOU SHOULD CONSULT WITH YOUR TAX ADVISORS
REGARDING U.S. AND FOREIGN TAX CONSEQUENCES WITH RESPECT TO THE NOTES AND COMMON
STOCK.
BACKUP WITHHOLDING AND INFORMATION REPORTING
THE FOLLOWING DISCUSSION APPLIES TO BOTH U.S. HOLDERS AND NON-U.S. HOLDERS.
If you are a U.S. holder, backup withholding of U.S. federal income tax at
a rate of 31% may apply to payments made in respect of a note or common stock if
you are not an "exempt recipient" and you fail to provide certain identifying
information (such as your taxpayer identification number) in the manner
required. Generally, individuals are not exempt recipients, whereas corporations
and certain other entities are exempt recipients. Payments made in respect of a
note or common stock must be reported to the Internal Revenue Service, unless
your are an exempt recipient or otherwise establish an exemption.
If you are a non-U.S. holder, the Treasury Regulations provide that backup
withholding and information reporting will not apply to payments of interest
with respect to which either requisite certification has been received or an
exemption has otherwise been established (provided that neither we nor our
paying agent has actual knowledge that you are a U.S. holder or that the
conditions of any other exemption are not in fact satisfied).
If you are a non-U.S. holder, dividends on common stock that are subject to
U.S. withholding tax, as described above, generally will be exempt from U.S.
backup withholding tax but will be subject to certain information reporting.
Payments of the proceeds of the sale of a note or common stock to or
through a foreign office of a broker that is a U.S. related person (a
"controlled foreign corporation" (within the meaning of the Internal Revenue
Code) or a foreign person, 50% or more of whose gross income from all sources
for the three-year period ending with the close of its taxable year preceding
the payment was effectively connected with the conduct of a trade or business
within the United States) are currently subject to certain information reporting
requirements, unless the payee is an exempt recipient or such broker has
evidence in its records that the payee is a non-U.S. holder and no actual
knowledge that such evidence is false and certain other conditions are met.
Temporary Treasury Regulations indicate that such payments are not currently
subject to backup withholding. Under current Treasury Regulations, payments of
the proceeds of a sale of a note or common stock to or through the U.S. office
of a broker will be subject to information reporting and backup withholding
unless the payee certifies under penalties of perjury as to his or her status as
a non-U.S. holder and satisfies certain other qualifications (and no agent or
broker who is responsible for receiving or reviewing such statement has actual
knowledge that it is incorrect) and provides his or her name and address or the
payee otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to
you will be allowed as a refund or credit against your U.S. federal income tax
provided that the required information is furnished to the IRS in a timely
manner.
As noted above, new regulations will generally be applicable to payments
made after December 31, 1999. In general, these new regulations do not
significantly alter the substantive withholding and information reporting
requirements but unify current certification procedures and forms and clarify
reliance standards. Under these new regulations, special rules apply which
permit the shifting of primary responsibility for withholding to certain
financial intermediaries acting on behalf of beneficial owners. You should
consult with your tax advisor regarding the application of the backup
withholding rules to your particular situation, the availability of an exemption
therefrom, the procedure for obtaining such an exemption, if available, and the
impact of these new regulations on payments made with respect to notes or common
stock after December 31, 1999.
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THE PRECEDING DISCUSSION OF CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, YOU SHOULD
CONSULT YOUR OWN TAX ADVISER AS TO THE PARTICULAR U.S. FEDERAL, STATE, AND LOCAL
TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF THE NOTES AND COMMON
STOCK APPLICABLE TO YOU. TAX ADVISORS SHOULD ALSO BE CONSULTED AS TO THE U.S.
ESTATE AND GIFT TAX CONSEQUENCES AND THE FOREIGN TAX CONSEQUENCES OF PURCHASING,
HOLDING AND DISPOSING OF THE NOTES AND COMMON STOCK, AS WELL AS THE CONSEQUENCES
OF ANY PROPOSED CHANGE IN APPLICABLE LAWS.
SELLING SECURITYHOLDERS
The notes were originally issued by Conexant and sold by the initial
purchasers of the notes in a transaction exempt from the registration
requirements of the Securities Act to persons reasonably believed by the initial
purchasers to be qualified institutional buyers or other institutional
accredited investors. Selling securityholders, including their transferees,
pledgees or donees or their successors, may from time to time offer and sell
pursuant to this prospectus any or all of the notes and shares of common stock
into which the notes are convertible.
The following table sets forth information, as of July 6, 1999, with
respect to the selling securityholders and the principal amounts of notes
beneficially owned by each selling securityholder that may be offered pursuant
to this prospectus. The information is based on information provided by or on
behalf of the selling securityholders. The selling securityholders may offer
all, some or none of the notes or common stock into which the notes are
convertible. Because the selling securityholders may offer all or some portion
of the notes or the common stock, we cannot estimate the amount of the notes or
the common stock that will be held by the selling securityholders upon
termination of any of these sales. In addition, the selling securityholders
identified below may have sold, transferred or otherwise disposed of all or a
portion of their notes since the date on which they provided the information
regarding their notes in transactions exempt from the registration requirements
of the Securities Act. The percentage of notes outstanding beneficially owned by
each selling securityholder is based on $350,000,000 aggregate principal amount
of notes outstanding. The number of shares of common stock owned prior to the
offering includes shares of common stock into which the notes are convertible.
The number of shares of common stock offered hereby is based on a conversion
price of $46.196 per share of common stock and a cash payment in lieu of any
fractional share. No selling securityholder named in the table below
beneficially owns one percent or more of our common stock assuming conversion of
a selling securityholder's notes and based on 96,785,795 shares of common stock
outstanding on May 28, 1999. Information concerning other selling
securityholders will be set forth in prospectus supplements from time to time,
if required. The number of shares of common stock owned by the other selling
securityholders or any future transferee from any such holder assumes that they
do not beneficially own any common stock other than common stock into which the
notes are convertible at a conversion price of $46.196 per share.
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<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF NOTES COMMON
BENEFICIALLY PERCENTAGE OF STOCK OWNED COMMON
OWNED AND NOTES PRIOR TO THE STOCK
NAME OFFERED HEREBY OUTSTANDING OFFERING OFFERED HEREBY
- ---- ---------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Associated Electric & Gas Insurance
Services Ltd. ..................... $ 450,000 * 9,741 9,741
Bear, Stearns & Co. ................. 4,000,000 1.1% 86,587 86,587
Black Diamond Offshore Ltd. ......... 708,000 * 15,326 15,326
Double Black Diamond Offshore, LDC... 1,198,000 * 25,932 25,932
Jackson Investment Fund Ltd. ........ 4,280,000 1.2% 92,648 92,648
Jefferies & Company, Inc. ........... 1,750,000 * 37,882 37,882
Lehman Brothers, Inc. ............... 1,072,000 * 23,205 23,205
Morgan Stanley Dean Witter........... 15,000,000 4.3% 324,703 324,703
Morgan Stanley Dean Witter
Convertible Securities Trust....... 2,000,000 * 43,293 43,293
Spear, Leeds & Kellogg............... 1,000,000 * 21,646 21,646
White River Securities LLC........... 4,000,000 1.1% 86,587 86,587
Any other holder of notes or future
transferee from any such holder.... 314,542,000 89.9% 6,808,863 6,808,863
------------ ------ ---------- ----------
Total................................ $350,000,000 100% 7,576,413 7,576,413
============ ====== ========== ==========
</TABLE>
- ---------------
* Less than 1%.
None of the selling securityholders nor any of their affiliates, officers,
directors or principal equity holders has held any position or office or has had
any material relationship with Conexant within the past three years, except that
Morgan Stanley & Co. Incorporated acted as lead manager and Lehman Brothers,
Inc. acted as a co-lead manager in connection with the offer and sale of the
notes in May 1999 and each was an initial purchaser in that offering. In
addition, Morgan Stanley & Co. Incorporated acted as financial advisor in
connection with our spin-off from Rockwell.
The initial purchasers purchased all of the notes from Conexant in a
private transaction on May 12, 1999. All of the notes were "restricted
securities" under the Securities Act prior to this registration. The selling
securityholders have represented to us that they purchased the shares for their
own account for investment only and not with a view toward selling or
distributing them, except pursuant to sales registered under the Securities Act
or exempt from such registration.
Information concerning other selling securityholders will be set forth in
prospectus supplements from time to time, if required. Information concerning
the selling securityholders may change from time to time and any changed
information will be set forth in supplements to this prospectus if and when
necessary. In addition, the conversion price, and therefore, the number of
shares of common stock issuable upon conversion of the notes, is subject to
adjustment under certain circumstances. Accordingly, the aggregate principal
amount of notes and the number of shares of common stock into which the notes
are convertible may increase or decrease.
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PLAN OF DISTRIBUTION
The selling securityholders and their successors, which term includes their
transferees, pledgees or donees or their successors, may sell the notes and the
underlying common stock directly to purchasers or through underwriters,
broker-dealers or agents, who may receive compensation in the form of discounts,
concessions or commissions from the selling securityholders or the purchasers.
These discounts, concessions or commissions as to any particular underwriter,
broker-dealer or agent may be in excess of those customary in the types of
transactions involved.
The notes and the underlying common stock may be sold in one or more
transactions at:
- fixed prices,
- prevailing market prices at the time of sale,
- prices related to the prevailing market prices,
- varying prices determined at the time of sale, or
- negotiated prices.
These sales may be effected in transactions:
- on any national securities exchange or quotation service on which the
notes or the underlying common stock may be listed or quoted at the time
of sale, including the Nasdaq National Market in the case of the common
stock,
- in the over-the-counter market,
- otherwise than on such exchanges or services or in the over-the-counter
market,
- through the writing of options, whether the options are listed on an
options exchange or otherwise, or
- through the settlement of short sales.
These transactions may include block transactions or crosses. Crosses are
transactions in which the same broker acts as agent on both sides of the trade.
In connection with the sale of the notes and the underlying common stock or
otherwise, the selling securityholders may enter into hedging transactions with
broker-dealers or other financial institutions. These broker-dealers or
financial institutions may in turn engage in short sales of the notes or the
underlying common stock in the course of hedging the positions they assume with
selling securityholders. The selling securityholders may also sell the notes and
the underlying common stock short and deliver these securities to close out such
short positions, or loan or pledge the notes or the underlying common stock to
broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling securityholders from the sale of the
notes or the underlying common stock offered by them hereby will be the purchase
price of the notes or common stock less discounts and commissions, if any. Each
of the selling securityholders reserves the right to accept and, together with
their agents from time to time, to reject, in whole or in part, any proposed
purchase of notes or common stock to be made directly or through agents. We will
not receive any of the proceeds from this offering.
Our outstanding common stock is listed for trading on the Nasdaq National
Market. We do not intend to list the notes for trading on any national
securities exchange or on the Nasdaq National Market and can give no assurance
about the development of any trading market for the notes.
In order to comply with the securities laws of some states, if applicable,
the notes and the underlying common stock may be sold in these jurisdictions
only through registered or licensed brokers or dealers. In addition, in some
states the notes may not be sold unless they have been registered or qualified
for sale or an exemption from registration or qualification requirements is
available and is complied with.
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The selling securityholders and any broker-dealers or agents that
participate in the sale of the notes and the underlying common stock may be
deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act. Profits on the sale of the notes and the underlying common stock
by selling securityholders and any discounts, commissions or concessions
received by any broker-dealers or agents might be deemed to be underwriting
discounts and commissions under the Securities Act. Selling securityholders who
are deemed to be "underwriters" within the meaning of Section 2(11) of the
Securities Act will be subject to the prospectus delivery requirements of the
Securities Act. To the extent the selling securityholders may be deemed to be
"underwriters", they may be subject to statutory liabilities, including, but not
limited to, Sections 11, 12 and 17 of the Securities Act.
The selling securityholders and any other person participating in a
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder. Regulation M of the Exchange Act may limit
the timing of purchases and sales of any of the securities by the selling
securityholders and any other person. In addition, Regulation M may restrict the
ability of any person engaged in the distribution of the securities to engage in
market-making activities with respect to the particular securities being
distributed for a period of up to five business days before the distribution.
The selling securityholders have acknowledged that they understand their
obligations to comply with the provisions of the Exchange Act and the rules
thereunder relating to stock manipulation, particularly Regulation M, and have
agreed that they will not engage in any transaction in violation of such
provisions.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholder and any underwriter,
broker-dealer or agent regarding the sale of the notes and the underlying common
stock by the selling securityholders.
A selling securityholder may decide not to sell any notes or common stock
described in this prospectus. We cannot assure you that any selling
securityholder will use this prospectus to sell any or all of the notes or the
underlying common stock. Any securities covered by this prospectus which qualify
for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold
under Rule 144 or Rule 144A rather than pursuant to this prospectus. In
addition, a selling securityholder may transfer, devise or gift the notes and
the underlying common stock by other means not described in this prospectus.
With respect to a particular offering of the notes and the underlying
common stock, to the extent required, an accompanying prospectus supplement or,
if appropriate, a post-effective amendment to the registration statement of
which this prospectus is a part will be prepared and will set forth the
following information:
- the specific notes or common stock to be offered and sold,
- the names of the selling securityholders,
- the respective purchase prices and public offering prices and other
material terms of the offering,
- the names of any participating agents, broker-dealers or underwriters,
and
- any applicable commissions, discounts, concessions and other items
constituting compensation from the selling securityholders.
We entered into the registration rights agreement for the benefit of
holders of the notes to register their notes and the underlying common stock
under applicable federal and state securities laws under certain circumstances
and at certain times. The registration rights agreement provides that the
selling securityholders and Conexant will indemnify each other and their
respective directors, officers and controlling persons against specific
liabilities in connection with the offer and sale of the notes and the
underlying common stock, including liabilities under the Securities Act, or will
be entitled to contribution in connection with those liabilities. We will pay
all of our expenses and specified expenses incurred by the selling
securityholders incidental to the registration, offering and sale of the notes
and the underlying common stock to the public, but each selling securityholder
will be responsible for payment of commissions, concessions, fees and discounts
of underwriters, broker-dealers and agents.
56
<PAGE> 58
LEGAL MATTERS
The validity of the issuance of the notes and the common stock issuable on
conversion of the notes will be passed upon for us by Chadbourne & Parke LLP,
New York, New York.
EXPERTS
The combined financial statements and related financial statement schedule
of Semiconductor Systems as of September 30, 1998 and 1997 and for each of the
three fiscal years in the period ended September 30, 1998 incorporated by
reference in this prospectus from the Registration Statement on Form 10 of
Conexant Systems, Inc. have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
HOW TO OBTAIN MORE INFORMATION
In accordance with the Exchange Act, we file reports, proxy and information
statements and other information with the Securities and Exchange Commission.
You may read and copy these reports, proxy and information statements and other
information that we file at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549. You may obtain information on the operation of the
public reference room by calling the SEC at 1-800-SEC-0330. The SEC also
maintains an internet site that contains reports, proxy and information
statements and other information regarding registrants (including Conexant) that
file electronically with the SEC (http://www.sec.gov). Our internet site is
http://www.conexant.com.
You also may inspect reports, proxy statements and other information about
Conexant at the offices of The Nasdaq Stock Market, Inc. National Market System,
1735 K Street, N.W., Washington, D.C. 20006-1500.
We have filed with the SEC a registration statement on Form-S-3 under the
Securities Act. This prospectus does not contain all of the information in the
registration statement. We have omitted certain parts of the registration
statement, as permitted by the rules and regulations of the SEC. You may inspect
and copy the registration statement, including exhibits, at the SEC's public
reference room or internet site. Our statements in this prospectus about the
contents of any contract or other document are not necessarily complete. You
should refer to the copy of each contract or other document we have filed as an
exhibit to the registration statement for complete information.
The SEC's rules allow us to "incorporate by reference" into this prospectus
the information we file with the SEC. This means that we can disclose important
information to you by referring you to those filings. This information we
incorporate by reference is considered a part of this prospectus, and subsequent
information that we file with the SEC will automatically update and supersede
this information. Any such information so modified or superseded will not
constitute a part of this prospectus, except as so modified or superseded. We
incorporate by reference the following documents and any future filings we make
with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act until
the selling securityholders sell all of the notes or the shares of common stock
offered by this prospectus:
- Our Registration Statement on Form 10, as amended (File Number 000-24923)
(including the description of our common stock and our preferred share
purchase rights),
- Our Quarterly Report on Form 10-Q for the quarter ended January 1, 1999,
- Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999,
- Our Current Report on Form 8-K dated January 12, 1999,
- Our Current Report on Form 8-K dated January 20, 1999,
- Our Current Report on Form 8-K dated May 3, 1999,
57
<PAGE> 59
- Our Current Report on Form 8-K dated May 12, 1999, and
- Our Current Report on Form 8-K dated June 11, 1999.
Upon written or oral request, we will provide you with a copy of any of the
incorporated documents without charge (not including exhibits to the documents
unless the exhibits are specifically incorporated by reference into the
documents). You may submit such a request for this material to Dennis E.
O'Reilly, Esq., Senior Vice President, General Counsel and Secretary, Conexant
Systems, Inc., 4311 Jamboree Road, Newport Beach, California 92660-3095
(telephone number (949) 483-4600).
FORWARD-LOOKING STATEMENTS
In addition to historical information, this prospectus contains statements
relating to our future results. These statements include certain projections and
business trends which are "forward looking" within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
made only as of the date of this prospectus. We do not undertake to update or
revise the forward-looking statements, whether as a result of new information,
future events or otherwise.
Our actual results may differ materially from projected results as a result
of certain risks and uncertainties. These risks and uncertainties include,
without limitation, those described under "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations", as
well as those set forth below and those detailed from time to time in our
filings with the SEC:
- global and market conditions, including, without limitation, the cyclical
nature of the semiconductor industry and the markets related to our and
our customers' products,
- demand for and market acceptance of new and existing products,
- successful development of new products,
- timing of new product introductions,
- availability and extent of use of manufacturing capacity,
- pricing pressures and other competitive factors,
- changes in product mix,
- fluctuations in manufacturing yields,
- product obsolescence,
- our ability to develop and implement new technologies and to obtain
protection of the related intellectual property,
- the successful implementation of our diversification strategy and
restructuring plan,
- our labor relations and those of our customers and suppliers,
- timely completion of year 2000 modifications by us and by our key
suppliers and customers,
- uncertainties of litigation, and
- other risks and uncertainties.
------------------------
The Conexant logo and K56Flex(TM) are trademarks of Conexant Systems, Inc.
Other brands, names and trademarks contained in this prospectus are the property
of their respective owners.
58
<PAGE> 60
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$350,000,000
CONEXANT SYSTEMS, INC.
4 1/4% CONVERTIBLE SUBORDINATED NOTES DUE MAY 1, 2006
SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTES
------------------------
PROSPECTUS
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER
THAN THE DATE OF THIS PROSPECTUS. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES
IN ANY STATE WHERE THE OFFER IS NOT PERMITTED.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 61
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
------------------------
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by the
registrant in connection with the sale of the 4 1/4% Convertible Subordinated
Notes Due May 1, 2006 and the common stock being registered. All amounts are
estimates except the SEC registration fee and the Nasdaq National Market
additional listing fee.
<TABLE>
<S> <C>
SEC registration fee...................................... $ 97,300
Nasdaq National Market additional listing fee............. 17,500
* Printing and engraving fees............................... 60,000
* Legal fees and expenses................................... 50,000
* Rating agency fees........................................ 253,000
* Accounting fees and expenses.............................. 15,000
* Miscellaneous fees and expenses........................... 12,200
--------
Total.................................................. $505,000
========
</TABLE>
- ---------------
* Estimated
ITEM 15. 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. Our certificate of incorporation provides that our
directors are not liable to us or our shareholders for monetary damages for
breach of fiduciary duty as a director, except for liability (1) for any breach
of the director's duty of loyalty to us or our shareholders, (2) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (3) for willful or negligent violation of the laws governing
the payment of dividends or the purchase or redemption of stock or (4) 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. Our by-laws and the appendix thereto
provide for the indemnification of our directors, officers, employees and agents
to the extent permitted by Delaware law. It is expected that our directors and
officers will be insured against certain liabilities for actions taken in such
capacities, including liabilities under the Securities Act.
II-1
<PAGE> 62
ITEM 16. INDEX TO EXHIBITS.
<TABLE>
<C> <C> <S>
4.1 -- Indenture, dated as of May 1, 1999, between Conexant
Systems, Inc. and The First National Bank of Chicago, as
trustee, including the form of 4 1/4% Convertible
Subordinated Note Due May 1, 2006 attached as Exhibit A
thereto
4.2 -- Registration Rights Agreement, dated as of May 12, 1999, by
and among Conexant Systems, Inc. and Morgan Stanley & Co.
Incorporated, Credit Suisse First Boston Corporation and
Lehman Brothers, Inc.
4.3 -- Restated Certificate of Incorporation of Conexant Systems,
Inc., filed as Exhibit 4.1 to Conexant's Registration
Statement on Form S-8 (Registration No. 333-68755), is
incorporated herein by reference.
4.4 -- Amended By-Laws of Conexant Systems, Inc., filed as Exhibit
99.3 to Conexant's Current Report on Form 8-K dated January
12, 1999, is incorporated herein by reference.
4.5 -- Specimen certificate for Conexant's Common Stock, par value
$1 per share, filed as Exhibit 4.3 to Conexant's
Registration Statement on Form 10 (File No. 000-24923), is
incorporated herein by reference.
4.6 -- Rights Agreement, dated as of November 30, 1998, by and
between Conexant Systems, Inc. and ChaseMellon Shareholder
Services, L.L.C., as rights agent, filed as Exhibit 4.4 to
Conexant's Registration Statement on Form S-8 (Registration
No. 333-68755), is incorporated herein by reference.
5 -- Opinion of Chadbourne & Parke LLP, counsel to the
registrant, regarding the legality of the notes and the
common stock into which the notes are convertible
12 -- Computation of Ratio of Earnings to Fixed Charges
23.1 -- Consent of Deloitte & Touche LLP, Independent Auditors
23.2 -- Consent of Chadbourne & Parke LLP (contained in Exhibit 5)
24 -- Power of Attorney
25 -- Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939, as amended, of The First
National Bank of Chicago, trustee under the indenture
</TABLE>
ITEM 17. UNDERTAKINGS.
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than 20 percent change in the
maximum aggregate offering price, set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed with
II-2
<PAGE> 63
or furnished to the SEC by the registrant pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
II-3
<PAGE> 64
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF NEWPORT BEACH, STATE OF CALIFORNIA, ON THE 7TH DAY OF
JULY, 1999.
CONEXANT SYSTEMS, INC.
By /s/ DWIGHT W. DECKER
------------------------------------
(Dwight W. Decker, Chairman
and Chief Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED ON THE 7TH DAY OF JULY, 1999 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
DWIGHT W. DECKER* Chairman of the Board and Chief Executive
Officer (principal executive officer) and
Director
DONALD R. BEALL* Director
RICHARD M. BRESSLER* Director
F. CRAIG FARRILL* Director
JERRE L. STEAD* Director
BALAKRISHNAN S. IYER* Senior Vice President and Chief Financial
Officer (principal financial officer)
STEVEN M. THOMSON* Vice President and Controller
(principal accounting officer)
*By /s/ DENNIS E. O'REILLY
----------------------------------------------
(Dennis E. O'Reilly, Attorney-in-fact)**
</TABLE>
**By authority of the power of attorney filed as Exhibit 24 to this registration
statement.
II-4
<PAGE> 65
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER PAGE
- ------- ----
<C> <S> <C>
4.1 Indenture, dated as of May 1, 1999, between Conexant
Systems, Inc. and The First National Bank of Chicago, as
trustee, including the form of 4 1/4% Convertible
Subordinated Note Due May 1, 2006 attached as Exhibit A
thereto
4.2 Registration Rights Agreement, dated as of May 12, 1999, by
and among Conexant Systems, Inc. and Morgan Stanley & Co.
Incorporated, Credit Suisse First Boston Corporation and
Lehman Brothers, Inc.
4.3 Restated Certificate of Incorporation of Conexant Systems,
Inc., filed as Exhibit 4.1 to Conexant's Registration
Statement on Form S-8 (Registration No. 333-68755), is
incorporated herein by reference.
4.4 Amended By-Laws of Conexant Systems, Inc., filed as Exhibit
99.3 to Conexant's Current Report on Form 8-K dated January
12, 1999, is incorporated herein by reference.
4.5 Specimen certificate for Conexant's Common Stock, par value
$1 per share, filed as Exhibit 4.3 to Conexant's
Registration Statement on Form 10 (File No. 000-24923), is
incorporated herein by reference.
4.6 Rights Agreement, dated as of November 30, 1998, by and
between Conexant Systems, Inc. and ChaseMellon Shareholder
Services, L.L.C. as rights agent, filed as Exhibit 4.4 to
Conexant's Registration Statement on Form S-8 (Registration
No. 333-68755), is incorporated herein by reference.
5 Opinion of Chadbourne & Parke LLP, counsel to the
registrant, regarding the legality of the notes and the
common stock into which the notes are convertible
12 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Deloitte & Touche LLP, Independent Auditors
23.2 Consent of Chadbourne & Parke LLP (contained in Exhibit 5)
24 Power of Attorney
25 Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939, as amended, of The First
National Bank of Chicago, trustee under the indenture
</TABLE>
<PAGE> 1
Exhibit 4.1
- --------------------------------------------------------------------------------
CONEXANT SYSTEMS, INC.
To
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
---------------------------
INDENTURE
Dated as of
May 1, 1999
---------------------------
4 1/4% Convertible Subordinated Notes Due 2006
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE ONE - DEFINITIONS
Section 1.1 Definitions .....................................................2
Affiliate...............................................................2
Board of Directors......................................................2
Business Day............................................................2
Closing Price...........................................................3
Commission..............................................................3
Common Stock............................................................3
Company.................................................................3
Company Notice..........................................................3
Conexant Credit Agreement...............................................3
Conversion Price........................................................4
Corporate Trust Office..................................................4
Custodian...............................................................4
default.................................................................4
Defaulted Interest......................................................4
Depositary..............................................................4
Designated Senior Indebtedness..........................................4
Event of Default........................................................5
Exchange Act............................................................5
Fundamental Change......................................................5
Global Note.............................................................5
Headquarters Lease Documentation........................................5
Indebtedness............................................................6
Indenture...............................................................7
Initial Purchasers......................................................7
Institutional Accredited Investor.......................................7
Liquidated Damages......................................................7
Note or Notes...........................................................8
Note register...........................................................8
Note registrar..........................................................8
Noteholder..............................................................8
Notice Date.............................................................8
Officers' Certificate...................................................8
Opinion of Counsel......................................................8
Optional Redemption.....................................................8
outstanding.............................................................8
Payment Blockage Notice.................................................9
Person..................................................................9
Portal Market...........................................................9
Predecessor Note........................................................9
QIB.....................................................................9
i
<PAGE> 3
Page
----
Registration Rights Agreement...........................................9
Representative..........................................................9
Responsible Officer....................................................10
Restricted Securities..................................................10
Rights.................................................................10
Rights Agreement.......................................................10
Rule 144A..............................................................10
Securities Act.........................................................10
Senior Indebtedness....................................................10
Significant Subsidiary.................................................11
Subsidiary.............................................................11
Trading Day............................................................11
Trigger Event..........................................................11
Trust Indenture Act....................................................11
Trustee................................................................12
ARTICLE TWO - ISSUE, DESCRIPTION,
EXECUTION, REGISTRATION AND EXCHANGE OF
NOTES
Section 2.1 Designation Amount and Issue of Notes...........................12
Section 2.2 Form of Notes ..................................................12
Section 2.3 Date and Denomination of Notes; Payments of Interest............13
Section 2.4 Execution of Notes..............................................16
Section 2.5 Exchange and Registration of Transfer of Notes;
Restrictions on Transfer; Depositary..........................17
Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes......................26
Section 2.7 Temporary Notes ................................................28
Section 2.8 Cancellation of Notes Paid, Etc.................................28
Section 2.9 CUSIP Numbers ..................................................29
ARTICLE THREE - REDEMPTION OF NOTES
Section 3.1 Initial Prohibition on Redemption; Optional Redemption
by the Company................................................29
Section 3.2 Notice of Redemptions; Selection of Notes.......................30
Section 3.3 Payment of Notes Called for Redemption..........................32
Section 3.4 Conversion Arrangement on Call for Redemption...................33
Section 3.5 Redemption at Option of Holders.................................34
ARTICLE FOUR - SUBORDINATION OF NOTES
Section 4.1 Agreement of Subordination......................................37
ii
<PAGE> 4
Page
----
Section 4.2 Payments to Noteholders.........................................38
Section 4.3 Subrogation of Notes............................................41
Section 4.4 Authorization to Effect Subordination...........................43
Section 4.5 Notice to Trustee ..............................................43
Section 4.6 Trustee's Relation to Senior Indebtedness.......................44
Section 4.7 No Impairment of Subordination..................................45
Section 4.8 Certain Conversions Not Deemed Payment..........................45
Section 4.9 Article Applicable to Paying Agents.............................45
Section 4.10 Senior Indebtedness Entitled to Rely...........................46
Section 4.11 Reliance on Judicial Order or Certificate of Liquidating
Agent........................................................46
ARTICLE FIVE - PARTICULAR COVENANTS OF THE COMPANY
Section 5.1 Payment of Principal, Premium and Interest......................47
Section 5.2 Maintenance of Office or Agency.................................47
Section 5.3 Appointments to Fill Vacancies in Trustee's Office..............48
Section 5.4 Provisions as to Paying Agent...................................48
Section 5.5 Existence ......................................................49
Section 5.6 Maintenance of Properties.......................................50
Section 5.7 Payment of Taxes and Other Claims...............................50
Section 5.8 Rule 144A Information Requirement...............................50
Section 5.9 Stay, Extension and Usury Laws..................................51
Section 5.10 Compliance Certificate.........................................51
Section 5.11 Amendment of the Company's Rights Plan.........................52
ARTICLE SIX - NOTEHOLDERS' LISTS AND
REPORTS BY THE COMPANY AND THE TRUSTEE
Section 6.1 Noteholders' Lists..............................................53
Section 6.2 Preservation and Disclosure of Lists............................53
Section 6.3 Reports by Trustee..............................................54
Section 6.4 Reports by Company..............................................54
ARTICLE SEVEN - REMEDIES OF THE TRUSTEE
AND NOTEHOLDERS ON AN EVENT OF DEFAULT
Section 7.1 Events of Default ..............................................54
Section 7.2 Payments of Notes on Default; Suit Therefor.....................57
Section 7.3 Application of Monies Collected by Trustee......................60
Section 7.4 Proceedings by Noteholder.......................................61
Section 7.5 Proceedings by Trustee..........................................62
iii
<PAGE> 5
Page
----
Section 7.6 Remedies Cumulative and Continuing..............................62
Section 7.7 Direction of Proceedings and Waiver of Defaults
by Majority of Noteholders....................................63
Section 7.8 Notice of Defaults..............................................63
Section 7.9 Undertaking to Pay Costs........................................64
ARTICLE EIGHT - THE TRUSTEE
Section 8.1 Duties and Responsibilities of Trustee..........................64
Section 8.2 Reliance on Documents, Opinions, Etc............................66
Section 8.3 No Responsibility for Recitals, Etc.............................68
Section 8.4 Trustee, Paying Agents, Conversion Agents
or Registrar May Own Notes....................................68
Section 8.5 Monies to be Held in Trust......................................68
Section 8.6 Compensation and Expenses of Trustee............................68
Section 8.7 Officers' Certificate as Evidence...............................69
Section 8.8 Conflicting Interests of Trustee................................69
Section 8.9 Eligibility of Trustee..........................................70
Section 8.10 Resignation or Removal of Trustee..............................70
Section 8.11 Acceptance by Successor Trustee................................72
Section 8.12 Succession by Merger, Etc......................................73
Section 8.13 Preferential Collection of Claims..............................73
Section 8.14 Trustee's Application for Instructions from the Company........74
ARTICLE NINE - THE NOTEHOLDERS
Section 9.1 Action by Noteholders...........................................74
Section 9.2 Proof of Execution by Noteholders...............................75
Section 9.3 Who Are Deemed Absolute Owners..................................75
Section 9.4 Company-Owned Notes Disregarded.................................75
Section 9.5 Revocation of Consents; Future Holders Bound....................76
ARTICLE TEN - MEETINGS OF NOTEHOLDERS
Section 10.1 Purpose of Meetings............................................76
Section 10.2 Call of Meetings by Trustee....................................77
Section 10.3 Call of Meetings by Company or Noteholders.....................77
Section 10.4 Qualifications for Voting......................................78
Section 10.5 Regulations ...................................................78
Section 10.6 Voting ........................................................79
Section 10.7 No Delay of Rights by Meeting..................................79
iv
<PAGE> 6
Page
----
ARTICLE ELEVEN - SUPPLEMENTAL INDENTURES
Section 11.1 Supplemental Indentures Without Consent of Noteholders.........80
Section 11.2 Supplemental Indenture with Consent of Noteholders.............82
Section 11.3 Effect of Supplemental Indenture...............................83
Section 11.4 Notation on Notes..............................................83
Section 11.5 Evidence of Compliance of Supplemental Indenture to be
Furnished to Trustee.........................................84
ARTICLE TWELVE - CONSOLIDATION, MERGER, SALE,
CONVEYANCE AND LEASE
Section 12.1 Company May Consolidate, Etc., on Certain Terms................84
Section 12.2 Successor Corporation to be Substituted........................84
Section 12.3 Opinion of Counsel to be Given Trustee.........................85
ARTICLE THIRTEEN - SATISFACTION AND DISCHARGE OF INDENTURE
Section 13.1 Discharge of Indenture.........................................86
Section 13.2 Deposited Monies to be Held in Trust by Trustee................87
Section 13.3 Paying Agent to Repay Monies Held..............................87
Section 13.4 Return of Unclaimed Monies.....................................87
Section 13.5 Reinstatement .................................................87
ARTICLE FOURTEEN - IMMUNITY OF INCORPORATORS,
STOCKHOLDERS, OFFICERS AND
DIRECTORS
Section 14.1 Indenture and Notes Solely Corporate Obligations...............88
ARTICLE FIFTEEN - CONVERSION OF NOTES
Section 15.1 Right to Convert ..............................................88
Section 15.2 Exercise of Conversion Privilege; Issuance of
Common Stock on Conversion; No
Adjustment for Interest or Dividends.........................89
Section 15.3 Cash Payments in Lieu of Fractional Shares.....................91
Section 15.4 Conversion Price ..............................................92
v
<PAGE> 7
Page
----
Section 15.5 Adjustment of Conversion Price.................................92
Section 15.6 Effect of Reclassification, Consolidation, Merger or Sale.....106
Section 15.7 Taxes on Shares Issued........................................107
Section 15.8 Reservation of Shares; Shares to be Fully Paid; Compliance
with Governmental Requirements; Listing of Common Stock.....108
Section 15.9 Responsibility of Trustee.....................................109
Section 15.10 Notice to Holders Prior to Certain Actions...................110
ARTICLE SIXTEEN - MISCELLANEOUS PROVISIONS
Section 16.1 Provisions Binding on Company's Successors....................111
Section 16.2 Official Acts by Successor Corporation........................111
Section 16.3 Addresses for Notices, Etc....................................111
Section 16.4 Governing Law ................................................112
Section 16.5 Evidence of Compliance with Conditions Precedent;
Certificates to Trustee.....................................112
Section 16.6 Legal Holidays ...............................................112
Section 16.7 Trust Indenture Act...........................................113
Section 16.8 No Security Interest Created..................................113
Section 16.9 Benefits of Indenture.........................................113
Section 16.10 Table of Contents, Headings, Etc.............................114
Section 16.11 Authenticating Agent.........................................114
Section 16.12 Execution in Counterparts....................................115
Section 16.13 Severability.................................................115
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<PAGE> 8
Reconciliation and Tie Between the Trust Indenture Act of 1939
and Indenture, dated as of May 1, 1999, between Conexant Systems, Inc. and The
First National Bank of Chicago, as Trustee.
TRUST INDENTURE ACT SECTION INDENTURE SECTION
Section 310(a)(1)....................................... 8.9
(a)(2)................................... 8.9
(a)(3)................................... Not Applicable
(a)(4)................................... Not Applicable
(a)(5)................................... 8.9
(b)...................................... 8.8; 8.9; 8.10; 8.11
Section 311(a) ......................................... 8.13
(b)...................................... 8.13
(b)(2)................................... 8.13
Section 312(a) ......................................... 6.1; 6.2(a)
(b)...................................... 6.2(b)
(c)...................................... 6.2(c)
Section 313(a) ......................................... 6.3(a)
(b)...................................... 6.3(a)
(c)...................................... 6.3(a)
(d)...................................... 6.3(b)
Section 314(a) ......................................... 6.4
(b)...................................... Not Applicable
(c)(1)................................... 16.5
(c)(2)................................... 16.5
(c)(3)................................... Not Applicable
(d)...................................... Not Applicable
(e)...................................... 16.5
Section 315(a) ......................................... 8.1
(b)...................................... 7.8
(c)...................................... 8.1
(d)...................................... 8.1
(d)(1)................................... 8.1(a)
(d)(2)................................... 8.1(b)
(d)(3)................................... 8.1(c)
(e)...................................... 7.9
Section 316(a) ......................................... 7.7
(a)(1)(A)................................ 7.7
(a)(1)(B)................................ 7.7
(a)(2)................................... Not Applicable
(b)...................................... 7.4
Section 317(a)(1)....................................... 7.5
(a)(2)................................... 7.5
(b)...................................... 5.4
Section 318(a) ......................................... 16.7
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a
part of the Indenture.
vii
<PAGE> 9
INDENTURE
INDENTURE, dated as of May 1, 1999, between Conexant Systems,
Inc., a Delaware corporation (hereinafter called the "Company") having its
principal office at 4311 Jamboree Road, Newport Beach, California 92660-3095,
and The First National Bank of Chicago, a national banking association, as
trustee hereunder (hereinafter called the "Trustee") having its principal
corporate office at One First National Plaza, Suite 0126, Chicago, Illinois
60670-0126.
W I T N E S S E T H :
WHEREAS, for its lawful corporate purposes, the Company has
duly authorized the issue of its 4 1/4% Convertible Subordinated Notes due 2006
(hereinafter called the "Notes"), in an aggregate principal amount not to exceed
$300,000,000 (or $350,000,000 if the over-allotment option set forth in Section
2 of the Purchase Agreement dated May 6, 1999 (as amended from time to time by
the parties thereto) by and between the Company and the Initial Purchasers is
exercised in full) and, to provide the terms and conditions upon which the Notes
are to be authenticated, issued and delivered, the Company has duly authorized
the execution and delivery of this Indenture; and
WHEREAS, the Notes, the certificate of authentication to be
borne by the Notes, a form of assignment, a form of option to elect repayment
upon a Fundamental Change, and a form of conversion notice to be borne by the
Notes are to be substantially in the forms hereinafter provided for; and
WHEREAS, all acts and things necessary to make the Notes, when
executed by the Company and authenticated and delivered by the Trustee or a duly
authorized authenticating agent, as in this Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute these presents a
valid agreement according to its terms, have been done and performed, and the
execution of this Indenture and the issue hereunder of the Notes have in all
respects been duly authorized.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which
the Notes are, and are to be, authenticated,
<PAGE> 10
issued and delivered, and in consideration of the premises and of the purchase
and acceptance of the Notes by the holders thereof, the Company covenants and
agrees with the Trustee for the equal and proportionate benefit of the
respective holders from time to time of the Notes (except as otherwise provided
below), as follows:
ARTICLE ONE
DEFINITIONS
Section 1.1 Definitions. The terms defined in this Section 1.1
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture and of any indenture supplemental
hereto shall have the respective meanings specified in this Section 1.1. All
other terms used in this Indenture that are defined in the Trust Indenture Act
or which are by reference therein defined in the Securities Act (except as
herein otherwise expressly provided or unless the context otherwise requires)
shall have the meanings assigned to such terms in said Trust Indenture Act and
in said Securities Act as in force at the date of the execution of this
Indenture. The words "herein", "hereof", "hereunder", and words of similar
import refer to this Indenture as a whole and not to any particular Article,
Section or other Subdivision. The terms defined in this Article include the
plural as well as the singular.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person means the power to
direct or cause the direction of the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities, by
contract or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"Board of Directors" means the Board of Directors of the
Company or a committee of such Board duly authorized to act for it hereunder.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday which is not a day on which the banking institutions in The City of
New York or the city
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<PAGE> 11
in which the Corporate Trust Office is located are authorized or obligated by
law or executive order to close or be closed.
"Closing Price" has the meaning specified in Section
15.5(h)(1).
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Exchange Act, or, if at any
time after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" means any stock of any class of the Company
which has no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which is not subject to redemption by the Company. Subject to
the provisions of Section 15.6, however, shares issuable on conversion of Notes
shall include only shares of the class designated as common stock of the Company
at the date of this Indenture (namely, the Common Stock, par value $1 per share)
or shares of any class or classes resulting from any reclassification or
reclassifications thereof and which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company and which are not subject to redemption
by the Company; provided, however, that if at any time there shall be more than
one such resulting class, the shares of each such class then so issuable shall
be substantially in the proportion which the total number of shares of such
class resulting from all such reclassifications bears to the total number of
shares of all such classes resulting from all such reclassifications.
"Company" means the corporation named as the "Company" in the
first paragraph of this Indenture, and, subject to the provisions of Article
Twelve, shall include its successors and assigns.
"Company Notice" has the meaning specified in Section 3.5(b).
"Conexant Credit Agreement" means the Credit Agreement dated
as of December 21, 1998 among the Company,
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<PAGE> 12
certain subsidiaries of the Company from time to time party thereto, the lenders
from time to time party thereto (the "Lenders"), the Issuing Banks (as defined
therein) and Credit Suisse First Boston, as Administrative Agent and Collateral
Agent for the Lenders, as such agreement may be amended, modified, restated or
supplemented from time to time and any deferral, renewal, extension, refunding,
refinancing or replacement thereof.
"Conversion Price" has the meaning specified in Section 15.4.
"Corporate Trust Office" or other similar term, means the
designated office of the Trustee at which at any particular time its corporate
trust business shall be administered, which office is, at the date as of which
this Indenture is dated, located at One First National Plaza, Suite 0126,
Chicago, Illinois 60670-0126.
"Custodian" means The First National Bank of Chicago, as
custodian with respect to the Notes in global form, or any successor entity
thereto.
"default" means any event that is, or after notice or passage
of time, or both, would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 2.3.
"Depositary" means, with respect to the Notes issuable or
issued in whole or in part in global form, the Person specified in Section
2.5(d) as the Depositary with respect to such Notes, until a successor shall
have been appointed and become such pursuant to the applicable provisions of
this Indenture, and thereafter, "Depositary" shall mean or include such
successor.
"Designated Senior Indebtedness" means (i) any Senior
Indebtedness outstanding from time to time under the Conexant Credit Agreement
and (ii) any other Senior Indebtedness with respect to which the instrument
creating or evidencing the same or the assumption or guarantee thereof (or
related agreements or documents to which the Company is a party) expressly
provides that such Senior Indebtedness shall be "Designated Senior Indebtedness"
for purposes of this Indenture (provided that such instrument, agreement or
other document may place limitations and conditions on the right of such Senior
Indebtedness to
4
<PAGE> 13
exercise the rights of Designated Senior Indebtedness). If any payment made to
any holder of any Designated Senior Indebtedness or its Representative with
respect to such Designated Senior Indebtedness is rescinded or must otherwise be
returned by such holder or Representative upon the insolvency, bankruptcy or
reorganization of the Company or otherwise, the reinstated Indebtedness of the
Company arising as a result of such rescission or return shall constitute
Designated Senior Indebtedness effective as of the date of such rescission or
return.
"Event of Default" means any event specified in Section
7.1(a), (b), (c), (d) or (e).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as in effect from
time to time.
"Fundamental Change" means the occurrence of any transaction
or event in connection with which all or substantially all of the Common Stock
shall be exchanged for, converted into, acquired for or constitute solely the
right to receive consideration (whether by means of an exchange offer,
liquidation, tender offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise) which is not all or substantially all common
stock listed (or, upon consummation of or immediately following such transaction
or event, which will be listed) on a United States national securities exchange
or approved for quotation on the Nasdaq National Market or any similar United
States system of automated dissemination of quotations of securities prices.
"Global Note" has the meaning set forth in Section 2.5(b).
"Headquarters Lease Documentation" means the following
(individually and collectively):
(i) the Lease dated as of August 18, 1998 between Deutsche
Bank AG, New York Branch, as Agent Lessor for the Lessors named
therein, and the Company, as Lessee, (the "Lease");
(ii) the Guarantee dated as of August 18, 1998 made by
Rockwell International Corporation in favor of Deutsche Bank AG, New
York Branch and/or Grand Cayman Branch, in its individual capacity, as
Agent Lessor and
5
<PAGE> 14
as Agent and various financial institutions referred to therein as
Lessors or as Lenders (the "Guarantee");
(iii) the Participation Agreement dated as of August 18, 1998,
among the Company, as Lessee, Deutsche Bank AG, New York Branch and/or
Cayman Islands Branch, as Agent Lessor, Lessor, Agent for the Lenders
and Lender and Deutsche Bank Securities Inc., as Arranger (the
"Participation Agreement"); and
(iv) the other operative agreements referred to in any of the
Lease, the Guarantee or the Participation Agreement;
in each case as amended, modified, supplemented or restated from time to time.
"Indebtedness" means, with respect to any Person, and without
duplication: (a) all indebtedness, obligations and other liabilities (contingent
or otherwise) of such Person for borrowed money (including obligations of the
Company in respect of overdrafts, foreign exchange contracts, currency exchange
agreements, interest rate protection agreements, and any loans or advances from
banks, whether or not evidenced by notes or similar instruments) or evidenced by
bonds, debentures, notes or similar instruments (whether or not the recourse of
the lender is to the whole of the assets of such Person or to only a portion
thereof), other than any account payable or other accrued current liability or
obligation incurred in the ordinary course of business in connection with the
obtaining of materials or services; (b) all reimbursement obligations and other
liabilities (contingent or otherwise) of such Person with respect to letters of
credit, bank guarantees or bankers' acceptances; (c) all obligations and
liabilities (contingent or otherwise) in respect of leases of such Person
required, in conformity with generally accepted accounting principles, to be
accounted for as capitalized lease obligations on the balance sheet of such
Person and all obligations and other liabilities (contingent or otherwise) under
the Headquarters Lease Documentation and any lease or related document
(including a purchase agreement) in connection with the lease of real property
which provides that such Person is contractually obligated to purchase or cause
a third party to purchase the leased property and thereby guarantee a minimum
residual value of the leased property to the lessor and the obligations of such
Person under such lease or related document to purchase or to cause a third
party to
6
<PAGE> 15
purchase such leased property; (d) all obligations of such Person (contingent or
otherwise) with respect to an interest rate or other swap, cap or collar
agreement or other similar instrument or agreement or foreign currency hedge,
exchange, purchase or similar instrument or agreement; (e) all direct or
indirect guaranties or similar agreements by such Person in respect of, and
obligations or liabilities (contingent or otherwise) of such Person to purchase
or otherwise acquire or otherwise assure a creditor against loss in respect of,
indebtedness, obligations or liabilities of another Person of the kind described
in clauses (a) through (d); (f) any indebtedness or other obligations described
in clauses (a) through (e) secured by any mortgage, pledge, lien or other
encumbrance existing on property which is owned or held by such Person,
regardless of whether the indebtedness or other obligation secured thereby shall
have been assumed by such Person; and (g) any and all deferrals, renewals,
extensions and refundings of, or amendments, modifications or supplements to,
any indebtedness, obligation or liability of the kind described in clauses (a)
through (f). For purposes of clause (c) of this definition, the phrase "all
obligations and other liabilities (continent or otherwise) under the
Headquarters Lease Documentation" shall mean the "Lease Payment Obligations" as
such term is defined in the Lease referred to in the definition of Headquarters
Lease Documentation, without regard to whether such Lease Payment Obligations
are paid pursuant to the Lease or the Guarantee referred to in the definition of
Headquarters Lease Documentation, but without duplication of any obligation,
liability or payment in respect of any amount constituting Lease Payment
Obligations under the Lease or the Guarantee.
"Indenture" means this instrument as originally executed or,
if amended or supplemented as herein provided, as so amended or supplemented.
"Initial Purchasers" means Morgan Stanley & Co. Incorporated,
Credit Suisse First Boston Corporation and Lehman Brothers, Inc.
"Institutional Accredited Investor" means an institutional
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Liquidated Damages" has the meaning specified for "Liquidated
Damages Amount" in Section 2(e) of the Registration Rights Agreement.
7
<PAGE> 16
"Non-Payment Default" has the meaning specified in Section
4.2(ii).
"Note" or "Notes" means any Note or Notes, as the case may be,
authenticated and delivered under this Indenture, including the Global Note.
"Note register" has the meaning specified in Section 2.5(a).
"Note registrar" has the meaning specified in Section 2.5(a).
"Noteholder" or "holder" as applied to any Note, or other
similar terms (but excluding the term "beneficial holder"), means any Person in
whose name at the time a particular Note is registered on the Note registrar's
books.
"Notice Date" has the meaning specified in Section 3.1(b).
"Officers' Certificate", when used with respect to the
Company, means a certificate signed by both (a) the Chairman of the Board, the
Chief Executive Officer, the President or any Vice President (whether or not
designated by a number or numbers or word or words added before or after the
title "Vice President") and (b) the Treasurer or any Assistant Treasurer, the
Controller or any Assistant Controller, or the Secretary or any Assistant
Secretary of the Company.
"Opinion of Counsel" means an opinion in writing signed by
legal counsel, who may be an employee of or counsel to the Company, or other
counsel reasonably acceptable to the Trustee.
"Optional Redemption" has the meaning specified in Section
3.1(b).
"outstanding", when used with reference to Notes and subject
to the provisions of Section 9.4, means, as of any particular time, all Notes
authenticated and delivered by the Trustee under this Indenture, except:
(a) Notes theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
8
<PAGE> 17
(b) Notes, or portions thereof, (i) for the redemption of
which monies in the necessary amount shall have been deposited in trust
with the Trustee or with any paying agent (other than the Company) or
(ii) which shall have been otherwise defeased in accordance with
Article Thirteen;
(c) Notes in lieu of which, or in substitution for which,
other Notes shall have been authenticated and delivered pursuant to the
terms of Section 2.6; and
(d) Notes converted into Common Stock pursuant to Article
Fifteen and Notes deemed not outstanding pursuant to Article Three.
"Payment Blockage Notice" has the meaning specified in Section
4.2(ii).
"Person" means a corporation, an association, a partnership, a
limited liability company, an individual, a joint venture, a joint stock
company, a trust, an unincorporated organization or a government or an agency or
a political subdivision thereof.
"Portal Market" means The Portal Market operated by the
National Association of Securities Dealers, Inc. or any successor thereto.
"Predecessor Note" of any particular Note means every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note, and, for the purposes of this definition, any Note
authenticated and delivered under Section 2.6 in lieu of a lost, destroyed or
stolen Note shall be deemed to evidence the same debt as the lost, destroyed or
stolen Note that it replaces.
"QIB" means a "qualified institutional buyer" as defined in
Rule 144A.
"Registration Rights Agreement" means that certain
Registration Rights Agreement, dated as of May 12, 1999, among the Company and
the Initial Purchasers, as amended from time to time in accordance with its
terms.
"Representative" means (a) the indenture trustee or other
trustee, agent or representative for any Senior Indebtedness or (b) with respect
to any Senior Indebtedness that does not have any such trustee, agent or other
9
<PAGE> 18
representative, (i) in the case of such Senior Indebtedness issued pursuant to
an agreement providing for voting arrangements as among the holders or owners of
such Senior Indebtedness, any holder or owner of such Senior Indebtedness acting
with the consent of the required Persons necessary to bind such holders or
owners of such Senior Indebtedness and (ii) in the case of all other such Senior
Indebtedness, the holder or owner of such Senior Indebtedness.
"Responsible Officer", when used with respect to the Trustee,
means an officer of the Trustee in the Corporate Trust Office assigned and duly
authorized by the Trustee to administer this Indenture.
"Restricted Securities" has the meaning specified in Section
2.5(d).
"Rights" has the meaning specified in Section 5.11.
"Rights Agreement" has the meaning specified in Section 5.11.
"Rule 144A" means Rule 144A as promulgated under the
Securities Act.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder, as in effect from time to
time.
"Senior Indebtedness" means the principal of, premium, if any,
interest (including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and rent payable on or
in connection with, and all fees, costs, expenses and other amounts accrued or
due on or in connection with, Indebtedness of the Company, whether outstanding
on the date of this Indenture or thereafter created, incurred, assumed,
guaranteed or in effect guaranteed by the Company (including all deferrals,
renewals, extensions or refundings of, or amendments, modifications or
supplements to, the foregoing), unless in the case of any particular
Indebtedness the instrument creating or evidencing the same or the assumption or
guarantee thereof expressly provides that such Indebtedness shall not be senior
in right of payment to the Notes or
10
<PAGE> 19
expressly provides that such Indebtedness is "pari passu" or "junior" to the
Notes. Notwithstanding the foregoing, the term "Senior Indebtedness" shall not
include any Indebtedness of the Company to any subsidiary of the Company, a
majority of the voting stock of which is owned, directly or indirectly, by the
Company. If any payment made to any holder of any Senior Indebtedness or its
Representative with respect to such Senior Indebtedness is rescinded or must
otherwise be returned by such holder or Representative upon the insolvency,
bankruptcy or reorganization of the Company or otherwise, the reinstated
Indebtedness of the Company arising as a result of such rescission or return
shall constitute Senior Indebtedness effective as of the date of such rescission
or return.
"Significant Subsidiary" means, as of any date of
determination, a Subsidiary of the Company that would constitute a "significant
subsidiary" as such term is defined under Rule 1-02 of Regulation S-X of the
Commission.
"Subsidiary" means, with respect to any Person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of capital stock or other equity interest entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other subsidiaries
of that Person (or a combination thereof) and (ii) any partnership (a) the sole
general partner or managing general partner of which is such Person or a
subsidiary of such Person or (b) the only general partners of which are such
Person or of one or more subsidiaries of such Person (or any combination
thereof).
"Trading Day" has the meaning specified in Section 15.5(h)(5).
"Trigger Event" has the meaning specified in Section 15.5(d).
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended, as it was in force at the date of this Indenture, except as provided
in Sections 11.3 and 15.6; provided, however, that, in the event the Trust
Indenture Act of 1939 is amended after the date hereof, the term "Trust
Indenture Act" shall mean, to the extent
11
<PAGE> 20
required by such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means The First National Bank of Chicago and its
successors and any corporation resulting from or surviving any consolidation or
merger to which it or its successors may be a party and any successor trustee at
the time serving as successor trustee hereunder.
The definitions of certain other terms are as specified in
Sections 2.5 and 3.5 and Article Fifteen.
ARTICLE TWO
ISSUE, DESCRIPTION, EXECUTION,
REGISTRATION AND EXCHANGE OF NOTES
Section 2.1 Designation Amount and Issue of Notes. The Notes
shall be designated as "4 1/4% Convertible Subordinated Notes due 2006". Notes
not to exceed the aggregate principal amount of $300,000,000 (or $350,000,000 if
the over-allotment option set forth in Section 2 of the Purchase Agreement dated
May 6, 1999 (as amended from time to time by the parties thereto) by and between
the Company and the Initial Purchasers is exercised in full) (except pursuant to
Sections 2.5, 2.6, 3.3, 3.5 and 15.2 hereof) upon the execution of this
Indenture, or from time to time thereafter, may be executed by the Company and
delivered to the Trustee for authentication, and the Trustee shall thereupon
authenticate and deliver said Notes to or upon the written order of the Company,
signed by (a) its Chairman of the Board, Chief Executive Officer, President or
any Vice President (whether or not designated by a number or numbers or word or
words added before or after the title "Vice President") and (b) its Treasurer or
any Assistant Treasurer, its Controller or any Assistant Controller or its
Secretary or any Assistant Secretary, without any further action by the Company
hereunder.
Section 2.2 Form of Notes. The Notes and the Trustee's
certificate of authentication to be borne by such Notes shall be substantially
in the form set forth in Exhibit A, which is incorporated in and made a part of
this Indenture.
Any of the Notes may have such letters, numbers or other marks
of identification and such notations, legends and endorsements as the officers
executing the same may
12
<PAGE> 21
approve (execution thereof to be conclusive evidence of such approval) and as
are not inconsistent with the provisions of this Indenture, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any securities exchange or automated
quotation system on which the Notes may be listed, or to conform to usage.
Any Note in global form shall represent such of the
outstanding Notes as shall be specified therein and shall provide that it shall
represent the aggregate amount of outstanding Notes from time to time endorsed
thereon and that the aggregate amount of outstanding Notes represented thereby
may from time to time be increased or reduced to reflect transfers or exchanges
permitted hereby. Any endorsement of a Note in global form to reflect the amount
of any increase or decrease in the amount of outstanding Notes represented
thereby shall be made by the Trustee or the Custodian, at the direction of the
Trustee, in such manner and upon instructions given by the holder of such Notes
in accordance with this Indenture. Payment of principal of and interest and
premium, if any, on any Note in global form shall be made to the holder of such
Note.
The terms and provisions contained in the form of Note
attached as Exhibit A hereto shall constitute, and are hereby expressly made, a
part of this Indenture and, to the extent applicable, the Company and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
Section 2.3 Date and Denomination of Notes; Payments of
Interest. The Notes shall be issuable in registered form without coupons in
denominations of $1,000 principal amount and integral multiples thereof. Every
Note shall be dated the date of its authentication and shall bear interest from
the applicable date in each case as specified on the face of the form of Note
attached as Exhibit A hereto. Interest on the Notes shall be computed on the
basis of a 360-day year comprised of twelve (12) 30-day months.
The Person in whose name any Note (or its Predecessor Note) is
registered on the Note register at the close of business on any record date with
respect to any interest payment date shall be entitled to receive the interest
payable on such interest payment date, except (i) that the interest payable upon
redemption (unless the date
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<PAGE> 22
of redemption is an interest payment date) will be payable to the Person to whom
principal is payable and (ii) as set forth in the next succeeding sentence. In
the case of any Note (or portion thereof) that is converted into Common Stock
during the period from (but excluding) a record date to (but excluding) the next
succeeding interest payment date either (x) if such Note (or portion thereof)
has been called for redemption on a redemption date which occurs during such
period, or is to be redeemed in connection with a Fundamental Change on a
Repurchase Date (as defined in Section 3.5) that occurs during such period, the
Company shall not be required to pay interest on such interest payment date in
respect of any such Note (or portion thereof) except to the extent required to
be paid upon redemption of such Note or portion thereof pursuant to Section 3.3
or 3.5 hereof or (y) if such Note (or portion thereof) has not been called for
redemption on a redemption date that occurs during such period and is not to be
redeemed in connection with a Fundamental Change on a Repurchase Date that
occurs during such period, such Note (or portion thereof) that is submitted for
conversion during such period shall be accompanied by funds equal to the
interest payable on such succeeding interest payment date on the principal
amount so converted, as provided in the penultimate paragraph of Section 15.2
hereof. Interest shall be payable at the office of the Company maintained by the
Company for such purposes in the Borough of Manhattan, City of New York, which
shall initially be an office or agency of the Trustee and may, as the Company
shall specify to the paying agent in writing by each record date, be paid either
(i) by check mailed to the address of the Person entitled thereto as it appears
in the Note register (provided that the holder of Notes with an aggregate
principal amount in excess of $5,000,000 shall, at the written election of such
holder, be paid by wire transfer in immediately available funds) or (ii) by
transfer to an account maintained by such Person located in the United States;
provided, however, that payments to the Depositary will be made by wire transfer
of immediately available funds to the account of the Depositary or its nominee.
The term "record date" with respect to any interest payment date shall mean the
April 15 or October 15 preceding the relevant May 1 or November 1, respectively.
Any interest on any Note which is payable, but is not
punctually paid or duly provided for, on any May 1 or November 1 (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Noteholder on
the
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<PAGE> 23
relevant record date by virtue of his having been such Noteholder, and such
Defaulted Interest shall be paid by the Company, at its election in each case,
as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a special
record date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest to be paid on each Note and
the date of the payment (which shall be not less than twenty-five (25)
days after the receipt by the Trustee of such notice, unless the
Trustee shall consent to an earlier date), and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited to
be held in trust for the benefit of the Person entitled to such
Defaulted Interest as in this clause provided. Thereupon the Trustee
shall fix a special record date for the payment of such Defaulted
Interest which shall be not more than fifteen (15) days and not less
than ten (10) days prior to the date of the proposed payment, and not
less than ten (10) days after the receipt by the Trustee of the notice
of the proposed payment, the Trustee shall promptly notify the Company
of such special record date and, in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Interest and the special record date therefor to be mailed, first-class
postage prepaid, to each Noteholder at his address as it appears in the
Note register, not less than ten (10) days prior to such special record
date. Notice of the proposed payment of such Defaulted Interest and the
special record date therefor having been so mailed, such Defaulted
Interest shall be paid to the Persons in whose names the Notes (or
their respective Predecessor Notes) were registered at the close of
business on such special record date and shall no longer be payable
pursuant to the following clause (2) of this Section 2.3.
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<PAGE> 24
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange or automated quotation system on which the Notes
may be listed or designated for issuance, and upon such notice as may
be required by such exchange or automated quotation system, if, after
notice given by the Company to the Trustee of the proposed payment
pursuant to this clause, such manner of payment shall be deemed
practicable by the Trustee.
Section 2.4 Execution of Notes. The Notes shall be signed in
the name and on behalf of the Company by the manual or facsimile signature of
its Chairman of the Board, Chief Executive Officer, President or any Vice
President (whether or not designated by a number or numbers or word or words
added before or after the title "Vice President") and attested by the manual or
facsimile signature of its Secretary or any of its Assistant Secretaries or its
Treasurer or any of its Assistant Treasurers (which may be printed, engraved or
otherwise reproduced thereon, by facsimile or otherwise). Only such Notes as
shall bear thereon a certificate of authentication substantially in the form set
forth on the form of Note attached as Exhibit A hereto, manually executed by the
Trustee (or an authenticating agent appointed by the Trustee as provided by
Section 16.11), shall be entitled to the benefits of this Indenture or be valid
or obligatory for any purpose. Such certificate by the Trustee (or such an
authenticating agent) upon any Note executed by the Company shall be conclusive
evidence that the Note so authenticated has been duly authenticated and
delivered hereunder and that the holder is entitled to the benefits of this
Indenture.
In case any officer of the Company who shall have signed any
of the Notes shall cease to be such officer before the Notes so signed shall
have been authenticated and delivered by the Trustee, or disposed of by the
Company, such Notes nevertheless may be authenticated and delivered or disposed
of as though the person who signed such Notes had not ceased to be such officer
of the Company, and any Note may be signed on behalf of the Company by such
persons as, at the actual date of the execution of such Note, shall be the
proper officers of the Company, although at the date of the execution of this
Indenture any such person was not such an officer.
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Section 2.5 Exchange and Registration of Transfer of Notes;
Restrictions on Transfer; Depositary.
(a) The Company shall cause to be kept at the Corporate Trust
Office a register (the register maintained in such office and in any other
office or agency of the Company designated pursuant to Section 5.2 being herein
sometimes collectively referred to as the "Note register") in which, subject to
such reasonable regulations as it may prescribe, the Company shall provide for
the registration of Notes and of transfers of Notes. The Note register shall be
in written form or in any form capable of being converted into written form
within a reasonably prompt period of time. The Trustee is hereby appointed "Note
registrar" for the purpose of registering Notes and transfers of Notes as herein
provided. The Company may appoint one or more co-registrars in accordance with
Section 5.2.
Upon surrender for registration of transfer of any Note to the
Note registrar or any co-registrar, and satisfaction of the requirements for
such transfer set forth in this Section 2.5, the Company shall execute, and the
Trustee shall authenticate and deliver, in the name of the designated transferee
or transferees, one or more new Notes of any authorized denominations and of a
like aggregate principal amount and bearing such restrictive legends as may be
required by this Indenture.
Notes may be exchanged for other Notes of any authorized
denominations and of a like aggregate principal amount, upon surrender of the
Notes to be exchanged at any such office or agency maintained by the Company
pursuant to Section 5.2. Whenever any Notes are so surrendered for exchange, the
Company shall execute, and the Trustee shall authenticate and deliver, the Notes
which the Noteholder making the exchange is entitled to receive bearing
registration numbers not contemporaneously outstanding.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
All Notes presented or surrendered for registration of
transfer or for exchange, redemption or conversion shall (if so required by the
Company or the Note registrar) be duly endorsed, or be accompanied by a written
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<PAGE> 26
instrument or instruments of transfer in form satisfactory to the Company, and
the Notes shall be duly executed by the Noteholder thereof or his attorney duly
authorized in writing.
No service charge shall be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax, assessment or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of Notes.
Neither the Company nor the Trustee nor any Note registrar
shall be required to exchange or register a transfer of (a) any Notes for a
period of fifteen (15) days next preceding any selection of Notes to be
redeemed, (b) any Notes or portions thereof called for redemption pursuant to
Section 3.2, (c) any Notes or portions thereof surrendered for conversion
pursuant to Article Fifteen or (d) any Notes or portions thereof tendered for
redemption (and not withdrawn) pursuant to Section 3.5.
(b) So long as the Notes are eligible for book-entry
settlement with the Depositary, or unless otherwise required by law, all Notes
that, upon initial issuance are beneficially owned by QIBs or as a result of a
sale or transfer after initial issuance are beneficially owned by QIBs, will be
represented by one or more Notes in global form registered in the name of the
Depositary or the nominee of the Depositary (the "Global Note"), except as
otherwise specified below. The transfer and exchange of beneficial interests in
any such Global Note shall be effected through the Depositary in accordance with
this Indenture and the procedures of the Depositary therefor. The Trustee shall
make appropriate endorsements to reflect increases or decreases in the principal
amounts of any such Global Note as set forth on the face of the Note ("Principal
Amount") to reflect any such transfers. Except as provided below, beneficial
owners of a Global Note shall not be entitled to have certificates registered in
their names, will not receive or be entitled to receive physical delivery of
certificates in definitive form and will not be considered holders of such
Global Note.
(c) So long as the Notes are eligible for book-entry
settlement with the Depositary, or unless otherwise required by law, upon any
transfer of a definitive Note to a QIB in accordance with Rule 144A, and upon
receipt of the
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<PAGE> 27
definitive Note or Notes being so transferred, together with a certification,
substantially in the form on the reverse of the Note, from the transferor that
the transfer is being made in compliance with Rule 144A (or other evidence
satisfactory to the Trustee), the Trustee shall make an endorsement on the
Global Note to reflect an increase in the aggregate Principal Amount of the
Notes represented by such Global Note, and the Trustee shall cancel such
definitive Note or Notes in accordance with the standing instructions and
procedures of the Depositary, the aggregate Principal Amount of the Notes
represented by such Global Note to be increased accordingly; provided, however,
that no definitive Note, or portion thereof, in respect of which the Company or
an Affiliate of the Company held any beneficial interest shall be included in
such Global Note until such definitive Note is freely tradable in accordance
with Rule 144(k) under the Securities Act, provided further that the Trustee
shall issue Notes in definitive form upon any transfer of a beneficial interest
in the Global Note to the Company or any Affiliate of the Company.
Upon any sale or transfer of a Note to an Institutional
Accredited Investor (other than pursuant to a registration statement that has
been declared effective under the Securities Act), such Institutional Accredited
Investor shall, prior to such sale or transfer, furnish to the Company and/or
the Trustee a signed letter containing representations and agreements relating
to restrictions on transfer substantially in the form set forth in Exhibit B to
this Indenture. Upon any transfer of a beneficial interest in the Global Note to
an Institutional Accredited Investor, the Trustee shall make an endorsement on
the Global Note to reflect a decrease in the aggregate Principal Amount of the
Notes represented by such Global Note, and the Company shall execute a
definitive Note or Notes in exchange therefore, and the Trustee, upon receipt of
such definitive Note or Notes and the written order of the Company, shall
authenticate and deliver such, definitive Note or Notes.
Any Note in global form may be endorsed with or have
incorporated in the text thereof such legends or recitals or changes not
inconsistent with the provisions of this Indenture as may be required by the
Custodian, the Depositary or by the National Association of Securities Dealers,
Inc. in order for the Notes to be tradeable on The Portal Market or as may be
required for the Notes to be tradeable on any other market developed for trading
of securities pursuant to Rule 144A or required to comply with
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<PAGE> 28
any applicable law or any regulation thereunder or with the rules and
regulations of any securities exchange or automated quotation system upon which
the Notes may be listed or traded or to conform with any usage with respect
thereto, or to indicate any special limitations or restrictions to which any
particular Notes are subject.
(d) Every Note that bears or is required under this Section
2.5(d) to bear the legend set forth in this Section 2.5(d) (together with any
Common Stock issued upon conversion of the Notes and required to bear the legend
set forth in Section 2.5(e), collectively, the "Restricted Securities") shall be
subject to the restrictions on transfer set forth in this Section 2.5(d)
(including those set forth in the legend set forth below) unless such
restrictions on transfer shall be waived by written consent of the Company, and
the holder of each such Restricted Security, by such Noteholder's acceptance
thereof, agrees to be bound by all such restrictions on transfer. As used in
Sections 2.5(d) and 2.5(e), the term "transfer" encompasses any sale, pledge,
loan, transfer or other disposition whatsoever of any Restricted Security.
Until the expiration of the holding period applicable to sales
thereof under Rule 144(k) under the Securities Act (or any successor provision),
any certificate evidencing such Note (and all securities issued in exchange
therefor or substitution thereof, other than Common Stock, if any, issued upon
conversion thereof, which shall bear the legend set forth in Section 2.5(e), if
applicable) shall bear a legend in substantially the following form, unless such
Note has been sold pursuant to a registration statement that has been declared
effective under the Securities Act (and which continues to be effective at the
time of such transfer), or unless otherwise agreed by the Company in writing,
with written notice thereof to the Trustee:
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S.
PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR"
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<PAGE> 29
(AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES
ACT) ("INSTITUTIONAL ACCREDITED INVESTOR"); (2) AGREES THAT IT WILL
NOT, PRIOR TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF
THE NOTE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT
(OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE TRANSFER THE NOTE
EVIDENCED HEREBY OR THE COMMON STOCK ISSUABLE UPON CONVERSION OF SUCH
NOTE EXCEPT (A) TO CONEXANT SYSTEMS, INC. OR ANY SUBSIDIARY THEREOF,
(B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A
UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED INVESTOR
THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE FIRST NATIONAL BANK OF
CHICAGO, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED
LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO
THE RESTRICTIONS ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF
WHICH LETTER CAN BE OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE,
AS APPLICABLE), (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (E)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE
TIME OF SUCH TRANSFER); (3) PRIOR TO SUCH TRANSFER (OTHER THAN A
TRANSFER PURSUANT TO CLAUSE (2)(E) ABOVE), IT WILL FURNISH TO THE FIRST
NATIONAL BANK OF CHICAGO, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS
APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION
AS THE TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS
BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND
(4) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE
EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF
THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE NOTE EVIDENCED
HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO
SALES OF THE NOTE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE
SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER
OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE FIRST NATIONAL BANK
OF CHICAGO, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS
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<PAGE> 30
APPLICABLE). IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR OR IS A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER MUST,
PRIOR TO SUCH TRANSFER, FURNISH TO THE FIRST NATIONAL BANK OF CHICAGO,
AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS SUCH TRUSTEE MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE
REMOVED UPON THE EARLIER OF THE TRANSFER OF THE NOTE EVIDENCED HEREBY
PURSUANT TO CLAUSE (2)(E) ABOVE OR UPON ANY TRANSFER OF THE NOTE
EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY
SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "UNITED STATES" AND
"U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
Any Note (or security issued in exchange or substitution
therefor) as to which such restrictions on transfer shall have expired in
accordance with their terms or as to conditions for removal of the foregoing
legend set forth therein have been satisfied may, upon surrender of such Note
for exchange to the Note registrar in accordance with the provisions of this
Section 2.5, be exchanged for a new Note or Notes, of like tenor and aggregate
principal amount, which shall not bear the restrictive legend required by this
Section 2.5(d).
Notwithstanding any other provisions of this Indenture (other
than the provisions set forth in the second paragraph of Section 2.5(c) and in
this Section 2.5(d)), a Note in global form may not be transferred as a whole or
in part except by the Depositary to a nominee of the Depositary or by a nominee
of the Depositary to the Depositary or another nominee of the Depositary or by
the Depositary or any such nominee to a successor Depositary or a nominee of
such successor Depositary.
The Depositary shall be a clearing agency registered under the
Exchange Act. The Company initially appoints The Depository Trust Company to act
as Depositary with respect to the Notes in global form. Initially, the Global
Note shall be issued to the Depositary, registered in
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<PAGE> 31
the name of Cede & Co., as the nominee of the Depositary, and deposited with the
Custodian for Cede & Co.
If at any time the Depositary for a Note in global form
notifies the Company that it is unwilling or unable to continue as Depositary
for such Note, the Company may appoint a successor Depositary with respect to
such Note. If a successor Depositary is not appointed by the Company within
ninety (90) days after the Company receives such notice, the Company will
execute, and the Trustee, upon receipt of an Officers' Certificate for the
authentication and delivery of Notes, will authenticate and deliver, Notes in
certificated form, in aggregate principal amount equal to the principal amount
of such Note in global form, in exchange for such Note in global form.
If a Note in certificated form is issued in exchange for any
portion of a Note in global form after the close of business at the office or
agency where such exchange occurs on any record date and before the opening of
business at such office or agency on the next succeeding interest payment date,
interest will not be payable on such interest payment date in respect of such
certificated Note, but will be payable on such interest payment date, subject to
the provisions of Section 2.3, only to the Person to whom interest in respect of
such portion of such Note in global form is payable in accordance with the
provisions of this Indenture.
Notes in certificated form issued in exchange for all or a
part of a Note in global form pursuant to this Section 2.5 shall be registered
in such names and in such authorized denominations as the Depositary, pursuant
to instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. Upon execution and authentication, the Trustee shall
deliver such Notes in certificated form to the Persons in whose names such Notes
in certificated form are so registered.
At such time as all interests in a Note in global form have
been redeemed, converted, canceled, exchanged for Notes in certificated form, or
transferred to a transferee who receives Notes in certificated form thereof,
such Note in global form shall, upon receipt thereof, be canceled by the Trustee
in accordance with standing procedures and instructions existing between the
Depositary and the Custodian. At any time prior to such cancellation, if any
interest in a Note in global form is exchanged for Notes in
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<PAGE> 32
certificated form, redeemed, converted, repurchased or canceled, or transferred
to a transferee who receives Notes in certificated form therefor or any Note in
certificated form is exchanged or transferred for part of a Note in global form,
the principal amount of such Note in global form shall, in accordance with the
standing procedures and instructions existing between the Depositary and the
Custodian, be appropriately reduced or increased, as the case may be, and an
endorsement shall be made on such Note in global form, by the Trustee or the
Custodian, at the direction of the Trustee, to reflect such reduction or
increase.
(e) Until the expiration of the holding period applicable to
sales thereof under Rule 144(k) under the Securities Act (or any successor
provision), any stock certificate representing Common Stock issued upon
conversion of any Note shall bear a legend in substantially the following form,
unless such Common Stock has been sold pursuant to a registration statement that
has been declared effective under the Securities Act (and which continues to be
effective at the time of such transfer) or such Common Stock has been issued
upon conversion of Notes that have been transferred pursuant to a registration
statement that has been declared effective under the Securities Act, or unless
otherwise agreed by the Company in writing with written notice thereof to the
transfer agent:
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE.
THE HOLDER HEREOF AGREES THAT, UNTIL THE EXPIRATION OF THE HOLDING
PERIOD APPLICABLE TO SALES OF THE COMMON STOCK EVIDENCED HEREBY UNDER
RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), (1)
IT WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED
HEREBY EXCEPT (A) TO CONEXANT SYSTEMS, INC. OR ANY SUBSIDIARY THEREOF,
(B) TO A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) IN COMPLIANCE WITH RULE 144A, (C) TO AN
INSTITUTIONAL "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT) THAT PRIOR TO
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<PAGE> 33
SUCH TRANSFER, FURNISHES TO CHASEMELLON SHAREHOLDER SERVICES, L.L.C.,
AS TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS
RELATING TO THE RESTRICTIONS ON TRANSFER OF THE COMMON STOCK EVIDENCED
HEREBY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM SUCH TRANSFER
AGENT OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), (D) PURSUANT TO
THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT (IF AVAILABLE), OR (E) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT
(AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2)
PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE (1)(E)
ABOVE), IT WILL FURNISH TO CHASEMELLON SHAREHOLDER SERVICES, L.L.C., AS
TRANSFER AGENT (OR A SUCCESSOR TRANSFER AGENT, AS APPLICABLE), SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS SUCH TRANSFER
AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING
MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (3) IT WILL
DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY IS
TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(E) ABOVE) A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR IS A PURCHASER
WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER,
FURNISH TO CHASEMELLON SHAREHOLDER SERVICES, L.L.C. (OR A SUCCESSOR
TRANSFER AGENT, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER OF THE
TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE (1)(E)
ABOVE OR UPON ANY TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY AFTER
THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE
SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT
(OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "UNITED STATES"
AND "U.S. PERSON" HAVE THE
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MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
Any such Common Stock as to which such restrictions on
transfer shall have expired in accordance with their terms or as to which the
conditions for removal of the foregoing legend set forth therein have been
satisfied may, upon surrender of the certificates representing such shares of
Common Stock for exchange in accordance with the procedures of the transfer
agent for the Common Stock, be exchanged for a new certificate or certificates
for a like number of shares of Common Stock, which shall not bear the
restrictive legend required by this Section 2.5(e).
(f) Any Note or Common Stock issued upon the conversion or
exchange of a Note that, prior to the expiration of the holding period
applicable to sales thereof under Rule 144(k) under the Securities Act (or any
successor provision), is purchased or owned by the Company or any Affiliate
thereof may not be resold by the Company or such Affiliate unless registered
under the Securities Act or resold pursuant to an exemption from the
registration requirements of the Securities Act in a transaction which results
in such Notes or Common Stock, as the case may be, no longer being "restricted
securities" (as defined under Rule 144).
Section 2.6 Mutilated, Destroyed, Lost or Stolen Notes. In
case any Note shall become mutilated or be destroyed, lost or stolen, the
Company in its discretion may execute, and upon its written request the Trustee
or an authenticating agent appointed by the Trustee shall authenticate and make
available for delivery, a new Note, bearing a number not contemporaneously
outstanding, in exchange and substitution for the mutilated Note, or in lieu of
and in substitution for the Note so destroyed, lost or stolen. In every case the
applicant for a substituted Note shall furnish to the Company, to the Trustee
and, if applicable, to such authenticating agent such security or indemnity as
may be required by them to save each of them harmless for any loss, liability,
cost or expense caused by or connected with such substitution, and, in every
case of destruction, loss or theft, the applicant shall also furnish to the
Company, to the Trustee and, if applicable, to such authenticating agent
evidence to their satisfaction of the destruction, loss or theft of such Note
and of the ownership thereof.
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Following receipt by the Trustee or such authenticating agent,
as the case may be, of satisfactory security or indemnity and evidence, as
described in the preceding paragraph, the Trustee or such authenticating agent
may authenticate any such substituted Note and make available for delivery such
Note. Upon the issuance of any substituted Note, the Company may require the
payment of a sum sufficient to cover any tax, assessment or other governmental
charge that may be imposed in relation thereto and any other expenses connected
therewith. In case any Note which has matured or is about to mature or has been
called for redemption or has been tendered for redemption (and not withdrawn) or
is to be converted into Common Stock shall become mutilated or be destroyed,
lost or stolen, the Company may, instead of issuing a substitute Note, pay or
authorize the payment of or convert or authorize the conversion of the same
(without surrender thereof except in the case of a mutilated Note), as the case
may be, if the applicant for such payment or conversion shall furnish to the
Company, to the Trustee and, if applicable, to such authenticating agent such
security or indemnity as may be required by them to save each of them harmless
for any loss, liability, cost or expense caused by or connected with such
substitution, and, in every case of destruction, loss or theft, the applicant
shall also furnish to the Company, the Trustee and, if applicable, any paying
agent or conversion agent evidence to their satisfaction of the destruction,
loss or theft of such Note and of the ownership thereof.
Every substitute Note issued pursuant to the provisions of
this Section 2.6 by virtue of the fact that any Note is destroyed, lost or
stolen shall constitute an additional contractual obligation of the Company,
whether or not the destroyed, lost or stolen Note shall be found at any time,
and shall be entitled to all the benefits of (but shall be subject to all the
limitations set forth in) this Indenture equally and proportionately with any
and all other Notes duly issued hereunder. To the extent permitted by law, all
Notes shall be held and owned upon the express condition that the foregoing
provisions are exclusive with respect to the replacement or payment or
conversion of mutilated, destroyed, lost or stolen Notes and shall preclude any
and all other rights or remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement or payment or
conversion of negotiable instruments or other securities without their
surrender.
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Section 2.7 Temporary Notes. Pending the preparation of Notes
in certificated form, the Company may execute and the Trustee or an
authenticating agent appointed by the Trustee shall, upon the written request of
the Company, authenticate and deliver temporary Notes (printed or lithographed).
Temporary Notes shall be issuable in any authorized denomination, and
substantially in the form of the Notes in certificated form, but with such
omissions, insertions and variations as may be appropriate for temporary Notes,
all as may be determined by the Company. Every such temporary Note shall be
executed by the Company and authenticated by the Trustee or such authenticating
agent upon the same conditions and in substantially the same manner, and with
the same effect, as the Notes in certificated form. Without unreasonable delay
the Company will execute and deliver to the Trustee or such authenticating agent
Notes in certificated form (other than in the case of Notes in global form) and
thereupon any or all temporary Notes (other than any such Note in global form)
may be surrendered in exchange therefor, at each office or agency maintained by
the Company pursuant to Section 5.2 and the Trustee or such authenticating agent
shall authenticate and make available for delivery in exchange for such
temporary Notes an equal aggregate principal amount of Notes in certificated
form. Such exchange shall be made by the Company at its own expense and without
any charge therefor. Until so exchanged, the temporary Notes shall in all
respects be entitled to the same benefits and subject to the same limitations
under this Indenture as Notes in certificated form authenticated and delivered
hereunder.
Section 2.8 Cancellation of Notes Paid, Etc. All Notes
surrendered for the purpose of payment, redemption, conversion, exchange or
registration of transfer shall, if surrendered to the Company or any paying
agent or any Note registrar or any conversion agent, be surrendered to the
Trustee and promptly canceled by it, or, if surrendered to the Trustee, shall be
promptly canceled by it, and no Notes shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Indenture. The Trustee
shall dispose of such canceled Notes in accordance with its customary
procedures. If the Company shall acquire any of the Notes, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Notes unless and until the same are delivered to the Trustee
for cancellation.
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Section 2.9 CUSIP Numbers. The Company in issuing the Notes
may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee
shall use "CUSIP" numbers in notices of redemption as a convenience to
Noteholders; provided, however, that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Notes or as contained in any notice of a redemption and that reliance may
be placed only on the other identification numbers printed on the Notes, and any
such redemption shall not be affected by any defect in or omission of such
numbers. The Company will promptly notify the Trustee of any change in the
"CUSIP" numbers.
ARTICLE THREE
REDEMPTION OF NOTES
Section 3.1 (a) Initial Prohibition on Redemption. Except as
otherwise provided in Section 3.5, the Notes may not be redeemed by the Company,
in whole or in part, at any time prior to May 6, 2002.
(b) Optional Redemption by the Company. At any time on or
after May 6, 2002, and prior to maturity, the Notes may be redeemed at the
option of the Company (an "Optional Redemption"), in whole or in part, upon
notice as set forth in Section 3.2 (the "Notice Date"), at the following
Optional Redemption prices (expressed as percentages of the principal amount),
together in each case with accrued and unpaid interest, if any (including
Liquidated Damages, if any) to, but excluding, the date fixed for redemption:
<TABLE>
<CAPTION>
Period Redemption Price
- ------ ----------------
<S> <C>
Beginning on May 6, 2002 and ending on April 30, 2003 102.429%
Beginning on May 1, 2003 and ending on April 30, 2004 101.821%
Beginning on May 1, 2004 and ending on April 30, 2005 101.214%
Beginning on May 1, 2005 and ending on April 30, 2006 100.607%
</TABLE>
and 100.000% on May 1, 2006; provided, however, that if the date fixed for
redemption is on a May 1 or November 1, then the interest payable on such date
shall be paid to the holder of record on the preceding April 15 or October 15,
respectively.
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<PAGE> 38
Section 3.2 Notice of Redemptions; Selection of Notes. In case
the Company shall desire to exercise the right to redeem all or, as the case may
be, any part of the Notes pursuant to Section 3.1, it shall fix a date for
redemption and it or, at its written request received by the Trustee not fewer
than forty-five (45) days prior (or such shorter period of time as may be
acceptable to the Trustee) to the date fixed for redemption, the Trustee in the
name of and at the expense of the Company, shall mail or cause to be mailed a
notice of such redemption not fewer than thirty (30) nor more than sixty (60)
days prior to the date fixed for redemption to the holders of Notes so to be
redeemed as a whole or in part at their last addresses as the same appear on the
Note register; provided, however, that if the Company shall give such notice, it
shall also give written notice, and written notice of the Notes to be redeemed,
to the Trustee. The Company may not give notice of any redemption of the Notes
if a default in payment of interest or premium, if any, on the Notes has
occurred and is continuing. Such mailing shall be by first class mail. The
notice if mailed in the manner herein provided shall be conclusively presumed to
have been duly given, whether or not the holder receives such notice. In any
case, failure to give such notice by mail or any defect in the notice to the
holder of any Note designated for redemption as a whole or in part shall not
affect the validity of the proceedings for the redemption of any other Note.
Concurrently with the mailing of any such notice of redemption, the Company
shall issue a press release announcing such redemption, the form and content of
which press release shall be determined by the Company in its sole discretion.
The failure to issue any such press release or any defect therein shall not
affect the validity of the redemption notice or any of the proceedings for the
redemption of any Note called for redemption.
Each such notice of redemption shall specify the aggregate
principal amount of Notes to be redeemed, the CUSIP number or numbers of the
Notes being redeemed, the date fixed for redemption (which shall be a Business
Day), the redemption price at which Notes are to be redeemed, the place or
places of payment, that payment will be made upon presentation and surrender of
such Notes, that interest accrued to the date fixed for redemption will be paid
as specified in said notice, and that on and after said date interest thereon or
on the portion thereof to be redeemed will cease to accrue. Such notice shall
also state the current Conversion Price and the date on which the right to
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<PAGE> 39
convert such Notes or portions thereof into Common Stock will expire. If fewer
than all the Notes are to be redeemed, the notice of redemption shall identify
the Notes to be redeemed (including CUSIP numbers, if any). In case any Note is
to be redeemed in part only, the notice of redemption shall state the portion of
the principal amount thereof to be redeemed and shall state that, on and after
the date fixed for redemption, upon surrender of such Note, a new Note or Notes
in principal amount equal to the unredeemed portion thereof will be issued.
On or prior to the redemption date specified in the notice of
redemption given as provided in this Section 3.2, the Company will deposit with
the Trustee or with one or more paying agents (or, if the Company is acting as
its own paying agent, set aside, segregate and hold in trust as provided in
Section 5.4) an amount of money in immediately available funds sufficient to
redeem on the redemption date all the Notes (or portions thereof) so called for
redemption (other than those theretofore surrendered for conversion into Common
Stock) at the appropriate redemption price, together with accrued interest to,
but excluding, the date fixed for redemption; provided, however, that if such
payment is made on the redemption date it must be received by the Trustee or
paying agent, as the case may be, by 10:00 a.m. New York City time on such date.
The Company shall be entitled to retain any interest, yield or gain on amounts
deposited with the Trustee or any paying agent pursuant to this Section 3.2 in
excess of amounts required hereunder to pay the redemption price together with
accrued interest to, but excluding, the date fixed for redemption. If any Note
called for redemption is converted pursuant hereto prior to such redemption, any
money deposited with the Trustee or any paying agent or so segregated and held
in trust for the redemption of such Note shall be paid to the Company upon its
written request, or, if then held by the Company, shall be discharged from such
trust. Whenever any Notes are to be redeemed, the Company will give the Trustee
written notice in the form of an Officers' Certificate not fewer than forty five
(45) days (or such shorter period of time as may be acceptable to the Trustee)
prior to the redemption date as to the aggregate principal amount of Notes to be
redeemed.
If less than all of the outstanding Notes are to be redeemed,
the Trustee shall select the Notes or portions thereof of the Global Note or the
Notes in certificated form to be redeemed (in principal amounts of $1,000 or
integral multiples thereof) by lot, on a pro rata basis or by another
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<PAGE> 40
method the Trustee deems fair and appropriate. If any Note selected for partial
redemption is submitted for conversion in part after such selection, the portion
of such Note submitted for conversion shall be deemed (so far as may be) to be
the portion to be selected for redemption. The Notes (or portions thereof) so
selected shall be deemed duly selected for redemption for all purposes hereof,
notwithstanding that any such Note is submitted for conversion in part before
the mailing of the notice of redemption.
Upon any redemption of less than all of the outstanding Notes,
the Company and the Trustee may (but need not), solely for purposes of
determining the pro rata allocation among such Notes as are unconverted and
outstanding at the time of redemption, treat as outstanding any Notes
surrendered for conversion during the period of fifteen (15) days next preceding
the mailing of a notice of redemption and may (but need not) treat as
outstanding any Note authenticated and delivered during such period in exchange
for the unconverted portion of any Note converted in part during such period.
Section 3.3 Payment of Notes Called for Redemption. If notice
of redemption has been given as above provided, the Notes or portion of Notes
with respect to which such notice has been given shall, unless converted into
Common Stock pursuant to the terms hereof, become due and payable on the date
fixed for redemption and at the place or places stated in such notice at the
applicable redemption price, together with interest accrued to (but excluding)
the date fixed for redemption, and on and after said date (unless the Company
shall default in the payment of such Notes at the redemption price, together
with interest accrued to said date) interest on the Notes or portion of Notes so
called for redemption shall cease to accrue and, after the close of business on
the Business Day next preceding the date fixed for redemption, such Notes shall
cease to be convertible into Common Stock and, except as provided in Sections
8.5 and 13.4, to be entitled to any benefit or security under this Indenture,
and the holders thereof shall have no right in respect of such Notes except the
right to receive the redemption price thereof and unpaid interest to (but
excluding) the date fixed for redemption. On presentation and surrender of such
Notes at a place of payment in said notice specified, the said Notes or the
specified portions thereof shall be paid and redeemed by the Company at the
applicable redemption price, together with
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<PAGE> 41
interest accrued thereon to (but excluding) the date fixed for redemption;
provided, however, that if the applicable redemption date is an interest payment
date, the semi-annual payment of interest becoming due on such date shall be
payable to the holders of such Notes registered as such on the relevant record
date instead of the holders surrendering such Notes for redemption on such date.
Upon presentation of any Note redeemed in part only, the
Company shall execute and the Trustee shall authenticate and make available for
delivery to the holder thereof, at the expense of the Company, a new Note or
Notes, of authorized denominations, in principal amount equal to the unredeemed
portion of the Notes so presented.
Notwithstanding the foregoing, the Trustee shall not redeem
any Notes or mail any notice of redemption during the continuance of a default
in payment of interest or premium, if any, on the Notes. If any Note called for
redemption shall not be so paid upon surrender thereof for redemption, the
principal and premium, if any, shall, until paid or duly provided for, bear
interest from the date fixed for redemption at the rate borne by the Note and
such Note shall remain convertible into Common Stock until the principal and
premium, if any, and interest shall have been paid or duly provided for.
Section 3.4 Conversion Arrangement on Call for Redemption. In
connection with any redemption of Notes, the Company may arrange for the
purchase and conversion of any Notes by an agreement with one or more investment
bankers or other purchasers to purchase such Notes by paying to the Trustee in
trust for the Noteholders, on or before the date fixed for redemption, an amount
not less than the applicable redemption price, together with interest accrued to
(but excluding) the date fixed for redemption, of such Notes. Notwithstanding
anything to the contrary contained in this Article Three, the obligation of the
Company to pay the redemption price of such Notes, together with interest
accrued to (but excluding) the date fixed for redemption, shall be deemed to be
satisfied and discharged to the extent such amount is so paid by such
purchasers. If such an agreement is entered into, a copy of which will be filed
with the Trustee prior to the date fixed for redemption, any Notes not duly
surrendered for conversion by the holders thereof may, at the option of the
Company, be deemed, to the fullest extent permitted by law, acquired by such
purchasers from such holders and (notwithstanding anything to the
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<PAGE> 42
contrary contained in Article Fifteen) surrendered by such purchasers for
conversion, all as of immediately prior to the close of business on the date
fixed for redemption (and the right to convert any such Notes shall be extended
through such time), subject to payment of the above amount as aforesaid. At the
direction of the Company, the Trustee shall hold and dispose of any such amount
paid to it in the same manner as it would monies deposited with it by the
Company for the redemption of Notes. Without the Trustee's prior written
consent, no arrangement between the Company and such purchasers for the purchase
and conversion of any Notes shall increase or otherwise affect any of the
powers, duties, responsibilities or obligations of the Trustee as set forth in
this Indenture.
Section 3.5 Redemption at Option of Holders.
(a) If there shall occur a Fundamental Change at any time
prior to maturity of the Notes, then each Noteholder shall have the right, at
such holder's option, to require the Company to redeem all of such holder's
Notes, or any portion thereof that is an integral multiple of $1,000 principal
amount, on the date (the "Repurchase Date") that is thirty (30) days after the
date of the Company Notice (as defined in Section 3.5(b) below) of such
Fundamental Change (or, if such 30th day is not a Business Day, the immediately
preceding Business Day) at a redemption price equal to 100% of the principal
amount thereof, together with accrued interest to (but excluding) the Repurchase
Date; provided, however, that, if such Repurchase Date is a May 1 or November 1,
then the interest payable on such date shall be paid to the holders of record of
the Notes on the next preceding April 15 or October 15, respectively.
Upon presentation of any Note redeemed in part only, the
Company shall execute and, upon the Company's written direction to the Trustee,
the Trustee shall authenticate and deliver to the holder thereof, at the expense
of the Company, a new Note or Notes, of authorized denominations, in principal
amount equal to the unredeemed portion of the Notes so presented.
(b) On or before the tenth day after the occurrence of a
Fundamental Change, the Company or at its written request (which must be
received by the Trustee at least five (5) Business Days prior to the date the
Trustee is requested to give notice as described below, unless the Trustee shall
agree in writing to a shorter period), the
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<PAGE> 43
Trustee in the name of and at the expense of the Company, shall mail or cause to
be mailed to all holders of record on the date of the Fundamental Change a
notice (the "Company Notice") of the occurrence of such Fundamental Change and
of the redemption right at the option of the holders arising as a result
thereof. Such notice shall be mailed in the manner and with the effect set forth
in the first paragraph of Section 3.2 (without regard for the time limits set
forth therein). If the Company shall give such notice, the Company shall also
deliver a copy of the Company Notice to the Trustee at such time as it is mailed
to Noteholders. Concurrently with the mailing of any Company Notice, the Company
shall issue a press release announcing such Fundamental Change referred to in
the Company Notice, the form and content of which press release shall be
determined by the Company in its sole discretion. The failure to issue any such
press release or any defect therein shall not affect the validity of the Company
Notice or any proceedings for the redemption of any Note which any Noteholder
may elect to have the Company repurchase as provided in this Section 3.5.
Each Company Notice shall specify the circumstances
constituting the Fundamental Change, the Repurchase Date, the price at which the
Company shall be obligated to redeem Notes, that the holder must exercise the
redemption right on or prior to the close of business on the Repurchase Date
(the "Fundamental Change Expiration Time"), that the holder shall have the right
to withdraw any Notes surrendered prior to the Fundamental Change Expiration
Time, a description of the procedure which a Noteholder must follow to exercise
such redemption right and to withdraw any surrendered Notes, the place or places
where the holder is to surrender such holder's Notes, and the amount of interest
accrued on each Note to the Repurchase Date.
No failure of the Company to give the foregoing notices and no
defect therein shall limit the Noteholders' redemption rights or affect the
validity of the proceedings for the repurchase of the Notes pursuant to this
Section 3.5.
(c) For a Note to be so redeemed at the option of the holder,
the Company must receive at the office or agency of the Company maintained for
that purpose or, at the option of such holder, the Corporate Trust Office, such
Note with the form entitled "Option to Elect Repayment Upon A Fundamental
Change" on the reverse thereof duly completed,
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<PAGE> 44
together with such Notes duly endorsed for transfer, on or before the
Fundamental Change Expiration Time. All questions as to the validity,
eligibility (including time of receipt) and acceptance of any Note for repayment
shall be determined by the Company, whose determination shall be final and
binding absent manifest error.
(d) On or prior to the Repurchase Date, the Company will
deposit with the Trustee or with one or more paying agents (or, if the Company
is acting as its own paying agent, set aside, segregate and hold in trust as
provided in Section 5.4) an amount of money sufficient to repay on the
Repurchase Date all the Notes to be redeemed on such date at the appropriate
redemption price, together with accrued interest to (but excluding) the
Repurchase Date; provided, however, that if such payment is made on the
Repurchase Date it must be received by the Trustee or paying agent, as the case
may be, by 10:00 a.m. New York City time, on such date. Payment for Notes
surrendered for redemption (and not withdrawn) prior to the Fundamental Change
Expiration Time will be made promptly (but in no event more than five (5)
Business Days) following the Repurchase Date by mailing checks for the amount
payable to the holders of such Notes entitled thereto as they shall appear on
the registry books of the Company.
(e) In the case of a reclassification, change, consolidation,
merger, combination, sale or conveyance to which Section 15.6 applies, in which
the Common Stock of the Company is changed or exchanged as a result into the
right to receive stock, securities or other property or assets (including cash),
which includes shares of Common Stock of the Company or shares of common stock
of another Person that are, or upon issuance will be, traded on a United States
national securities exchange or approved for trading on an established automated
over-the-counter trading market in the United States and such shares constitute
at the time such change or exchange becomes effective in excess of 50% of the
aggregate fair market value of such stock, securities or other property or
assets (including cash) (as determined by the Company, which determination shall
be conclusive and binding), then the Person formed by such consolidation or
resulting from such merger or which acquires such assets, as the case may be,
shall execute and deliver to the Trustee a supplemental indenture (accompanied
by an Opinion of Counsel that such supplemental indenture complies with the
Trust Indenture Act as in force at the date of execution of such supplemental
indenture) modifying the provisions of this
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<PAGE> 45
Indenture relating to the right of holders of the Notes to cause the Company to
repurchase the Notes following a Fundamental Change, including without
limitation the applicable provisions of this Section 3.5 and the definitions of
Common Stock and Fundamental Change, as appropriate, as determined in good faith
by the Company (which determination shall be conclusive and binding), to make
such provisions apply to such other Person if different from the Company and the
common stock issued by such Person (in lieu of the Company and the Common Stock
of the Company).
(f) The Company will comply with the provisions of Rule 13e-4
and any other tender offer rules under the Exchange Act to the extent then
applicable in connection with the redemption rights of the holders of Notes in
the event of a Fundamental Change.
ARTICLE FOUR
SUBORDINATION OF NOTES
Section 4.1 Agreement of Subordination. The Company covenants
and agrees, and each holder of Notes issued hereunder by its acceptance thereof
likewise covenants and agrees, that all Notes shall be issued subject to the
provisions of this Article Four, and each Person holding any Note, whether upon
original issue or upon registration of transfer, assignment or exchange thereof,
accepts and agrees to be bound by such provisions.
The payment of the principal of, premium, if any, and interest
(including Liquidated Damages, if any) on all Notes (including, but not limited
to, the redemption price with respect to the Notes called for redemption in
accordance with Section 3.2 or submitted for redemption in accordance with
Section 3.5, as the case may be, as provided in this Indenture) issued hereunder
shall, to the extent and in the manner hereinafter set forth, be subordinated
and subject in right of payment to the prior payment in full in cash or other
payment satisfactory to the holders of Senior Indebtedness of all Senior
Indebtedness, whether outstanding at the date of this Indenture or thereafter
incurred.
No provision of this Article Four shall prevent the occurrence
of any default or Event of Default hereunder.
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Section 4.2 Payments to Noteholders. No payment shall be made
with respect to the principal of, premium, if any, or interest (including
Liquidated Damages, if any) on the Notes (including, but not limited to, the
redemption price with respect to the Notes to be called for redemption in
accordance with Section 3.2 or submitted for redemption in accordance with
Section 3.5, as the case may be, as provided in this Indenture), except payments
and distributions made by the Trustee as permitted by the first or second
paragraph of Section 4.5, if:
(i) a default in the payment of principal, premium, if any,
interest, rent or other obligations in respect of Senior Indebtedness
occurs and is continuing beyond any applicable period of grace (a
"Payment Default"); or
(ii) a default, other than a Payment Default, on any
Designated Senior Indebtedness occurs and is continuing that then
permits holders of such Designated Senior Indebtedness to accelerate
its maturity and the Trustee receives a notice of the default (a
"Payment Blockage Notice") from a holder of Designated Senior
Indebtedness, a Representative of Designated Senior Indebtedness or the
Company (a "Non-Payment Default").
If the Trustee receives any Payment Blockage Notice pursuant
to clause (ii) above, no subsequent Payment Blockage Notice shall be effective
for purposes of this Section 4.2 unless and until (A) at least 365 days shall
have elapsed since the initial effectiveness of the immediately prior Payment
Blockage Notice and (B) all scheduled payments of principal, premium, if any,
and interest (including Liquidated Damages, if any) on the Notes that have come
due have been paid in full in cash. No Non-Payment Default that existed or was
continuing on the date of delivery of any Payment Blockage Notice to the Trustee
shall be, or be made, the basis for a subsequent Payment Blockage Notice.
The Company may and shall resume payments on and distributions
in respect of the Notes upon:
(1) in the case of a Payment Default, the date upon which any
such Payment Default is cured or waived or ceases to exist, or
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<PAGE> 47
(2) in the case of a Non-Payment Default, the earlier of (a)
the date upon which such default is cured or waived or ceases to exist
or (b) 179 days after the applicable Payment Blockage Notice is
received by the Trustee,
unless this Article Four otherwise prohibits the payment or distribution at the
time of such payment or distribution.
Upon any payment by the Company, or distribution of assets of
the Company of any kind or character, whether in cash, property or securities,
to creditors upon any dissolution or winding up or liquidation or reorganization
of the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness shall first be paid in full in cash or other payment
satisfactory to the holders of such Senior Indebtedness, or payment thereof in
accordance with its terms provided for in cash or other payment satisfactory to
the holders of such Senior Indebtedness before any payment is made on account of
the principal of, premium, if any, or interest (including Liquidated Damages, if
any) on the Notes (except payments made pursuant to Article Thirteen from monies
deposited with the Trustee pursuant thereto prior to commencement of proceedings
for such dissolution, winding up, liquidation or reorganization), and upon any
such dissolution or winding up or liquidation or reorganization of the Company
or bankruptcy, insolvency, receivership or other proceeding, any payment by the
Company, or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to which the holders of the Notes or
the Trustee would be entitled, except for the provisions of this Article Four,
shall (except as aforesaid) be paid by the Company or by any receiver, trustee
in bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, or by the holders of the Notes or by the Trustee under this
Indenture if received by them or it, directly to the holders of Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
Senior Indebtedness held by such holders, or as otherwise required by law or a
court order) or their Representative or Representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing any
Senior Indebtedness may have been issued, as their respective interests may
appear, to the extent necessary to pay all Senior Indebtedness in full in cash
or other payment satisfactory to the holders of such
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<PAGE> 48
Senior Indebtedness, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness, before any payment or
distribution is made to the holders of the Notes or to the Trustee.
For purposes of this Article Four, the words, "cash, property
or securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article Four with
respect to the Notes to the payment of all Senior Indebtedness which may at the
time be outstanding. The consolidation of the Company with, or the merger of the
Company into, another Person or the liquidation or dissolution of the Company
following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another Person upon the terms and conditions
provided for in Article Twelve shall not be deemed a dissolution, winding-up,
liquidation or reorganization for the purposes of this Section 4.2 if such other
Person shall, as a part of such consolidation, merger, conveyance or transfer,
comply with the conditions stated in Article Twelve.
In the event of the acceleration of the Notes because of an
Event of Default, no payment or distribution shall be made to the Trustee or any
holder of Notes in respect of the principal of, premium, if any, or interest
(including Liquidated Damages, if any) on the Notes (including, but not limited
to, the redemption price with respect to the Notes called for redemption in
accordance with Section 3.2 or submitted for redemption at the option of the
holder in accordance with Section 3.5, as the case may be, as provided in this
Indenture), except payments and distributions made by the Trustee as permitted
by the first or second paragraph of Section 4.5, until all Senior Indebtedness
has been paid in full in cash or other payment satisfactory to the holders of
Senior Indebtedness or such acceleration is rescinded in accordance with the
terms of this Indenture. If payment of the Notes is accelerated because of an
Event of Default, the Company or the Trustee shall promptly notify holders of
Senior Indebtedness of the acceleration.
In the event that, notwithstanding the foregoing provisions,
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property
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or securities (including, without limitation, by way of setoff or otherwise),
prohibited by the foregoing provisions in this Section 4.2, shall be received by
the Trustee or the holders of the Notes before all Senior Indebtedness is paid
in full in cash or other payment satisfactory to the holders of such Senior
Indebtedness, or provision is made for such payment thereof in accordance with
its terms in cash or other payment satisfactory to the holders of such Senior
Indebtedness, such payment or distribution shall be held in trust for the
benefit of and shall be paid over or delivered to the holders of Senior
Indebtedness or their Representative or Representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing any
Senior Indebtedness may have been issued, as their respective interests may
appear, as calculated by the Company, for application to the payment of any
Senior Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in cash or other payment satisfactory to the holders of
such Senior Indebtedness, after giving effect to any concurrent payment or
distribution to or for the holders of such Senior Indebtedness.
Nothing in this Section 4.2 shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 8.6. This Section 4.2
shall be subject to the further provisions of Section 4.5.
Section 4.3 Subrogation of Notes. Subject to the payment in
full of all Senior Indebtedness, the rights of the holders of the Notes shall be
subrogated to the extent of the payments or distributions made to the holders of
such Senior Indebtedness pursuant to the provisions of this Article Four
(equally and ratably with the holders of all indebtedness of the Company that by
its express terms, is subordinated to other indebtedness of the Company to
substantially the same extent as the Notes are subordinated and is entitled to
like rights of subrogation) to the rights of the holders of Senior Indebtedness
to receive payments or distributions of cash, property or securities of the
Company applicable to the Senior Indebtedness until the principal, premium, if
any, and interest (including Liquidated Damages, if any) on the Notes shall be
paid in full, and, for the purposes of such subrogation, no payments or
distributions to the holders of the Senior Indebtedness of any cash, property or
securities to which the holders of the Notes or the Trustee would be entitled
except for the provisions of this Article Four, and no payment over pursuant to
the
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provisions of this Article Four, to or for the benefit of the holders of Senior
Indebtedness by holders of the Notes or the Trustee, shall, as among the
Company, its creditors other than holders of Senior Indebtedness, and the
holders of the Notes, be deemed to be a payment by the Company to or on account
of the Senior Indebtedness, and no payments or distributions of cash, property
or securities to or for the benefit of the holders of the Notes pursuant to the
subrogation provisions of this Article Four, which would otherwise have been
paid to the holders of Senior Indebtedness, shall be deemed to be a payment by
the Company to or for the account of the Notes. It is understood that the
provisions of this Article Four are and are intended solely for the purposes of
defining the relative rights of the holders of the Notes, on the one hand, and
the holders of the Senior Indebtedness, on the other hand.
Nothing contained in this Article Four or elsewhere in this
Indenture or in the Notes is intended to or shall impair, as among the Company,
its creditors other than the holders of Senior Indebtedness, and the holders of
the Notes, the obligation of the Company, which is absolute and unconditional,
to pay to the holders of the Notes the principal of, premium, if any, and
interest (including Liquidated Damages, if any) on the Notes as and when the
same shall become due and payable in accordance with their terms, or is intended
to or shall affect the relative rights of the holders of the Notes and creditors
of the Company other than the holders of the Senior Indebtedness, nor shall
anything herein or therein prevent the Trustee or the holder of any Note from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article Four of the
holders of Senior Indebtedness in respect of cash, property or securities of the
Company received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company
referred to in this Article Four, the Trustee, subject to the provisions of
Section 8.1, and the holders of the Notes shall be entitled to rely upon any
order or decree made by any court of competent jurisdiction in which such
bankruptcy, dissolution, winding up, liquidation or reorganization proceedings
are pending, or a certificate of the receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such payment or distribution,
delivered to the Trustee or to the holders of the Notes, for the purpose of
ascertaining the Persons entitled to
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participate in such distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon and all
other facts pertinent thereto or to this Article Four.
Section 4.4 Authorization to Effect Subordination. Each holder
of a Note, by its acceptance thereof, authorizes and directs the Trustee on the
holder's behalf to take such action as may be necessary or appropriate to
effectuate the subordination as provided in this Article Four and appoints the
Trustee to act as the holder's attorney-in-fact for any and all such purposes.
If the Trustee does not file a proper proof of claim or proof of debt in the
form required in any proceeding referred to in the third paragraph of Section
7.2 hereof at least thirty (30) days before the expiration of the time to file
such claim, the holders of any Senior Indebtedness or their representatives are
hereby authorized to file an appropriate claim for and on behalf of the holders
of the Notes.
Section 4.5 Notice to Trustee. The Company shall give prompt
written notice in the form of an Officers' Certificate to a Responsible Officer
of the Trustee and to any paying agent of any fact known to the Company that
would prohibit the making of any payment of monies to or by the Trustee or any
paying agent in respect of the Notes pursuant to the provisions of this Article
Four. Notwithstanding the provisions of this Article Four or any other provision
of this Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts that would prohibit the making of any payment of monies
to or by the Trustee in respect of the Notes pursuant to the provisions of this
Article Four, unless and until a Responsible Officer of the Trustee shall have
received written notice thereof at the Corporate Trust Office from the Company
(in the form of an Officers' Certificate) or a Representative or a holder or
holders of Senior Indebtedness or from any trustee thereof, and before the
receipt of any such written notice, the Trustee, subject to the provisions of
Section 8.1, shall be entitled in all respects to assume that no such facts
exist; provided, however, that if on a date not less than two Business Days
prior to the date upon which by the terms hereof any such monies may become
payable for any purpose (including, without limitation, the payment of the
principal of, or premium, if any, or interest (including Liquidated Damages, if
any) on any Note) the Trustee shall not have received, with respect to such
monies, the notice provided for in this Section 4.5, then, anything herein
contained to
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the contrary notwithstanding, the Trustee shall have full power and authority to
apply monies received to the purpose for which they were received, and shall not
be affected by any notice to the contrary that may be received by it on or after
such prior date.
Notwithstanding anything in this Article Four to the contrary,
nothing shall prevent any payment by the Trustee to the Noteholders of monies
deposited with it pursuant to Section 13.1, and any such payment shall not be
subject to the provisions of Section 4.1 or 4.2.
The Trustee, subject to the provisions of Section 8.1, shall
be entitled to rely on the delivery to it of a written notice by a
Representative or a person representing himself to be a holder of Senior
Indebtedness (or a trustee on behalf of such holder) to establish that such
notice has been given by a Representative or a holder of Senior Indebtedness or
a trustee on behalf of any such holder or holders. The Trustee shall not be
required to make any payment or distribution to or on behalf of a holder of
Senior Indebtedness pursuant to this Article Four unless it has received
satisfactory evidence as to the amount of Senior Indebtedness held by such
Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article Four.
Section 4.6 Trustee's Relation to Senior Indebtedness. The
Trustee, in its individual capacity, shall be entitled to all the rights set
forth in this Article Four in respect of any Senior Indebtedness at any time
held by it, to the same extent as any other holder of Senior Indebtedness, and
nothing in Section 8.13 or elsewhere in this Indenture shall deprive the Trustee
of any of its rights as such holder.
With respect to the holders of Senior Indebtedness, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article Four, and no implied
covenants or obligations with respect to the holders of Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Indebtedness and,
subject to the provisions of Section 8.1, the Trustee shall not be liable to any
holder of Senior Indebtedness (i) for any failure to make any payments or
distributions to
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such holder or (ii) if it shall pay over or deliver to holders of Notes, the
Company or any other Person money or assets to which any holder of Senior
Indebtedness shall be entitled by virtue of this Article Four or otherwise.
Section 4.7 No Impairment of Subordination. No right of any
present or future holder of any Senior Indebtedness to enforce subordination as
herein provided shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company
with the terms, provisions and covenants of this Indenture, regardless of any
knowledge thereof which any such holder may have or otherwise be charged with.
Section 4.8 Certain Conversions Not Deemed Payment. For the
purposes of this Article Four only, (1) the issuance and delivery of junior
securities upon conversion of Notes in accordance with Article Fifteen shall not
be deemed to constitute a payment or distribution on account of the principal
of, premium, if any, or interest (including Liquidated Damages, if any) on Notes
or on account of the purchase or other acquisition of Notes, and (2) the
payment, issuance or delivery of cash (except in satisfaction of fractional
shares pursuant to Section 15.3), property or securities (other than junior
securities) upon conversion of a Note shall be deemed to constitute payment on
account of the principal of, premium, if any, or interest (including Liquidated
Damages, if any) on such Note. For the purposes of this Section 4.8, the term
"junior securities" means (a) shares of any stock of any class of the Company or
(b) securities of the Company that are subordinated in right of payment to all
Senior Indebtedness that may be outstanding at the time of issuance or delivery
of such securities to substantially the same extent as, or to a greater extent
than, the Notes are so subordinated as provided in this Article Four. Nothing
contained in this Article Four or elsewhere in this Indenture or in the Notes is
intended to or shall impair, as among the Company, its creditors (other than
holders of Senior Indebtedness) and the Noteholders, the right, which is
absolute and unconditional, of the Holder of any Note to convert such Note in
accordance with Article Fifteen.
Section 4.9 Article Applicable to Paying Agents. If at any
time any paying agent other than the Trustee shall have been appointed by the
Company and be then acting
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hereunder, the term "Trustee" as used in this Article Four shall (unless the
context otherwise requires) be construed as extending to and including such
paying agent within its meaning as fully for all intents and purposes as if such
paying agent were named in this Article Four in addition to or in place of the
Trustee; provided, however, that the first paragraph of Section 4.5 shall not
apply to the Company or any Affiliate of the Company if it or such Affiliate
acts as paying agent.
The Trustee shall not be responsible for the actions or
inactions of any other paying agents (including the Company if acting as its own
paying agent) and shall have no control of any funds held by such other paying
agents.
Section 4.10 Senior Indebtedness Entitled to Rely. The holders
of Senior Indebtedness (including, without limitation, Designated Senior
Indebtedness) shall have the right to rely upon this Article Four, and no
amendment or modification of the provisions contained herein shall diminish the
rights of such holders unless such holders shall have agreed in writing thereto.
Section 4.11 Reliance on Judicial Order or Certificate of
Liquidating Agent. Upon any payment or distribution of assets of the Company
referred to in this Article Four, the Trustee and the Noteholders shall be
entitled to rely upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, liquidating trustee,
custodian, receiver, assignee for the benefit of creditors, agent or other
Person making such payment or distribution, delivered to the Trustee or to the
Noteholders, for the purpose of ascertaining the Persons entitled to participate
in such payment or distribution, the holders of Senior Indebtedness and other
indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Article Four.
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ARTICLE FIVE
PARTICULAR COVENANTS OF THE COMPANY
Section 5.1 Payment of Principal, Premium and Interest. The
Company covenants and agrees that it will duly and punctually pay or cause to be
paid the principal of and premium, if any (including the redemption price upon
redemption pursuant to Article Three), and interest (including Liquidated
Damages, if any), on each of the Notes at the places, at the respective times
and in the manner provided herein and in the Notes.
Section 5.2 Maintenance of Office or Agency. The Company will
maintain an office or agency in the Borough of Manhattan, the City of New York,
where the Notes may be surrendered for registration of transfer or exchange or
for presentation for payment or for conversion or redemption and where notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served. The Company will give prompt written notice to the Trustee of the
location, and any change in the location, of such office or agency not
designated or appointed by the Trustee. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee at 14 Wall
Street, 8th Floor, Window 2, New York, New York 10005, Attention: Corporate
Trust Administration.
The Company may also from time to time designate co-registrars
and one or more offices or agencies where the Notes may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations. The Company will give prompt written notice of any such
designation or rescission and of any change in the location of any such other
office or agency.
The Company hereby initially designates the Trustee as paying
agent, Note registrar, Custodian and conversion agent and the Corporate Trust
Office of the Trustee at 14 Wall Street, 8th Floor, Window 2, New York, New York
10005, Attention: Corporate Trust Administration as the office or agency of the
Company for each of the aforesaid purposes.
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So long as the Trustee is the Note registrar, the Trustee
agrees to mail, or cause to be mailed, the notices set forth in Section 8.10(a)
and the third paragraph of Section 8.11. If co-registrars have been appointed in
accordance with this Section, the Trustee shall mail such notices only to the
Company and the holders of Notes it can identify from its records.
Section 5.3 Appointments to Fill Vacancies in Trustee's
Office. The Company, whenever necessary to avoid or fill a vacancy in the office
of Trustee, will appoint, in the manner provided in Section 8.10, a Trustee, so
that there shall at all times be a Trustee hereunder.
Section 5.4 Provisions as to Paying Agent.
(a) If the Company shall appoint a paying agent other than the
Trustee, or if the Trustee shall appoint such a paying agent, the Company will
cause such paying agent to execute and deliver to the Trustee an instrument in
which such agent shall agree with the Trustee, subject to the provisions of this
Section 5.4:
(1) that it will hold all sums held by it as such agent for
the payment of the principal of and premium, if any, or interest on the
Notes (whether such sums have been paid to it by the Company or by any
other obligor on the Notes) in trust for the benefit of the holders of
the Notes;
(2) that it will give the Trustee notice of any failure by the
Company (or by any other obligor on the Notes) to make any payment of
the principal of and premium, if any, or interest on the Notes when the
same shall be due and payable; and
(3) that at any time during the continuance of an Event of
Default, upon request of the Trustee, it will forthwith pay to the
Trustee all sums so held in trust.
The Company shall, on or before each due date of the principal
of, premium, if any, or interest on the Notes, deposit with the paying agent a
sum (in funds which are immediately available on the due date for such payment)
sufficient to pay such principal, premium, if any, or interest, and (unless such
paying agent is the Trustee) the Company will promptly notify the Trustee of any
failure to take such action; provided, however, that if such deposit is
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made on the due date, such deposit shall be received by the paying agent by
10:00 a.m. New York City time, on such date.
(b) If the Company shall act as its own paying agent, it will,
on or before each due date of the principal of, premium, if any, or interest
(including Liquidated Damages, if any) on the Notes, set aside, segregate and
hold in trust for the benefit of the holders of the Notes a sum sufficient to
pay such principal, premium, if any, or interest (including Liquidated Damages,
if any) so becoming due and will promptly notify the Trustee of any failure to
take such action and of any failure by the Company (or any other obligor under
the Notes) to make any payment of the principal of, premium, if any, or interest
(including Liquidated Damages, if any) on the Notes when the same shall become
due and payable.
(c) Anything in this Section 5.4 to the contrary
notwithstanding, the Company may, at any time, for the purpose of obtaining a
satisfaction and discharge of this Indenture, or for any other reason, pay or
cause to be paid to the Trustee all sums held in trust by the Company or any
paying agent hereunder as required by this Section 5.4, such sums to be held by
the Trustee upon the trusts herein contained and upon such payment by the
Company or any paying agent to the Trustee, the Company or such paying agent
shall be released from all further liability with respect to such sums.
(d) Anything in this Section 5.4 to the contrary
notwithstanding, the agreement to hold sums in trust as provided in this Section
5.4 is subject to Sections 13.3 and 13.4.
The Trustee shall not be responsible for the actions of any
other paying agents (including the Company if acting as its own paying agent)
and shall have no control of any funds held by such other paying agents.
Section 5.5 Existence. Subject to Article Twelve, the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect its existence and rights (charter and statutory); provided,
however, that the Company shall not be required to preserve any such right if
the Company shall determine that the preservation thereof is no longer desirable
in the conduct of the business of the Company and that the loss thereof is
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not disadvantageous in any material respect to the Noteholders.
Section 5.6 Maintenance of Properties. The Company will cause
all properties used or useful in the conduct of its business or the business of
any Significant Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
prevent the Company from discontinuing the operation or maintenance of any of
such properties if such discontinuance is, in the judgment of the Company,
desirable in the conduct of its business or the business of any subsidiary and
not disadvantageous in any material respect to the Noteholders.
Section 5.7 Payment of Taxes and Other Claims. The Company
will pay or discharge, or cause to be paid or discharged, before the same may
become delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon the Company or any Significant Subsidiary or upon the income,
profits or property of the Company or any Significant Subsidiary, (ii) all
claims for labor, materials and supplies which, if unpaid, might by law become a
lien or charge upon the property of the Company or any Significant Subsidiary
and (iii) all stamps and other duties, if any, which may be imposed by the
United States or any political subdivision thereof or therein in connection with
the issuance, transfer, exchange or conversion of any Notes or with respect to
this Indenture; provided, however, that, in the case of clauses (i) and (ii),
the Company shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim (A) if the failure to do so
will not, in the aggregate, have a material adverse impact on the Company, or
(B) if the amount, applicability or validity is being contested in good faith by
appropriate proceedings.
Section 5.8 Rule 144A Information Requirement. Within the
period prior to the expiration of the holding period applicable to sales thereof
under Rule 144(k) under the Securities Act (or any successor provision), the
Company covenants and agrees that it shall, during any period in
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which it is not subject to Section 13 or 15(d) under the Exchange Act, make
available to any holder or beneficial holder of Notes or any Common Stock issued
upon conversion thereof which continue to be Restricted Securities in connection
with any sale thereof and any prospective purchaser of Notes or such Common
Stock designated by such holder or beneficial holder, the information required
pursuant to Rule 144A(d)(4) under the Securities Act upon the request of any
holder or beneficial holder of the Notes or such Common Stock and it will take
such further action as any holder or beneficial holder of such Notes or such
Common Stock may reasonably request, all to the extent required from time to
time to enable such holder or beneficial holder to sell its Notes or Common
Stock without registration under the Securities Act within the limitation of the
exemption provided by Rule 144A, as such Rule may be amended from time to time.
Upon the request of any holder or any beneficial holder of the Notes or such
Common Stock, the Company will deliver to such holder a written statement as to
whether it has complied with such requirements.
Section 5.9 Stay, Extension and Usury Laws. The Company
covenants (to the extent that it may lawfully do so) that it shall not at any
time insist upon, plead, or in any manner whatsoever claim or take the benefit
or advantage of, any stay, extension or usury law or other law which would
prohibit or forgive the Company from paying all or any portion of the principal
of, premium, if any, or interest (including Liquidated Damages, if any) on the
Notes as contemplated herein, wherever enacted, now or at any time hereafter in
force, or which may affect the covenants or the performance of this Indenture
and the Company (to the extent it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but will suffer and permit the execution of every
such power as though no such law had been enacted.
Section 5.10 Compliance Certificate. The Company shall deliver
to the Trustee, within one hundred twenty (120) days after the end of each
fiscal year of the Company, a certificate signed by either the principal
executive officer, principal financial officer or principal accounting officer
of the Company, stating whether or not to the best knowledge of the signer
thereof the Company is in default in the performance and observance of any of
the terms, provisions and conditions of this Indenture (without regard
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to any period of grace or requirement of notice provided hereunder) and, if the
Company shall be in default, specifying all such defaults and the nature and the
status thereof of which the signer may have knowledge.
The Company will deliver to the Trustee, forthwith (and in any
event within five Business Days) upon becoming aware of (i) any default in the
performance or observance of any covenant, agreement or condition contained in
this Indenture, or (ii) any Event of Default, an Officers' Certificate
specifying with particularity such default or Event of Default and further
stating what action the Company has taken, is taking or proposes to take with
respect thereto.
Any notice required to be given under this Section 5.10 shall
be delivered to a Responsible Officer of the Trustee at its Corporate Trust
Office.
Section 5.11 Amendment of the Company's Rights Plan. The
Company shall use all reasonable efforts (i) to amend its Rights Agreement with
ChaseMellon Shareholder Services, L.L.C., as Rights Agent, dated as of November
30, 1998 (the "Rights Agreement") to provide, and (ii) to cause any future
shareholder rights plans of the Company to provide, that upon conversion of the
Notes into Common Stock as provided in Article Fifteen of this Indenture, to the
extent that the Rights Agreement (or any such future shareholder rights plan)
and any rights granted thereunder remain in effect and outstanding at the time
of such conversion, holders of the Notes will receive, in addition to Common
Stock, the Rights (as described in the Rights Agreement or any similar
securities as described in any such future shareholder rights plan), whether or
not such Rights have separated from the Common Stock at the time of conversion,
subject to such exceptions as are set forth in the Rights Agreement and apply to
all holders of Common Stock or Rights other than any Acquiring Person (as
defined in the Rights Agreement) or such customary exceptions as may be set
forth in any such future shareholder rights plan; provided, however, that
nothing in this Indenture shall obligate the Company to maintain in effect the
Rights Agreement or any Rights or to adopt (or maintain in effect if adopted)
any other shareholder rights plan.
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ARTICLE SIX
NOTEHOLDERS' LISTS AND REPORTS
BY THE COMPANY AND THE TRUSTEE
Section 6.1 Noteholders' Lists. The Company covenants and
agrees that it will furnish or cause to be furnished to the Trustee,
semiannually, not more than fifteen (15) days after each April 15 and October 15
in each year beginning with October 15, 1999, and at such other times as the
Trustee may request in writing, within thirty (30) days after receipt by the
Company of any such request (or such lesser time as the Trustee may reasonably
request in order to enable it to timely provide any notice to be provided by it
hereunder), a list in such form as the Trustee may reasonably require of the
names and addresses of the holders of Notes as of a date not more than fifteen
(15) days (or such other date as the Trustee may reasonably request in order to
so provide any such notices) prior to the time such information is furnished,
except that no such list need be furnished by the Company to the Trustee so long
as the Trustee is acting as the sole Note registrar.
Section 6.2 Preservation and Disclosure of Lists.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, all information as to the names and addresses of the
holders of Notes contained in the most recent list furnished to it as provided
in Section 6.1 or maintained by the Trustee in its capacity as Note registrar or
co-registrar in respect of the Notes, if so acting. The Trustee may destroy any
list furnished to it as provided in Section 6.1 upon receipt of a new list so
furnished.
(b) The rights of Noteholders to communicate with other
holders of Notes with respect to their rights under this Indenture or under the
Notes, and the corresponding rights and duties of the Trustee, shall be as
provided by the Trust Indenture Act.
(c) Every Noteholder, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of either of them shall be held accountable by reason of any
disclosure of information as to names and addresses of holders of Notes made
pursuant to the Trust Indenture Act.
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Section 6.3 Reports by Trustee.
(a) Within sixty (60) days after April 15 of each year
commencing with the year 2000, the Trustee shall transmit to holders of Notes
such reports dated as of April 15 of the year in which such reports are made
concerning the Trustee and its actions under this Indenture as may be required
pursuant to the Trust Indenture Act at the times and in the manner provided
pursuant thereto.
(b) A copy of such report shall, at the time of such
transmission to holders of Notes, be filed by the Trustee with each stock
exchange and automated quotation system upon which the Notes are listed and with
the Company. The Company will promptly notify the Trustee in writing when the
Notes are listed on any stock exchange or automated quotation system or delisted
therefrom.
Section 6.4 Reports by Company. The Company shall file with
the Trustee (and the Commission if at any time after the Indenture becomes
qualified under the Trust Indenture Act), and transmit to holders of Notes, such
information, documents and other reports and such summaries thereof, as may be
required pursuant to the Trust Indenture Act at the times and in the manner
provided pursuant to such Act, whether or not the Notes are governed by such
Act; provided, however, that any such information, documents or reports required
to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange
Act shall be filed with the Trustee within fifteen (15) days after the same is
so required to be filed with the Commission. Delivery of such reports,
information and documents to the Trustee is for informational purposes only and
the Trustee's receipt of such shall not constitute constructive notice of any
information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officers'
Certificates).
ARTICLE SEVEN
REMEDIES OF THE TRUSTEE AND
NOTEHOLDERS ON AN EVENT OF DEFAULT
Section 7.1 Events of Default. In case one or more of the
following Events of Default (whatever the reason for such Event of Default and
whether it shall be voluntary
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or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body) shall have occurred and be continuing:
(a) default in the payment of any installment of interest
(including Liquidated Damages, if any) upon any of the Notes as and
when the same shall become due and payable, and continuance of such
default for a period of thirty (30) days, whether or not such payment
is permitted under Article Four hereof; or
(b) default in the payment of the principal of or premium, if
any, on any of the Notes as and when the same shall become due and
payable either at maturity or in connection with any redemption
pursuant to Article Three, by acceleration or otherwise, whether or not
such payment is permitted under Article Four hereof; or
(c) failure on the part of the Company duly to observe or
perform any other of the covenants or agreements on the part of the
Company in the Notes or in this Indenture (other than a covenant or
agreement a default in whose performance or whose breach is elsewhere
in this Section 7.1 specifically dealt with) continued for a period of
sixty (60) days after the date on which written notice of such failure,
requiring the Company to remedy the same, shall have been given to the
Company by the Trustee, or the Company and a Responsible Officer of the
Trustee by the holders of at least twenty-five percent (25%) in
aggregate principal amount of the Notes at the time outstanding
determined in accordance with Section 9.4; or
(d) the Company or any Significant Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization
or other relief with respect to itself or any Significant Subsidiary or
its or such Significant Subsidiary's debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any Significant Subsidiary or any substantial
part of the property of the Company or any Significant Subsidiary, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it or any
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Significant Subsidiary, or shall make a general assignment for the
benefit of creditors, or shall fail generally to pay its debts as they
become due; or
(e) an involuntary case or other proceeding shall be commenced
against the Company or any Significant Subsidiary seeking liquidation,
reorganization or other relief with respect to it or any Significant
Subsidiary or its or such Significant Subsidiary's debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any Significant Subsidiary
or any substantial part of the property of the Company or any
Significant Subsidiary, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of ninety (90)
consecutive days;
then, and in each and every such case (other than an Event of Default specified
in Section 7.1(d) or (e) with respect to the Company), unless the principal of
all of the Notes shall have already become due and payable, either the Trustee
or the holders of not less than twenty-five percent (25%) in aggregate principal
amount of the Notes then outstanding hereunder determined in accordance with
Section 9.4, by notice in writing to the Company (and to the Trustee if given by
Noteholders), may declare the principal of and premium, if any, on all the Notes
and the interest accrued thereon (including Liquidated Damages, if any) to be
due and payable immediately, and upon any such declaration the same shall become
and shall be immediately due and payable, anything in this Indenture or in the
Notes contained to the contrary notwithstanding. If an Event of Default
specified in Section 7.1(d) or (e) with respect to the Company occurs, the
principal of all the Notes and the interest accrued thereon shall (including
Liquidated Damages, if any) be immediately and automatically due and payable
without necessity of further action. This provision, however, is subject to the
conditions that if, at any time after the principal of the Notes shall have been
so declared due and payable, and before any judgment or decree for the payment
of the monies due shall have been obtained or entered as hereinafter provided,
the Company shall pay or shall deposit with the Trustee a sum sufficient to pay
all matured installments of interest upon (including Liquidated Damages, if any)
all Notes and the principal of and premium, if any, on any and all Notes which
shall have become due otherwise than by acceleration (with interest on overdue
installments
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of interest (including Liquidated Damages, if any) (to the extent that payment
of such interest is enforceable under applicable law) and on such principal and
premium, if any, at the rate borne by the Notes, to the date of such payment or
deposit) and amounts due to the Trustee pursuant to Section 8.6, and if any and
all defaults under this Indenture, other than the nonpayment of principal of and
premium, if any, and accrued interest on (including Liquidated Damages, if any)
Notes which shall have become due by acceleration, shall have been cured or
waived pursuant to Section 7.7, then and in every such case the holders of a
majority in aggregate principal amount of the Notes then outstanding, by written
notice to the Company and to the Trustee, may waive all defaults or Events of
Default and rescind and annul such declaration and its consequences; but no such
waiver or rescission and annulment shall extend to or shall affect any
subsequent default or Event of Default, or shall impair any right consequent
thereon. The Company shall notify a Responsible Officer of the Trustee, promptly
(and in any event within five Business Days) upon becoming aware thereof, of any
Event of Default.
In case the Trustee shall have proceeded to enforce any right
under this Indenture and such proceedings shall have been discontinued or
abandoned because of such waiver or rescission and annulment or for any other
reason or shall have been determined adversely to the Trustee, then and in every
such case the Company, the holders of Notes, and the Trustee shall be restored
respectively to their several positions and rights hereunder, and all rights,
remedies and powers of the Company, the holders of Notes, and the Trustee shall
continue as though no such proceeding had been taken.
Section 7.2 Payments of Notes on Default; Suit Therefor. The
Company covenants that (a) in case default shall be made in the payment of any
installment of interest upon (including Liquidated Damages, if any) any of the
Notes as and when the same shall become due and payable, and such default shall
have continued for a period of thirty (30) days, or (b) in case default shall be
made in the payment of the principal of or premium, if any, on any of the Notes
as and when the same shall have become due and payable, whether at maturity of
the Notes or in connection with any redemption, by or under this Indenture
declaration or otherwise, then, upon demand of the Trustee, the Company will pay
to the Trustee, for the benefit of the holders of the Notes, the whole amount
that then shall have become due
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and payable on all such Notes for principal and premium, if any, or interest
(including Liquidated Damages, if any), as the case may be, with interest upon
the overdue principal and premium, if any, and (to the extent that payment of
such interest is enforceable under applicable law) upon the overdue installments
of interest (including Liquidated Damages, if any) at the rate borne by the
Notes, and, in addition thereto, such further amount as shall be sufficient to
cover the costs and expenses of collection, including reasonable compensation to
the Trustee, its agents, attorneys and counsel, and all other amounts due the
Trustee under Section 8.6. Until such demand by the Trustee, the Company may pay
the principal of and premium, if any, and interest on (including Liquidated
Damages, if any) the Notes to the registered holders, whether or not the Notes
are overdue.
In case the Company shall fail forthwith to pay such amounts
upon such demand, the Trustee, in its own name and as trustee of an express
trust, shall be entitled and empowered to institute any actions or proceedings
at law or in equity for the collection of the sums so due and unpaid, and may
prosecute any such action or proceeding to judgment or final decree, and may
enforce any such judgment or final decree against the Company or any other
obligor on the Notes and collect in the manner provided by law out of the
property of the Company or any other obligor on the Notes wherever situated the
monies adjudged or decreed to be payable.
In case there shall be pending proceedings for the bankruptcy
or for the reorganization of the Company or any other obligor on the Notes under
Title 11 of the United States Code, or any other applicable law, or in case a
receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
sequestrator or similar official shall have been appointed for or taken
possession of the Company or such other obligor, the property of the Company or
such other obligor, or in the case of any other judicial proceedings relative to
the Company or such other obligor upon the Notes, or to the creditors or
property of the Company or such other obligor, the Trustee, irrespective of
whether the principal of the Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand pursuant to the provisions of this Section 7.2, shall
be entitled and empowered, by intervention in such proceedings or otherwise, to
file and prove a claim or
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claims for the whole amount of principal, premium, if any, and interest
(including Liquidated Damages, if any) owing and unpaid in respect of the Notes,
and, in case of any judicial proceedings, to file such proofs of claim and other
papers or documents as may be necessary or advisable in order to have the claims
of the Trustee and of the Noteholders allowed in such judicial proceedings
relative to the Company or any other obligor on the Notes, its or their
creditors, or its or their property, and to collect and receive any monies or
other property payable or deliverable on any such claims, and to distribute the
same after the deduction of any amounts due the Trustee under Section 8.6, and
any receiver, assignee or trustee in bankruptcy or reorganization, liquidator,
custodian or similar official is hereby authorized by each of the Noteholders to
make such payments to the Trustee, and, in the event that the Trustee shall
consent to the making of such payments directly to the Noteholders, to pay to
the Trustee any amount due it for reasonable compensation, expenses, advances
and disbursements, including counsel fees incurred by it up to the date of such
distribution. To the extent that such payment of reasonable compensation,
expenses, advances and disbursements out of the estate in any such proceedings
shall be denied for any reason, payment of the same shall be secured by a lien
on, and shall be paid out of, any and all distributions, dividends, monies,
securities and other property which the holders of the Notes may be entitled to
receive in such proceedings, whether in liquidation or under any plan of
reorganization or arrangement or otherwise.
All rights of action and of asserting claims under this
Indenture, or under any of the Notes, may be enforced by the Trustee without the
possession of any of the Notes, or the production thereof at any trial or other
proceeding relative thereto, and any such suit or proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent and
counsel, be for the ratable benefit of the holders of the Notes.
In any proceedings brought by the Trustee (and in any
proceedings involving the interpretation of any provision of this Indenture to
which the Trustee shall be a party) the Trustee shall be held to represent all
the holders of the Notes, and it shall not be necessary to make any holders of
the Notes parties to any such proceedings.
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Section 7.3 Application of Monies Collected by Trustee. Any
monies collected by the Trustee pursuant to this Article Seven shall be applied
in the order following, at the date or dates fixed by the Trustee for the
distribution of such monies, upon presentation of the several Notes, and
stamping thereon the payment, if only partially paid, and upon surrender
thereof, if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 8.6;
SECOND: Subject to the provisions of Article Four, in case the
principal of the outstanding Notes shall not have become due and be
unpaid, to the payment of interest on (including Liquidated Damages, if
any) the Notes in default in the order of the maturity of the
installments of such interest, with interest (to the extent that such
interest has been collected by the Trustee) upon the overdue
installments of interest (including Liquidated Damages, if any) at the
rate borne by the Notes, such payments to be made ratably to the
Persons entitled thereto;
THIRD: Subject to the provisions of Article Four, in case the
principal of the outstanding Notes shall have become due, by
declaration or otherwise, and be unpaid to the payment of the whole
amount then owing and unpaid upon the Notes for principal and premium,
if any, and interest (including Liquidated Damages, if any), with
interest on the overdue principal and premium, if any, and (to the
extent that such interest has been collected by the Trustee) upon
overdue installments of interest (including Liquidated Damages, if any)
at the rate borne by the Notes, and in case such monies shall be
insufficient to pay in full the whole amounts so due and unpaid upon
the Notes, then to the payment of such principal and premium, if any,
and interest (including Liquidated Damages, if any) without preference
or priority of principal and premium, if any, over interest (including
Liquidated Damages, if any), or of interest (including Liquidated
Damages, if any) over principal and premium, if any, or of any
installment of interest over any other installment of interest, or of
any Note over any other Note, ratably to the aggregate of such
principal and premium, if any, and accrued and unpaid interest; and
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FOURTH: Subject to the provisions of Article Four, to the
payment of the remainder, if any, to the Company or any other Person
lawfully entitled thereto.
Section 7.4 Proceedings by Noteholder. No holder of any Note
shall have any right by virtue of or by reference to any provision of this
Indenture to institute any suit, action or proceeding in equity or at law upon
or under or with respect to this Indenture, or for the appointment of a
receiver, trustee, liquidator, custodian or other similar official, or for any
other remedy hereunder, unless such holder previously shall have given to the
Trustee written notice of an Event of Default and of the continuance thereof, as
hereinbefore provided, and unless also the holders of not less than twenty-five
percent (25%) in aggregate principal amount of the Notes then outstanding shall
have made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee for sixty (60)
days after its receipt of such notice, request and offer of indemnity, shall
have neglected or refused to institute any such action, suit or proceeding and
no direction inconsistent with such written request shall have been given to the
Trustee pursuant to Section 7.7; it being understood and intended, and being
expressly covenanted by the taker and holder of every Note with every other
taker and holder and the Trustee, that no one or more holders of Notes shall
have any right in any manner whatever by virtue of or by reference to any
provision of this Indenture to affect, disturb or prejudice the rights of any
other holder of Notes, or to obtain or seek to obtain priority over or
preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of Notes (except as otherwise provided herein).
For the protection and enforcement of this Section 7.4, each and every
Noteholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.
Notwithstanding any other provision of this Indenture and any
provision of any Note, the right of any holder of any Note to receive payment of
the principal of and premium, if any (including the redemption price upon
redemption pursuant to Article Three), and accrued interest on (including
Liquidated Damages, if any) such Note, on or
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after the respective due dates expressed in such Note or in the event of
redemption, or to institute suit for the enforcement of any such payment on or
after such respective dates against the Company shall not be impaired or
affected without the consent of such holder.
Anything in this Indenture or the Notes to the contrary
notwithstanding, the holder of any Note, without the consent of either the
Trustee or the holder of any other Note, in its own behalf and for its own
benefit, may enforce, and may institute and maintain any proceeding suitable to
enforce, its rights of conversion as provided herein.
Section 7.5 Proceedings by Trustee. In case of an Event of
Default, the Trustee may, in its discretion, proceed to protect and enforce the
rights vested in it by this Indenture by such appropriate judicial proceedings
as are necessary to protect and enforce any of such rights, either by suit in
equity or by action at law or by proceeding in bankruptcy or otherwise, whether
for the specific enforcement of any covenant or agreement contained in this
Indenture or in aid of the exercise of any power granted in this Indenture, or
to enforce any other legal or equitable right vested in the Trustee by this
Indenture or by law.
Section 7.6 Remedies Cumulative and Continuing. Except as
provided in Section 2.6, all powers and remedies given by this Article Seven to
the Trustee or to the Noteholders shall, to the extent permitted by law, be
deemed cumulative and not exclusive of any thereof or of any other powers and
remedies available to the Trustee or the holders of the Notes, by judicial
proceedings or otherwise, to enforce the performance or observance of the
covenants and agreements contained in this Indenture, and no delay or omission
of the Trustee or of any holder of any of the Notes to exercise any right or
power accruing upon any default or Event of Default occurring and continuing as
aforesaid shall impair any such right or power, or shall be construed to be a
waiver of any such default or any acquiescence therein, and, subject to the
provisions of Section 7.4, every power and remedy given by this Article Seven or
by law to the Trustee or to the Noteholders may be exercised from time to time,
and as often as shall be deemed expedient, by the Trustee or by the Noteholders.
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Section 7.7 Direction of Proceedings and Waiver of Defaults by
Majority of Noteholders. The holders of a majority in aggregate principal amount
of the Notes at the time outstanding determined in accordance with Section 9.4
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee; provided, however, that (a) such direction shall
not be in conflict with any rule of law or with this Indenture, (b) the Trustee
may take any other action which is not inconsistent with such direction and (c)
the Trustee may decline to take any action that would benefit some Noteholder to
the detriment of other Noteholders. The holders of a majority in aggregate
principal amount of the Notes at the time outstanding determined in accordance
with Section 9.4 may, on behalf of the holders of all of the Notes, waive any
past default or Event of Default hereunder and its consequences except (i) a
default in the payment of interest (including Liquidated Damages, if any) or
premium, if any, on, or the principal of, the Notes, (ii) a failure by the
Company to convert any Notes into Common Stock, (iii) a default in the payment
of redemption price pursuant to Article Three or (iv) a default in respect of a
covenant or provisions hereof which under Article Eleven cannot be modified or
amended without the consent of the holders of each or all Notes then outstanding
or affected thereby. Upon any such waiver, the Company, the Trustee and the
holders of the Notes shall be restored to their former positions and rights
hereunder; but no such waiver shall extend to any subsequent or other default or
Event of Default or impair any right consequent thereon. Whenever any default or
Event of Default hereunder shall have been waived as permitted by this Section
7.7, said default or Event of Default shall for all purposes of the Notes and
this Indenture be deemed to have been cured and to be not continuing; but no
such waiver shall extend to any subsequent or other default or Event of Default
or impair any right consequent thereon.
Section 7.8 Notice of Defaults. The Trustee shall, within
ninety (90) days after a Responsible Officer of the Trustee has actual knowledge
of the occurrence of a default, mail to all Noteholders, as the names and
addresses of such holders appear upon the Note register, notice of all defaults
actually known to a Responsible Officer, unless such defaults shall have been
cured or waived before the giving of such notice; provided, however, that except
in the case of default in the payment of the principal of, or
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premium, if any, or interest (including Liquidated Damages, if any) on any of
the Notes, the Trustee shall be protected in withholding such notice if and so
long as a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interests of the Noteholders.
Section 7.9 Undertaking to Pay Costs. All parties to this
Indenture agree, and each holder of any Note by his acceptance thereof shall be
deemed to have agreed, that any court may, in its discretion, require, in any
suit for the enforcement of any right or remedy under this Indenture, or in any
suit against the Trustee for any action taken or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees and expenses, against any party litigant in
such suit, having due regard to the merits and good faith of the claims or
defenses made by such party litigant; provided, however, that the provisions of
this Section 7.9 (to the extent permitted by law) shall not apply to any suit
instituted by the Trustee, to any suit instituted by any Noteholder, or group of
Noteholders, holding in the aggregate more than ten percent in principal amount
of the Notes at the time outstanding determined in accordance with Section 9.4,
or to any suit instituted by any Noteholder for the enforcement of the payment
of the principal of or premium, if any, or interest on any Note on or after the
due date expressed in such Note or to any suit for the enforcement of the right
to convert any Note in accordance with the provisions of Article Fifteen.
ARTICLE EIGHT
THE TRUSTEE
Section 8.1 Duties and Responsibilities of Trustee. The
Trustee, prior to the occurrence of an Event of Default and after the curing of
all Events of Default which may have occurred, undertakes to perform such duties
and only such duties as are specifically set forth in this Indenture. In case an
Event of Default has occurred (which has not been cured or waived), the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of his own affairs.
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No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that:
(a) prior to the occurrence of an Event of Default and after
the curing or waiving of all Events of Default which may have occurred:
(1) the duties and obligations of the Trustee shall
be determined solely by the express provisions of this
Indenture and the Trust Indenture Act, and the Trustee shall
not be liable except for the performance of such duties and
obligations as are specifically set forth in this Indenture
and no implied covenants or obligations shall be read into
this Indenture and the Trust Indenture Act against the
Trustee; and
(2) in the absence of bad faith and willful
misconduct on the part of the Trustee, the Trustee may
conclusively rely as to the truth of the statements and the
correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but, in the
case of any such certificates or opinions which by any
provisions hereof are specifically required to be furnished to
the Trustee, the Trustee shall be under a duty to examine the
same to determine whether or not they conform to the
requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer or Officers of the Trustee,
unless the Trustee was negligent in ascertaining the pertinent facts;
(c) the Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
written direction of the holders of not less than a majority in
principal amount of the Notes at the time outstanding determined as
provided in Section 9.4 relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee, under this
Indenture;
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(d) whether or not therein provided, every provision of this
Indenture relating to the conduct or affecting the liability of, or
affording protection to, the Trustee shall be subject to the provisions
of this Section;
(e) the Trustee shall not be liable in respect of any payment
(as to the correctness of amount, entitlement to receive or any other
matters relating to payment) or notice effected by the Company or any
paying agent or any records maintained by any co-registrar with respect
to the Notes; and
(f) if any party fails to deliver a notice relating to an
event the fact of which, pursuant to this Indenture, requires notice to
be sent to the Trustee, the Trustee may conclusively rely on its
failure to receive such notice as reason to act as if no such event
occurred.
None of the provisions contained in this Indenture shall
require the Trustee to expend or risk its own funds or otherwise incur personal
financial liability in the performance of any of its duties or in the exercise
of any of its rights or powers, if there is reasonable ground for believing that
the repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
Section 8.2 Reliance on Documents, Opinions, Etc. Except as
otherwise provided in Section 8.1:
(a) the Trustee may conclusively rely and shall be fully
protected in acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond,
debenture, note, coupon or other paper or document (whether in its
original or facsimile form) believed by it in good faith to be genuine
and to have been signed or presented by the proper party or parties;
(b) any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate (unless other evidence in respect thereof be herein
specifically prescribed); and any resolution of the Board of Directors
may be evidenced to the Trustee by a copy
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thereof certified by the Secretary or an Assistant Secretary of the
Company;
(c) the Trustee may consult with counsel of its own selection
and any advice or Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken or omitted
by it hereunder in good faith and in accordance with such advice or
Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request,
order or direction of any of the Noteholders pursuant to the provisions
of this Indenture, unless such Noteholders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred therein or thereby;
(e) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation,
it shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney at the expense of the
Company and shall incur no liability or additional liability of any
kind by reason of such inquiry or investigation;
(f) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed by it with due care hereunder; and
(g) the rights, privileges, protections, immunities and
benefits given to the Trustee, including, without limitation, its right
to be indemnified, are extended to, and shall be enforceable by, the
Trustee in each of its capacities hereunder, and to each agent,
custodian and other Person employed to act hereunder.
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Section 8.3 No Responsibility for Recitals, Etc. The recitals
contained herein and in the Notes (except in the Trustee's certificate of
authentication) shall be taken as the statements of the Company, and the Trustee
assumes no responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Notes. The Trustee shall not be accountable for the use or application by the
Company of any Notes or the proceeds of any Notes authenticated and delivered by
the Trustee in conformity with the provisions of this Indenture.
Section 8.4 Trustee, Paying Agents, Conversion Agents or
Registrar May Own Notes. The Trustee, any paying agent, any conversion agent or
Note registrar, in its individual or any other capacity, may become the owner or
pledgee of Notes with the same rights it would have if it were not Trustee,
paying agent, conversion agent or Note registrar.
Section 8.5 Monies to be Held in Trust. Subject to the
provisions of Section 13.4 and Section 4.2, all monies received by the Trustee
shall, until used or applied as herein provided, be held in trust for the
purposes for which they were received. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as may be agreed in writing from time to time by
the Company and the Trustee.
Section 8.6 Compensation and Expenses of Trustee. The Company
covenants and agrees to pay to the Trustee from time to time, and the Trustee
shall be entitled to, reasonable compensation for all services rendered by it
hereunder in any capacity (which shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) as mutually agreed
to from time to time in writing between the Company and the Trustee, and the
Company will pay or reimburse the Trustee upon its request for all expenses,
disbursements and advances reasonably incurred or made by the Trustee in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all Persons not regularly in its employ) except any such expense, disbursement
or advance as may arise from its negligence or willful misconduct. The Company
also covenants to fully indemnify the Trustee (or
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any officer, director or employee of the Trustee) and any predecessor Trustee,
in any capacity under this Indenture and its agents and any authenticating agent
for, and to hold them harmless against, any and all loss, liability, claim,
damage or expense (including taxes other than taxes based on the income of the
Trustee) incurred without negligence or willful misconduct on the part of the
Trustee or such officers, directors, employees and agent or authenticating
agent, as the case may be, and arising out of or in connection with the
acceptance or administration of this trust or in any other capacity hereunder,
including the costs and expenses of defending themselves against any claim of
liability in the premises. The obligations of the Company under this Section 8.6
to compensate or indemnify the Trustee and to pay or reimburse the Trustee for
expenses, disbursements and advances shall be secured by a lien prior to that of
the Notes upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the benefit of the holders of particular Notes.
The obligation of the Company under this Section shall survive the resignation
or removal of the Trustee and the satisfaction and discharge of this Indenture.
When the Trustee and its agents and any authenticating agent
incur expenses or render services after an Event of Default specified in Section
7.1(d) or (e) with respect to the Company occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any bankruptcy, insolvency or similar laws.
Section 8.7 Officers' Certificate as Evidence. Except as
otherwise provided in Section 8.1, whenever in the administration of the
provisions of this Indenture the Trustee shall deem it necessary or desirable
that a matter be proved or established prior to taking or omitting any action
hereunder, such matter (unless other evidence in respect thereof be herein
specifically prescribed) may, in the absence of negligence or willful misconduct
on the part of the Trustee, be deemed to be conclusively proved and established
by an Officers' Certificate delivered to the Trustee.
Section 8.8 Conflicting Interests of Trustee. If the Trustee
has or shall acquire a conflicting interest within the meaning of the Trust
Indenture Act, the Trustee shall either eliminate such interest or resign, to
the
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extent and in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and this Indenture.
Section 8.9 Eligibility of Trustee. There shall at all times
be a Trustee hereunder which shall be a Person that is eligible pursuant to the
Trust Indenture Act to act as such and has a combined capital and surplus of at
least $50,000,000 (or if such Person is a member of a bank holding company
system, its bank holding company shall have a combined capital and surplus of at
least $50,000,000). If such Person publishes reports of condition at least
annually, pursuant to law or to the requirements of any supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such Person shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time
the Trustee shall cease to be eligible in accordance with the provisions of this
Section 8.9, it shall resign immediately in the manner and with the effect
hereinafter specified in this Article.
Section 8.10 Resignation or Removal of Trustee.
(a) The Trustee may at any time resign by giving written
notice of such resignation to the Company and to the holders of Notes. Upon
receiving such notice of resignation, the Company shall promptly appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be delivered to the
resigning Trustee and one copy to the successor trustee. If no successor trustee
shall have been so appointed and have accepted appointment sixty (60) days after
the mailing of such notice of resignation to the Noteholders, the resigning
Trustee may, upon ten (10) business days' notice to the Company and the
Noteholders, appoint a successor identified in such notice or may petition, at
the expense of the Company, any court of competent jurisdiction for the
appointment of a successor trustee, or, if any Noteholder who has been a bona
fide holder of a Note or Notes for at least six (6) months may, subject to the
provisions of Section 7.9, on behalf of himself and all others similarly
situated, petition any such court for the appointment of a successor trustee.
Such court may thereupon, after such notice, if any, as it may deem proper and
prescribe, appoint a successor trustee.
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(b) In case at any time any of the following shall occur:
(1) the Trustee shall fail to comply with Section 8.8 after
written request therefor by the Company or by any Noteholder who has
been a bona fide holder of a Note or Notes for at least six (6) months;
or
(2) the Trustee shall cease to be eligible in accordance with
the provisions of Section 8.9 and shall fail to resign after written
request therefor by the Company or by any such Noteholder; or
(3) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of
its property shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation;
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of the
Board of Directors, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee, or, subject to the
provisions of Section 7.9, any Noteholder who has been a bona fide holder of a
Note or Notes for at least six (6) months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor trustee; provided,
however, that if no successor Trustee shall have been appointed and have
accepted appointment sixty (60) days after either the Company or the Noteholders
has removed the Trustee, the Trustee so removed may petition any court of
competent jurisdiction for an appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
remove the Trustee and appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of
the Notes at the time outstanding may at any time remove the Trustee and
nominate a successor trustee which shall be deemed appointed as successor
trustee unless, within ten (10) days after notice to the Company of such
nomination, the Company objects thereto, in which case the Trustee so removed or
any Noteholder, or if such Trustee so
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removed or any Noteholder fails to act, the Company, upon the terms and
conditions and otherwise as in Section 8.10(a) provided, may petition any court
of competent jurisdiction for an appointment of a successor trustee.
(d) Any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to any of the provisions of this Section 8.10
shall become effective upon acceptance of appointment by the successor trustee
as provided in Section 8.11.
Section 8.11 Acceptance by Successor Trustee. Any successor
trustee appointed as provided in Section 8.10 shall execute, acknowledge and
deliver to the Company and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective and such successor trustee, without
any further act, deed or conveyance, shall become vested with all the rights,
powers, duties and obligations of its predecessor hereunder, with like effect as
if originally named as trustee herein; but, nevertheless, on the written request
of the Company or of the successor trustee, the trustee ceasing to act shall,
upon payment of any amount then due it and its agents and counsel pursuant to
the provisions of Section 8.6, execute and deliver an instrument transferring to
such successor trustee all the rights and powers of the trustee so ceasing to
act. Upon request of any such successor trustee, the Company shall execute any
and all instruments in writing for more fully and certainly vesting in and
confirming to such successor trustee all such rights and powers. Any trustee
ceasing to act shall, nevertheless, retain a lien upon all property and funds
held or collected by such trustee as such, except for funds held in trust for
the benefit of holders of particular Notes, to secure any amounts then due it
pursuant to the provisions of Section 8.6.
No successor trustee shall accept appointment as provided in
this Section 8.11 unless, at the time of such acceptance, such successor trustee
shall be qualified under the provisions of Section 8.8 and be eligible under the
provisions of Section 8.9.
Upon acceptance of appointment by a successor trustee as
provided in this Section 8.11, the Company (or the former trustee, at the
expense of and at the written direction of the Company) shall mail or cause to
be mailed notice of the succession of such trustee hereunder to the
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holders of Notes at their addresses as they shall appear on the Note register.
If the Company fails to mail such notice within ten (10) days after acceptance
of appointment by the successor trustee, the successor trustee shall cause such
notice to be mailed at the expense of the Company.
Section 8.12 Succession by Merger, Etc. Any corporation into
which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to all or substantially all of the corporate trust business of the
Trustee (including any trust created by this Indenture), shall be the successor
to the Trustee hereunder without the execution or filing of any paper or any
further act on the part of any of the parties hereto, provided that in the case
of any corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, such corporation shall be qualified under the
provisions of Section 8.8 and eligible under the provisions of Section 8.9.
In case at the time such successor to the Trustee shall
succeed to the trusts created by this Indenture, any of the Notes shall have
been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor trustee or
authenticating agent appointed by such predecessor trustee, and deliver such
Notes so authenticated; and in case at that time any of the Notes shall not have
been authenticated, any successor to the Trustee or any authenticating agent
appointed by such successor trustee may authenticate such Notes in the name of
the successor trustee; and in all such cases such certificates shall have the
full force that is provided in the Notes or in this Indenture; provided,
however, that the right to adopt the certificate of authentication of any
predecessor Trustee or authenticate Notes in the name of any predecessor Trustee
shall apply only to its successor or successors by merger, conversion or
consolidation.
Section 8.13 Preferential Collection of Claims. If and when
the Trustee shall be or become a creditor of the Company (or any other obligor
upon the Notes), the Trustee shall be subject to the provisions of the Trust
Indenture Act regarding the collection of the claims against the Company (or any
such other obligor).
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Section 8.14 Trustee's Application for Instructions from the
Company. Any application by the Trustee for written instructions from the
Company (other than with regard to any action proposed to be taken or omitted to
be taken by the Trustee that affects the rights of the holders of the Notes or
holders of Senior Indebtedness under this Indenture, including, without
limitation, under Article Four hereof) may, at the option of the Trustee, set
forth in writing any action proposed to be taken or omitted by the Trustee under
this Indenture and the date on and/or after which such action shall be taken or
such omission shall be effective. The Trustee shall not be liable for any action
taken by, or omission of, the Trustee in accordance with a proposal included in
such application on or after the date specified in such application (which date
shall not be less than three (3) Business Days after the date any officer of the
Company actually receives such application, unless any such officer shall have
consented in writing to any earlier date) unless prior to taking any such action
(or the effective date in the case of an omission), the Trustee shall have
received written instructions in response to such application specifying the
action to be taken or omitted.
ARTICLE NINE
THE NOTEHOLDERS
Section 9.1 Action by Noteholders. Whenever in this Indenture
it is provided that the holders of a specified percentage in aggregate principal
amount of the Notes may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any other
action), the fact that at the time of taking any such action, the holders of
such specified percentage have joined therein may be evidenced (a) by any
instrument or any number of instruments of similar tenor executed by Noteholders
in person or by agent or proxy appointed in writing, or (b) by the record of the
holders of Notes voting in favor thereof at any meeting of Noteholders duly
called and held in accordance with the provisions of Article Ten, or (c) by a
combination of such instrument or instruments and any such record of such a
meeting of Noteholders. Whenever the Company or the Trustee solicits the taking
of any action by the holders of the Notes, the Company or the Trustee may fix in
advance of such solicitation, a date as the record date for determining holders
entitled to take such action. The record date shall
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be not more than fifteen (15) days prior to the date of commencement of
solicitation of such action.
Section 9.2 Proof of Execution by Noteholders. Subject to the
provisions of Sections 8.1, 8.2 and 10.5, proof of the execution of any
instrument by a Noteholder or its agent or proxy shall be sufficient if made in
accordance with such reasonable rules and regulations as may be prescribed by
the Trustee or in such manner as shall be satisfactory to the Trustee. The
holding of Notes shall be proved by the registry of such Notes or by a
certificate of the Note registrar.
The record of any Noteholders' meeting shall be proved in the
manner provided in Section 10.6.
Section 9.3 Who Are Deemed Absolute Owners. The Company, the
Trustee, any paying agent, any conversion agent and any Note registrar may deem
the Person in whose name such Note shall be registered upon the Note register to
be, and may treat it as, the absolute owner of such Note (whether or not such
Note shall be overdue and notwithstanding any notation of ownership or other
writing thereon made by any Person other than the Company or any Note registrar)
for the purpose of receiving payment of or on account of the principal of,
premium, if any, and interest on such Note, for conversion of such Note and for
all other purposes; and neither the Company nor the Trustee nor any paying agent
nor any conversion agent nor any Note registrar shall be affected by any notice
to the contrary. All such payments so made to any holder for the time being, or
upon his order, shall be valid, and, to the extent of the sum or sums so paid,
effectual to satisfy and discharge the liability for monies payable upon any
such Note.
Section 9.4 Company-Owned Notes Disregarded. In determining
whether the holders of the requisite aggregate principal amount of Notes have
concurred in any direction, consent, waiver or other action under this
Indenture, Notes which are owned by the Company or any other obligor on the
Notes or any Affiliate of the Company or any other obligor on the Notes shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination; provided, however, that, for the purposes of determining whether
the Trustee shall be protected in relying on any such direction, consent, waiver
or other action, only Notes which a Responsible Officer knows are so owned shall
be so disregarded. Notes so owned which have been pledged in good
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faith may be regarded as outstanding for the purposes of this Section 9.4 if the
pledgee shall establish to the satisfaction of the Trustee the pledgee's right
to vote such Notes and that the pledgee is not the Company, any other obligor on
the Notes or any Affiliate of the Company or any such other obligor. In the case
of a dispute as to such right, any decision by the Trustee taken upon the advice
of counsel shall be full protection to the Trustee. Upon request of the Trustee,
the Company shall furnish to the Trustee promptly an Officers' Certificate
listing and identifying all Notes, if any, known by the Company to be owned or
held by or for the account of any of the above described Persons, and, subject
to Section 8.1, the Trustee shall be entitled to accept such Officers'
Certificate as conclusive evidence of the facts therein set forth and of the
fact that all Notes not listed therein are outstanding for the purpose of any
such determination.
Section 9.5 Revocation of Consents; Future Holders Bound. At
any time prior to (but not after) the evidencing to the Trustee, as provided in
Section 9.1, of the taking of any action by the holders of the percentage in
aggregate principal amount of the Notes specified in this Indenture in
connection with such action, any holder of a Note which is shown by the evidence
to be included in the Notes the holders of which have consented to such action
may, by filing written notice with the Trustee at its Corporate Trust Office and
upon proof of holding as provided in Section 9.2, revoke such action so far as
concerns such Note. Except as aforesaid, any such action taken by the holder of
any Note shall be conclusive and binding upon such holder and upon all future
holders and owners of such Note and of any Notes issued in exchange or
substitution therefor, irrespective of whether any notation in regard thereto is
made upon such Note or any Note issued in exchange or substitution therefor.
ARTICLE TEN
MEETINGS OF NOTEHOLDERS
Section 10.1 Purpose of Meetings. A meeting of Noteholders may
be called at any time and from time to time pursuant to the provisions of this
Article Ten for any of the following purposes:
(1) to give any notice to the Company or to the Trustee or to
give any directions to the Trustee
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permitted under this Indenture, or to consent to the waiving of any
default or Event of Default hereunder and its consequences, or to take
any other action authorized to be taken by Noteholders pursuant to any
of the provisions of Article Seven;
(2) to remove the Trustee and nominate a successor trustee
pursuant to the provisions of Article Eight;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 11.2; or
(4) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of
the Notes under any other provision of this Indenture or under
applicable law.
Section 10.2 Call of Meetings by Trustee. The Trustee may at
any time call a meeting of Noteholders to take any action specified in Section
10.1, to be held at such time and at such place as the Trustee shall determine.
Notice of every meeting of the Noteholders, setting forth the time and the place
of such meeting and in general terms the action proposed to be taken at such
meeting and the establishment of any record date pursuant to Section 9.1, shall
be mailed to holders of Notes at their addresses as they shall appear on the
Note register. Such notice shall also be mailed to the Company. Such notices
shall be mailed not less than twenty (20) nor more than ninety (90) days prior
to the date fixed for the meeting.
Any meeting of Noteholders shall be valid without notice if
the holders of all Notes then outstanding are present in person or by proxy or
if notice is waived before or after the meeting by the holders of all Notes
outstanding, and if the Company and the Trustee are either present by duly
authorized representatives or have, before or after the meeting, waived notice.
Section 10.3 Call of Meetings by Company or Noteholders. In
case at any time the Company, pursuant to a resolution of its Board of
Directors, or the holders of at least ten percent (10%) in aggregate principal
amount of the Notes then outstanding, shall have requested the Trustee to call a
meeting of Noteholders, by written request setting forth in reasonable detail
the action proposed to be taken
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at the meeting, and the Trustee shall not have mailed the notice of such meeting
within twenty (20) days after receipt of such request, then the Company or such
Noteholders may determine the time and the place for such meeting and may call
such meeting to take any action authorized in Section 10.1, by mailing notice
thereof as provided in Section 10.2.
Section 10.4 Qualifications for Voting. To be entitled to vote
at any meeting of Noteholders a person shall (a) be a holder of one or more
Notes on the record date pertaining to such meeting or (b) be a person appointed
by an instrument in writing as proxy by a holder of one or more Notes on the
record date pertaining to such meeting. The only persons who shall be entitled
to be present or to speak at any meeting of Noteholders shall be the persons
entitled to vote at such meeting and their counsel and any representatives of
the Trustee and its counsel and any representatives of the Company and its
counsel.
Section 10.5 Regulations. Notwithstanding any other provisions
of this Indenture, the Trustee may make such reasonable regulations as it may
deem advisable for any meeting of Noteholders, in regard to proof of the holding
of Notes and of the appointment of proxies, and in regard to the appointment and
duties of inspectors of votes, the submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think fit.
The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been called by
the Company or by Noteholders as provided in Section 10.3, in which case the
Company or the Noteholders calling the meeting, as the case may be, shall in
like manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the holders of a majority
in principal amount of the Notes represented at the meeting and entitled to vote
at the meeting.
Subject to the provisions of Section 9.4, at any meeting each
Noteholder or proxyholder shall be entitled to one vote for each $1,000
principal amount of Notes held or represented by him; provided, however, that no
vote shall be cast or counted at any meeting in respect of any Note challenged
as not outstanding and ruled by the chairman of the meeting to be not
outstanding. The chairman of the meeting shall have no right to vote other than
by virtue of
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Notes held by him or instruments in writing as aforesaid duly designating him as
the proxy to vote on behalf of other Noteholders. Any meeting of Noteholders
duly called pursuant to the provisions of Section 10.2 or 10.3 may be adjourned
from time to time by the holders of a majority of the aggregate principal amount
of Notes represented at the meeting, whether or not constituting a quorum, and
the meeting may be held as so adjourned without further notice.
Section 10.6 Voting. The vote upon any resolution submitted to
any meeting of Noteholders shall be by written ballot on which shall be
subscribed the signatures of the holders of Notes or of their representatives by
proxy and the outstanding principal amount of the Notes held or represented by
them. The permanent chairman of the meeting shall appoint two inspectors of
votes who shall count all votes cast at the meeting for or against any
resolution and who shall make and file with the secretary of the meeting their
verified written reports in duplicate of all votes cast at the meeting. A record
in duplicate of the proceedings of each meeting of Noteholders shall be prepared
by the secretary of the meeting and there shall be attached to said record the
original reports of the inspectors of votes on any vote by ballot taken thereat
and affidavits by one or more persons having knowledge of the facts setting
forth a copy of the notice of the meeting and showing that said notice was
mailed as provided in Section 10.2. The record shall show the principal amount
of the Notes voting in favor of or against any resolution. The record shall be
signed and verified by the affidavits of the permanent chairman and secretary of
the meeting and one of the duplicates shall be delivered to the Company and the
other to the Trustee to be preserved by the Trustee, the latter to have attached
thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
Section 10.7 No Delay of Rights by Meeting. Nothing contained
in this Article Ten shall be deemed or construed to authorize or permit, by
reason of any call of a meeting of Noteholders or any rights expressly or
impliedly conferred hereunder to make such call, any hindrance or delay in the
exercise of any right or rights conferred upon or reserved to the Trustee or to
the Noteholders under any of the provisions of this Indenture or of the Notes.
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ARTICLE ELEVEN
SUPPLEMENTAL INDENTURES
Section 11.1 Supplemental Indentures Without Consent of
Noteholders. The Company, when authorized by the resolutions of the Board of
Directors, and the Trustee may, from time to time, and at any time enter into an
indenture or indentures supplemental hereto for one or more of the following
purposes:
(a) to make provision with respect to the conversion rights of
the holders of Notes pursuant to the requirements of Section 15.6 and
the redemption obligations of the Company pursuant to the requirements
of Section 3.5(e);
(b) subject to Article Four, to convey, transfer, assign,
mortgage or pledge to the Trustee as security for the Notes, any
property or assets;
(c) to evidence the succession of another Person to the
Company, or successive successions, and the assumption by the successor
Person of the covenants, agreements and obligations of the Company
pursuant to Article Twelve;
(d) to add to the covenants of the Company such further
covenants, restrictions or conditions as the Board of Directors and the
Trustee shall consider to be for the benefit of the holders of Notes,
and to make the occurrence, or the occurrence and continuance, of a
default in any such additional covenants, restrictions or conditions a
default or an Event of Default permitting the enforcement of all or any
of the several remedies provided in this Indenture as herein set forth;
provided, however, that in respect of any such additional covenant,
restriction or condition, such supplemental indenture may provide for a
particular period of grace after default (which period may be shorter
or longer than that allowed in the case of other defaults) or may
provide for an immediate enforcement upon such default or may limit the
remedies available to the Trustee upon such default;
(e) to provide for the issuance under this Indenture of Notes
in coupon form (including Notes registrable as to principal only) and
to provide for
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exchangeability of such Notes with the Notes issued hereunder in fully
registered form and to make all appropriate changes for such purpose;
(f) to cure any ambiguity or to correct or supplement any
provision contained herein or in any supplemental indenture that may be
defective or inconsistent with any other provision contained herein or
in any supplemental indenture, or to make such other provisions in
regard to matters or questions arising under this Indenture that shall
not materially adversely affect the interests of the holders of the
Notes;
(g) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Notes; or
(h) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the
qualifications of this Indenture under the Trust Indenture Act, or
under any similar federal statute hereafter enacted.
Upon the written request of the Company, accompanied by a copy
of the resolutions of the Board of Directors certified by its Secretary or
Assistant Secretary authorizing the execution of any supplemental indenture, the
Trustee is hereby authorized to join with the Company in the execution of any
such supplemental indenture, to make any further appropriate agreements and
stipulations that may be therein contained and to accept the conveyance,
transfer and assignment of any property thereunder, but the Trustee shall not be
obligated to, but may in its discretion, enter into any supplemental indenture
that affects the Trustee's own rights, duties or immunities under this Indenture
or otherwise.
Any supplemental indenture authorized by the provisions of
this Section 11.1 may be executed by the Company and the Trustee without the
consent of the holders of any of the Notes at the time outstanding,
notwithstanding any of the provisions of Section 11.2.
Notwithstanding any other provision of the Indenture or the
Notes, the Registration Rights Agreement and the obligation to pay Liquidated
Damages thereunder may
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be amended, modified or waived in accordance with the provisions of the
Registration Rights Agreement.
Section 11.2 Supplemental Indenture with Consent of
Noteholders. With the consent (evidenced as provided in Article Nine) of the
holders of not less than a majority in aggregate principal amount of the Notes
at the time outstanding, the Company, when authorized by the resolutions of the
Board of Directors, and the Trustee may, from time to time and at any time,
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or any supplemental indenture or of modifying in
any manner the rights of the holders of the Notes; provided, however, that no
such supplemental indenture shall (i) extend the fixed maturity of any Note, or
reduce the rate or extend the time of payment of interest thereon, or reduce the
principal amount thereof or premium, if any, thereon, or reduce any amount
payable on redemption thereof, or impair the right of any Noteholder to
institute suit for the payment thereof, or make the principal thereof or
interest or premium, if any, thereon payable in any coin or currency other than
that provided in the Notes, or modify the provisions of this Indenture with
respect to the subordination of the Notes in a manner adverse to the Noteholders
in any material respect, or change the obligation of the Company to redeem any
Note upon the happening of a Fundamental Change in a manner adverse to the
holder of Notes, or impair the right to convert the Notes into Common Stock
subject to the terms set forth herein, including Section 15.6, in each case,
without the consent of the holder of each Note so affected, or (ii) reduce the
aforesaid percentage of Notes, the holders of which are required to consent to
any such supplemental indenture, without the consent of the holders of all Notes
then outstanding.
Upon the written request of the Company, accompanied by a copy
of the resolutions of the Board of Directors certified by its Secretary or
Assistant Secretary and authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the consent of
Noteholders as aforesaid, the Trustee shall join with the Company in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may
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in its discretion, but shall not be obligated to, enter into such supplemental
indenture.
It shall not be necessary for the consent of the Noteholders
under this Section 11.2 to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent shall approve
the substance thereof.
Section 11.3 Effect of Supplemental Indenture. Any
supplemental indenture executed pursuant to the provisions of this Article
Eleven shall comply with the Trust Indenture Act, as then in effect, provided
that this Section 11.3 shall not require such supplemental indenture or the
Trustee to be qualified under the Trust Indenture Act prior to the time such
qualification is in fact required under the terms of the Trust Indenture Act or
the Indenture has been qualified under the Trust Indenture Act, nor shall it
constitute any admission or acknowledgment by any party to such supplemental
indenture that any such qualification is required prior to the time such
qualification is in fact required under the terms of the Trust Indenture Act or
the Indenture has been qualified under the Trust Indenture Act. Upon the
execution of any supplemental indenture pursuant to the provisions of this
Article Eleven, this Indenture shall be and be deemed to be modified and amended
in accordance therewith and the respective rights, limitation of rights,
obligations, duties and immunities under this Indenture of the Trustee, the
Company and the holders of Notes shall thereafter be determined, exercised and
enforced hereunder, subject in all respects to such modifications and amendments
and all the terms and conditions of any such supplemental indenture shall be and
be deemed to be part of the terms and conditions of this Indenture for any and
all purposes.
Section 11.4 Notation on Notes. Notes authenticated and
delivered after the execution of any supplemental indenture pursuant to the
provisions of this Article Eleven may bear a notation in form approved by the
Trustee as to any matter provided for in such supplemental indenture. If the
Company or the Trustee shall so determine, new Notes so modified as to conform,
in the opinion of the Trustee and the Board of Directors, to any modification of
this Indenture contained in any such supplemental indenture may, at the
Company's expense, be prepared and executed by the Company, authenticated by the
Trustee (or an authenticating agent duly appointed by the Trustee pursuant to
Section 16.11) and delivered in exchange
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for the Notes then outstanding, upon surrender of such Notes then outstanding.
Section 11.5 Evidence of Compliance of Supplemental Indenture
to be Furnished to Trustee. Prior to entering into any supplemental indenture,
the Trustee may request an Officers' Certificate and an Opinion of Counsel
meeting the requirements set forth in Section 16.5 as conclusive evidence that
any supplemental indenture executed pursuant hereto complies with the
requirements of this Article Eleven.
ARTICLE TWELVE
CONSOLIDATION, MERGER, SALE, CONVEYANCE AND LEASE
Section 12.1 Company May Consolidate, Etc., on Certain Terms.
Subject to the provisions of Section 12.2, nothing contained in this Indenture
or in any of the Notes shall prevent any consolidation or merger of the Company
with or into any other Person or Persons (whether or not affiliated with the
Company), or successive consolidations or mergers in which the Company or its
successor or successors shall be a party or parties, or shall prevent any sale,
conveyance or lease (or successive sales, conveyances or leases) of all or
substantially all of the property of the Company, to any other Person (whether
or not affiliated with the Company), authorized to acquire and operate the same
and that shall be organized under the laws of the United States of America, any
state thereof or the District of Columbia; provided, however, that upon any such
consolidation, merger, sale, conveyance or lease, the due and punctual payment
of the principal of and premium, if any, and interest (including Liquidated
Damages, if any) on all of the Notes, according to their tenor and the due and
punctual performance and observance of all of the covenants and conditions of
this Indenture to be performed by the Company, shall be expressly assumed, by
supplemental indenture satisfactory in form to the Trustee, executed and
delivered to the Trustee by the Person (if other than the Company) formed by
such consolidation, or into which the Company shall have been merged, or by the
Person that shall have acquired or leased such property, and such supplemental
indenture shall provide for the applicable conversion rights set forth in
Section 15.6.
Section 12.2 Successor Corporation to be Substituted. In case
of any such consolidation, merger,
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sale, conveyance or lease and upon the assumption by the successor Person, by
supplemental indenture, executed and delivered to the Trustee and satisfactory
in form to the Trustee, of the due and punctual payment of the principal of and
premium, if any, and interest on all of the Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Company, such successor Person shall succeed to and be
substituted for the Company, with the same effect as if it had been named herein
as the party of this first part. Such successor Person thereupon may cause to be
signed, and may issue either in its own name or in the name of Conexant Systems,
Inc. any or all of the Notes, issuable hereunder that theretofore shall not have
been signed by the Company and delivered to the Trustee; and, upon the order of
such successor Person instead of the Company and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall deliver, or cause to be authenticated and delivered, any
Notes that previously shall have been signed and delivered by the officers of
the Company to the Trustee for authentication, and any Notes that such successor
Person thereafter shall cause to be signed and delivered to the Trustee for that
purpose. All the Notes so issued shall in all respects have the same legal rank
and benefit under this Indenture as the Notes theretofore or thereafter issued
in accordance with the terms of this Indenture as though all of such Notes had
been issued at the date of the execution hereof. In the event of any such
consolidation, merger, sale, conveyance or lease, the Person named as the
"Company" in the first paragraph of this Indenture or any successor that shall
thereafter have become such in the manner prescribed in this Article Twelve may
be dissolved, wound up and liquidated at any time thereafter and such Person
shall be released from its liabilities as obligor and maker of the Notes and
from its obligations under this Indenture.
In case of any such consolidation, merger, sale, conveyance or
lease, such changes in phraseology and form (but not in substance) may be made
in the Notes thereafter to be issued as may be appropriate.
Section 12.3 Opinion of Counsel to be Given Trustee. The
Trustee shall receive an Officers' Certificate and an Opinion of Counsel as
conclusive evidence that any such consolidation, merger, sale, conveyance or
lease and any such assumption complies with the provisions of this Article
Twelve.
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ARTICLE THIRTEEN
SATISFACTION AND DISCHARGE OF INDENTURE
Section 13.1 Discharge of Indenture. When (a) the Company
shall deliver to the Trustee for cancellation all Notes theretofore
authenticated (other than any Notes that have been destroyed, lost or stolen and
in lieu of or in substitution for which other Notes shall have been
authenticated and delivered) and not theretofore canceled, or (b) all the Notes
not theretofore canceled or delivered to the Trustee for cancellation shall have
become due and payable, or are by their terms to become due and payable within
one year or are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption, and the
Company shall deposit with the Trustee, in trust, funds sufficient to pay at
maturity or upon redemption of all of the Notes (other than any Notes that shall
have been mutilated, destroyed, lost or stolen and in lieu of or in substitution
for which other Notes shall have been authenticated and delivered) not
theretofore canceled or delivered to the Trustee for cancellation, including
principal and premium, if any, and interest due or to become due to such date of
maturity or redemption date, as the case may be, accompanied by a verification
report, as to the sufficiency of the deposited amount, from an independent
certified accountant or other financial professional satisfactory to the
Trustee, and if the Company shall also pay or cause to be paid all other sums
payable hereunder by the Company, then this Indenture shall cease to be of
further effect (except as to (i) remaining rights of registration of transfer,
substitution and exchange and conversion of Notes, (ii) rights hereunder of
Noteholders to receive payments of principal of and premium, if any, and
interest on, the Notes and the other rights, duties and obligations of
Noteholders, as beneficiaries hereof with respect to the amounts, if any, so
deposited with the Trustee and (iii) the rights, obligations and immunities of
the Trustee hereunder), and the Trustee, on written demand of the Company
accompanied by an Officers' Certificate and an Opinion of Counsel as required by
Section 16.5 and at the cost and expense of the Company, shall execute proper
instruments acknowledging satisfaction of and discharging this Indenture; the
Company, however, hereby agrees to reimburse the Trustee for any costs or
expenses thereafter reasonably and properly incurred by the Trustee and to
compensate the Trustee for any services thereafter
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reasonably and properly rendered by the Trustee in connection with this
Indenture or the Notes.
Section 13.2 Deposited Monies to be Held in Trust by Trustee.
Subject to Section 13.4, all monies deposited with the Trustee pursuant to
Section 13.1, provided such deposit was not in violation of Article Four, shall
be held in trust for the sole benefit of the Noteholders and not to be subject
to the subordination provisions of Article Four, and such monies shall be
applied by the Trustee to the payment, either directly or through any paying
agent (including the Company if acting as its own paying agent), to the holders
of the particular Notes for the payment or redemption of which such monies have
been deposited with the Trustee, of all sums due and to become due thereon for
principal and interest and premium, if any.
Section 13.3 Paying Agent to Repay Monies Held. Upon the
satisfaction and discharge of this Indenture, all monies then held by any paying
agent of the Notes (other than the Trustee) shall, upon written request of the
Company, be repaid to it or paid to the Trustee, and thereupon such paying agent
shall be released from all further liability with respect to such monies.
Section 13.4 Return of Unclaimed Monies. Subject to the
requirements of applicable law, any monies deposited with or paid to the Trustee
for payment of the principal of, premium, if any, or interest on Notes and not
applied but remaining unclaimed by the holders of Notes for two years after the
date upon which the principal of, premium, if any, or interest on such Notes, as
the case may be, shall have become due and payable, shall be repaid to the
Company by the Trustee on demand and all liability of the Trustee shall
thereupon cease with respect to such monies; and the holder of any of the Notes
shall thereafter look only to the Company for any payment that such holder may
be entitled to collect unless an applicable abandoned property law designates
another Person.
Section 13.5 Reinstatement. If the Trustee or the paying agent
is unable to apply any money in accordance with Section 13.2 by reason of any
order or judgment of any court or governmental authority enjoining, restraining
or otherwise prohibiting such application, the Company's obligations under this
Indenture and the Notes shall be revived and reinstated as though no deposit had
occurred pursuant to Section 13.1 until such time as the Trustee or
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the paying agent is permitted to apply all such money in accordance with Section
13.2; provided, however, that if the Company makes any payment of interest on or
principal of any Note following the reinstatement of its obligations, the
Company shall be subrogated to the rights of the holders of such Notes to
receive such payment from the money held by the Trustee or paying agent.
ARTICLE FOURTEEN
IMMUNITY OF INCORPORATORS,
STOCKHOLDERS, OFFICERS AND DIRECTORS
Section 14.1 Indenture and Notes Solely Corporate Obligations.
No recourse for the payment of the principal of or premium, if any, or interest
on any Note, or for any claim based thereon or otherwise in respect thereof, and
no recourse under or upon any obligation, covenant or agreement of the Company
in this Indenture or in any supplemental indenture or in any Note, or because of
the creation of any indebtedness represented thereby, shall be had against any
incorporator, stockholder, employee, agent, officer, director or subsidiary, as
such, past, present or future, of the Company or of any successor corporation,
either directly or through the Company or any successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly understood that all such
liability is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Indenture and the issue of the Notes.
ARTICLE FIFTEEN
CONVERSION OF NOTES
Section 15.1 Right to Convert. Subject to and upon compliance
with the provisions of this Indenture, including, without limitation, Article
Four, the holder of any Note shall have the right, at its option, at any time
after the original issuance of the Notes hereunder through the close of business
on the final maturity date of the Notes (except that, with respect to any Note
or portion of a Note that shall be called for redemption, such right shall
terminate, except as provided in Section 15.2, Section 3.2 or Section 3.4, at
the close of business on the Business Day next preceding the date fixed for
redemption of such Note or portion of a Note unless the Company shall default in
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payment due upon redemption thereof) to convert the principal amount of any such
Note, or any portion of such principal amount which is $1,000 or an integral
multiple thereof, into that number of fully paid and non-assessable shares of
Common Stock (as such shares shall then be constituted) obtained by dividing the
principal amount of the Note or portion thereof surrendered for conversion by
the Conversion Price in effect at such time, by surrender of the Note so to be
converted in whole or in part in the manner provided, together with any required
funds, in Section 15.2. A Note in respect of which a holder is exercising its
option to require redemption upon a Fundamental Change pursuant to Section 3.5
may be converted only if such holder withdraws its election to exercise in
accordance with Section 3.5. A holder of Notes is not entitled to any rights of
a holder of Common Stock until such holder has converted his Notes to Common
Stock, and only to the extent such Notes are deemed to have been converted to
Common Stock under this Article Fifteen.
Section 15.2 Exercise of Conversion Privilege; Issuance of
Common Stock on Conversion; No Adjustment for Interest or Dividends. In order to
exercise the conversion privilege with respect to any Note in certificated form,
the holder of any such Note to be converted in whole or in part shall surrender
such Note, duly endorsed, at an office or agency maintained by the Company
pursuant to Section 5.2, accompanied by the funds, if any, required by the
penultimate paragraph of this Section 15.2, and shall give written notice of
conversion in the form provided on the Notes (or such other notice which is
acceptable to the Company) to the office or agency that the holder elects to
convert such Note or the portion thereof specified in said notice. Such notice
shall also state the name or names (with address or addresses) in which the
certificate or certificates for shares of Common Stock which shall be issuable
on such conversion shall be issued, and shall be accompanied by transfer taxes,
if required pursuant to Section 15.7. Each such Note surrendered for conversion
shall, unless the shares issuable on conversion are to be issued in the same
name as the registration of such Note, be duly endorsed by, or be accompanied by
instruments of transfer in form satisfactory to the Company duly executed by,
the holder or his duly authorized attorney.
In order to exercise the conversion privilege with respect to
any interest in a Note in global form, the beneficial holder must complete, or
cause to be completed,
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the appropriate instruction form for conversion pursuant to the Depository's
book-entry conversion program, deliver, or cause to be delivered, by book-entry
delivery an interest in such Note in global form, furnish appropriate
endorsements and transfer documents if required by the Company or the Trustee or
conversion agent, and pay the funds, if any, required by this Section 15.2 and
any transfer taxes if required pursuant to Section 15.7.
As promptly as practicable after satisfaction of the
requirements for conversion set forth above, subject to compliance with any
restrictions on transfer if shares issuable on conversion are to be issued in a
name other than that of the Noteholder (as if such transfer were a transfer of
the Note or Notes (or portion thereof) so converted), the Company shall issue
and shall deliver to such Noteholder at the office or agency maintained by the
Company for such purpose pursuant to Section 5.2, a certificate or certificates
for the number of full shares of Common Stock issuable upon the conversion of
such Note or portion thereof as determined by the Company in accordance with the
provisions of this Article Fifteen and a check or cash in respect of any
fractional interest in respect of a share of Common Stock arising upon such
conversion, calculated by the Company as provided in Section 15.3. In case any
Note of a denomination greater than $1,000 shall be surrendered for partial
conversion, and subject to Section 2.3, the Company shall execute and the
Trustee shall authenticate and deliver to the holder of the Note so surrendered,
without charge to him, a new Note or Notes in authorized denominations in an
aggregate principal amount equal to the unconverted portion of the surrendered
Note.
Each conversion shall be deemed to have been effected as to
any such Note (or portion thereof) on the date on which the requirements set
forth above in this Section 15.2 have been satisfied as to such Note (or portion
thereof), and the Person in whose name any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become on said date the holder of record of the shares represented thereby;
provided, however, that any such surrender on any date when the stock transfer
books of the Company shall be closed shall constitute the Person in whose name
the certificates are to be issued as the record holder thereof for all purposes
on the next succeeding day on which such stock transfer books are open, but such
conversion shall be at the
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Conversion Price in effect on the date upon which such Note shall be
surrendered.
No adjustment in respect of interest on any Note converted or
dividends on any shares issued upon conversion of such Note will be made upon
any conversion except as set forth in the next sentence. If this Note (or
portion hereof) is surrendered for conversion during the period from the close
of business on any record date for the payment of interest to the close of
business on the Business Day preceding the following interest payment date and
either (x) has not been called for redemption on a redemption date that occurs
during such period or (y) is not to be redeemed in connection with a Fundamental
Change on a Repurchase Date that occurs during such period, this Note (or
portion hereof being converted) must be accompanied by an amount, in New York
Clearing House funds or other funds acceptable to the Company, equal to the
interest payable on such interest payment date on the principal amount being
converted; provided, however, that no such payment shall be required if there
shall exist at the time of conversion a default in the payment of interest on
the Notes.
Upon the conversion of an interest in a Note in global form,
the Trustee (or other conversion agent appointed by the Company), or the
Custodian at the direction of the Trustee (or other conversion agent appointed
by the Company), shall make a notation on such Note in global form as to the
reduction in the principal amount represented thereby. The Company shall notify
the Trustee in writing of any conversions of Notes effected through any
conversion agent other than the Trustee.
Section 15.3 Cash Payments in Lieu of Fractional Shares. No
fractional shares of Common Stock or scrip representing fractional shares shall
be issued upon conversion of Notes. If more than one Note shall be surrendered
for conversion at one time by the same holder, the number of full shares that
shall be issuable upon conversion shall be computed on the basis of the
aggregate principal amount of the Notes (or specified portions thereof to the
extent permitted thereby) so surrendered. If any fractional share of stock would
be issuable upon the conversion of any Note or Notes, the Company shall make an
adjustment and payment therefor in cash at the current market price thereof to
the holder of Notes. The current market price of a share of Common Stock shall
be the Closing Price on the last Business Day immediately preceding the day
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on which the Notes (or specified portions thereof) are deemed to have been
converted.
Section 15.4 Conversion Price. The conversion price shall be
as specified in the form of Note (herein called the "Conversion Price") attached
as Exhibit A hereto, subject to adjustment as provided in this Article Fifteen.
Section 15.5 Adjustment of Conversion Price. The Conversion
Price shall be adjusted from time to time by the Company as follows:
(a) In case the Company shall hereafter pay a dividend or make
a distribution to all holders of the outstanding Common Stock in shares
of Common Stock, the Conversion Price shall be reduced so that the same
shall equal the price determined by multiplying the Conversion Price in
effect at the opening of business on the date following the date fixed
for the determination of stockholders entitled to receive such dividend
or other distribution by a fraction, the numerator of which shall be
the number of shares of the Common Stock outstanding at the close of
business on the date fixed for such determination, and the denominator
of which shall be the sum of such number of shares and the total number
of shares constituting such dividend or other distribution, such
reduction to become effective immediately after the opening of business
on the day following the date fixed for such determination. For the
purpose of this paragraph (a), the number of shares of Common Stock at
any time outstanding shall not include shares held in the treasury of
the Company. The Company will not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the
Company. If any dividend or distribution of the type described in this
Section 15.5(a) is declared but not so paid or made, the Conversion
Price shall again be adjusted to the Conversion Price that would then
be in effect if such dividend or distribution had not been declared.
(b) In case the Company shall issue rights or warrants to all
holders of its outstanding shares of Common Stock entitling them (for a
period expiring within forty-five (45) days after the date fixed for
determination of stockholders entitled to receive such rights or
warrants) to subscribe for or purchase shares of Common Stock at a
price per share less than the
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Current Market Price (as defined below) on the date fixed for
determination of stockholders entitled to receive such rights or
warrants, the Conversion Price shall be adjusted so that the same shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to the date fixed for determination of
stockholders entitled to receive such rights or warrants by a fraction,
the numerator of which shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for
determination of stockholders entitled to receive such rights or
warrants plus the number of shares that the aggregate offering price of
the total number of shares so offered would purchase at such Current
Market Price, and the denominator of which shall be the number of
shares of Common Stock outstanding on the date fixed for determination
of stockholders entitled to receive such rights or warrants plus the
total number of additional shares of Common Stock offered for
subscription or purchase. Such adjustment shall be successively made
whenever any such rights or warrants are issued, and shall become
effective immediately after the opening of business on the day
following the date fixed for determination of stockholders entitled to
receive such rights or warrants. To the extent that shares of Common
Stock are not delivered after the expiration of such rights or
warrants, the Conversion Price shall be readjusted to the Conversion
Price that would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made on the basis of delivery
of only the number of shares of Common Stock actually delivered. In the
event that such rights or warrants are not so issued, the Conversion
Price shall again be adjusted to be the Conversion Price that would
then be in effect if such date fixed for the determination of
stockholders entitled to receive such rights or warrants had not been
fixed. In determining whether any rights or warrants entitle the
holders to subscribe for or purchase shares of Common Stock at less
than such Current Market Price, and in determining the aggregate
offering price of such shares of Common Stock, there shall be taken
into account any consideration received by the Company for such rights
or warrants and any amount payable on exercise or conversion thereof,
the value of such consideration, if other than cash, to be determined
by the Board of Directors.
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(c) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall
be proportionately reduced, and conversely, in case outstanding shares
of Common Stock shall be combined into a smaller number of shares of
Common Stock, the Conversion Price in effect at the opening of business
on the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after the
opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(d) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock shares of any class of
capital stock of the Company (other than any dividends or distributions
to which Section 15.5(a) applies) or evidences of its indebtedness or
assets (including securities, but excluding any rights or warrants
referred to in Section 15.5(b), and excluding any dividend or
distribution (x) paid exclusively in cash or (y) referred to in Section
15.5(a) (any of the foregoing hereinafter in this Section 15.5(d)
called the "Securities")), then, in each such case (unless the Company
elects to reserve such Securities for distribution to the Noteholders
upon the conversion of the Notes so that any such holder converting
Notes will receive upon such conversion, in addition to the shares of
Common Stock to which such holder is entitled, the amount and kind of
such Securities which such holder would have received if such holder
had converted its Notes into Common Stock immediately prior to the
Record Date (as defined in Section 15.5(h)(4) for such distribution of
the Securities)), the Conversion Price shall be reduced so that the
same shall be equal to the price determined by multiplying the
Conversion Price in effect on the Record Date with respect to such
distribution by a fraction, the numerator of which shall be the Current
Market Price per share of the Common Stock on such Record Date less the
fair market value (as determined by the Board of Directors, whose
determination shall be conclusive, and described in a resolution of the
Board of Directors) on the Record Date of the portion of the Securities
so distributed applicable to one share of
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Common Stock and the denominator of which shall be the Current Market
Price per share of the Common Stock, such reduction to become effective
immediately prior to the opening of business on the day following such
Record Date; provided, however, that in the event the then fair market
value (as so determined) of the portion of the Securities so
distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price of the Common Stock on the Record
Date, in lieu of the foregoing adjustment, adequate provision shall be
made so that each Noteholder shall have the right to receive upon
conversion the amount of Securities such holder would have received had
such holder converted each Note on the Record Date. In the event that
such dividend or distribution is not so paid or made, the Conversion
Price shall again be adjusted to be the Conversion Price that would
then be in effect if such dividend or distribution had not been
declared. If the Board of Directors determines the fair market value of
any distribution for purposes of this Section 15.5(d) by reference to
the actual or when issued trading market for any securities, it must in
doing so consider the prices in such market over the same period used
in computing the Current Market Price of the Common Stock.
Rights or warrants distributed by the Company to all holders
of Common Stock entitling the holders thereof to subscribe for or
purchase shares of the Company's capital stock (either initially or
under certain circumstances), which rights or warrants, until the
occurrence of a specified event or events ("Trigger Event"): (i) are
deemed to be transferred with such shares of Common Stock; (ii) are not
exercisable; and (iii) are also issued in respect of future issuances
of Common Stock, shall be deemed not to have been distributed for
purposes of this Section 15.5 (and no adjustment to the Conversion
Price under this Section 15.5 will be required) until the occurrence of
the earliest Trigger Event, whereupon such rights and warrants shall be
deemed to have been distributed and an appropriate adjustment (if any
is required) to the Conversion Price shall be made under this Section
15.5(d). If any such right or warrant, including any such existing
rights or warrants distributed prior to the date of this Indenture, are
subject to events, upon the occurrence of which such rights or warrants
become exercisable to purchase different securities, evidences
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of indebtedness or other assets, then the date of the occurrence of any
and each such event shall be deemed to be the date of distribution and
record date with respect to new rights or warrants with such rights
(and a termination or expiration of the existing rights or warrants
without exercise by any of the holders thereof). In addition, in the
event of any distribution (or deemed distribution) of rights or
warrants, or any Trigger Event or other event (of the type described in
the preceding sentence) with respect thereto that was counted for
purposes of calculating a distribution amount for which an adjustment
to the Conversion Price under this Section 15.5 was made, (1) in the
case of any such rights or warrants that shall all have been redeemed
or repurchased without exercise by any holders thereof, the Conversion
Price shall be readjusted upon such final redemption or repurchase to
give effect to such distribution or Trigger Event, as the case may be,
as though it were a cash distribution, equal to the per share
redemption or repurchase price received by a holder or holders of
Common Stock with respect to such rights or warrants (assuming such
holder had retained such rights or warrants), made to all holders of
Common Stock as of the date of such redemption or repurchase, and (2)
in the case of such rights or warrants that shall have expired or been
terminated without exercise by any holders thereof, the Conversion
Price shall be readjusted as if such rights and warrants had not been
issued.
No adjustment of the Conversion Price shall be made pursuant
to this Section 15.5(d) in respect of rights or warrants distributed or
deemed distributed on any Trigger Event to the extent that such rights
or warrants are actually distributed, or reserved by the Company for
distribution to holders of Notes upon conversion by such holders of
Notes to Common Stock.
For purposes of this Section 15.5(d) and Sections 15.5(a) and
(b), any dividend or distribution to which this Section 15.5(d) is
applicable that also includes shares of Common Stock, or rights or
warrants to subscribe for or purchase shares of Common Stock (or both),
shall be deemed instead to be (1) a dividend or distribution of the
evidences of indebtedness, assets or shares of capital stock other than
such shares of Common Stock or rights or warrants (and any Conversion
Price reduction required by this Section 15.5(d) with
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respect to such dividend or distribution shall then be made)
immediately followed by (2) a dividend or distribution of such shares
of Common Stock or such rights or warrants (and any further Conversion
Price reduction required by Sections 15.5(a) and (b) with respect to
such dividend or distribution shall then be made), except (A) the
Record Date of such dividend or distribution shall be substituted as
"the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution", "the date fixed for the
determination of stockholders entitled to receive such rights or
warrants" and "the date fixed for such determination" within the
meaning of Sections 15.5(a) and (b), and (B) any shares of Common Stock
included in such dividend or distribution shall not be deemed
"outstanding at the close of business on the date fixed for such
determination" within the meaning of Section 15.5(a).
(e) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock cash (excluding (x) any
quarterly cash dividend on the Common Stock to the extent the aggregate
cash dividend per share of Common Stock in any fiscal quarter does not
exceed the greater of (A) the amount per share of Common Stock of the
next preceding quarterly cash dividend on the Common Stock to the
extent that such preceding quarterly dividend did not require any
adjustment of the Conversion Price pursuant to this Section 15.5(e) (as
adjusted to reflect subdivisions, or combinations of the Common Stock),
and (B) 3.75% of the arithmetic average of the Closing Price
(determined as set forth in Section 15.5(h)) during the ten Trading
Days (as defined in Section 15.5(h)) immediately prior to the date of
declaration of such dividend, and (y) any dividend or distribution in
connection with the liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary), then, in such case, the
Conversion Price shall be reduced so that the same shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior to the close of business on such record date by a
fraction, the numerator of which shall be the Current Market Price of
the Common Stock on the record date less the amount of cash so
distributed (and not excluded as provided above) applicable to one
share of Common Stock, and the denominator of which shall be such
Current Market Price
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of the Common Stock, such reduction to be effective immediately prior
to the opening of business on the day following the record date;
provided, however, that in the event the portion of the cash so
distributed applicable to one share of Common Stock is equal to or
greater than the Current Market Price of the Common Stock on the record
date, in lieu of the foregoing adjustment, adequate provision shall be
made so that each Noteholder shall have the right to receive upon
conversion the amount of cash such holder would have received had such
holder converted each Note on the record date. In the event that such
dividend or distribution is not so paid or made, the Conversion Price
shall again be adjusted to be the Conversion Price that would then be
in effect if such dividend or distribution had not been declared. If
any adjustment is required to be made as set forth in this Section
15.5(e) as a result of a distribution that is a quarterly dividend,
such adjustment shall be based upon the amount by which such
distribution exceeds the amount of the quarterly cash dividend
permitted to be excluded pursuant hereto. If an adjustment is required
to be made as set forth in this Section 15.5(e) above as a result of a
distribution that is not a quarterly dividend, such adjustment shall be
based upon the full amount of the distribution.
(f) In case a tender or exchange offer made by the Company or
any Subsidiary for all or any portion of the Common Stock shall expire
and such tender or exchange offer (as amended upon the expiration
thereof) shall require the payment to stockholders of consideration per
share of Common Stock having a fair market value (as determined by the
Board of Directors, whose determination shall be conclusive and
described in a resolution of the Board of Directors) that as of the
last time (the "Expiration Time") tenders or exchanges may be made
pursuant to such tender or exchange offer (as it may be amended)
exceeds the Current Market Price of the Common Stock on the Trading Day
next succeeding the Expiration Time, the Conversion Price shall be
reduced so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the
Expiration Time by a fraction the numerator of which shall be the
number of shares of Common Stock outstanding (including any tendered or
exchanged shares) at the Expiration Time multiplied by the Current
Market Price of the Common
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Stock on the Trading Day next succeeding the Expiration Time and the
denominator of which shall be the sum of (x) the fair market value
(determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in
the terms of the tender or exchange offer) of all shares validly
tendered or exchanged and not withdrawn as of the Expiration Time (the
shares deemed so accepted, up to any such maximum, being referred to as
the "Purchased Shares") and (y) the product of the number of shares of
Common Stock outstanding (less any Purchased Shares) at the Expiration
Time and the Current Market Price of the Common Stock on the Trading
Day next succeeding the Expiration Time, such reduction to become
effective immediately prior to the opening of business on the Trading
Day following the Expiration Time. In the event that the Company is
obligated to purchase shares pursuant to any such tender or exchange
offer, but the Company is permanently prevented by applicable law from
effecting any such purchases or all such purchases are rescinded, the
Conversion Price shall again be adjusted to be the Conversion Price
that would then be in effect if such tender or exchange offer had not
been made.
(g) In case of a tender or exchange offer made by a Person
other than the Company or any Subsidiary for an amount that increases
the offeror's ownership of Common Stock to more than twenty-five
percent (25%) of the Common Stock outstanding and shall involve the
payment by such Person of consideration per share of Common Stock
having a fair market value (as determined by the Board of Directors,
whose determination shall be conclusive, and described in a resolution
of the Board of Directors) that as of the last time (the "Offer
Expiration Time") tenders or exchanges may be made pursuant to such
tender or exchange offer (as it shall have been amended) that exceeds
the Current Market Price of the Common Stock on the Trading Day next
succeeding the Offer Expiration Time, and in which, as of the Offer
Expiration Time the Board of Directors is not recommending rejection of
the offer, the Conversion Price shall be reduced so that the same shall
equal the price determined by multiplying the Conversion Price in
effect immediately prior to the Offer Expiration Time by a fraction the
numerator of which shall be the number of shares of Common Stock
outstanding (including any tendered or exchanged shares) at the Offer
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Expiration Time multiplied by the Current Market Price of the Common
Stock on the Trading Day next succeeding the Offer Expiration Time and
the denominator of which shall be the sum of (x) the fair market value
(determined as aforesaid) of the aggregate consideration payable to
stockholders based on the acceptance (up to any maximum specified in
the terms of the tender or exchange offer) of all shares validly
tendered or exchanged and not withdrawn as of the Offer Expiration Time
(the shares deemed so accepted, up to any such maximum, being referred
to as the "Accepted Purchased Shares") and (y) the product of the
number of shares of Common Stock outstanding (less any Accepted
Purchased Shares) at the Offer Expiration Time and the Current Market
Price of the Common Stock on the Trading Day next succeeding the Offer
Expiration Time, such reduction to become effective immediately prior
to the opening of business on the Trading Day following the Offer
Expiration Time. In the event that such Person is obligated to purchase
shares pursuant to any such tender or exchange offer, but such Person
is permanently prevented by applicable law from effecting any such
purchases or all such purchases are rescinded, the Conversion Price
shall again be adjusted to be the Conversion Price that would then be
in effect if such tender or exchange offer had not been made.
Notwithstanding the foregoing, the adjustment described in this Section
15.5(g) shall not be made if, as of the Offer Expiration Time, the
offering documents with respect to such offer disclose a plan or
intention to cause the Company to engage in any transaction described
in Article Twelve.
(h) For purposes of this Section 15.5, the following terms
shall have the meaning indicated:
(1) "Closing Price" with respect to any security on
any day shall mean the closing sale price, regular way, on
such day or, in case no such sale takes place on such day, the
average of the reported closing bid and asked prices, regular
way, in each case as quoted on the Nasdaq National Market or,
if such security is not quoted or listed or admitted to
trading on such Nasdaq National Market, on the principal
national securities exchange or quotation system on which such
security is quoted or listed or admitted to trading or, if not
quoted or listed or admitted to
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trading on any national securities exchange or quotation
system, the average of the closing bid and asked prices of
such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau
Incorporated, or a similar generally accepted reporting
service, or if not so available, in such manner as furnished
by any New York Stock Exchange member firm selected from time
to time by the Board of Directors for that purpose, or a price
determined in good faith by the Board of Directors or, to the
extent permitted by applicable law, a duly authorized
committee thereof, whose determination shall be conclusive.
(2) "Current Market Price" shall mean the average of
the daily Closing Prices per share of Common Stock for the ten
consecutive Trading Days immediately prior to the date in
question except as hereinafter provided for purposes of any
computation under Section 15.5(f) or (g); provided, however,
that (1) if the "ex" date (as hereinafter defined) for any
event (other than the issuance or distribution requiring such
computation and other than the tender or exchange offer
requiring such computation under Section 15.5(f) or (g)) that
requires an adjustment to the Conversion Price pursuant to
Section 15.5(a), (b), (c), (d), (e), (f) or (g) occurs during
such ten consecutive Trading Days, the Closing Price for each
Trading Day prior to the "ex" date for such other event shall
be adjusted by multiplying such Closing Price by the same
fraction by which the Conversion Price is so required to be
adjusted as a result of such other event, (2) if the "ex" date
for any event (other than the issuance or distribution
requiring such computation and other than the tender or
exchange offer requiring such computation under Section
15.5(f) or (g)) that requires an adjustment to the Conversion
Price pursuant to Section 15.5(a), (b), (c), (d), (e), (f) or
(g) occurs on or after the "ex" date for the issuance or
distribution requiring such computation and prior to the day
in question, the Closing Price for each Trading Day on and
after the "ex" date for such other event shall be adjusted by
multiplying such Closing Price by the reciprocal of the
fraction by which the Conversion
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Price is so required to be adjusted as a result of such other
event, and (3) if the "ex" date for the issuance or
distribution requiring such computation is prior to the day in
question, after taking into account any adjustment required
pursuant to clause (1) or (2) of this proviso, the Closing
Price for each Trading Day on or after such "ex" date shall be
adjusted by adding thereto the amount of any cash and the fair
market value (as determined by the Board of Directors or, to
the extent permitted by applicable law, a duly authorized
committee thereof in a manner consistent with any
determination of such value for purposes of Section 15.5(d),
(f) or (g), whose determination shall be conclusive and
described in a resolution of the Board of Directors or such
duly authorized committee thereof, as the case may be) of the
evidences of indebtedness, shares of capital stock or assets
being distributed applicable to one share of Common Stock as
of the close of business on the day before such "ex" date. For
purposes of any computation under Section 15.5(f) or (g), the
"Current Market Price" of the Common Stock on any date shall
be deemed to be the average of the daily Closing Prices per
share of Common Stock for such day and the next two succeeding
Trading Days; provided, however, that if the "ex" date for any
event (other than the tender or exchange offer requiring such
computation under Section 15.5(f) or (g)) that requires an
adjustment to the Conversion Price pursuant to Section
15.5(a), (b), (c), (d), (e), (f) or (g) occurs on or after the
Expiration Time or Offer Expiration Time, as the case may be,
for the tender or exchange offer requiring such computation
and prior to the day in question, the Closing Price for each
Trading Day on and after the "ex" date for such other event
shall be adjusted as provided in clauses (1), (2) and (3) of
the proviso contained in the first sentence of this Section
15.5(h)(2). For purpose of this paragraph, the term "ex" date,
(1) when used with respect to any issuance or distribution,
means the first date on which the Common Stock trades, regular
way, on the relevant exchange or in the relevant market from
which the Closing Price was obtained without the right to
receive such issuance or distribution, (2) when used with
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respect to any subdivision or combination of shares of Common
Stock, means the first date on which the Common Stock trades,
regular way, on such exchange or in such market after the time
at which such subdivision or combination becomes effective,
and (3) when used with respect to any tender or exchange offer
means the first date on which the Common Stock trades, regular
way, on such exchange or in such market after the Expiration
Time or the Offer Expiration Time of such offer.
(3) "fair market value" shall mean the amount which a
willing buyer would pay a willing seller in an arm's-length
transaction.
(4) "Record Date" shall mean, with respect to any
dividend, distribution or other transaction or event in which
the holders of Common Stock have the right to receive any
cash, securities or other property or in which the Common
Stock (or other applicable security) is exchanged for or
converted into any combination of cash, securities or other
property, the date fixed for determination of stockholders
entitled to receive such cash, securities or other property
(whether such date is fixed by the Board of Directors or by
statute, contract or otherwise).
(5) "Trading Day" shall mean (x) if the applicable
security is quoted on the Nasdaq National Market, a day on
which trades may be made thereon or (y) if the applicable
security is listed or admitted for trading on the New York
Stock Exchange or another national securities exchange, a day
on which the New York Stock Exchange or another national
securities exchange is open for business or (z) if the
applicable security is not so listed, admitted for trading or
quoted, any day other than a Saturday or Sunday or a day on
which banking institutions in the State of New York are
authorized or obligated by law or executive order to close.
(i) The Company may make such reductions in the Conversion
Price, in addition to those required by Sections 15.5(a), (b), (c),
(d), (e), (f) or (g) as the Board of Directors considers to be
advisable to avoid
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or diminish any income tax to holders of Common Stock or rights to
purchase Common Stock resulting from any dividend or distribution of
stock (or rights to acquire stock) or from any event treated as such
for income tax purposes.
To the extent permitted by applicable law, the Company from
time to time may reduce the Conversion Price by any amount for any
period of time if the period is at least twenty (20) days, the
reduction is irrevocable during the period and the Board of Directors
shall have made a determination that such reduction would be in the
best interests of the Company, which determination shall be conclusive.
Whenever the Conversion Price is reduced pursuant to the preceding
sentence, the Company shall mail to holders of record of the Notes a
notice of the reduction at least fifteen (15) days prior to the date
the reduced Conversion Price takes effect, and such notice shall state
the reduced Conversion Price and the period during which it will be in
effect.
(j) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least one percent (1%) in such price; provided, however, that any
adjustments that by reason of this Section 15.5(j) are not required to
be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Article Fifteen
shall be made by the Company and shall be made to the nearest cent or
to the nearest one-hundredth (1/100) of a share, as the case may be. No
adjustment need be made for rights to purchase Common Stock pursuant to
a Company plan for reinvestment of dividends or interest. To the extent
the Notes become convertible into cash, assets, property or securities
(other than capital stock of the Company), no adjustment need be made
thereafter as to the cash, assets, property or such securities.
Interest will not accrue on the cash.
(k) Whenever the Conversion Price is adjusted as herein
provided, the Company shall promptly file with the Trustee and any
conversion agent other than the Trustee an Officers' Certificate
setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. Unless
and until a Responsible Officer of
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the Trustee shall have received such Officers' Certificate, the Trustee
shall not be deemed to have knowledge of any adjustment of the
Conversion Price and may assume without inquiry that the last
Conversion Price of which it has knowledge is still in effect. Promptly
after delivery of such certificate, the Company shall prepare a notice
of such adjustment of the Conversion Price setting forth the adjusted
Conversion Price and the date on which each adjustment becomes
effective and shall mail such notice of such adjustment of the
Conversion Price to the holder of each Note at his last address
appearing on the Note register provided for in Section 2.5 of this
Indenture, within twenty (20) days after execution thereof. Failure to
deliver such notice shall not affect the legality or validity of any
such adjustment.
(l) In any case in which this Section 15.5 provides that an
adjustment shall become effective immediately after (1) a record date
or Record Date for an event, (2) the date fixed for the determination
of stockholders entitled to receive a dividend or distribution pursuant
to Section 15.5(a), (3) a date fixed for the determination of
stockholders entitled to receive rights or warrants pursuant to Section
15.5(b), (4) the Expiration Time for any tender or exchange offer
pursuant to Section 15.5(f), or (5) the Offer Expiration Time for a
tender or exchange offer pursuant to Section 15.5(g) (each a
"Determination Date"), the Company may elect to defer until the
occurrence of the relevant Adjustment Event (as hereinafter defined)
(x) issuing to the holder of any Note converted after such
Determination Date and before the occurrence of such Adjustment Event,
the additional shares of Common Stock or other securities issuable upon
such conversion by reason of the adjustment required by such Adjustment
Event over and above the Common Stock issuable upon such conversion
before giving effect to such adjustment and (y) paying to such holder
any amount in cash in lieu of any fraction pursuant to Section 15.3.
For purposes of this Section 15.5(l), the term "Adjustment Event" shall
mean:
(a) in any case referred to in clause (1) hereof, the
occurrence of such event,
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(b) in any case referred to in clause (2) hereof, the
date any such dividend or distribution is paid or made,
(c) in any case referred to in clause (3) hereof, the
date of expiration of such rights or warrants, and
(d) in any case referred to in clause (4) or clause
(5) hereof, the date a sale or exchange of Common Stock
pursuant to such tender or exchange offer is consummated and
becomes irrevocable.
(m) For purposes of this Section 15.5, the number of shares of
Common Stock at any time outstanding shall not include shares held in
the treasury of the Company but shall include shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of
Common Stock. The Company will not pay any dividend or make any
distribution on shares of Common Stock held in the treasury of the
Company.
Section 15.6 Effect of Reclassification, Consolidation, Merger
or Sale. If any of the following events occur, namely (i) any reclassification
or change of the outstanding shares of Common Stock (other than a subdivision or
combination to which Section 15.5(c) applies), (ii) any consolidation, merger or
combination of the Company with another Person as a result of which holders of
Common Stock shall be entitled to receive stock, other securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock, or (iii) any sale or conveyance of all or substantially all of the
properties and assets of the Company to any other Person as a result of which
holders of Common Stock shall be entitled to receive stock, other securities or
other property or assets (including cash) with respect to or in exchange for
such Common Stock, then the Company or the successor or purchasing Person, as
the case may be, shall execute with the Trustee a supplemental indenture (which
shall comply with the Trust Indenture Act as in force at the date of execution
of such supplemental indenture) providing that such Note shall be convertible
into the kind and amount of shares of stock, other securities or other property
or assets (including cash) receivable upon such reclassification, change,
consolidation, merger, combination, sale or conveyance by a holder of a number
of shares of Common Stock issuable upon conversion of such
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Notes (assuming, for such purposes, a sufficient number of authorized shares of
Common Stock are available to convert all such Notes) immediately prior to such
reclassification, change, consolidation, merger, combination, sale or conveyance
assuming such holder of Common Stock did not exercise his rights of election, if
any, as to the kind or amount of stock, other securities or other property or
assets (including cash) receivable upon such reclassification, change,
consolidation, merger, combination, sale or conveyance (provided that, if the
kind or amount of stock, other securities or other property or assets (including
cash) receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance is not the same for each share of Common Stock
in respect of which such rights of election shall not have been exercised
("non-electing share"), then for the purposes of this Section 15.6 the kind and
amount of stock, other securities or other property or assets (including cash)
receivable upon such reclassification, change, consolidation, merger,
combination, sale or conveyance for each non-electing share shall be deemed to
be the kind and amount so receivable per share by a plurality of the
non-electing shares). Such supplemental indenture shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article Fifteen.
The Company shall cause notice of the execution of such
supplemental indenture to be mailed to each holder of Notes, at its address
appearing on the Note register provided for in Section 2.5 of this Indenture,
within twenty (20) days after execution thereof. Failure to deliver such notice
shall not affect the legality or validity of such supplemental indenture.
The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers, combinations,
sales and conveyances.
If this Section 15.6 applies to any event or occurrence,
Section 15.5 shall not apply.
Section 15.7 Taxes on Shares Issued. The issue of stock
certificates on conversions of Notes shall be made without charge to the
converting Noteholder for any tax in respect of the issue thereof. The Company
shall not, however, be required to pay any tax which may be payable in
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respect of any transfer involved in the issue and delivery of stock in any name
other than that of the holder of any Note converted, and the Company shall not
be required to issue or deliver any such stock certificate unless and until the
Person or Persons requesting the issue thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
Section 15.8 Reservation of Shares; Shares to be Fully Paid;
Compliance with Governmental Requirements; Listing of Common Stock. The Company
shall provide, free from preemptive rights, out of its authorized but unissued
shares or shares held in treasury, sufficient shares of Common Stock to provide
for the conversion of the Notes from time to time as such Notes are presented
for conversion.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value, if any, of the shares of
Common Stock issuable upon conversion of the Notes, the Company will take all
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue shares of such Common Stock at
such adjusted Conversion Price.
The Company covenants that all shares of Common Stock which
may be issued upon conversion of Notes will upon issue be fully paid and
non-assessable by the Company and free from all taxes, liens and charges with
respect to the issue thereof.
The Company covenants that, if any shares of Common Stock to
be provided for the purpose of conversion of Notes hereunder require
registration with or approval of any governmental authority under any federal or
state law before such shares may be validly issued upon conversion, the Company
will in good faith and as expeditiously as possible, to the extent then
permitted by the rules and interpretations of the Securities and Exchange
Commission (or any successor thereto), endeavor to secure such registration or
approval, as the case may be.
The Company further covenants that, if at any time the Common
Stock shall be listed on the Nasdaq National Market or any other national
securities exchange or automated quotation system, the Company will, if
permitted by the rules of such exchange or automated quotation system,
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list and keep listed, so long as the Common Stock shall be so listed on
such exchange or automated quotation system, all Common Stock issuable upon
conversion of the Note; provided, however, that, if the rules of such exchange
or automated quotation system permit the Company to defer the listing of such
Common Stock until the first conversion of the Notes into Common Stock in
accordance with the provisions of this Indenture, the Company covenants to list
such Common Stock issuable upon conversion of the Notes in accordance with the
requirements of such exchange or automated quotation system at such time.
Section 15.9 Responsibility of Trustee. The Trustee and any
other conversion agent shall not at any time be under any duty or responsibility
to any holder of Notes to determine the Conversion Price or whether any facts
exist which may require any adjustment of the Conversion Price, or with respect
to the nature or extent or calculation of any such adjustment when made, or with
respect to the method employed, or herein or in any supplemental indenture
provided to be employed, in making the same. The Trustee and any other
conversion agent shall not be accountable with respect to the validity or value
(or the kind or amount) of any shares of Common Stock, or of any securities or
property, which may at any time be issued or delivered upon the conversion of
any Note; and the Trustee and any other conversion agent make no representations
with respect thereto. Neither the Trustee nor any conversion agent shall be
responsible for any failure of the Company to issue, transfer or deliver any
shares of Common Stock or stock certificates or other securities or property or
cash upon the surrender of any Note for the purpose of conversion or to comply
with any of the duties, responsibilities or covenants of the Company contained
in this Article Fifteen. Without limiting the generality of the foregoing,
neither the Trustee nor any conversion agent shall be under any responsibility
to determine the correctness of any provisions contained in any supplemental
indenture entered into pursuant to Section 15.6 relating either to the kind or
amount of shares of stock or securities or property (including cash) receivable
by Noteholders upon the conversion of their Notes after any event referred to in
such Section 15.6 or to any adjustment to be made with respect thereto, but,
subject to the provisions of Section 8.1, may accept as conclusive evidence of
the correctness of any such provisions, and shall be protected in relying upon,
the Officers' Certificate (which the Company shall be
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obligated to file with the Trustee prior to the execution of any such
supplemental indenture) with respect thereto.
Section 15.10 Notice to Holders Prior to Certain Actions. In
case:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock that would require an adjustment in the
Conversion Price pursuant to Section 15.5; or
(b) the Company shall authorize the granting to the holders of
all or substantially all of its Common Stock of rights or warrants to subscribe
for or purchase any share of any class or any other rights or warrants; or
(c) of any reclassification or reorganization of the Common
Stock of the Company (other than a subdivision or combination of its outstanding
Common Stock, or a change in par value, or from par value to no par value, or
from no par value to par value), or of any consolidation or merger to which the
Company is a party and for which approval of any stockholders of the Company is
required, or of the sale or transfer of all or substantially all of the assets
of the Company or any Significant Subsidiary; or
(d) of the voluntary or involuntary dissolution, liquidation
or winding up of the Company or any Significant Subsidiary;
the Company shall cause to be filed with the Trustee and to be mailed to each
holder of Notes at his address appearing on the Note register provided for in
Section 2.5 of this Indenture, as promptly as possible but in any event at least
ten (10) days prior to the applicable date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution or rights or warrants, or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become effective or occur,
and the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, sale,
transfer, dissolution,
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liquidation or winding up. Failure to give such notice, or any defect therein,
shall not affect the legality or validity of such dividend, distribution,
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding up.
ARTICLE SIXTEEN
MISCELLANEOUS PROVISIONS
Section 16.1 Provisions Binding on Company's Successors. All
the covenants, stipulations, promises and agreements by the Company contained in
this Indenture shall bind its successors and assigns whether so expressed or
not.
Section 16.2 Official Acts by Successor Corporation. Any act
or proceeding by any provision of this Indenture authorized or required to be
done or performed by any board, committee or officer of the Company shall and
may be done and performed with like force and effect by the like board,
committee or officer of any Person that shall at the time be the lawful sole
successor of the Company.
Section 16.3 Addresses for Notices, Etc. Any notice or demand
which by any provision of this Indenture is required or permitted to be given or
served by the Trustee or by the holders of Notes on the Company shall be deemed
to have been sufficiently given or made, for all purposes, if given or served by
being deposited postage prepaid by registered or certified mail in a post office
letter box addressed (until another address is filed by the Company with the
Trustee) to Conexant Systems, Inc., 4311 Jamboree Road, Newport Beach,
California 92660-3095, Attention: Treasurer. Any notice, direction, request or
demand hereunder to or upon the Trustee shall be deemed to have been
sufficiently given or made, for all purposes, if given or served by being
deposited, postage prepaid, by registered or certified mail in a post office
letter box addressed to the Corporate Trust Office, which office is, at the date
as of which this Indenture is dated, located at One First National Plaza, Suite
0126, Chicago, Illinois 60670-0126, Attention: Corporate Trust Administration
(Conexant Systems, Inc. 4-1/4% Convertible Subordinated Notes due 2006).
The Trustee, by notice to the Company, may designate
additional or different addresses for subsequent notices or communications.
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Any notice or communication mailed to a Noteholder shall be
mailed to him by first class mail, postage prepaid, at his address as it appears
on the Note register and shall be sufficiently given to him if so mailed within
the time prescribed.
Failure to mail a notice or communication to a Noteholder or
any defect in it shall not affect its sufficiency with respect to other
Noteholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
Section 16.4 Governing Law. This Indenture and each Note shall
be deemed to be a contract made under the laws of the State of New York, and for
all purposes shall be construed in accordance with the laws of the State of New
York, without regard, to the extent permitted by law, to the conflict of laws
provisions thereof.
Section 16.5 Evidence of Compliance with Conditions Precedent;
Certificates to Trustee. Upon any application or demand by the Company to the
Trustee to take any action under any of the provisions of this Indenture, the
Company shall furnish to the Trustee an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action have been complied with, and an Opinion of Counsel stating that,
in the opinion of such counsel, all such conditions precedent have been complied
with.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include: (1) a statement that the person
making such certificate or opinion has read such covenant or condition; (2) a
brief statement as to the nature and scope of the examination or investigation
upon which the statement or opinion contained in such certificate or opinion is
based; (3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and (4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Section 16.6 Legal Holidays. In any case in which the date of
maturity of interest on or principal of
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the Notes or the date fixed for redemption of any Note will not be a Business
Day, then payment of such interest on or principal of the Notes need not be made
on such date, but may be made on the next succeeding Business Day with the same
force and effect as if made on the date of maturity or the date fixed for
redemption, and no interest shall accrue for the period from and after such
date.
Section 16.7 Trust Indenture Act. This Indenture is hereby
made subject to, and shall be governed by, the provisions of the Trust Indenture
Act required to be part of and to govern indentures qualified under the Trust
Indenture Act; provided, however, that, unless otherwise required by law,
notwithstanding the foregoing, this Indenture and the Notes issued hereunder
shall not be subject to the provisions of subsections (a)(1), (a)(2), and (a)(3)
of Section 314 of the Trust Indenture Act as now in effect or as hereafter
amended or modified; provided further that this Section 16.7 shall not require
this Indenture or the Trustee to be qualified under the Trust Indenture Act
prior to the time such qualification is in fact required under the terms of the
Trust Indenture Act, nor shall it constitute any admission or acknowledgment by
any party to the Indenture that any such qualification is required prior to the
time such qualification is in fact required under the terms of the Trust
Indenture Act. If any provision hereof limits, qualifies or conflicts with
another provision hereof which is required to be included in an indenture
qualified under the Trust Indenture Act, such required provision shall control.
Section 16.8 No Security Interest Created. Nothing in this
Indenture or in the Notes, expressed or implied, shall be construed to
constitute a security interest under the Uniform Commercial Code or similar
legislation, as now or hereafter enacted and in effect, in any jurisdiction in
which property of the Company or its subsidiaries is located.
Section 16.9 Benefits of Indenture. Nothing in this Indenture
or in the Notes, express or implied, shall give to any Person, other than the
parties hereto, any paying agent, any authenticating agent, any Note registrar
and their successors hereunder, the holders of Notes and the holders of Senior
Indebtedness, any benefit or any legal or equitable right, remedy or claim under
this Indenture.
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Section 16.10 Table of Contents, Headings, Etc. The table of
contents and the titles and headings of the articles and sections of this
Indenture have been inserted for convenience of reference only, are not to be
considered a part hereof, and shall in no way modify or restrict any of the
terms or provisions hereof.
Section 16.11 Authenticating Agent. The Trustee may appoint an
authenticating agent that shall be authorized to act on its behalf, and subject
to its direction, in the authentication and delivery of Notes in connection with
the original issuance thereof and transfers and exchanges of Notes hereunder,
including under Sections 2.4, 2.5, 2.6, 2.7, 3.3 and 3.5, as fully to all
intents and purposes as though the authenticating agent had been expressly
authorized by this Indenture and those Sections to authenticate and deliver
Notes. For all purposes of this Indenture, the authentication and delivery of
Notes by the authenticating agent shall be deemed to be authentication and
delivery of such Notes "by the Trustee" and a certificate of authentication
executed on behalf of the Trustee by an authenticating agent shall be deemed to
satisfy any requirement hereunder or in the Notes for the Trustee's certificate
of authentication. Such authenticating agent shall at all times be a Person
eligible to serve as trustee hereunder pursuant to Section 8.9.
Any corporation into which any authenticating agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, consolidation or conversion to which any
authenticating agent shall be a party, or any corporation succeeding to the
corporate trust business of any authenticating agent, shall be the successor of
the authenticating agent hereunder, if such successor corporation is otherwise
eligible under this Section 16.11, without the execution or filing of any paper
or any further act on the part of the parties hereto or the authenticating agent
or such successor corporation.
Any authenticating agent may at any time resign by giving
written notice of resignation to the Trustee and to the Company. The Trustee may
at any time terminate the agency of any authenticating agent by giving written
notice of termination to such authenticating agent and to the Company. Upon
receiving such a notice of resignation or upon such a termination, or in case at
any time any authenticating agent shall cease to be eligible under this Section,
the Trustee shall either promptly appoint a
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<PAGE> 123
successor authenticating agent or itself assume the duties and obligations of
the former authenticating agent under this Indenture and, upon such appointment
of a successor authenticating agent, if made, shall give written notice of such
appointment of a successor authenticating agent to the Company and shall mail
notice of such appointment of a successor authenticating agent to all holders of
Notes as the names and addresses of such holders appear on the Note register.
The Company agrees to pay to the authenticating agent from
time to time such reasonable compensation for its services as shall be agreed
upon in writing between the Company and the authenticating agent.
The provisions of Sections 8.2, 8.3, 8.4, 9.3 and this Section
16.11 shall be applicable to any authenticating agent.
Section 16.12 Execution in Counterparts. This Indenture may be
executed in any number of counterparts, each of which shall be an original, but
such counterparts shall together constitute but one and the same instrument.
Section 16.13 Severability. In case any provision in this
Indenture or in the Notes shall be invalid, illegal or unenforceable, then (to
the extent permitted by law) the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
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<PAGE> 124
The First National Bank of Chicago hereby accepts the trusts
in this Indenture declared and provided, upon the terms and conditions herein
above set forth.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed.
CONEXANT SYSTEMS, INC.
By: /s/ Balakrishnan S. Iyer
Name: Balakrishnan S. Iyer
Title: Senior Vice President and
Chief Financial Officer
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
By: /s/ Steven M. Husbands
Name: Steven M. Husbands
Title: Assistant Vice President
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<PAGE> 125
EXHIBIT A
For Global Note only: UNLESS THIS CERTIFICATE IS PRESENTED BY
AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET,
NEW YORK, NEW YORK) (THE "DEPOSITARY", WHICH TERM INCLUDES ANY SUCCESSOR
DEPOSITARY FOR THE CERTIFICATES) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITARY (AND ANY PAYMENT HEREIN IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITARY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY
OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE &
CO., HAS AN INTEREST HEREIN.
THE NOTE EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1)
REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE
144A UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE SECURITIES
ACT) ("INSTITUTIONAL ACCREDITED INVESTOR"); (2) AGREES THAT IT WILL NOT, PRIOR
TO EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF THE NOTE EVIDENCED
HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION),
RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY OR THE COMMON STOCK
ISSUABLE UPON CONVERSION OF SUCH NOTE EXCEPT (A) TO CONEXANT SYSTEMS, INC. OR
ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE
WITH RULE 144A UNDER THE SECURITIES ACT, (C) TO AN INSTITUTIONAL ACCREDITED
INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES TO THE FIRST NATIONAL BANK OF
CHICAGO, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), A SIGNED LETTER
CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS
ON TRANSFER OF THE NOTE EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM SUCH TRUSTEE OR A SUCCESSOR TRUSTEE, AS APPLICABLE), (D) PURSUANT
TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) OR (E) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES TO BE EFFECTIVE
AT THE TIME OF SUCH
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<PAGE> 126
TRANSFER); (3) PRIOR TO SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE
(2)(E) ABOVE), IT WILL FURNISH TO THE FIRST NATIONAL BANK OF CHICAGO, AS TRUSTEE
(OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR
OTHER INFORMATION AS THE TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; AND (4) AGREES
THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION
WITH ANY TRANSFER OF THE NOTE EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE
HOLDING PERIOD APPLICABLE TO SALES OF THE NOTE EVIDENCED HEREBY UNDER RULE
144(K) UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST
CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER
OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE FIRST NATIONAL BANK OF
CHICAGO, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE). IF THE PROPOSED
TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR OR IS A PURCHASER WHO IS NOT
A U.S. PERSON, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE FIRST
NATIONAL BANK OF CHICAGO, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE),
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS SUCH TRUSTEE MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE REMOVED UPON THE EARLIER
OF THE TRANSFER OF THE NOTE EVIDENCED HEREBY PURSUANT TO CLAUSE (2)(E) ABOVE OR
UPON ANY TRANSFER OF THE NOTE EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE
SECURITIES ACT (OR ANY SUCCESSOR PROVISION). AS USED HEREIN, THE TERMS "UNITED
STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER
THE SECURITIES ACT.
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<PAGE> 127
CONEXANT SYSTEMS, INC.
4-1/4% CONVERTIBLE SUBORDINATED NOTE DUE MAY 1, 2006
CUSIP: [207142 AA 8 (144A)]
[207142 AC 4 (IAI)]
No.: __________ $___________________
Conexant Systems, Inc., a corporation duly organized and
validly existing under the laws of the State of Delaware (herein called the
"Company", which term includes any successor corporation under the Indenture
referred to on the reverse hereof), for value received hereby promises to pay to
__________ or registered assigns, the principal sum of __________ ($___________)
on May 1, 2006, at the office or agency of the Company maintained for that
purpose in accordance with the terms of the Indenture, in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for the payment of public and private debts, and to pay interest, semi-annually
on May 1 and November 1 of each year, commencing November 1, 1999, on said
principal sum at said office or agency, in like coin or currency, at the rate
per annum of 4-1/4%, from May 1 or November 1, as the case may be, next
preceding the date of this Note to which interest has been paid or duly provided
for, unless the date hereof is a date to which interest has been paid or duly
provided for, in which case from the date of this Note, or unless no interest
has been paid or duly provided for on the Notes, in which case from May 12,
1999, until payment of said principal sum has been made or duly provided for.
Notwithstanding the foregoing, if the date hereof is after any April 15 or
October 15, as the case may be, and before the following May 1 or November 1,
this Note shall bear interest from such May 1 or November 1; provided, however,
that if the Company shall default in the payment of interest due on such May 1
or November 1, then this Note shall bear interest from the next preceding May 1
or November 1 to which interest has been paid or duly provided for or, if no
interest has been paid or duly provided for on such Note, from May 12, 1999.
Except as otherwise provided in the Indenture, the interest payable on the Note
pursuant to the Indenture on any May 1 or November 1 will be paid to the Person
entitled thereto as it appears in the Note register at the close of business on
the record date, which shall be the April 15 or October 15 (whether or not a
Business Day)
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<PAGE> 128
next preceding such May 1 or November 1, as provided in the Indenture; provided,
however, that any such interest not punctually paid or duly provided for shall
be payable as provided in the Indenture. Interest may, at the option of the
Company, be paid either (i) by check mailed to the registered address of such
Person (provided that the holder of Notes with an aggregate principal amount in
excess of $5,000,000 shall, at the written election of such holder, be paid by
wire transfer of immediately available funds) or (ii) by transfer to an account
maintained by such Person located in the United States; provided, however, that
payments to the Depositary will be made by wire transfer of immediately
available funds to the account of the Depositary or its nominee.
Reference is made to the further provisions of this Note set
forth on the reverse hereof, including, without limitation, provisions
subordinating the payment of principal of and premium, if any, and interest on
the Notes to the prior payment in full of all Senior Indebtedness, as defined in
the Indenture, and provisions giving the holder of this Note the right to
convert this Note into Common Stock of the Company on the terms and subject to
the limitations referred to on the reverse hereof and as more fully specified in
the Indenture. Such further provisions shall for all purposes have the same
effect as though fully set forth at this place.
This Note shall be deemed to be a contract made under the laws
of the State of New York, and for all purposes shall be construed in accordance
with and governed by the laws of the State of New York, without regard to
principles of conflicts of laws.
This Note shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been manually
signed by the Trustee or a duly authorized authenticating agent under the
Indenture.
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<PAGE> 129
IN WITNESS WHEREOF, the Company has caused this Note to be
duly executed under its corporate seal to be affixed or imported hereon.
CONEXANT SYSTEMS, INC.
[Corporate Seal] By:
Name:
Title:
Attest:
Name:
Title:
Dated:
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<PAGE> 130
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes described in the within-named Indenture.
THE FIRST NATIONAL BANK OF CHICAGO, as Trustee
By: ____________________________________
Name:
Title:
By: ____________________________________
As Authenticating Agent
(if different from Trustee)
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<PAGE> 131
FORM OF REVERSE OF NOTE
CONEXANT SYSTEMS, INC.
4-1/4% CONVERTIBLE SUBORDINATED NOTES DUE MAY 1, 2006
This Note is one of a duly authorized issue of Notes of the
Company, designated as its 4-1/4% Convertible Subordinated Notes Due May 1, 2006
(herein called the "Notes"), limited to the aggregate principal amount of
$300,000,000 (or $350,000,000 if the over-allotment option set forth in Section
2 of the Purchase Agreement dated May 6, 1999 (as amended from time to time by
the parties thereto) by and between the Company and the Initial Purchasers is
exercised in full) all issued or to be issued under and pursuant to an Indenture
dated as of May 1, 1999 (herein called the "Indenture"), between the Company and
The First National Bank of Chicago, as trustee (herein called the "Trustee"), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a description of the rights, limitations of rights, obligations, duties and
immunities thereunder of the Trustee, the Company and the holders of the Notes.
In case an Event of Default (as defined in the Indenture)
shall have occurred and be continuing, the principal of, premium, if any, and
accrued interest (including Liquidated Damages (as defined in the Registration
Rights Agreement), if any) on all Notes may be declared by either the Trustee or
the holders of not less than 25% in aggregate principal amount of the Notes then
outstanding, and upon said declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of the Notes at the time outstanding, to execute
supplemental indentures adding any provisions to or changing in any manner or
eliminating any of the provisions of the Indenture or of any supplemental
indenture or modifying in any manner the rights of the holders of the Notes;
provided, however, that no such supplemental indenture shall (i) extend the
fixed maturity of any Note, or reduce the rate or extend the time of payment of
interest thereon, or reduce the principal amount thereof or premium, if any,
thereon, or reduce any
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<PAGE> 132
amount payable upon redemption thereof, or impair the right of any Noteholder to
institute suit for the payment thereof, or make the principal thereof or
interest or premium, if any, thereon payable in any coin or currency other than
that provided in the Notes, or modify the provisions of the Indenture with
respect to the subordination of the Notes in a manner adverse to the Noteholders
in any material respect, or change the obligation of the Company to redeem any
Note upon the happening of a Fundamental Change (as defined in the Indenture) in
a manner adverse to the holder of the Notes, or impair the right to convert the
Notes into Common Stock subject to the terms set forth in the Indenture,
including Section 15.6 thereof, without the consent of the holder of each Note
so affected or (ii) reduce the aforesaid percentage of Notes, the holders of
which are required to consent to any such supplemental indenture, without the
consent of the holders of all Notes then outstanding. Subject to the provisions
of the Indenture, the holders of a majority in aggregate principal amount of the
Notes at the time outstanding may on behalf of the holders of all of the Notes
waive any past default or Event of Default under the Indenture and its
consequences except a default in the payment of interest (including Liquidated
Damages, if any) or any premium on, or the principal of, any of the Notes, or a
failure by the Company to convert any Notes into Common Stock of the Company, or
a default in the payment of the redemption price pursuant to Article Three of
the Indenture, or a default in respect of a covenant or provisions of the
Indenture which under Article Eleven of the Indenture cannot be modified without
the consent of the holders of each or all Notes then outstanding or affected
thereby. Any such consent or waiver by the holder of this Note (unless revoked
as provided in the Indenture) shall be conclusive and binding upon such holder
and upon all future holders and owners of this Note and any Notes which may be
issued in exchange or substitution hereof, irrespective of whether or not any
notation thereof is made upon this Note or such other Notes.
The indebtedness evidenced by the Notes is, to the extent and
in the manner provided in the Indenture, expressly subordinated and subject in
right of payment to the prior payment in full of all Senior Indebtedness (as
defined in the Indenture) of the Company, whether outstanding at the date of the
Indenture or thereafter incurred, and this Note is issued subject to the
provisions of the Indenture with respect to such subordination. Each holder of
this Note, by accepting the same, agrees to and
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<PAGE> 133
shall be bound by such provisions and authorizes the Trustee on its behalf to
take such action as may be necessary or appropriate to effectuate the
subordination so provided and appoints the Trustee his attorney-in-fact for such
purpose.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of and any premium and
interest (including Liquidated Damages, if any) on this Note at the place, at
the respective times, at the rate and in the coin or currency herein prescribed.
Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months.
The Notes are issuable in fully registered form, without
coupons, in denominations of $1,000 principal amount and any integral multiple
of $1,000. At the office or agency of the Company referred to on the face
hereof, and in the manner and subject to the limitations provided in the
Indenture, without payment of any service charge but with payment of a sum
sufficient to cover any tax, assessment or other governmental charge that may be
imposed in connection with any registration or exchange of Notes, Notes may be
exchanged for a like aggregate principal amount of Notes of any other authorized
denominations.
The Notes will not be redeemable at the option of the Company
prior to May 6, 2002. At any time on or after May 6, 2002, and prior to
maturity, the Notes may be redeemed at the option of the Company, in whole or in
part, upon mailing a notice of such redemption not less than 30 days before the
date fixed for redemption to the holders of Notes at their last registered
addresses, all as provided in the Indenture, at the following optional
redemption prices (expressed as percentages of the principal amount), together
in each case with accrued and unpaid interest (including Liquidated Damages, if
any) to, but excluding, the date fixed for redemption:
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<PAGE> 134
<TABLE>
<CAPTION>
Period Redemption Price
- ------ ----------------
<S> <C>
Beginning on May 6, 2002 and ending on April 30, 2003 102.429%
Beginning on May 1, 2003 and ending on April 30, 2004 101.821%
Beginning on May 1, 2004 and ending on April 30, 2005 101.214%
Beginning on May 1, 2005 and ending on April 30, 2006 100.607%
</TABLE>
and 100.000% on May 1, 2006; provided, however, that if the date fixed for
redemption is on a May 1 or November 1, then the interest payable on such date
shall be paid to the holder of record on the preceding April 15 or October 15,
respectively.
The Company may not give notice of any redemption of the Notes
if a default in the payment of interest or premium, if any, on the Notes has
occurred and is continuing.
The Notes are not subject to redemption through the operation
of any sinking fund.
If a Fundamental Change occurs at any time prior to maturity
of the Notes, the Notes will be redeemable on the 30th day after notice thereof
(the "Repurchase Date") at the option of the holder of the Notes at a redemption
price equal to 100% of the principal amount thereof, together with accrued
interest to (but excluding) the date of redemption; provided, however, that, if
such Repurchase Date is a May or November 1, the interest payable on such date
shall be paid to the holder of record of the Notes on the preceding April 15 or
October 15, respectively. The Notes will be redeemable in multiples of $1,000
principal amount. The Company shall mail to all holders of record of the Notes a
notice of the occurrence of a Fundamental Change and of the redemption right
arising as a result thereof on or before the 10th day after the occurrence of
such Fundamental Change. For a Note to be so redeemed at the option of the
holder, the Company must receive at the office or agency of the Company
maintained for that purpose in accordance with the terms of the Indenture, such
Note with the form entitled "Option to Elect Repayment Upon a Fundamental
Change" on the reverse thereof duly completed, together with such Note, duly
endorsed for transfer, on or before the 30th day after
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<PAGE> 135
the date of such notice of a Fundamental Change (or if such 30th day is not a
Business Day, the immediately preceding Business Day).
Subject to the provisions of the Indenture, the holder hereof
has the right, at its option, at any time after the original issuance of any
Notes through the close of business on the final maturity date of the Notes, or,
as to all or any portion hereof called for redemption, prior to the close of
business on the Business Day immediately preceding the date fixed for redemption
(unless the Company shall default in payment due upon redemption thereof), to
convert the principal hereof or any portion of such principal which is $1,000 or
an integral multiple thereof into that number of shares of the Company's Common
Stock (as such shares shall be constituted at the date of conversion) obtained
by dividing the principal amount of this Note or portion thereof to be converted
by the Conversion Price of $46.196, as may adjusted from time to time as
provided in the Indenture, upon surrender of this Note, together with a
conversion notice as provided in the Indenture (the form entitled "Conversion
Notice" on the reverse hereof), to the Company at the office or agency of the
Company maintained for that purpose in accordance with the terms of the
Indenture, or at the option of such holder, the Corporate Trust Office, and,
unless the shares issuable on conversion are to be issued in the same name as
this Note, duly endorsed by, or accompanied by instruments of transfer in form
satisfactory to the Company duly executed by, the holder or by his duly
authorized attorney. No adjustment in respect of interest on any Note converted
or dividends on any shares issued upon conversion of such Note will be made upon
any conversion except as set forth in the next sentence. If this Note (or
portion hereof) is surrendered for conversion during the period from the close
of business on any record date for the payment of interest to the close of
business on the Business Day preceding the following interest payment date and
either (x) has not been called for redemption on a redemption date that occurs
during such period or (y) is not to be redeemed in connection with a Fundamental
Change on a Repurchase Date that occurs during such period, this Note (or
portion hereof being converted) must be accompanied by an amount, in New York
Clearing House funds or other funds acceptable to the Company, equal to the
interest payable on such interest payment date on the principal amount being
converted; provided, however, that no such payment shall be required if there
shall exist at the time of conversion a default in the payment of interest on
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<PAGE> 136
the Notes. No fractional shares will be issued upon any conversion, but an
adjustment and payment in cash will be made, as provided in the Indenture, in
respect of any fraction of a share which would otherwise be issuable upon the
surrender of any Note or Notes for conversion. A Note in respect of which a
holder is exercising its right to require redemption upon a Fundamental Change
may be converted only if such holder withdraws its election to exercise such
right in accordance with the terms of the Indenture. Any Notes called for
redemption, unless surrendered for conversion by the holders thereof on or
before the close of business on the Business Day preceding the date fixed for
redemption, may be deemed to be redeemed from the holders of such Notes for an
amount equal to the applicable redemption price, together with accrued but
unpaid interest (including Liquidated Damages, if any) to (but excluding) the
date fixed for redemption, by one or more investment banks or other purchasers
who may agree with the Company (i) to purchase such Notes from the holders
thereof and convert them into shares of the Company's Common Stock and (ii) to
make payment for such Notes as aforesaid to the Trustee in trust for the
holders.
Upon due presentment for registration of transfer of this Note
at the office or agency of the Company maintained for that purpose in accordance
with the terms of the Indenture, a new Note or Notes of authorized denominations
for an equal aggregate principal amount will be issued to the transferee in
exchange thereof; subject to the limitations provided in the Indenture, without
charge except for any tax, assessment or other governmental charge imposed in
connection therewith.
The Company, the Trustee, any authenticating agent, any paying
agent, any conversion agent and any Note registrar may deem and treat the
registered holder hereof as the absolute owner of this Note (whether or not this
Note shall be overdue and notwithstanding any notation of ownership or other
writing hereon made by anyone other than the Company or any Note registrar) for
the purpose of receiving payment hereof, or on account hereof, for the
conversion hereof and for all other purposes, and neither the Company nor the
Trustee nor any other authenticating agent nor any paying agent nor other
conversion agent nor any Note registrar shall be affected by any notice to the
contrary. All payments made to or upon the order of such registered holder
shall, to the extent of the sum or sums
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<PAGE> 137
paid, satisfy and discharge liability for monies payable on this Note.
No recourse for the payment of the principal of or any premium
or interest on this Note, or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in the Indenture or any supplemental indenture or in any Note, or
because of the creation of any indebtedness represented thereby, shall be had
against any incorporator, stockholder, employee, agent, officer or director or
subsidiary, as such, past, present or future, of the Company or of any successor
corporation, either directly or through the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law or by
the enforcement of any assessment or penalty or otherwise, all such liability
being, by acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
This Note shall be deemed to be a contract made under the laws
of New York, and for all purposes shall be construed in accordance with the laws
of New York, without regard to principles of conflicts of laws.
Terms used in this Note and defined in the Indenture are used
herein as therein defined.
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<PAGE> 138
ABBREVIATIONS
The following abbreviations, when used in the inscription of
the face of this Note, shall be construed as though they were written out in
full according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenant by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common
UNIF GIFT MIN ACT - ____________ Custodian _____________
(Cust) (Minor)
under Uniform Gifts to Minors Act
______________________________________
(State)
Additional abbreviations may also be used though not in the above list.
A-14
<PAGE> 139
CONVERSION NOTICE
TO: CONEXANT SYSTEMS, INC.
The undersigned registered owner of this Note hereby
irrevocably exercises the option to convert this Note, or the portion thereof
(which is $1,000 or an integral multiple thereof) below designated, into shares
of Common Stock of Conexant Systems, Inc. in accordance with the terms of the
Indenture referred to in this Note, and directs that the shares issuable and
deliverable upon such conversion, together with any check in payment for
fractional shares and any Notes representing any unconverted principal amount
hereof, be issued and delivered to the registered holder hereof unless a
different name has been indicated below. If shares or any portion of this Note
not converted are to be issued in the name of a person other than the
undersigned, the undersigned will provide the appropriate information below and
pay all transfer taxes payable with respect thereto. Any amount required to be
paid by the undersigned on account of interest accompanies this Note.
Dated: ___________________
___________________________
___________________________
Signature(s)
Signature(s) must be
guaranteed by an "eligible
guarantor institution"
meeting the requirements of
the Note registrar, which
requirements include
membership or participation
in the Security Transfer
Agent Medallion Program
("STAMP") or such other
"signature guarantee
program" as may be
determined
A-15
<PAGE> 140
by the Note registrar in addition to, or in
substitution for, STAMP, all in accordance
with the Securities Exchange Act of 1934, as
amended.
___________________________
Signature Guarantee
Fill in the registration of shares of Common Stock if to be issued, and Notes if
to be delivered, other than to and in the name of the registered holder:
_________________________________
(Name)
_________________________________
(Street Address)
_________________________________
(City, State and Zip Code)
_________________________________
Please print name and address
Principal amount to be converted
(if less than all):
$________________________________
Social Security or Other Taxpayer
Identification Number:
_________________________________
A-16
<PAGE> 141
OPTION TO ELECT REPAYMENT
UPON A FUNDAMENTAL CHANGE
TO: CONEXANT SYSTEMS, INC.
The undersigned registered owner of this Note hereby
irrevocably acknowledges receipt of a notice from Conexant Systems, Inc. (the
"Company") as to the occurrence of a Fundamental Change with respect to the
Company and requests and instructs the Company to repay the entire principal
amount of this Note, or the portion thereof (which is $1,000 or an integral
multiple thereof) below designated, in accordance with the terms of the
Indenture referred to in this Note at the price of 100% of such entire principal
amount or portion thereof, together with accrued interest to, but excluding,
such repayment date, to the registered holder hereof.
Dated: ___________________
_______________________________
_______________________________
Signature(s)
NOTICE: The above
signatures of the holder(s)
hereof must correspond with
the name as written upon
the face of the Note in
every particular without
alteration or enlargement
or any change whatever.
Principal amount to be
repaid (if less than all):
$______________________________
_______________________________
Social Security or Other
Taxpayer Identification Number
A-17
<PAGE> 142
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sell(s), assign(s) and
transfer(s) unto
________________________________________________________________________________
________________________________________________________________________________
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
__________________
|__________________| ___________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address
including postal zip code of assignee)
________________________________________________________________________________
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints
________________________________________________________________________________
Attorney to transfer said Note on the books of the Company, with full power of
substitution in the premises.
In connection with any transfer of the Note within the "United
States" or to, or for the account of, "U.S. persons" (in each case as defined in
Regulation S under the Securities Act) and within the period prior to the
expiration of the holding period applicable to sales thereof under Rule 144(k)
under the Securities Act (or any successor provision) (other than any transfer
pursuant to a registration statement that has been declared effective under the
Securities Act), the undersigned confirms that such Note is being transferred:
A-18
<PAGE> 143
[_] To Conexant Systems, Inc. or a subsidiary thereof; or
[_] Pursuant to and in compliance with Rule 144A under the
Securities Act of 1933, as amended; or
[_] To an Institutional Accredited Investor pursuant to and in
compliance with the Securities Act of 1933, as amended, in a
minimum denomination of $200,000; or
[_] Pursuant to and in compliance with Rule 144 under the
Securities Act of 1933, as amended;
and unless the box below is checked, the undersigned confirms that such Note is
not being transferred to an "affiliate" of the Company as defined in Rule 144
under the Securities Act of 1933, as amended (an "Affiliate").
[_] The transferee is an Affiliate of the Company.
Dated: ___________________
___________________________
___________________________
Signature(s)
Signature(s) must be
guaranteed by an "eligible
guarantor institution"
meeting the requirements of
the Note registrar, which
requirements include
membership or participation
in the Security Transfer
Agent Medallion Program
("STAMP") or such other
"signature guarantee
program" as may be
determined by the Note
registrar in addition to,
or in substitution for,
STAMP, all in accordance
with the
A-19
<PAGE> 144
Securities Exchange Act of 1934, as amended.
____________________________________________
Signature Guarantee
NOTICE: The signature of the conversion notice, the option to elect repayment
upon a Fundamental Change or the assignment must correspond with the name as
written upon the face of the Note in every particular without alteration or
enlargement or any change whatever.
A-20
<PAGE> 145
EXHIBIT B
Conexant Systems, Inc.
4311 Jamboree Road
Newport Beach, CA 92660-3095
The First National Bank of Chicago, as Trustee
One First National Plaza
Suite 0126
Chicago, Illinois 60670-0126
Attention: Corporate Trust Administration
Ladies and Gentlemen:
In connection with our proposed purchase of 4-1/4% Convertible
Subordinated Notes Due May 1, 2006 (the "Notes") of Conexant Systems, Inc., a
Delaware corporation (the "Company"), we confirm that:
(i) we are an "accredited investor" within the meaning of Rule
501(a)(1), (2) or (3) under the Securities Act of 1933, as amended (the
"Securities Act"), or an entity in which all of the equity owners are
accredited investors within the meaning of Rule 501(a)(1), (2) or (3)
under the Securities Act (an "Institutional Accredited Investor");
(ii) (A) any purchase of Notes by us will be for our own
account or for the account of one or more other Institutional
Accredited Investors or as fiduciary for the account of one or more
trusts, each of which is an "accredited investor" within the meaning of
Rule 501(a)(7) under the Securities Act and for each of which we
exercise sole investment discretion or (B) we are a "bank," within the
meaning of Section 3(a)(2) of the Securities Act, or a "savings and
loan association" or other institution described in Section 3(a)(5)(A)
of the Securities Act that is acquiring Notes as fiduciary for the
account of one or more institutions for which we exercise sole
investment discretion;
(iii) in the event that we purchase any Notes, we will acquire
Notes having a minimum purchase price of not less than $200,000 for our
own account or for any separate account for which we are acting;
(iv) we have such knowledge and experience in financial and
business matters that we are capable of
B-1
<PAGE> 146
evaluating the merits and risks of purchasing Notes; and
(v) we are not acquiring Notes with a view to distribution
thereof or with any present intention of offering or selling Notes or
the Common Stock of the Company issuable upon conversion thereof,
except as permitted below; provided that the disposition of our
property and property of any accounts for which we are acting as
fiduciary shall remain at all times within our control.
We understand that the Notes are being offered in a
transaction not involving any public offering within the United States
within the meaning of the Securities Act and that the Notes and the
Common Stock of the Company issuable upon conversion thereof have not
been registered under the Securities Act, and we agree, on our own
behalf and on behalf of each account for which we acquire any Notes,
that if in the future we decide to resell or otherwise transfer such
Notes or the Common Stock of the Company issuable upon conversion
thereof, such Notes or Common Stock of the Company may be resold or
otherwise transferred within the United States or to, or for the
account or benefit of, U.S. persons only (i) to the Company or any
subsidiary thereof, (ii) to a person who is a "qualified institutional
buyer" (as defined in Rule 144A under the Securities Act) in a
transaction meeting the requirements of Rule 144A, (iii) to an
Institutional Accredited Investor that, prior to such transfer,
furnishes to the Trustee for the Notes (or in the case of Common Stock
of the Company, the transfer agent therefor) a signed letter containing
certain representations and agreements relating to the restrictions on
transfer of such securities (the form of which letter can be obtained
from the Trustee or the transfer agent, as the case may be), (iv)
pursuant to the exemption from registration provided by Rule 144 under
the Securities Act (if applicable), or (v) pursuant to a registration
statement that has been declared effective under the Securities Act
(and which continues to be effective at the time of such transfer), and
in each case, in accordance with any applicable securities law of any
State of the U.S. and in accordance with the legends set forth on the
Notes or the Common Stock of the Company issuable upon conversion
thereof. We further agree to provide any
B-2
<PAGE> 147
person purchasing any of the Notes or the Common Stock of the Company
issuable upon conversion thereof (other than pursuant to clause (iv) or
(v) above) from us a notice advising such purchaser that resales of
such securities are restricted as stated herein. We understand that the
Trustee and transfer agent for the Notes and the Common Stock of the
Company will not be required to accept for registration of transfer any
Notes or any Common Stock of the Company issued upon conversion of the
Notes, except upon presentation of evidence satisfactory to the Company
that the foregoing restrictions on transfer have been complied with. We
further understand that any Notes and any Common Stock of the Company
issued upon conversion of the Notes will be in the form of definitive
physical certificates and that such certificates will bear a legend
reflecting the substance of this paragraph.
The Company and the Trustee and their respective counsel are
entitled to rely upon this letter and are irrevocably authorized to produce this
letter or a copy hereof to any interested party in any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.
THIS LETTER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
(Name of Purchaser)
By:______________________________________________
Name:____________________________________________
Title:___________________________________________
Address:_________________________________________
_________________________________________________
_________________________________________________
B-3
<PAGE> 1
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
BY AND AMONG
CONEXANT SYSTEMS, INC.
AS ISSUER,
AND
MORGAN STANLEY & CO. INCORPORATED,
CREDIT SUISSE FIRST BOSTON CORPORATION
AND
LEHMAN BROTHERS, INC.
AS INITIAL PURCHASERS
DATED AS OF MAY 12, 1999
<PAGE> 2
THIS REGISTRATION RIGHTS AGREEMENT is made and entered into as of May 12,
1999 by and among Conexant Systems, Inc., a Delaware corporation (the
"Company"), and Morgan Stanley & Co. Incorporated, Credit Suisse First Boston
Corporation and Lehman Brothers, Inc. pursuant to the Purchase Agreement, dated
May 6, 1999 (the "Purchase Agreement"), among the Company and the Initial
Purchasers. In order to induce the Initial Purchasers to enter into the Purchase
Agreement, the Company has agreed to provide the registration rights set forth
in this Agreement. The execution of this Agreement is a condition to the closing
under the Purchase Agreement.
The Company agrees with the Initial Purchasers, (i) for their benefit
as Initial Purchasers and (ii) for the benefit of the beneficial owners
(including the Initial Purchasers) from time to time of the Notes (as defined
herein) and the beneficial owners from time to time of the Underlying Common
Stock (as defined herein) issued upon conversion of the Notes (each of the
foregoing a "Holder" and together the "Holders"), as follows:
SECTION 1. Definitions. Capitalized terms used herein without
definition shall have their respective meanings set forth in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
Affiliate: With respect to any specified person, an "affiliate," as
defined in Rule 144, of such person.
Amendment Effectiveness Deadline Date: See Section 2(d) hereof.
Applicable Conversion Price: The Applicable Conversion Price as of any
date of determination means the Conversion Price in effect as of such date of
determination or, if no Notes are then outstanding, the Conversion Price that
would be in effect were Notes then outstanding.
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that
is not a day on which banking institutions in The City of New York are
authorized or obligated by law or executive order to close.
Common Stock: The shares of common stock, par value $1.00 per share, of
the Company and any other shares of common stock as may constitute "Common
Stock" for purposes of the Indenture, including the Underlying Common Stock.
Conversion Price: Conversion Price shall have the meaning assigned such
term in the Indenture.
Damages Accrual Period: See Section 2(e) hereof.
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<PAGE> 3
Damages Payment Date: Each interest payment date under the Indenture in
the case of Notes, and each May 1 and November 1 in the case of the Underlying
Common Stock.
Deferral Notice: See Section 3(i) hereof.
Deferral Period: See Section 3(i) hereof.
Effectiveness Deadline Date: See Section 2(a) hereof.
Effectiveness Period: The period of two years from the later of (a) the
Issue Date (b) the last date of original issuance of the Notes, or such shorter
period ending on the date that all Registrable Securities have ceased to be
Registrable Securities.
Event: See Section 2(e) hereof.
Event Date: See Section 2(e) hereof.
Event Termination Date: See Section 2(e) hereof.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Filing Deadline Date: See Section 2(a) hereof.
Holder: See the second paragraph of this Agreement.
Indenture: The Indenture, dated as May 1, 1999, between the Company and
The First National Bank of Chicago, as trustee, pursuant to which the Notes are
being issued.
Initial Purchasers: Morgan Stanley & Co. Incorporated, Credit Suisse
First Boston Corporation and Lehman Brothers, Inc.
Initial Shelf Registration Statement: See Section 2(a) hereof.
Issue Date: May 12, 1999.
Liquidated Damages Amount: See Section 2(e) hereof.
Losses: See Section 6 hereof.
Material Event: See Section 3(i) hereof.
Notes: The 4 1/4% Convertible Subordinated Notes due 2006 of the
Company to be purchased pursuant to the Purchase Agreement.
-3-
<PAGE> 4
Notice and Questionnaire: A written notice delivered to the Company
containing substantially the information called for by the Selling
Securityholder Notice and Questionnaire attached as Annex B to the Offering
Memorandum of the Company issued May 7, 1999 relating to the Notes.
Notice Holder: On any date, any Holder that has delivered a Notice and
Questionnaire to the Company on or prior to such date.
Purchase Agreement. See the preamble hereof.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any amendment or prospectus supplement, including
post-effective amendments, and all materials incorporated by reference or
explicitly deemed to be incorporated by reference in such Prospectus.
Record Holder: (i) With respect to any Damages Payment Date relating to
any Notes as to which any such Liquidated Damages Amount has accrued, the holder
of record of such Note on the record date with respect to the interest payment
date under the Indenture on which such Damages Payment Date shall occur and (ii)
with respect to any Damages Payment Date relating to the Underlying Common Stock
as to which any such Liquidated Damages Amount has accrued, the registered
holder of such Underlying Common Stock fifteen (15) days prior to such Damages
Payment Date.
Registrable Securities: The Notes until such Notes have been converted
into or exchanged for the Underlying Common Stock and, at all times subsequent
to any such conversion or exchange the Underlying Common Stock and any
securities into or for which such Underlying Common Stock has been converted or
exchanged, and any security issued with respect thereto upon any stock dividend,
split or similar event until, in the case of any such security, (A) the earliest
of (i) its effective registration under the Securities Act and resale in
accordance with the Registration Statement covering it, (ii) expiration of the
holding period that would be applicable thereto under Rule 144(k) were it not
held by an Affiliate of the Company or (iii) its sale to the public pursuant to
Rule 144, and (B) as a result of the event or circumstance described in any of
the foregoing clauses (i) through (iii), the legend with respect to transfer
restrictions required under the Indenture are removed or removable in accordance
with the terms of the Indenture or such legend, as the case may be.
Registration Expenses: See Section 5 hereof.
Registration Statement: Any registration statement of the Company that
covers any of the Registrable Securities pursuant to the provisions of this
Agreement including the Prospectus, amendments and supplements to such
registration statement, including post-effective
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<PAGE> 5
amendments, all exhibits, and all materials incorporated by reference or
explicitly deemed to be incorporated by reference in such registration
statement.
Restricted Securities: As this term is defined in Rule 144.
Rule 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
Rule 144A: Rule 144A under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules
and regulations promulgated by the SEC thereunder.
Shelf Registration Statement: See Section 2(a) hereof.
Subsequent Shelf Registration Statement: See Section 2(b) hereof.
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The First National Bank of Chicago, the Trustee under the
Indenture.
Underlying Common Stock: The Common Stock into which the Notes are
convertible or issued upon any such conversion.
SECTION 2. Shelf Registration. (a) The Company shall prepare and file
or cause to be prepared and filed with the SEC, as soon as practicable but in
any event by the date (the "Filing Deadline Date") ninety (90) days after the
Issue Date, a Registration Statement for an offering to be made on a delayed or
continuous basis pursuant to Rule 415 of the Securities Act (a "Shelf
Registration Statement") registering the resale from time to time by Holders
thereof of all of the Registrable Securities (the "Initial Shelf Registration
Statement"). The Initial Shelf Registration Statement shall be on Form S-3 or
another appropriate form permitting registration of such Registrable Securities
for resale by such Holders in accordance with the methods of distribution
elected by the Holders and set forth in the Initial Shelf Registration
Statement. The Company shall use its reasonable efforts to cause the Initial
Shelf Registration Statement to be declared effective under the Securities Act
as promptly as is practicable but in any event by the date (the "Effectiveness
Deadline Date") that is one hundred eighty (180) days after the Issue Date, and
to keep the Initial Shelf Registration Statement (or any Subsequent Shelf
Registration Statement) continuously effective under the Securities Act until
the expiration of the Effectiveness Period. At the time the Initial Shelf
Registration Statement is declared effective, each Holder that became a Notice
Holder on or prior to the date ten (10) Business Days prior to such time of
effectiveness
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<PAGE> 6
shall be named as a selling securityholder in the Initial Shelf Registration
Statement and the related Prospectus in such a manner as to permit such Holder
to deliver such Prospectus to purchasers of Registrable Securities in accordance
with applicable law. None of the Company's security holders (other than the
Holders of Registrable Securities) shall have the right to include any of the
Company's securities in the Shelf Registration Statement.
(b) If the Initial Shelf Registration Statement or any Subsequent Shelf
Registration Statement ceases to be effective for any reason at any time during
the Effectiveness Period (other than because all Registrable Securities
registered thereunder shall have been resold pursuant thereto or shall have
otherwise ceased to be Registrable Securities), the Company shall use its
reasonable efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event shall within thirty (30) days of such
cessation of effectiveness amend the Shelf Registration Statement in a manner
reasonably expected to obtain the withdrawal of the order suspending the
effectiveness thereof, or file an additional Shelf Registration Statement
covering all of the securities that as of the date of such filing are
Registrable Securities (a "Subsequent Shelf Registration Statement"). If a
Subsequent Shelf Registration Statement is filed, the Company shall use
reasonable efforts to cause the Subsequent Shelf Registration Statement to
become effective as promptly as is practicable after such filing and to keep
such Registration Statement (or subsequent Shelf Registration Statement)
continuously effective until the end of the Effectiveness Period.
(c) The Company shall supplement and amend the Shelf Registration
Statement if required by the rules, regulations or instructions applicable to
the registration form used by the Company for such Shelf Registration Statement,
if required by the Securities Act or as reasonably requested by the Initial
Purchasers or by the Trustee on behalf of the registered Holders.
(d) Each Holder of Registrable Securities agrees that if such Holder
wishes to sell Registrable Securities pursuant to a Shelf Registration Statement
and related Prospectus, it will do so only in accordance with this Section 2(d)
and Section 3(i). Each Holder of Registrable Securities wishing to sell
Registrable Securities pursuant to a Shelf Registration Statement and related
Prospectus agrees to deliver a Notice and Questionnaire to the Company at least
three (3) Business Days prior to any intended distribution of Registrable
Securities under the Shelf Registration Statement. From and after the date the
Initial Shelf Registration Statement is declared effective, the Company shall,
as promptly as practicable after the date a Notice and Questionnaire is
delivered, and in any event upon the later of (x) five (5) Business Days after
such date or (y) five (5) Business Days after the expiration of any Deferral
Period in effect when the Notice and Questionnaire is delivered or put into
effect within five (5) Business Days of such delivery date, (i) if required by
applicable law, file with the SEC a post-effective amendment to the Shelf
Registration Statement or prepare and, if required by applicable law, file a
supplement to the related Prospectus or a supplement or amendment to any
document incorporated therein by reference or file any other required document
so that the Holder delivering such Notice and Questionnaire is named as a
selling securityholder in the Shelf Registration Statement and the
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<PAGE> 7
related Prospectus in such a manner as to permit such Holder to deliver such
Prospectus to purchasers of the Registrable Securities in accordance with
applicable law and, if the Company shall file a post-effective amendment to the
Shelf Registration Statement, use reasonable efforts to cause such
post-effective amendment to be declared effective under the Securities Act as
promptly as is practicable, but in any event by the date (the "Amendment
Effectiveness Deadline Date") that is forty-five (45) days after the date such
post-effective amendment is required by this clause to be filed; (ii) provide
such Holder copies of any documents filed pursuant to Section 2(d)(i); and (iii)
notify such Holder as promptly as practicable after the effectiveness under the
Securities Act of any post-effective amendment filed pursuant to Section
2(d)(i); provided, that if such Notice and Questionnaire is delivered during a
Deferral Period, the Company shall so inform the Holder delivering such Notice
and Questionnaire and shall take the actions set forth in clauses (i), (ii) and
(iii) above upon expiration of the Deferral Period in accordance with Section
3(i). Notwithstanding anything contained herein to the contrary, (i) the Company
shall be under no obligation to name any Holder that is not a Notice Holder as a
selling securityholder in any Registration Statement or related Prospectus and
(ii) the Amendment Effectiveness Deadline Date shall be extended by up to ten
(10) Business Days from the expiration of a Deferral Period (and the Company
shall incur no obligation to pay Liquidated Damages during such extension) if
such Deferral Period shall be in effect on the Amendment Effectiveness Deadline
Date.
(e) The parties hereto agree that the Holders of Registrable Securities
will suffer damages, and that it would not be feasible to ascertain the extent
of such damages with precision, if (i) the Initial Shelf Registration Statement
has not been filed on or prior to the Filing Deadline Date, (ii) the Initial
Shelf Registration Statement has not been declared effective under the
Securities Act on or prior to the Effectiveness Deadline Date, (iii) the Company
has failed to perform its obligations set forth in Section 2(d) within the time
period required therein, (iv) the aggregate duration of Deferral Periods in any
period exceeds the number of days permitted in respect of such period pursuant
to Section 3(i) hereof or (v) the number of Deferral Periods in any period
exceeds the number permitted in respect of such period pursuant to Section 3(i)
hereof (each of the events of a type described in any of the foregoing clauses
(i) through (v) are individually referred to herein as an "Event," and the
Filing Deadline Date in the case of clause (i), the Effectiveness Deadline Date
in the case of clause (ii), the date by which the Company is required to perform
its obligations set forth in Section 2(d) in the case of clause (iii) (including
the filing of any post-effective amendment prior to the Amendment Effectiveness
Deadline Date), the date on which the aggregate duration of Deferral Periods in
any period exceeds the number of days permitted by Section 3(i) hereof in the
case of clause (iv), and the date of the commencement of a Deferral Period that
causes the limit on the number of Deferral Periods in any period under Section
3(i) hereof to be exceeded in the case of clause (v), being referred to herein
as an "Event Date"). Events shall be deemed to continue until the "Event
Termination Date," which shall be the following dates with respect to the
respective types of Events: the date the Initial Shelf Registration Statement is
filed in the case of an Event of the type described in clause (i), the date the
Initial Shelf Registration Statement is declared effective under the Securities
Act in the case of an Event of the type described in clause (ii), the date the
Company performs its obligations set
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<PAGE> 8
forth in Section 2(d) in the case of an Event of the type described in clause
(iii) (including, without limitation, the date the relevant post-effective
amendment to the Shelf Registration Statement is declared effective under the
Securities Act), termination of the Deferral Period that caused the limit on the
aggregate duration of Deferral Periods in a period set forth in Section 3(i) to
be exceeded in the case of the commencement of an Event of the type described in
clause (iv), and termination of the Deferral Period the commencement of which
caused the number of Deferral Periods in a period permitted by Section 3(i) to
be exceeded in the case of an Event of the type described in clause (v).
Accordingly, commencing on (and including) any Event Date and ending on
(but excluding) the next date on which there are no Events that have occurred
and are continuing (a "Damages Accrual Period"), the Company agrees to pay, as
liquidated damages and not as a penalty, an amount (the "Liquidated Damages
Amount"), payable on the Damages Payment Dates to Record Holders of Notes that
are Registrable Securities and of shares of Underlying Common Stock issued upon
conversion of Notes that are Registrable Securities, as the case may be,
accruing, for each portion of such Damages Accrual Period beginning on and
including a Damages Payment Date (or, in respect of the first time that the
Liquidated Damages Amount is to be paid to Holders on a Damages Payment Date as
a result of the occurrence of any particular Event, from the Event Date) and
ending on but excluding the first to occur of (A) the date of the end of the
Damages Accrual Period or (B) the next Damages Payment Date, at a rate per annum
equal to one-half of one percent (0.5%) of the aggregate principal amount of
such Notes or, in the case of Notes that have been converted into or exchanged
for Underlying Common Stock, the Applicable Conversion Price of such shares of
Underlying Common Stock, as the case may be, in each case determined as of the
Business Day immediately preceding the next Damages Payment Date; provided, that
in the case of a Damages Accrual Period that is in effect solely as a result of
an Event of the type described in clause (iii) of the immediately preceding
paragraph, such Liquidated Damages Amount shall be paid only to the Holders that
have delivered Notice and Questionnaires that caused the Company to incur the
obligations set forth in Section 2(d) the non-performance of which is the basis
of such Event, provided further, that any Liquidated Damages Amount accrued with
respect to any Note or portion thereof called for redemption on a redemption
date or converted into Underlying Common Stock on a conversion date prior to the
Damages Payment Date, shall, in any such event, be paid instead to the Holder
who submitted such Note or portion thereof for redemption or conversion on the
applicable redemption date or conversion date, as the case may be, on such date
(or promptly following the conversion date, in the case of conversion).
Notwithstanding the foregoing, no Liquidated Damages Amounts shall accrue as to
any Registrable Security from and after the earlier of (x) the date such
security is no longer a Registrable Security and (y) expiration of the
Effectiveness Period. The rate of accrual of the Liquidated Damages Amount with
respect to any period shall not exceed the rate provided for in this paragraph
notwithstanding the occurrence of multiple concurrent Events. Following the cure
of all Events requiring the payment by the Company of Liquidated Damages Amounts
to the Holders of Registrable Securities pursuant to this Section, the accrual
of Liquidated Damages
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<PAGE> 9
Amounts will cease (without in any way limiting the effect of any subsequent
Event requiring the payment of Liquidated Damages Amount by the Company).
The Trustee shall be entitled, on behalf of Holders of Notes or
Underlying Common Stock, to seek any available remedy for the enforcement of
this Agreement, including for the payment of any Liquidated Damages Amount.
Notwithstanding the foregoing, the parties agree that the sole damages payable
for a violation of the terms of this Agreement with respect to which liquidated
damages are expressly provided shall be such liquidated damages. Nothing shall
preclude a Notice Holder or Holder of Registrable Securities from pursuing or
obtaining specific performance or other equitable relief with respect to this
Agreement.
All of the Company's obligations set forth in this Section 2(e) that
are outstanding with respect to any Registrable Security at the time such
security ceases to be a Registrable Security shall survive until such time as
all such obligations with respect to such security have been satisfied in full
(notwithstanding termination of this Agreement pursuant to Section 8(k)).
The parties hereto agree that the liquidated damages provided for in
this Section 2(e) constitute a reasonable estimate of the damages that may be
incurred by Holders of Registrable Securities by reason of the failure of the
Shelf Registration Statement to be filed or declared effective or available for
effecting resales of Registrable Securities in accordance with the provisions
hereof.
SECTION 3. Registration Procedures. In connection with the registration
obligations of the Company under Section 2 hereof, the Company shall:
(a) Before filing any Registration Statement or Prospectus or any
amendments or supplements thereto with the SEC, furnish to counsel to the
Initial Purchasers copies of all such documents proposed to be filed and use
reasonable efforts to reflect in each such document when so filed with the SEC
such comments as counsel to the Initial Purchasers reasonably shall propose
within five (5) Business Days of the delivery of such copies to the Initial
Purchasers.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement continuously effective for the applicable period
specified in Section 2(a); cause the related Prospectus to be supplemented by
any required Prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 (or any similar provisions then in force) under the Securities Act;
and use its reasonable best efforts to comply with the provisions of the
Securities Act applicable to it with respect to the disposition of all
securities covered by such Registration Statement during the Effectiveness
Period in accordance with the intended methods of disposition by the sellers
thereof set forth in such Registration Statement as so amended or such
Prospectus as so supplemented.
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<PAGE> 10
(c) As promptly as practicable give notice to counsel to the Notice
Holders and the Initial Purchasers (i) when any Prospectus, Prospectus
supplement, Registration Statement or post-effective amendment to a Registration
Statement has been filed with the SEC and, with respect to a Registration
Statement or any post-effective amendment, when the same has been declared
effective, (ii) of any request, following the effectiveness of the Initial Shelf
Registration Statement under the Securities Act, by the SEC or any other federal
or state governmental authority for amendments or supplements to any
Registration Statement or related Prospectus or for additional information,
(iii) of the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of any Registration
Statement or the initiation or threatening of any proceedings for that purpose,
(iv) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (v) of the occurrence of (but
not the nature of or details concerning) a Material Event and (vi) of the
determination by the Company that a post-effective amendment to a Registration
Statement will be filed with the SEC, which notice may, at the discretion of the
Company (or as required pursuant to Section 3(i)), state that it constitutes a
Deferral Notice, in which event the provisions of Section 3(i) shall apply.
(d) Use reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction in which they have been
qualified for sale, in either case at the earliest possible moment.
(e) If reasonably requested by the Initial Purchasers or any Notice
Holder, as promptly as practicable incorporate in a Prospectus supplement or
post-effective amendment to a Registration Statement such information as the
Initial Purchasers or such Notice Holder shall, on the basis of a written
opinion of nationally-recognized counsel experienced in such matters, determine
to be required to be included therein by applicable law and make any required
filings of such Prospectus supplement or such post-effective amendment.
(f) As promptly as practicable furnish to each Notice Holder and the
Initial Purchasers, without charge, at least one (1) conformed copy of the
Registration Statement and any amendment thereto, including financial statements
but excluding schedules, all documents incorporated or deemed to be incorporated
therein by reference and all exhibits (unless requested in writing to the
Company by such Notice Holder or the Initial Purchasers, as the case may be).
(g) During the Effectiveness Period, deliver to each Notice Holder in
connection with any sale of Registrable Securities pursuant to a Registration
Statement, without charge, as many copies of the Prospectus or Prospectuses
relating to such Registrable Securities (including each preliminary prospectus)
and any amendment or supplement thereto as such Notice Holder may reasonably
request; and the Company hereby consents (except during such periods that a
Deferral Notice is outstanding and has not been revoked) to the use of such
Prospectus or each
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<PAGE> 11
amendment or supplement thereto by each Notice Holder in connection with any
offering and sale of the Registrable Securities covered by such Prospectus or
any amendment or supplement thereto in the manner set forth therein.
(h) Prior to any public offering of the Registrable Securities pursuant
to the Shelf Registration Statement, register or qualify or cooperate with the
Notice Holders in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any Notice Holder reasonably requests
in writing (which request may be included in the Notice and Questionnaire);
prior to any public offering of the Registrable Securities pursuant to the Shelf
Registration Statement, keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period in connection
with such Notice Holder's offer and sale of Registrable Securities pursuant to
such registration or qualification (or exemption therefrom) and do any and all
other acts or things reasonably necessary or advisable to enable the disposition
in such jurisdictions of such Registrable Securities in the manner set forth in
the relevant Registration Statement and the related Prospectus; provided, that
the Company will not be required to (i) qualify as a foreign corporation or as a
dealer in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Agreement or (ii) take any action that would
subject it to general service of process in suits or to taxation in any such
jurisdiction where it is not then so subject.
(i) Upon (A) the issuance by the SEC of a stop order suspending the
effectiveness of the Shelf Registration Statement or the initiation of
proceedings with respect to the Shelf Registration Statement under Section 8(d)
or 8(e) of the Securities Act, (B) the occurrence of any event or the existence
of any fact (a "Material Event") as a result of which any Registration Statement
shall contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any Prospectus shall contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or (C) the occurrence or existence
of any pending corporate development that, in the reasonable discretion of the
Company, makes it appropriate to suspend the availability of the Shelf
Registration Statement and the related Prospectus, (i) in the case of clause (B)
above, subject to the next sentence, as promptly as practicable prepare and
file, if necessary pursuant to applicable law, a post-effective amendment to
such Registration Statement or a supplement to the related Prospectus or any
document incorporated therein by reference or file any other required document
that would be incorporated by reference into such Registration Statement and
Prospectus so that such Registration Statement does not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
such Prospectus does not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading, as thereafter delivered to the
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<PAGE> 12
purchasers of the Registrable Securities being sold thereunder, and, in the case
of a post-effective amendment to a Registration Statement, subject to the next
sentence, use its reasonable efforts to cause it to be declared effective as
promptly as is practicable, and (ii) give notice to the Notice Holders that the
availability of the Shelf Registration Statement is suspended (a "Deferral
Notice") and, upon receipt of any Deferral Notice, each Notice Holder agrees not
to sell any Registrable Securities pursuant to the Registration Statement until
such Notice Holder's receipt of copies of the supplemented or amended Prospectus
provided for in clause (i) above, or until it is advised in writing by the
Company that the Prospectus may be used, and has received copies of any
additional or supplemental filings that are incorporated or deemed incorporated
by reference in such Prospectus. The Company will use all reasonable efforts to
ensure that the use of the Prospectus may be resumed (x) in the case of clause
(A) above, as promptly as is practicable, (y) in the case of clause (B) above,
as soon as, in the sole judgment of the Company, public disclosure of such
Material Event would not be prejudicial to or contrary to the interests of the
Company or, if necessary to avoid unreasonable burden or expense, as soon as
practicable thereafter and (z) in the case of clause (C) above, as soon as, in
the discretion of the Company, such suspension is no longer appropriate. The
Company shall be entitled to exercise its right under this Section 3(i) to
suspend the availability of the Shelf Registration Statement or any Prospectus,
without incurring or accruing any obligation to pay liquidated damages pursuant
to Section 2(e), no more than one (1) time in any three month period or four (4)
times in any twelve month period, and any such period during which the
availability of the Registration Statement and any Prospectus is suspended (the
"Deferral Period") shall, without incurring any obligation to pay liquidated
damages pursuant to Section 2(e), not exceed 30 days; provided, that in the case
of a Material Event relating to an acquisition or a probable acquisition or
financing, recapitalization, business combination or other similar transaction,
the Company may, without incurring any obligation to pay liquidated damages
pursuant to Section 2(e), deliver to Notice Holders a second notice to the
effect set forth above, which shall have the effect of extending the Deferral
Period by up to an additional 30 days, or such shorter period of time as is
specified in such second notice, provided, that the aggregate duration of any
Deferral Periods shall not, without incurring any obligation to pay liquidated
damages pursuant to Section 2(e), exceed 60 days in any three month period or 90
days in any twelve (12) month period.
(j) If requested in writing in connection with a disposition of
Registrable Securities pursuant to a Registration Statement, make reasonably
available for inspection during normal business hours by a representative for
the Notice Holders of such Registrable Securities and any broker-dealers,
attorneys and accountants retained by such Notice Holders, all relevant
financial and other records and pertinent corporate documents and properties of
the Company and its subsidiaries, and cause the appropriate officers, directors
and employees of the Company and its subsidiaries to make reasonably available
for inspection during normal business hours on reasonable notice all relevant
information reasonably requested by such representative for the Notice Holders
or any such broker-dealers, attorneys or accountants in connection with such
disposition, in each case as is customary for similar "due diligence"
examinations; provided, however, that such persons shall first agree in writing
with the Company that any information that
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<PAGE> 13
is reasonably and in good faith designated by the Company in writing as
confidential at the time of delivery of such information shall be kept
confidential by such persons and shall be used solely for the purposes of
exercising rights under this Agreement, unless (i) disclosure of such
information is required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities, (ii) disclosure of such
information is required by law (including any disclosure requirements pursuant
to federal securities laws in connection with the filing of any Registration
Statement or the use of any Prospectus referred to in this Agreement), (iii)
such information becomes generally available to the public other than as a
result of a disclosure or failure to safeguard by any such person or (iv) such
information becomes available to any such person from a source other than the
Company and such source is not bound by a confidentiality agreement, and
provided, that the foregoing inspection and information gathering shall, to the
greatest extent possible, be coordinated on behalf of all the Notice Holders and
the other parties entitled thereto by the counsel referred to in Section 5 and
provided further, that the Company shall not be required to disclose any
information subject to the attorney-client or attorney work product privilege if
and to the extent such disclosure would constitute a waiver of such privilege.
(k) Use all reasonable efforts to comply with all applicable rules and
regulations of the SEC and make generally available to its securityholders
earning statements (which need not be audited) satisfying the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act) no later than 45 days after the end of any
3-month period (or 90 days after the end of any 12-month period if such period
is a fiscal year) commencing on the first day of the first fiscal quarter of the
Company commencing after the effective date of a Registration Statement, which
statements shall cover said periods.
(l) Cooperate with each Notice Holder to facilitate the timely
preparation and delivery of certificates representing Registrable Securities
sold or to be sold pursuant to a Registration Statement, which certificates
shall not bear any restrictive legends, and cause such Registrable Securities to
be in such denominations as are permitted by the Indenture and registered in
such names as such Notice Holder may request in writing at least two (2)
Business Days prior to any sale of such Registrable Securities.
(m) Provide a CUSIP number for all Registrable Securities covered by
each Registration Statement not later than the effective date of such
Registration Statement and provide the Trustee and the transfer agent for the
Common Stock with printed certificates for the Registrable Securities that are
in a form eligible for deposit with The Depository Trust Company.
(n) Provide such information as is required for any filings required to
be made with the National Association of Securities Dealers, Inc.
(o) Upon (i) the filing of the Initial Registration Statement and (ii)
the effectiveness of the Initial Registration Statement, announce the same, in
each case by release to Reuters Economic Services and Bloomberg Business News.
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<PAGE> 14
SECTION 4. Holder's Obligations. Each Holder agrees, by acquisition of
the Registrable Securities, that no Holder of Registrable Securities shall be
entitled to sell any of such Registrable Securities pursuant to a Registration
Statement or to receive a Prospectus relating thereto, unless such Holder has
furnished the Company with a Notice and Questionnaire as required pursuant to
Section 2(d) hereof (including the information required to be included in such
Notice and Questionnaire) and the information set forth in the next sentence.
Each Notice Holder agrees promptly to furnish to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such Notice Holder not misleading and any other information
regarding such Notice Holder and the distribution of such Registrable Securities
as the Company may from time to time reasonably request. Any sale of any
Registrable Securities by any Holder shall constitute a representation and
warranty by such Holder that the information relating to such Holder and its
plan of distribution is as set forth in the Prospectus delivered by such Holder
in connection with such disposition, that such Prospectus does not as of the
time of such sale contain any untrue statement of a material fact relating to or
provided by such Holder or its plan of distribution and that such Prospectus
does not as of the time of such sale omit to state any material fact relating to
or provided by such Holder or its plan of distribution necessary to make the
statements in such Prospectus, in the light of the circumstances under which
they were made, not misleading.
SECTION 5. Registration Expenses. The Company shall bear all fees and
expenses incurred in connection with the performance by the Company of its
obligations under Sections 2 and 3 of this Agreement whether or not any of the
Registration Statements are declared effective. Such fees and expenses shall
include, without limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (x) with respect to filings required to be
made with the National Association of Securities Dealers, Inc. and (y) of
compliance with federal and state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of the counsel specified
in the next sentence in connection with Blue Sky qualifications of the
Registrable Securities under the laws of such jurisdictions as the Notice
Holders of a majority of the Registrable Securities being sold pursuant to a
Registration Statement may designate), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
in a form eligible for deposit with The Depository Trust Company), (iii)
duplication expenses relating to copies of any Registration Statement or
Prospectus delivered to any Holders hereunder, (iv) fees and disbursements of
counsel for the Company in connection with the Shelf Registration Statement, (v)
reasonable fees and disbursements of the Trustee and its counsel and of the
registrar and transfer agent for the Common Stock and (vi) Securities Act
liability insurance obtained by the Company in its sole discretion. In addition,
the Company shall bear or reimburse the Notice Holders for the reasonable fees
and disbursements of one firm of legal counsel for the Holders, which shall
initially be Wilson Sonsini Goodrich & Rosati, but which may, with the written
consent of the Initial Purchasers (which shall not be unreasonably withheld), be
another nationally recognized law firm experienced in securities law matters
designated by the Company. In addition, the Company shall pay the internal
expenses of the Company (including, without limitation, all salaries and
expenses of officers and employees performing legal or accounting
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<PAGE> 15
duties), the expense of any annual audit, the fees and expenses incurred in
connection with the listing by the Company of the Registrable Securities on any
securities exchange on which similar securities of the Company are then listed
and the fees and expenses of any person, including special experts, retained by
the Company. Notwithstanding the provisions of this Section 5, each seller of
Registrable Securities shall pay selling expenses and all registration expenses
to the extent required by applicable law.
SECTION 6. Indemnification.
(a) Indemnification by the Company. The Company shall indemnify and
hold harmless each Notice Holder and each person, if any, who controls any
Notice Holder (within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act) from and against any losses, liabilities,
claims, damages and expenses (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) (collectively, "Losses"), arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, provided,
however, that the Company shall not be liable in any such case to the extent
that any such Losses arise out of or are based upon an untrue statement or
alleged untrue statement contained in or omission or alleged omission from any
of such documents in reliance upon and conformity with any of the information
relating to the Holders furnished to the Company in writing by a Holder
expressly for use therein; provided further, that the indemnification contained
in this paragraph shall not inure to the benefit of any Holder of Registrable
Securities (or to the benefit of any person controlling such Holder) on account
of any such Losses arising out of or based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any preliminary
prospectus provided in each case the Company has performed its obligations under
Section 3(a) hereof if either (A) (i) such Holder failed to send or deliver a
copy of the Prospectus with or prior to the delivery of written confirmation of
the sale by such Holder to the person asserting the claim from which such Losses
arise and (ii) the Prospectus would have corrected such untrue statement or
alleged untrue statement or such omission or alleged omission, or (B) (x) such
untrue statement or alleged untrue statement, omission or alleged omission is
corrected in an amendment or supplement to the Prospectus and (y) having
previously been furnished by or on behalf of the Company with copies of the
Prospectus as so amended or supplemented, such Holder thereafter fails to
deliver such Prospectus as so amended or supplemented, with or prior to the
delivery of written confirmation of the sale of a Registrable Security to the
person asserting the claim from which such Losses arise.
(b) Indemnification by Holders of Registrable Securities. Each Holder
agrees severally and not jointly to indemnify and hold harmless the Company and
its respective directors and officers, and each person, if any, who controls the
Company (within the meaning of either
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<PAGE> 16
Section 15 of the Securities Act or Section 20 of the Exchange Act) or any other
Holder, from and against all Losses arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with information furnished to the Company by such Holder expressly
for use in such Registration Statement or Prospectus or amendment or supplement
thereto. In no event shall the liability of any selling Holder of Registrable
Securities hereunder be greater in amount than the dollar amount of the proceeds
received by such Holder upon the sale of the Registrable Securities pursuant to
the Registration Statement giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. In case any proceeding
(including any governmental investigation) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to either of the two
preceding paragraphs, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the "indemnifying
party") in writing and the indemnifying party, upon request of the indemnified
party, shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the reasonable fees and disbursements
of such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. It is understood that the indemnifying party shall not, in respect of the
legal expenses of any indemnified party in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one separate firm (in addition to any local counsel) for
all indemnified parties, and that all such fees and expenses shall be reimbursed
as they are incurred. Such separate firm shall be designated in writing by, in
the case of parties indemnified pursuant to Section 6(a), the Holders of a
majority (with Holders of Notes deemed to be the Holders, for purposes of
determining such majority, of the number of shares of Underlying Common Stock
into which such Notes are or would be convertible or exchangeable as of the date
on which such designation is made) of the Registrable Securities covered by the
Registration Statement held by Holders that are indemnified parties pursuant to
Section 6(a) and, in the case of parties indemnified pursuant to Section 6(b),
the Company. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent, but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement
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<PAGE> 17
or judgment. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(d) Contribution. To the extent that the indemnification provided for
in this Section 6 is unavailable to an indemnified party under Section 6(a) or
6(b) hereof in respect of any Losses or is insufficient to hold such indemnified
party harmless, then each applicable indemnifying party, in lieu of indemnifying
such indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
or parties on the one hand and the indemnified party or parties on the other
hand or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the indemnifying party or parties on the one hand and of the indemnified party
or parties on the other hand in connection with the statements or omissions that
resulted in such Losses, as well as any other relevant equitable considerations.
Benefits received by the Company shall be deemed to be equal to the total net
proceeds from the initial placement pursuant to the Purchase Agreement (before
deducting expenses) of the Registrable Securities to which such Losses relate.
Benefits received by any Holder shall be deemed to be equal to the value of
receiving Registrable Securities that are registered under the Securities Act.
The relative fault of the Holders on the one hand and the Company on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Holders
or by the Company, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Holders' respective obligations to contribute pursuant to this paragraph are
several in proportion to the respective number of Registrable Securities they
have sold pursuant to a Registration Statement, and not joint.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method or allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the Losses
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding this Section 6(d), an
indemnifying party that is a selling Holder of Registrable Securities shall not
be required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities sold by such indemnifying party and
distributed to the public were offered to the public exceeds the amount of any
damages that such indemnifying party has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
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<PAGE> 18
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
(e) The indemnity, contribution and expense reimbursement obligations
of the parties hereunder shall be in addition to any liability any indemnified
party may otherwise have hereunder, under the Purchase Agreement or otherwise.
(f) The indemnity and contribution provisions contained in this Section
6 shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Holder or any person controlling any Holder, or the Company, or the
Company's officers or directors or any person controlling the Company and (iii)
the sale of any Registrable Securities by any Holder.
SECTION 7. Information Requirements. (a) The Company covenants that, if
at any time before the end of the Effectiveness Period the Company is not
subject to the reporting requirements of the Exchange Act, it will cooperate
with any Holder of Registrable Securities and take such further reasonable
action as any Holder of Registrable Securities may reasonably request in writing
(including, without limitation, making such reasonable representations as any
such Holder may reasonably request), all to the extent required from time to
time to enable such Holder to sell Registrable Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144 and Rule 144A under the Securities Act and customarily taken in
connection with sales pursuant to such exemptions. Upon the written request of
any Holder of Registrable Securities, the Company shall deliver to such Holder a
written statement as to whether it has complied with such filing requirements,
unless such a statement has been included in the Company's most recent report
filed pursuant to Section 13 or Section 15(d) of Exchange Act. Notwithstanding
the foregoing, nothing in this Section 7 shall be deemed to require the Company
to register any of its securities (other than the Common Stock) under any
section of the Exchange Act.
SECTION 8. Miscellaneous.
(a) No Conflicting Agreements. The Company is not, as of the date
hereof, a party to, nor shall it, on or after the date of this Agreement, enter
into, any agreement with respect to its securities that conflicts with the
rights granted to the Holders of Registrable Securities in this Agreement. The
Company represents and warrants that the rights granted to the Holders of
Registrable Securities hereunder do not in any way conflict with the rights
granted to the holders of the Company's securities under any other agreements.
(b) Amendments and Waivers. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of Holders of a
majority of the then outstanding Underlying
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<PAGE> 19
Common Stock constituting Registrable Securities (with Holders of Notes deemed
to be the Holders, for purposes of this Section, of the number of outstanding
shares of Underlying Common Stock into which such Notes are or would be
convertible or exchangeable as of the date on which such consent is requested).
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders of Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders of Registrable Securities may be given by Holders of at
least a majority of the Registrable Securities being sold by such Holders
pursuant to such Registration Statement; provided, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence. Each Holder of Registrable
Securities outstanding at the time of any such amendment, modification,
supplement, waiver or consent or thereafter shall be bound by any such
amendment, modification, supplement, waiver or consent effected pursuant to this
Section 8(b), whether or not any notice, writing or marking indicating such
amendment, modification, supplement, waiver or consent appears on the
Registrable Securities or is delivered to such Holder.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, by telecopier, by
courier guaranteeing overnight delivery or by first-class mail, return receipt
requested, and shall be deemed given (i) when made, if made by hand delivery,
(ii) upon confirmation, if made by telecopier, (iii) one (1) Business Day after
being deposited with such courier, if made by overnight courier or (iv) on the
date indicated on the notice of receipt, if made by first-class mail, to the
parties as follows:
(w) if to a Holder of Registrable Securities, at the most
current address given by such Holder to the Company
in a Notice and Questionnaire or any amendment
thereto;
(x) if to the Company, to:
Conexant Systems, Inc.
4311 Jamboree Road
Newport Beach, California 92660-3095
Attention: General Counsel
Telecopy No.: (949) 483-4391
and
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Peter R. Kolyer
Telecopy No.: (212) 541-5369
-19-
<PAGE> 20
(y) if to the Initial Purchasers, to:
Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York
Attention: Equity Capital Markets
Telecopy No.: (212) 761-0538
And
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Attention: John A. Fore, Esq.
Telecopy No.: (650) 493-6811
or to such other address as such person may have furnished to the other persons
identified in this Section 8(c) in writing in accordance herewith.
(d) Approval of Holders. Whenever the consent or approval of Holders of
a specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company or its affiliates (as such term is
defined in Rule 405 under the Securities Act) (other than the Initial Purchasers
or subsequent Holders of Registrable Securities if such subsequent Holders are
deemed to be such affiliates solely by reason of their holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.
(e) Successors and Assigns. Any person who purchases any Registrable
Securities from the Initial Purchasers shall be deemed, for purposes of this
Agreement, to be an assignee of the Initial Purchasers. This Agreement shall
inure to the benefit of and be binding upon the successors and assigns of each
of the parties and shall inure to the benefit of and be binding upon each Holder
of any Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be original and all of which taken together
shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
-20-
<PAGE> 21
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES THEREOF.
(i) Severability. If any term provision, covenant or restriction of
this Agreement is held to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated thereby, and the parties hereto shall use their best efforts to
find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction, it being intended that all of the rights and privileges of the
parties shall be enforceable to the fullest extent permitted by law.
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and the registration rights
granted by the Company with respect to the Registrable Securities. Except as
provided in the Purchase Agreement, there are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein,
with respect to the registration rights granted by the Company with respect to
the Registrable Securities. This Agreement supersedes all prior agreements and
undertakings among the parties with respect to such registration rights. No
party hereto shall have any rights, duties or obligations other than those
specifically set forth in this Agreement. In no event will such methods of
distribution take the form of an underwritten offering of the Registrable
Securities without the prior agreement of the Company.
(k) Termination. This Agreement and the obligations of the parties
hereunder shall terminate upon the end of the Effectiveness Period, except for
any liabilities or obligations under Section 4, 5 or 6 hereof and the
obligations to make payments of and provide for liquidated damages under Section
2(e) hereof to the extent such damages accrue prior to the end of the
Effectiveness Period, each of which shall remain in effect in accordance with
its terms.
-21-
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
CONEXANT SYSTEMS, INC.
By /s/ Balakrishnan S. Iyer
---------------------------------
Name: Balakrishnan S. Iyer
Title: Chief Financial Officer
Confirmed and accepted as of the date first above written:
MORGAN STANLEY & CO. INCORPORATED
CREDIT SUISSE FIRST BOSTON CORPORATION
LEHMAN BROTHERS, INC.
By: Morgan Stanley & Co. Incorporated
By /s/ William R. Salisbury
-----------------------------------
Name: William R. Salisbury
Title: Principal
-22-
<PAGE> 1
Exhibit 5
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10012
212-408-5100
July 7, 1999
Conexant Systems, Inc.
4311 Jamboree Road
Newport Beach, CA 92660-3095
Ladies and Gentlemen:
In connection with the registration under the Securities Act
of 1933, as amended (the "Act"), by Conexant Systems, Inc., a Delaware
corporation (the "Company"), of (i) $350,000,000 aggregate principal amount of
the Company's 4-1/4% Convertible Subordinated Notes Due May 1, 2006 (the
"Notes") issued pursuant to an Indenture dated as of May 1, 1999 (the
"Indenture"), between the Company and The First National Bank of Chicago, as
Trustee (the "Trustee"), and (ii) such indeterminate number of shares of Common
Stock, par value $1 per share, of the Company (including the associated
Preferred Share Purchase Rights of the Company) issuable upon conversion of the
Notes (collectively, the "Conversion Shares"), we advise as follows:
<PAGE> 2
Conexant Systems, Inc. -2- July 7, 1999
The Notes and the Conversion Shares are to be offered and sold
by certain securityholders of the Company. As counsel for the Company, we are
familiar with the Restated Certificate of Incorporation and By-Laws of the
Company, each as amended to the date hereof, and we have reviewed the
Registration Statement on Form S-3 to be filed by the Company under the Act with
respect to the Notes and the Conversion Shares (the "Registration Statement")
and the corporate proceedings taken by the Company in connection with the
authorization of the Notes and the Conversion Shares. We have also examined
originals, or copies certified to our satisfaction, of such corporate records of
the Company and other instruments, certificates of public officials and
representatives of the Company, and other documents as we have deemed necessary
as a basis for the opinion hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures, the authenticity of all documents
submitted to us as originals and the conformity with the originals of all
documents submitted to us as copies. As to questions of fact material to this
opinion, we have, when relevant facts were not independently established, relied
upon certificates of officers of the Company and appropriate public officials.
On the basis of the foregoing, and having regard for such
legal considerations as we deem relevant, we are of the
<PAGE> 3
Conexant Systems, Inc. -3- July 7, 1999
opinion that (i) the Notes have been legally and validly issued and constitute
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the enforcement of creditors' rights in general and
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law) and (ii) the Conversion Shares,
when and if delivered upon the due conversion of the Notes in accordance with
the Indenture and the terms of the Notes, will, when so delivered, be legally
and validly issued, fully paid and non-assessable.
We express no opinion herein as to any laws other than the
laws of the State of New York, the corporate laws of the State of Delaware and
the Federal laws of the United States.
We hereby consent to the filing of this opinion as an Exhibit
to the Registration Statement. We also hereby consent to the reference to this
firm under the caption "Legal Matters" in the Prospectus constituting a part of
the Registration Statement.
Very truly yours,
CHADBOURNE & PARKE LLP
<PAGE> 1
EXHIBIT 12
CONEXANT SYSTEMS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands, except ratios)
<TABLE>
<CAPTION>
Six Months Ended
Fiscal Year Ended September 30, (1) March 31,
-------------------------------------------------- ------------------
1998 1997 1996 1995 1994 1999 1998
--------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(Loss) income before income taxes $(430,328) $179,762 $197,161 $110,487 $100,392 $(86,434) $ 9,105
Add fixed charges:
Interest expense 0 0 0 0 0 1,683 0
Interest element of rent expenses 5,795 3,984 2,022 1,566 1,273 2,226 2,664
Amortization of debt issuance costs 0 0 0 0 0 396 0
--------- -------- -------- -------- -------- -------- -------
Total fixed charges 5,795 3,984 2,022 1,566 1,273 4,305 2,664
--------- -------- -------- -------- -------- -------- -------
Total (loss) earnings available for fixed charges $(424,533) $183,746 $199,183 $112,053 $101,665 $(82,129) $11,769
--------- -------- -------- -------- -------- -------- -------
Ratio of earnings to fixed charges(2) -- 46.1 98.5 71.6 79.9 -- 4.4
</TABLE>
(1) The financial information presented for the periods prior to December 31,
1998 has been presented based on the combined historical financial position,
results of operations and cash flows of the ongoing semiconductor business of
Rockwell prior to the Distribution and is not necessarily indicative of what the
financial position, results of operations or cash flows would have been had we
been an independent public company during the periods presented.
(2) Computed by dividing (i) earnings before taxes adjusted for fixed charges by
(ii) fixed charges, which include interest expense plus the portion of interest
expense under operating leases deemed by us to be representative of the interest
factor plus amortization of debt issuance costs. For the fiscal year ended
September 30, 1998 and the six months ended March 31, 1999 our losses before
taxes of $430.3 million and $86.4 million, respectively, were not adequate to
cover fixed charges of $5.8 million and $4.3 million, respectively.
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Conexant Systems, Inc. on Form S-3 of our report dated November 4, 1998, on the
combined financial statements and financial statement schedule of the
Semiconductor Systems Business of Rockwell International Corporation, appearing
in the Registration Statement on Form 10 (File No. 000-24923), as amended, of
Conexant Systems, Inc. We also consent to the reference to us under the heading
"Experts" in the Prospectus, which is part of such Registration Statement.
DELOITTE & TOUCHE LLP
Costa Mesa, California
July 6, 1999
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
I, the undersigned Director and/or Officer of Conexant Systems, Inc., a
Delaware corporation (the "Company"), hereby constitute DENNIS E. O'REILLY,
JASMINA A. THEODORE and PETER R. KOLYER, and each of them singly, my true and
lawful attorneys with full power to them and each of them to sign for me, and in
my name and in the capacity or capacities indicated below, the Registration
Statement on Form S-3 to be filed by the Company with the Securities and
Exchange Commission (the "Commission") for the purpose of (a) registering under
the Securities Act of 1933, as amended (the "Securities Act"), the offer and
resale by certain holders of (i) up to $350,000,000 aggregate principal amount
of the Company's 4-1/4% Convertible Subordinated Notes Due May 1, 2006 (the
"Notes") previously sold by the Company in a private placement to certain
qualified institutional buyers (as defined in Rule 144A under the Securities
Act) and a limited number of other institutional "accredited investors" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and (ii)
shares of Common Stock, par value $1 per share, of the Company (including the
associated Preferred Share Purchase Rights) (collectively, the "Common Stock")
issuable or deliverable upon conversion of such Notes, and any and all
amendments (including post-effective amendments) and supplements to such
Registration Statement and (b) qualifying the related Indenture dated as of May
1, 1999 between the Company and The First National Bank of Chicago under the
Trust Indenture Act of 1939, as amended.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Dwight W. Decker Chairman of the Board and
- ------------------------ Chief Executive Officer (principal
Dwight W. Decker executive officer) and Director June 21, 1999
/s/ Donald R. Beall
- ------------------------
Donald R. Beall Director June 21, 1999
/s/ Richard M. Bressler
- ------------------------
Richard M. Bressler Director June 22, 1999
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
/s/ F. Craig Farrill
- ------------------------
F. Craig Farrill Director June 8, 1999
/s/ Jerre L. Stead
- ------------------------
Jerre L. Stead Director June 21, 1999
/s/ Balakrishnan S. Iyer Senior Vice President and
- ------------------------ Chief Financial Officer
Balakrishnan S. Iyer (principal financial officer) June 21, 1999
/s/ Steven M. Thomson
------------------------ Vice President and Controller
Steven M. Thomson (principal accounting officer) June 7, 1999
</TABLE>
-2-
<PAGE> 1
Exhibit 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)
----------------------------
THE FIRST NATIONAL BANK OF CHICAGO
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
A NATIONAL BANKING ASSOCIATION 36-0899825
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
ONE FIRST NATIONAL PLAZA, CHICAGO, ILLINOIS 60670-0126
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
THE FIRST NATIONAL BANK OF CHICAGO
ONE FIRST NATIONAL PLAZA, SUITE 0286
CHICAGO, ILLINOIS 60670-0286
ATTN: LYNN A. GOLDSTEIN, LAW DEPARTMENT (312) 732-6919
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
-----------------------------
CONEXANT SYSTEMS, INC.
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
DELAWARE 25-1799439
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
4311 JAMBOREE ROAD
NEWPORT BEACH, CALIFORNIA 92660-3095
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
CONVERTIBLE SUBORDINATED NOTES
(TITLE OF INDENTURE SECURITIES)
<PAGE> 2
ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE
TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
Comptroller of Currency, Washington, D.C., Federal Deposit Insurance
Corporation, Washington, D.C., The Board of Governors of the Federal
Reserve System, Washington D.C.
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE
TRUSTEE, DESCRIBE EACH SUCH AFFILIATION.
No such affiliation exists with the trustee.
ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS A PART OF THIS
STATEMENT OF ELIGIBILITY.
1. A copy of the articles of association of the trustee now in
effect.*
2. A copy of the certificates of authority of the trustee to
commence business.*
3. A copy of the authorization of the trustee to exercise
corporate trust powers.*
4. A copy of the existing by-laws of the trustee.*
5. Not Applicable.
6. The consent of the trustee required by Section 321(b) of the
Act.
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
<PAGE> 3
8. Not Applicable.
9. Not Applicable.
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, The First National Bank of Chicago, a national banking
association organized and existing under the laws of the United States of
America, has duly caused this Statement of Eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of Chicago
and the State of Illinois, on this 16th day of June, 1999.
THE FIRST NATIONAL BANK OF CHICAGO,
TRUSTEE
By /s/ F. Henry Kleschen III
-------------------------
F. Henry Kleschen III
Vice President
* Exhibits 1, 2, 3 and 4 are herein incorporated by reference to Exhibits
bearing identical numbers in Item 16 of the Form T-1 of The First National Bank
of Chicago, filed as Exhibit 25 to the Registration Statement on Form S-3 of U S
WEST Capital Funding, Inc. filed with the Securities and Exchange Commission on
May 6, 1998 (Registration No. 333-51907-01).
<PAGE> 4
EXHIBIT 6
THE CONSENT OF THE TRUSTEE REQUIRED
BY SECTION 321(b) OF THE ACT
June 16, 1999
Securities and Exchange Commission
Washington, D.C. 20549
Ladies and Gentlemen:
In connection with the qualification of an indenture between
Conexant Systems, Inc. and The First National Bank of Chicago, the undersigned,
in accordance with Section 321(b) of the Trust Indenture Act of 1939, as
amended, hereby consents that the reports of examinations of the undersigned,
made by Federal or State authorities authorized to make such examinations, may
be furnished by such authorities to the Securities and Exchange Commission upon
its request therefor.
Very truly yours,
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ F. Henry Kleschen III
-------------------------
F. Henry Kleschen III
Vice President
<PAGE> 5
EXHIBIT 7
Legal Title of Bank: The First National Bank of Chicago
Call Date: 03/31/99 ST-BK: 17-1630 FFIEC 031
Address: One First National Plaza, Ste 0460 Page RC-1
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL AND STATE-CHARTERED
SAVINGS BANKS FOR MARCH 31, 1999
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding of the last business day of the
quarter.
SCHEDULE RC--BALANCE SHEET
<TABLE>
<CAPTION>
DOLLAR AMOUNTS IN THOUSANDS C400
RCFD BIL MIL THOU
---- ------------
<S> <C> <C> <C>
ASSETS
1. Cash and balances due from depository institutions (from Schedule
RC-A): RCFD
a. Noninterest-bearing balances and currency and coin(1) .................. 0081 3,809,517 1.a
b. Interest-bearing balances(2) ........................................... 0071 4,072,166 1.b
2. Securities
a. Held-to-maturity securities(from Schedule RC-B, column A) .............. 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D)............ 1773 12,885,728 2.b
3. Federal funds sold and securities purchased under agreements to
resell .................................................................... 1350 4,684,756 3.
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RCFD
RC-C)............................................ ........................ 2122 34,304,806 4.a
b. LESS: Allowance for loan and lease losses .............................. 3123 411,476 4.b
c. LESS: Allocated transfer risk reserve .................................. 3128 3,884 4.c
d. Loans and leases, net of unearned income, allowance, and RCFD
reserve (item 4.a minus 4.b and 4.c) ................................... 2125 33,889,446 4.d
5. Trading assets (from Schedule RD-D) ....................................... 3545 5,100,499 5.
6. Premises and fixed assets (including capitalized leases) .................. 2145 754,052 6.
7. Other real estate owned (from Schedule RC-M) .............................. 2150 5,244 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M) ............................................ 2130 201,068 8.
9. Customers' liability to this bank on acceptances outstanding .............. 2155 265,041 9.
10. Intangible assets (from Schedule RC-M) .................................... 2143 285,709 10.
11. Other assets (from Schedule RC-F) ......................................... 2160 2,987,184 11.
12. Total assets (sum of items 1 through 11) .................................. 2170 68,940,410 12.
</TABLE>
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 6
Legal Title of Bank: The First National Bank of Chicago
Call Date: 03/31/99 ST-BK: 17-1630 FFIEC 031
Address: One First National Plaza, Ste 0460 Page RC-2
City, State Zip: Chicago, IL 60670
FDIC Certificate No.: 0/3/6/1/8
SCHEDULE RC-CONTINUED
<TABLE>
<CAPTION>
DOLLAR AMOUNTS
IN
THOUSANDS
---------
<S> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C RCON
from Schedule RC-E, part 1) ............................................ 2200 22,163,664 13.a
(1) Noninterest-bearing(1) ............................................. 6631 9,740,100 13.a1
(2) Interest-bearing ................................................... 6636 12,423,564 13.a2
b. In foreign offices, Edge and Agreement subsidiaries, and RCFN
IBFs (from Schedule RC-E, part II) ..................................... 2200 19,273,426 13.b
(1) Noninterest bearing ................................................ 6631 334,741 13.b1
(2) Interest-bearing ................................................... 6636 18,938,685 13.b2
14. Federal funds purchased and securities sold under agreements
to repurchase: RCFD 2800 4,405,792 14
15. a. Demand notes issued to the U.S. Treasury RCON 2840 173,505 15.a
b. Trading Liabilities(from Schedule RC-D) ................................ RCFD 3548 4,824,567 15.b
16. Other borrowed money: RCFD
a. With original maturity of one year or less ............................. 2332 7,453,761 16.a
b. With original maturity of more than one year .......................... A547 330,300 16.b
c. With original maturity of more than three years ....................... A548 357,737 16.c
17. Not applicable
18. Bank's liability on acceptance executed and outstanding ................... 2920 265,041 18.
19. Subordinated notes and debentures ......................................... 3200 2,600,000 19.
20. Other liabilities (from Schedule RC-G) .................................... 2930 1,878,367 20.
21. Total liabilities (sum of items 13 through 20) ............................ 2948 63,726,160 21.
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus ............................. 3838 0 23.
24. Common stock .............................................................. 3230 200,858 24.
25. Surplus (exclude all surplus related to preferred stock) .................. 3839 3,239,836 25.
26. a. Undivided profits and capital reserves ................................. 3632 1,813,367 26.a
b. Net unrealized holding gains (losses) on available-for-sale
securities ............................................................. 8434 (37,357) 26.b
c. ACCUMULATED NET GAINS (LOSSES) ON CASH FLOW HEDGES ..................... 4336 0 26.c
27. Cumulative foreign currency translation adjustments ....................... 3284 (2,454) 27.
28. Total equity capital (sum of items 23 through 27) ......................... 3210 5,214,250 28.
29. Total liabilities, limited-life preferred stock, and equity
capital (sum of items 21, 22, and 28) ..................................... 3300 68,940,410 29.
</TABLE>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that
best describes the most comprehensive level of auditing work performed
for the bank by independent external auditors as of any date
during 1996 ...................... RCFD 6724 Number
N/A M.1.
1 = Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2 = Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified
public accounting firm which submits a report on the consolidated
holding company (but not on the bank separately)
3 = Directors' examination of the bank conducted in accordance with
generally accepted auditing standards by a certified public accounting
firm (may be required by state chartering authority)
4. = Directors' examination of the bank performed by other external
auditors (may be required by state chartering authority)
5 = Review of the bank's financial statements by external auditors
6 = Compilation of the bank's financial statements by external auditors
7 = Other audit procedures (excluding tax preparation work)
8 = No external audit work
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
