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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 2000
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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4311 JAMBOREE ROAD
DELAWARE NEWPORT BEACH, CALIFORNIA 92660-3095
(STATE OR OTHER (949) 483-4600
JURISDICTION OF (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, 25-1799439
INCORPORATION OR INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL (I.R.S. EMPLOYER
ORGANIZATION) EXECUTIVE OFFICES) IDENTIFICATION NO.)
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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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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
OF SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE
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Common Stock, par value $1 per share
(including the associated Preferred Share
Purchase Rights)........................... 2,011,808 shares $107.50 $216,269,360 $57,096
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(1) The shares of common stock set forth in the Calculation of Registration Fee
Table, and which may be offered pursuant to this registration statement,
include, pursuant to Rule 416 under the Securities Act, such additional
number of shares of the Registrant's common stock as may become issuable as
a result of any stock splits, stock dividends or similar events.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act based on the average of the high and
low prices of the common stock as reported on February 10, 2000 on The
Nasdaq Stock Market, Inc. National Market System.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS INCOMPLETE AND MAY BE CHANGED. THE
SELLING SECURITYHOLDERS MAY NOT SELL THE SECURITIES TO BE SOLD BY THEM
AND CONEXANT MAY NOT SELL THE SECURITIES TO BE SOLD BY IT 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 FEBRUARY 17, 2000
PROSPECTUS
CONEXANT SYSTEMS, INC.
COMMON STOCK
(INCLUDING THE ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
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In connection with the acquisition of all outstanding shares and options of
Microcosm Communications Limited, on January 6, 2000 we issued 1,523,430 shares
of our common stock and options to purchase 94,078 shares of our common stock to
the shareholders and option holders of Microcosm. The stock options were issued
under our Microcosm Communications Limited Stock Option Plan. This prospectus
may be used by former shareholders of Microcosm to resell the common stock
received by them in the Microcosm acquisition transaction and by former option
holders of Microcosm to resell the common stock received by them upon exercise,
prior to the date of this prospectus, of the stock options they received in the
acquisition transaction. In addition, this prospectus may be used by any
transferee of those shares of common stock transferred by a former shareholder
or option holder of Microcosm. This prospectus may also be used by Conexant to
offer and sell shares of common stock upon exercise of stock options issued to
former option holders of Microcosm in the acquisition transaction.
In connection with the acquisition of the wireless broadband business unit
of Oak Technology, Inc., on January 19, 2000 we issued 293,794 shares of our
common stock to Oak Technology. This prospectus may be used by Oak Technology to
resell the common stock received by it in the acquisition transaction.
In connection with the acquisition of Istari Design, Inc., on November 9,
1999 we issued 100,506 shares of our common stock to the shareholders of Istari.
This prospectus may be used by the former shareholders of Istari to resell the
common stock received by them in the acquisition transaction.
Our common stock is traded on the Nasdaq National Market under the symbol
"CNXT". On February 16, 2000, the last reported sale price for our common stock
on the Nasdaq National Market was $122.4375 per share.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. PLEASE
CONSIDER THE "RISK FACTORS" BEGINNING ON PAGE 3 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 , 2000.
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TABLE OF CONTENTS
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Summary..................................................... 1
Risk Factors................................................ 3
Use of Proceeds............................................. 15
Price Range of Common Stock................................. 15
Dividend Policy............................................. 16
Determination of Option Exercise Prices..................... 16
Microcosm Stock Option Plan................................. 16
Description of Capital Stock................................ 18
U.K. Tax Considerations..................................... 23
U.S. Federal Income Tax Considerations...................... 24
Selling Securityholders..................................... 27
Plan of Distribution........................................ 29
Legal Matters............................................... 31
Experts..................................................... 32
How to Obtain More Information.............................. 32
Forward-Looking Statements.................................. 33
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SUMMARY
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 communications products, we draw upon our expertise
in mixed-signal processing technology to deliver integrated systems and
semiconductor products 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,
personal imaging devices and equipment, and emerging cable and wireless
broadband communications networks. We align our business into five product
platforms:
- Network Access
- Wireless Communications
- Digital Infotainment
- Personal Imaging
- Personal Computing
Before December 31, 1998, we were 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, we became an independent,
public company by means of a tax-free spin-off from Rockwell. 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.
ACQUISITION OF MICROCOSM COMMUNICATIONS LIMITED
On January 6, 2000, we completed the acquisition of all outstanding
ordinary, "A" ordinary and preference shares and options to purchase ordinary
shares of Microcosm Communications Limited, a leading supplier of high-speed
integrated circuits for fiber optic communications located in Bristol, England.
The purchase price was approximately $129 million, subject to a holdback of
approximately $18 million to pay any contingent indemnification obligations. The
closing payment was made by delivery of 1,523,430 shares of our common stock to
the shareholders of Microcosm and options to purchase 94,078 shares of our
common stock to the option holders of Microcosm. Certain shareholders and option
holders of Microcosm could receive additional consideration of up to
approximately $52 million, payable in shares of common stock and stock options,
if certain performance and technology goals are achieved.
Under the Stock Purchase Agreement dated as of January 6, 2000 among
Conexant and the shareholders and option holders of Microcosm, we have agreed to
register the resale of shares of our common stock issued at the closing of the
Microcosm acquisition transaction and the shares issuable upon exercise of the
stock options granted at the closing of the Microcosm acquisition transaction.
We have also agreed to register the resale of shares of our common stock issued
in connection with any release of the indemnification holdback or as additional
consideration if the performance and technology goals referred to above are
achieved, as well as shares of our common stock issuable upon exercise of any
stock options that may be granted in connection with those events. These
additional shares are not covered by this prospectus and will be separately
registered following the events described above.
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ACQUISITION OF OAK TECHNOLOGY LTD.
On January 19, 2000, we completed the acquisition of the wireless broadband
business unit of Oak Technology, Inc. located in Bristol, England through the
acquisition of all outstanding ordinary shares of Oak Technology, Inc.'s
wholly-owned subsidiary, Oak Technology Ltd., and certain assets related to that
business. The purchase price was approximately $25 million, payable in a
combination of shares of our common stock and cash. The closing payment included
delivery of 293,794 shares of our common stock to Oak Technology, Inc.
Under the Bill of Sale and Assignment Agreement dated as of January 19,
2000 between Conexant and Oak Technology, Inc. we have agreed to register the
shares of common stock issued to Oak Technology upon a demand by Oak Technology
or, if requested by Oak Technology, as part of a registration under the
Securities Act of 1933 by us of other shares of our common stock. Oak Technology
has requested that its shares be included in the registration statement of which
this prospectus is a part and that it be included as a selling securityholder in
this prospectus.
ACQUISITION OF ISTARI DESIGN, INC.
On November 9, 1999, we completed the acquisition of Istari Design, Inc.
through the merger of a wholly-owned subsidiary of Conexant with and into
Istari, as a result of which Istari became a wholly-owned subsidiary of
Conexant. In the merger, the shareholders of Istari received an aggregate of
100,506 shares of our common stock. Under the Agreement and Plan of
Reorganization dated November 9, 1999, among Conexant, Istari Acquisition Corp.
and Istari and the Registration Rights Agreement dated as of November 10, 1999
between Conexant and the shareholders of Istari, we have agreed to register the
shares of common stock issued to the former shareholders of Istari, if requested
by them, as part of a registration under the Securities Act of 1933 by us of
other shares of our common stock, including shares held by other shareholders of
Conexant. Each of the former shareholders of Istari has requested that his
shares of our common stock be included in the registration statement of which
this prospectus is a part and that he be included as a selling securityholder in
the prospectus.
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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 our
common stock.
OUR FUTURE SUCCESS DEPENDS LARGELY ON THE GROWTH 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:
- Network Access;
- Wireless Communications;
- Digital Infotainment; and
- Personal Imaging.
We believe that these platforms offer higher growth prospects than our
dial-up 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 our expansion
platforms; and
- second, whether these platforms will increase their contribution to our
financial performance and be sufficient to offset the decline in sales of
our dial-up PC modem chipset products.
There are numerous risks inherent in our 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 the ability of our customers to develop new
and enhanced products and to successfully introduce and 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 MUST INCUR SUBSTANTIAL RESEARCH AND DEVELOPMENT EXPENSES.
The semiconductor industry requires substantial investment in research and
development. In order to remain competitive, we must continue to make
substantial investments in research and development to develop new and enhanced
products. We cannot assure you that we will have sufficient resources to develop
new and enhanced technologies and competitive products. 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.
OUR SUCCESS IS DEPENDENT UPON OUR ABILITY TO TIMELY DEVELOP NEW PRODUCTS AND
REDUCE COSTS.
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,
among others:
- our ability to anticipate customer and market requirements and changes in
technology and industry standards;
- our ability to accurately define new products;
- our ability to timely complete new products and introduce our products to
the market;
- our ability to differentiate our products from offerings of our
competitors; and
- market acceptance of our products.
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Furthermore, we are required 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, prices of established products may decline, sometimes
significantly, over time. We believe that in order 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 MUST INCUR SIGNIFICANT CAPITAL EXPENDITURES FOR MANUFACTURING TECHNOLOGY AND
EQUIPMENT TO REMAIN COMPETITIVE.
The semiconductor industry is highly capital intensive. Semiconductor
manufacturing requires a constant upgrading of process technology to remain
competitive, as new and enhanced semiconductor processes are developed which
permit smaller, more efficient and more powerful semiconductor devices. We
maintain our own manufacturing, assembly and test facilities which have required
and will continue to require significant investments in manufacturing technology
and equipment.
We expect fiscal 2000 capital expenditures to be substantially higher than
the $214 million spent on capital expenditures during fiscal 1999. There can be
no assurance that we will have sufficient capital resources to make necessary
investments in manufacturing technology and equipment.
WE FACE A RISK THAT CAPITAL NEEDED FOR OUR BUSINESS WILL NOT BE AVAILABLE WHEN
WE NEED IT.
We believe that cash flows from operations, proceeds from our recent
offering of $650 million of our 4% convertible notes due 2007, existing cash
reserves and available borrowings under our three-year $350 million secured
revolving credit facility 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 be the case or that
we will have access to alternative sources of capital on favorable terms or at
all.
In addition, we have and will continue to review on an ongoing basis
strategic investments and acquisitions which will help us grow our business.
These investments and acquisitions may require additional capital resources. We
cannot assure you that the capital required to fund these investments and
acquisitions will be available in the future.
OUR OPERATING RESULTS MAY BE IMPACTED BY SUBSTANTIAL QUARTERLY AND ANNUAL
FLUCTUATIONS AND MARKET DOWNTURNS.
These fluctuations are due to a number of factors, many of which are beyond
our control. These factors include, among others:
- 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;
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- market acceptance of our products and our customers' products;
- 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 order
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 our
common stock.
WE FACE A RISK THAT WE WILL BE UNABLE TO INTEGRATE COMPANIES WE ACQUIRE.
We have recently completed several acquisitions, including the recent
acquisitions of Microcosm, the wireless broadband business of Oak Technology,
Inc., and Istari. In addition, we recently announced an agreement to acquire
Maker Communications, Inc. From time to time, we evaluate acquisitions and may
make additional acquisitions in the future. Integrating acquired organizations
and their products and services may be expensive, time-consuming and a strain on
our resources. Risks we could face with respect to acquisitions include:
- the difficulty of integrating acquired technology into our product
offerings;
- the failure successfully to integrate acquired technology, resulting in
the impairment of amounts currently capitalized as intangible assets;
- the impairment of relationships with employees and customers;
- the difficulty of coordinating and integrating geographically-dispersed
operations;
- the difficulty of coordinating and integrating overall business
strategies and sales and marketing and research and development efforts;
- the potential disruption of our ongoing business and distraction of
management;
- the maintenance of brand recognition of acquired businesses;
- the maintenance of corporate cultures, controls, procedures and policies;
and
- the potential unknown liabilities associated with acquired businesses.
Our inability to address any of these risks successfully could harm our
business.
We may have difficulty in integrating any future acquisitions with our
current organization, technology and product and services offerings, and any
acquired features, functions, products or services may not achieve market
acceptance.
WE MAY NOT BE ABLE TO SUSTAIN OUR RECENT RETURN TO PROFITABILITY.
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 approximately $262 million, including inventory
write-offs of approximately $66 million, a charge for intellectual property
matters of approximately $43 million and the fourth quarter special charges.
Although we
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returned to profitability in fiscal 1999, there can be no assurance that we will
be able to sustain such profitability.
OUR CREDIT FACILITY MAY RESTRICT OUR OPERATING AND FINANCIAL FLEXIBILITY.
We entered into a three-year $350 million secured revolving credit facility
in December 1998. This credit facility is guaranteed by each of our domestic
subsidiaries and includes covenants that may restrict our operating and
financial flexibility in the future. Substantially all of our assets and the
assets of our domestic subsidiaries and the stock of our subsidiaries, subject
to certain exceptions, have been pledged as collateral to secure repayment of
this credit 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 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. Such 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, 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,
to protect our trade secrets or to 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 continue to receive in the future, claims of
infringement of intellectual property rights of others. We are a party to
certain pending proceedings involving such claims. We cannot assure you that:
- we will prevail in pending actions;
- other actions alleging infringement by us of third-party patents or
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 our 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, in certain situations 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 we take to prevent misappropriation or infringement of our
intellectual property or the intellectual property of our customers will
be successful;
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- any existing or future patents will not be challenged, invalidated or
circumvented; or
- any of the 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
fails to protect our technology it would make it 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.
OUR INTELLECTUAL PROPERTY INDEMNIFICATION PRACTICE MAY ADVERSELY IMPACT OUR
BUSINESS.
We have historically indemnified our customers for certain costs and
damages of patent infringement in circumstances where our product is the factor
creating the customer's infringement exposure. This practice generally excludes
coverage in circumstances where infringement arises out of the combination of
our products with products of others. This indemnification practice 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 our 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 OPERATE IN THE HIGHLY CYCLICAL SEMICONDUCTOR INDUSTRY.
The semiconductor industry is highly cyclical and is characterized by
constant and rapid technological change, rapid product obsolescence and price
erosion, evolving standards, short product life cycles and wide fluctuations in
product supply and demand.
The industry has experienced significant downturns, often in connection
with, or in anticipation of, maturing product cycles (of both semiconductor
companies' and their customers' products) and declines in general economic
conditions. These downturns have been characterized by diminished product
demand, production overcapacity, high inventory levels and accelerated erosion
of average selling prices.
We have, in the recent past, experienced these conditions in our dial-up PC
modem chipset business and may experience such downturns in this and other
product platforms in the future. For example, in fiscal 1998, average selling
prices for our Personal Computing 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
approximately $66 million due to lower than anticipated demand, price declines
and obsolescence of certain products. Any future downturns of this nature could
have a material adverse effect on our business, financial condition and results
of operations. From time to time the semiconductor industry also has experienced
periods of increased demand and production capacity constraints. We may
experience substantial changes in future operating results due to general
semiconductor industry conditions, general economic conditions and other
factors.
WE ARE SUBJECT TO INTENSE COMPETITION AND COULD LOSE BUSINESS TO OUR
COMPETITORS.
The semiconductor industry in general and the markets in which we compete
in particular are intensely competitive. We compete worldwide with a number of
United States and international semiconductor manufacturers that are both larger
and smaller than us in terms of resources and market share. 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 markets of the industry.
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We currently enjoy substantial market share in our V.90 and facsimile modem
chipset product lines. However, as we continue our diversification strategy and
develop our expansion platforms, we are and will be competing in certain new
markets in which we have little or no market share and existing competitors have
dominant market positions. Moreover, as with many companies in the semiconductor
industry, customers for certain of our products offer other products that
compete with similar products offered by us.
We believe that the principal competitive factors for integrated circuit
("IC") providers to our addressed markets are:
- product performance;
- level of integration;
- quality;
- compliance with industry standards;
- price;
- time-to-market;
- system cost;
- design and engineering capabilities;
- new product innovation; and
- customer support.
The specific bases on which we compete vary by product platform.
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.
As a result, such competitors may be able to adapt more quickly to new or
emerging technologies and changes in customer requirements or may be able to
devote greater resources to the development, promotion and sale of their
products than Conexant.
Current and potential 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 current and potential 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 electronic industry and the time-to-market pressures on
suppliers to decrease the time required for product conception, research and
development, sampling and production launch before a product reaches 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.
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<PAGE> 12
Consolidations by industry participants, including in some cases,
acquisitions of certain of our customers by our competitors, 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 are seeking to serve
and our ability to compete successfully in those markets.
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, which 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, which may contribute to the obsolescence of our products.
OUR MANUFACTURING PROCESS IS EXTREMELY COMPLEX AND SPECIALIZED.
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 numerous die on each wafer
not to function.
We are exploring wafer manufacturing alternatives, including increased use
of outside foundries, entering into business relationships with respect to wafer
manufacturing or other actions related to our wafer manufacturing facilities. We
cannot assure you that we will succeed in implementing any such alternatives.
Our operating results are highly dependent upon our ability to produce
large volumes of integrated circuits at acceptable manufacturing yields. Our
operations may be affected by lengthy or recurring disruptions of operations 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 could shift the products from an affected facility
or subcontractor to another facility or subcontractor.
In the event of these types of delays, we cannot assure you that the
required alternate capacity, particularly wafer production capacity, would be
available on a timely basis or at all. Even if alternate wafer production
capacity is available, we may not be able to obtain it on favorable terms, which
would result in a loss of customers. Any inability to obtain sufficient
manufacturing capacities to meet demand, either at our own facilities or through
foundry or similar arrangements with others, could have a material adverse
effect on our business, financial condition and results of operations. Certain
of our manufacturing facilities are located
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near major earthquake fault lines, including our California and Mexico
facilities. We maintain only minimal earthquake insurance coverage on these
facilities.
Due to the highly specialized nature of the gallium arsenide semiconductor
manufacturing process, in the event of a disruption at our Newbury Park,
California wafer fabrication facility, alternate gallium arsenide production
capacity would not be readily available from third party sources. Any disruption
of operations at our Newbury Park wafer fabrication facility or the interruption
in the supply of epitaxial wafers used in our 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
products.
WE MAY NOT BE ABLE TO ACHIEVE MANUFACTURING YIELDS TO MAINTAIN OUR
PROFITABILITY.
Minor deviations in the manufacturing process can cause substantial
manufacturing yield loss, and in some cases, cause production to be suspended.
Manufacturing yields for new products initially tend to be lower as we complete
product development and commence volume manufacturing, and will typically
increase as we ramp to full production. Our forward product pricing includes
this assumption of improving manufacturing yields and, as a result, material
variances between projected and actual manufacturing yields have a direct effect
on our gross margin and profitability. The difficulty of forecasting
manufacturing yields accurately and maintaining cost competitiveness through
improving manufacturing yields will continue to be magnified by the ever
increasing process complexity of manufacturing integrated circuit products. Our
manufacturing operations also face pressures arising from the compression of
product life cycles which requires us to bring new products on line faster and
for shorter periods while maintaining acceptable manufacturing yields and
quality without, in many cases, reaching the longer-term, high volume
manufacturing conducive to higher manufacturing yields and declining costs.
WE ARE DEPENDENT UPON THIRD PARTIES FOR THE SUPPLY OF RAW MATERIALS AND
COMPONENTS.
We believe we have adequate sources for the supply of raw materials and
components for our manufacturing needs with suppliers located around the world.
Raw wafers and other raw materials used in the production of our CMOS products
are available from several suppliers. We are currently dependent on a single
source supplier for epitaxial wafers used in the gallium arsenide semiconductor
manufacturing processes at our Newbury Park, California facility. However, we
are in the process of arranging alternative suppliers. The number of qualified
alternative suppliers for such wafers is limited and the process of qualifying a
new epitaxial wafer supplier could require a substantial leadtime. Although we
historically have not experienced any significant difficulties in obtaining an
adequate supply of raw materials and components necessary for our manufacturing
operations, the loss of a significant supplier or the inability of a supplier to
meet performance and quality specifications or delivery schedules could have a
material adverse effect on our business, financial condition and results of
operations.
UNCERTAINTIES INVOLVING THE ORDERING AND SHIPMENT OF OUR PRODUCTS COULD
ADVERSELY AFFECT OUR BUSINESS.
Our sales are typically made pursuant to individual purchase orders and we
generally do not have long-term supply arrangements with our customers. Our
customers may cancel orders until 30 days prior to the shipping date. In
addition, we sell a portion of our 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 difficult to
predict. The cancellation or deferral of product orders, the return of
previously sold products or overproduction due to the failure of anticipated
orders to materialize could result in our holding excess or obsolete inventory
which could have a material adverse effect on our business, financial condition
and results of operations. For example, in the fourth quarter of fiscal 1998, we
made a provision for excess and obsolete inventories of $66 million due to lower
than anticipated demand, price declines and the obsolescence of certain
products.
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WE ARE SUBJECT TO THE RISKS OF DOING BUSINESS INTERNATIONALLY.
For the fiscal year ended September 30, 1999, approximately 61 percent of
our total sales were to customers located outside the United States, primarily
in the Asia-Pacific and European countries. In addition, we have facilities and
suppliers located outside the United States, including our assembly and test
facility in Mexicali, Mexico and third-party foundries located in the
Asia-Pacific region. Our international sales and operations are subject to a
number of risks inherent in selling and operating abroad. These include, but are
not limited to, 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.
Because most of our international sales, other than sales to Japan (which
are denominated principally in Japanese yen), are currently denominated in U.S.
dollars, our products could become less competitive in international markets if
the value of the U.S. dollar increases relative to foreign currencies.
Moreover, we may be competitively disadvantaged relative to our competitors
located outside the United States who may benefit from a devaluation of their
local currency. We cannot assure you that the factors described above will not
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.
Our operating performance has been impacted by the current economic
situation in the Asia-Pacific region. This economic situation has increased the
uncertainty with respect to the long-term viability of certain of our customers
and suppliers in the region. Sales to customers in Japan and other countries in
the Asia-Pacific region, principally Taiwan, South Korea and Hong Kong,
represented approximately 52 percent of total revenues in fiscal 1999.
We enter into foreign currency forward exchange contracts, principally for
the Japanese yen, to minimize risk of loss from currency exchange rate
fluctuations for foreign currency commitments entered into in the ordinary
course of business. We have not experienced nor do we anticipate any material
adverse effect on our results of operations or financial condition related to
these foreign currency forward exchange contracts. 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.
OUR SUCCESS DEPENDS ON OUR ABILITY TO EFFECT SUITABLE INVESTMENTS, ALLIANCES OR
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. As part of our goal to provide advanced semiconductor product systems, we
have and will continue to 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
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<PAGE> 15
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 our 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 SUCCESS COULD BE NEGATIVELY AFFECTED IF KEY PERSONNEL LEAVE.
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 continue 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. The loss of the services 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.
OUR MANAGEMENT TEAM MAY BE SUBJECT TO A VARIETY OF DEMANDS FOR ITS ATTENTION.
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 MAY BE LIABLE FOR PENALTIES UNDER ENVIRONMENTAL LAWS, RULES AND REGULATIONS,
WHICH COULD NEGATIVELY AFFECT OUR SUCCESS.
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 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
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<PAGE> 16
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 at one Superfund
site located at a former silicon wafer manufacturing facility and steel
fabrication plant in Parker Ford, Pennsylvania formerly occupied by
Semiconductor Systems. The site was also formerly occupied by Recticon
Corporation and Allied Steel Products Corporation, each of whom has been named
as a potentially responsible party and each of whom is insolvent. We have
accrued approximately $4 million at September 30, 1999 for the cost of
groundwater remediation, including installation of a public water supply line
and groundwater pump and treatment system, as well as routine groundwater
sampling. In addition, we are engaged in two other remediations of groundwater
contamination at our Newport Beach and Newbury Park, California facilities for
which we have accrued approximately $4 million for the costs of remediation at
September 30, 1999. Pursuant to our agreement with Rockwell, we have assumed
liabilities in respect of environmental matters related to current and former
operations of Conexant.
WE HAVE A LIMITED HISTORY AS AN INDEPENDENT COMPANY.
We have a limited operating history as an independent company. Accordingly,
the financial information incorporated into this prospectus for periods prior to
January 1, 1999 may not necessarily reflect the results of the 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. Prior to the spin-off,
we relied on Rockwell for cash investments and various financial and
administrative services.
THE VALUE OF OUR COMMON STOCK MAY BE ADVERSELY AFFECTED BY MARKET VOLATILITY.
The trading price of our common stock fluctuates significantly. Since our
common stock began trading publicly, the reported closing price of our common
stock on the Nasdaq National Market has been as high as $122.4375 and as low as
$7.1875 per share. This price may be influenced by many factors, including:
- our performance and prospects,
- the depth and liquidity of the market for our common stock,
- investor perception of Conexant and the industry in which it operates,
- changes in earnings estimates or buy/sell recommendations by analysts,
- general financial and other market conditions, and
- domestic and international economic conditions.
In addition, public stock markets have experienced extreme price and
trading volume volatility, particularly in high technology sectors of the
market. This volatility has significantly affected the market prices of
securities of many technology companies for reasons frequently unrelated to or
disproportionately impacted by the operating performance of these companies.
These broad market fluctuations may adversely affect the market price of our
common stock.
CERTAIN PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS AND RIGHTS AGREEMENT AND
DELAWARE LAW MAY MAKE IT DIFFICULT FOR SOMEONE TO ACQUIRE CONTROL OF CONEXANT.
We have established certain anti-takeover measures that may affect our
common stock and outstanding convertible notes. Our restated certificate of
incorporation, our by-laws, our rights agreement with ChaseMellon Shareholder
Services, L.L.C., as rights agent, dated as of November 30, 1998, as amended,
and the Delaware General Corporation Law contain several provisions that would
make more difficult an acquisition of
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<PAGE> 17
control of Conexant in a transaction not approved by our board of directors. Our
restated certificate of incorporation and by-laws include provisions such as:
- the ability of our board of directors to issue shares of our preferred
stock in one or more series without further authorization of our
shareowners;
- a fair price provision;
- a prohibition on shareowner action by written consent;
- a requirement that shareowners provide advance notice of any shareowner
nominations of directors or any proposal of new business to be considered
at any meeting of shareowners;
- a requirement that a supermajority vote be obtained to remove a director
for cause or to amend or repeal certain provisions of our restated
certificate of incorporation or by-laws;
- elimination of the right of shareowners to call a special meeting of
shareowners; 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 which gives our shareowners 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 restated
certificate of incorporation and by-laws, Section 203 of the Delaware General
Corporation Law provides that, subject to certain exceptions, a corporation
shall not engage in any business combination with any interested shareowner
during the three-year period following the time that such shareowner becomes an
interested shareowner. The restrictions of Section 203 of the Delaware General
Corporation Law, in certain circumstances, make it more difficult for a person
who would be an interested shareowner to effect various business combinations
with a corporation during this three-year period. The provisions of Section 203
of the Delaware General Corporation Law provide that the shareowner 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
shareowner becoming an interested shareowner.
WE MAY BE RESPONSIBLE FOR CERTAIN FEDERAL INCOME TAX LIABILITIES THAT RELATE TO
OUR SPIN-OFF FROM ROCKWELL.
In connection with our spin-off from Rockwell, the Internal Revenue Service
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 of 1986, as amended. While the tax ruling generally is
binding on the Internal Revenue Service, 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 between Conexant
and Rockwell provides that we will be responsible for any taxes imposed on
Rockwell, Conexant or Rockwell shareowners 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 our subsidiaries) or our
shareowners, such as our acquisition by a third party at a time and in a manner
that would cause such failure or disqualification.
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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, or
- the other party has given its prior written consent, or
- in certain circumstances, a supplemental ruling permitting such 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 certain 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 shareowners in respect of those
intragroup spin-offs if such taxes are attributable to certain actions taken
after the spin-off from Rockwell by or in respect of Conexant (including our
subsidiaries) or our shareowners, 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, such payment
would have a material adverse effect on our financial position, results of
operations and cash flow.
USE OF PROCEEDS
The selling securityholders will receive all of the proceeds from the sales
of common stock by them pursuant to this prospectus. We will not receive any
proceeds from these sales. Any proceeds received by us from the exercise of the
stock options granted at the closing of the Microcosm acquisition transaction,
representing the exercise price for the stock options, will be used for general
corporate purposes. The actual amount of proceeds we receive on exercise of the
stock options will depend on how many options are ultimately exercised. However,
if all the stock options were exercised, the aggregate proceeds would not exceed
approximately $1,172,000.
PRICE RANGE OF COMMON STOCK
Our 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 our common stock as reported by the Nasdaq National Market
for the periods indicated. These per share sale prices reflect the 2-for-1 stock
split effected in the form of a stock dividend on October 29, 1999.
<TABLE>
<CAPTION>
HIGH LOW
----- ---
<S> <C> <C>
Fiscal year ending September 30, 1999:
Second quarter............................................ $ 13 27/32 $ 6 27/32
Third quarter............................................. $ 31 15/16 $13 3/16
Fourth quarter............................................ $ 41 17/32 $27 5/8
Fiscal year ending September 30, 2000:
First quarter............................................. $ 76 3/16 $30 7/8
Second quarter (through February 16, 2000)................ $ 132 1/2 $53
</TABLE>
On February 16, 2000 the last bid price of the common stock as reported on
the Nasdaq National Market was $122.4375 per share. As of January 28, 2000 there
were approximately 52,300 holders of record of our common stock.
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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
bank credit facility limits our ability to declare and pay dividends.
DETERMINATION OF OPTION EXERCISE PRICES
Pursuant to the Stock Purchase Agreement entered into in connection with
the Microcosm acquisition transaction, each holder of Microcosm options
received, in exchange for the surrender and cancellation of all of his or her
Microcosm options, a stock option to purchase that number of shares of Conexant
common stock equal to the number of shares he or she would have received if he
or she had exercised the Microcosm option and had been a Microcosm shareholder
immediately prior to the closing of the Microcosm acquisition transaction. The
exercise price per share of the new Conexant option was determined in accordance
with the Stock Purchase Agreement by aggregating the exercise prices of all
Microcosm options held by the Microcosm option holder immediately prior to the
closing and dividing it by the total number of shares of Conexant common stock
for which the new Conexant option is exercisable. This determination of the
exercise price was established through negotiations among the parties to the
Stock Purchase Agreement.
MICROCOSM STOCK OPTION PLAN
The following statements include summaries of certain provisions of our
Microcosm Communications Limited Stock Option Plan. These statements do not
purport to be complete and are qualified by reference to the provisions of the
Plan, which are incorporated by reference into this prospectus. The Plan was
adopted by Conexant's board of directors and became effective as of January 6,
2000.
PURPOSE; ELIGIBILITY
The purpose of the Plan is to provide a means for Conexant to perform its
obligations under the Stock Purchase Agreement with respect to the holders of
Microcosm options. The Microcosm options originally granted under Microcosm's
Executive Share Option Scheme were surrendered and canceled at the closing of
the Microcosm acquisition transaction. In exchange, we granted stock options
under the Plan. In addition, as additional consideration for the surrender and
cancellation of their Microcosm options, the former holders of Microcosm options
will be entitled to receive additional stock options under the Plan, in
accordance with the Stock Purchase Agreement, upon the release of the
indemnification holdback or as additional consideration payable if certain
performance or technology goals are achieved.
Only those persons who, on the closing date of the Microcosm acquisition
transaction, held Microcosm options are eligible to participate in the Plan and
be granted stock options under the Plan. These stock options may be subsequently
transferred, subject to certain restrictions on transfer.
PURCHASE PRICE
The purchase price of the shares of our common stock subject to an option
may be paid:
- in cash;
- in shares of our common stock (valued at the closing price of our common
stock as reported in the Nasdaq National Market reporting system on the
date of exercise, or if no sale of shares of our common stock is reported
for such date, the next preceding day for which there is a reported sale
(the "Fair Market Value"));
- in a combination of shares of our common stock and cash; or
- through such other means as Conexant's board of directors determines are
consistent with the Plan's purpose and applicable law.
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<PAGE> 20
No fractional shares of common stock will be issued or accepted.
In addition, any participant may simultaneously exercise options and sell
the shares of common stock acquired, pursuant to a brokerage or other
arrangement, and use the proceeds from the sale as payment of the purchase price
of the common stock and any applicable withholding taxes.
SHARES AVAILABLE
Subject to appropriate adjustment in the event of any change in shares of
our common stock, including but not limited to stock dividends, stock splits and
recapitalizations, awards may be granted under the Plan for that number of
shares of our common stock as are necessary to provide to the holders of
Microcosm options, in the form of stock options, their portion of the
consideration paid or to be paid by us pursuant to the Stock Purchase Agreement.
The common stock that may be delivered pursuant to an award under the Plan
may be treasury shares, authorized but unissued shares of common stock or shares
of common stock acquired in the open market to satisfy the requirements of the
Plan.
AWARD AGREEMENTS
Each award under the Plan will be evidenced by an award agreement between
the holder and Conexant. Each award agreement will state the number of shares of
common stock subject to the award and will include the terms described below. In
the event of any conflict between an award agreement and the Plan, the terms of
the Plan will govern.
Exercising Options
The stock options issued under the Plan are immediately exercisable and
entitle the option holder to purchase the number of shares of our common stock
set forth in the award agreement. The exercise prices of the stock options
issued at the closing of the Microcosm acquisition transaction were determined
in accordance with the terms of the Stock Purchase Agreement described above
under "Determination of Option Exercise Prices" and the exercise prices of any
stock options subsequently issued under the Plan will be $1 per share. Each
stock option granted under the Plan will be exercisable for a period of two
years from the date of grant.
Holders of the stock options may simultaneously exercise their stock
options, and sell that number of shares of common stock issued upon exercise of
the stock options, at a price per share equal to the Fair Market Value of our
common stock on the day the stock option is exercised, as is necessary so that
the proceeds of such purchases would be sufficient to pay the exercise price of
the stock options and any applicable withholding taxes in connection with such
exercise (a "cashless exercise").
Rights as a Shareowner
A participant will have no rights as a shareowner with respect to any
common stock covered by an award until the date the participant becomes the
holder of record of the shares. Except as described below under "Adjustment
Provisions", no adjustment will be made for dividends or other rights, unless
the award agreement specifically requires the adjustment.
Withholding
Whenever taxes are required by law to be withheld in connection with the
granting, vesting or exercise of an award, we will have the right to deduct from
any payment to be made by us or ChaseMellon Shareholder Services, L.L.C., our
stock option administrator, under the Plan (including by retaining the notional
proceeds received by us on a cashless exercise of stock options by a sale to us
or the cash proceeds received by ChaseMellon from a cashless exercise of stock
options and remitting the cash or cash equivalent to Microcosm in order for
Microcosm to withhold the applicable personal taxes in connection with such
cashless exercise) or to require the participant to remit to us an amount
sufficient to satisfy the tax withholding obligation. A
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<PAGE> 21
participant may satisfy the withholding obligation by paying the amount of any
taxes in cash, or shares of common stock may be delivered to us or sold or
deducted from the payment to satisfy the obligation in full or in part. If a
participant satisfies the withholding obligation by paying in shares of our
common stock, the tax amounts will be limited to the statutory minimum as
required by law.
ADMINISTRATION; INTERPRETATION
The Plan is administered by Conexant's board of directors. Conexant's board
of directors also has the power to interpret the Plan, to adopt, amend and
rescind procedural rules and regulations relating to the exercise of stock
options under the Plan, and to take all other actions that Conexant's board of
directors may deem necessary or appropriate for the implementation and
administration of the Plan.
ADJUSTMENT PROVISIONS
In the event of any change in or affecting shares of our common stock on
account of any merger, consolidation, reorganization, recapitalization,
reclassification, stock dividend, stock split or combination, or other
distribution to holders of our common stock (other than a cash dividend), the
Plan will be amended and the board of directors may adopt adjustments and take
certain actions thereunder as it deems appropriate under the circumstances,
provided that such adjustments and actions do not materially adversely affect
the participants or any holder of stock options granted under the Plan. In the
event of a recapitalization, reorganization or reclassification of Conexant, the
stock options shall be exercisable for the same consideration as that for which
our common stock is exchanged. These amendments, adjustments and actions may
include, without limitation, changes in the number of shares of our common stock
which may be issued or transferred pursuant to the Plan, the number of shares of
our common stock subject to outstanding stock options and the related exercise
price per share or a requirement that holders of stock options exercise such
options and become holders of our common stock upon the occurrence of certain
events.
AMENDMENT AND TERMINATION; TERM; GOVERNING LAW
Except as described above under "Adjustment Provisions", (a) the Plan and
the stock options granted under the Plan may not be amended, suspended or
terminated without the consent in writing of the holders of then outstanding
stock options representing at least 75 percent of the common stock underlying
such stock options and (b) without the approval of the shareowners of Conexant,
(i) the number of shares subject to the Plan may not be increased and (ii) the
exercise price of any stock option may not be reduced. In no event will such an
amendment, suspension or termination impair the rights of any holder of stock
options without that holder's consent.
The Plan will remain in effect until all awards granted under the Plan have
been exercised or terminated under the terms of the Plan and applicable award
agreements.
The award agreements and all actions taken thereunder will be governed by
the laws of the State of Delaware.
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 restated 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) 1,000,000,000 shares of common stock, of
which 202,571,118 shares of common stock were outstanding as of February 4,
2000, 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
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"Conexant Rights Plan". The authorized shares of common stock and preferred
stock will be available for issuance without further action by our shareowners,
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 shareowners is not so required, our board of
directors may determine not to seek shareowner 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 restated certificate of incorporation and by-laws:
- establish a classified board of directors,
- require shareowners to provide advance notice of any shareowner
nominations of directors or any proposal of new business to be considered
at any meeting of shareowners,
- require a supermajority vote to remove a director or to amend or repeal
certain provisions of our restated certificate of incorporation or
by-laws, and
- preclude shareowners from calling a special meeting of shareowners.
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. See "Dividend Policy".
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 restated 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.
CERTAIN PROVISIONS IN OUR RESTATED CERTIFICATE OF INCORPORATION AND BY-LAWS
Our certificate and by-laws contain various provisions intended to (1)
promote the stability of our shareowner base and (2) render more difficult
certain unsolicited or hostile attempts to take us over which could disrupt us,
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 shareowners at an
annual meeting of shareowners will be elected by a plurality of all votes cast.
Currently, the terms of office of the three classes of directors expire,
respectively, at our annual meetings in 2001, 2002 and 2003. The term of the
successors of each such class of directors expires three years from the year of
election.
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Our restated certificate of incorporation contains a fair price provision
pursuant to which a Business Combination (as defined in our restated certificate
of incorporation) between us or one of our subsidiaries and an Interested
Shareowner (as defined in our restated certificate of incorporation) requires
approval by the affirmative vote of the holders of not less than 80 percent of
the voting power of all of our outstanding capital stock 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 restated 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 Delaware General Corporation Law, which for most types of
Business Combinations currently would be the affirmative vote of the holders of
a majority of all of our outstanding shares of stock 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 of our
outstanding capital stock 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 Delaware General Corporation Law would require
the affirmative vote of the holders of a majority of the outstanding shares of
our capital stock entitled to vote thereon.
Our restated certificate of incorporation and by-laws provide that a
special meeting of shareowners may be called only by a resolution adopted by a
majority of the entire board of directors. Shareowners are not permitted to
call, or to require that the board of directors call, a special meeting of
shareowners. Moreover, the business permitted to be conducted at any special
meeting of shareowners is limited to the business brought before the meeting
pursuant to the notice of the meeting given by us. In addition, our certificate
provides that any action taken by our shareowners must be effected at an annual
or special meeting of shareowners and may not be taken by written consent in
lieu of a meeting. Our by-laws establish an advance notice procedure for
shareowners to nominate candidates for election as directors or to bring other
business before meetings of our shareowners.
Our restated 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 to 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 shareowners'
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 restated certificate of
incorporation with respect to amendments to our restated certificate of
incorporation or by-laws.
In addition, our restated 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 shareowners 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 two-hundredth of a share of Series A Junior
Participating Preferred Stock, at $300, subject to adjustment. The description
and terms of the preferred share purchase rights are set forth in the rights
agreement dated as of November 30, 1998, as amended as of December 9, 1999.
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 percent or more of the
outstanding common stock or (2) 10 business days, or such later date as may be
determined by
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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 percent 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 (the "Distribution Date"), 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.
In addition, the rights agreement provides that in connection with the
issuance or sale of our common stock following the Distribution Date and prior
to the earlier of (1) the date the preferred share purchase rights are redeemed
and (2) the date the preferred share purchase rights expire, (a) we will, with
respect to common stock issued or sold pursuant to the exercise of stock options
or under any employee plan or arrangement in existence prior to the Distribution
Date, or upon the exercise, conversion or exchange of securities, notes or
debentures (pursuant to the terms thereof) issued by us and in existence prior
to the Distribution Date, and (b) we may, in any other case, if deemed necessary
or appropriate by the board of directors, issue certificates representing the
appropriate number of preferred share purchase rights in connection with such
issuance or sale. We will not be obligated to issue any of these certificates
if, and to the extent that, we are advised by counsel that the issuance of those
certificates would create a significant risk of material adverse tax
consequences to us or the person to whom such certificate would be issued or
would create a significant risk that the stock options or employee plans or
arrangements would fail to qualify for otherwise available special tax
treatment. In addition, no certificate will be issued if, and to the extent
that, appropriate adjustments otherwise have been made in lieu of the issuance
thereof.
Preferred share purchase rights will not be exercisable until the
Distribution Date. 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
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Series A junior preferred stock) or of subscription rights or warrants
(other than those referred to above).
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 two-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 percent 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 percent 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 two hundredths 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
percent. No fractional shares of Series A junior preferred stock will be issued,
other than fractions which are integral multiples of one two-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 percent 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
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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 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 percent to not less than 10 percent, 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 shareowner 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.
U.K. TAX CONSIDERATIONS
Conexant has been advised by Manches & Co., U.K. counsel for Conexant, of
the following details regarding the U.K. tax position of U.K. Holders arising
from the exercise of the stock options and the ownership and disposition of
common stock. This discussion is based on currently existing provisions of U.K.
law, and administrative and judicial interpretations thereof, all as in effect
or proposed on the date hereof and all of which are subject to change, possibly
with retroactive effect, or different interpretations. There can be no assurance
that the U.K. Inland Revenue will not take a view contrary to the
interpretations set forth herein, and no ruling from the Inland Revenue has been
or will be sought.
Moreover, this discussion is for general information only and does not
address all of the tax consequences that may be relevant to particular holders.
The actual tax consequences of the exercise of stock options and the ownership
and disposition of our common stock will vary depending upon the particular
circumstances of each holder. The discussion which follows also does not address
the tax consequences applicable to all categories of holders, some of which
(such as dealers in securities or commodities, investors that do not hold their
common stock as capital assets, tax-exempt organizations, banks, thrifts and
insurance companies) may be subject to special rules.
For purposes of this summary, a "U.K. Holder" means a beneficial owner of
our common stock or stock options who is resident in the U.K. for the purposes
of U.K. taxation law.
Holders of our common stock and stock options are advised to consult their
own tax advisers as to the U.K. or other tax consequences of the exercise of the
stock options and the ownership and disposition of our common stock, including
the effect of any state, local or foreign tax laws.
Stock Options
If a U.K. Holder who is employed by Conexant or any associated company
acquired options by reason of his or her employment or pursuant to the Microcosm
Stock Purchase Agreement then, on an exercise of the options for our common
stock, the U.K. Holder will be subject to income tax on the exercise of such
options. The tax will normally be charged on the difference between the value of
our common stock acquired and the price paid by the owner for the common stock.
The tax will in most instances be collected via the PAYE (pay as you earn)
mechanism from subsequent payments of salary to the U.K. Holder. A charge to
both employees' and employers' National Insurance Contributions (NIC) could also
arise on exercise of such options. Employers' NIC is a liability of the
employer, not the employee.
A subsequent disposal of our common stock may result in a liability to
United Kingdom taxation of chargeable gains, depending on individual
circumstances. If a U.K. Holder who is employed by Conexant or
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any associated company acquired our common stock on exercise of options granted
by reason of his or her employment or pursuant to the Microcosm Stock Purchase
Agreement then, in certain unusual circumstances, the U.K. Holder will be
subject to income tax on some or all of the gain made on selling the common
stock.
Gains on Disposition of Our Common Stock
A disposal of our common stock by a U.K. Holder may result in a liability
to United Kingdom taxation of chargeable gains.
For any U.K. Holder who is subject to U.K. corporation tax, the chargeable
gain will be calculated after deducting an allowance for inflation based on the
U.K. Retail Price Index (the indexation allowance).
For U.K. Holders who are not U.K. corporation taxpayers, the indexation
allowance has been frozen at April 5, 1998. However, a new relief (taper relief)
has been introduced from that date under which the chargeable proportion of any
gain on our common stock will generally be reduced by reference to the time the
stock has been held. For most taxpayers with a qualifying period of ownership of
three years taper relief will reduce the chargeable gain on the stock by 5
percent, with further reductions of 5 percent for each complete year the stock
is held thereafter, subject to maximum taper relief of 40 percent where the
stock is held for 10 years or more. In certain circumstances taper relief can be
higher than these rates.
If a U.K. Holder who is employed by Conexant or any associated company
acquired our common stock by reason of his or her employment or pursuant to the
Microcosm Stock Purchase Agreement then, in certain unusual circumstances, the
U.K. Holder will be subject to income tax on some or all of the gain made on
selling the stock.
Dividends
Dividends received from our common stock will in general be subject to U.K.
tax in the hands of U.K. Holders. Most taxpayers will be entitled to offset
against the U.K. tax charge the amount of any U.K. withholding tax paid in
respect of the dividend. The amount of U.S. withholding tax may be reduced below
the normal 30 percent rate pursuant to the U.S./U.K. double tax treaty.
U.K. Inheritance Tax
Individuals who are domiciled or deemed domiciled in the U.K. are generally
subject to U.K. inheritance tax on their worldwide assets, wherever these are
situated, and this would include our common stock. Where both U.K. inheritance
tax and U.S. federal estate tax are chargeable in respect of the stock, a credit
will normally be available to prevent a double tax charge from arising.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
Conexant has been advised by Chadbourne & Parke LLP, counsel for Conexant,
that under the present provisions of the Internal Revenue Code, the principal
U.S. federal income tax consequences arising from the exercise of the stock
options and the ownership and disposition of common stock are described below.
This discussion is based on currently existing provisions of the Internal
Revenue Code, existing, temporary and proposed Treasury regulations promulgated
thereunder, and administrative and judicial interpretations thereof, all as in
effect or proposed on the date hereof and all of which are subject to change,
possibly with retroactive effect, or different interpretations. There can be no
assurance that the Internal Revenue Service will not take a view contrary to the
interpretations set forth herein, and no ruling from the IRS has been or will be
sought.
Moreover, this discussion is for general information only and does not
address all of the tax consequences that may be relevant to particular holders.
The actual tax consequences of the exercise of stock options and the ownership
and disposition of our common stock will vary depending upon the particular
circumstances of each holder. The discussion which follows also does not address
the tax consequences applicable to all categories of holders, some of which
(such as dealers in securities or commodities, investors that do not hold their
common
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stock as capital assets, tax exempt organizations, banks, thrifts, insurance
companies and holders of common stock that own (directly, indirectly or by
attribution) 10 percent or more of the outstanding common stock) may be subject
to special rules.
For purposes of this summary, a "U.S. Holder" includes a beneficial owner
of our common stock or stock options that is: (1) a citizen or resident of the
United States; (2) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any state thereof; (3) a
trust which is subject to primary supervision by a court within the United
States and with respect to which one or more United States fiduciaries have the
authority to control all substantial decisions; or (4) an estate the income of
which is subject to U.S. federal income tax regardless of its source. A
"Non-U.S. Holder" is any beneficial owner of our common stock or stock options
that is not a U.S. Holder.
Holders of our common stock and stock options are advised to consult their
own tax advisers as to the United States or other tax consequences of the
exercise of the stock options and the ownership and disposition of our common
stock, including the effect of any state, local or foreign tax laws.
U.S. HOLDERS
Stock Options
If an individual U.S. Holder exercises a stock option, the individual U.S.
Holder will, except as noted below, realize ordinary taxable compensation income
measured by the difference between the option price and the fair market value of
the shares on the date of exercise, and we will be entitled to a deduction in
the same amount. Any difference between such fair market value and the price at
which the individual U.S. Holder may subsequently sell such shares will be
treated as capital gain or loss, long-term or short-term depending on the length
of time the shares have been held.
If upon exercise of an option the option price is paid in shares of stock,
rather than cash, no gain or loss will be recognized upon the transfer of such
shares in payment of the option price to the extent that the number of shares
received is equal to the number of shares surrendered. In such case, the basis
and holding period of a corresponding number of the shares received will be the
same as the basis and holding period of the shares surrendered. To the extent
that the number of shares received upon the exercise exceeds the number of
shares surrendered, an individual U.S. Holder would realize ordinary income in
an amount equal to the fair market value of such excess number of shares, and
such individual U.S. Holder's basis for such shares would be equal to such
amount.
NON-U.S. HOLDERS
Stock Options
The exercise of a stock option will have no U.S. federal income tax
consequences to a Non-U.S. Holder of our common stock.
Dividends
In the event that dividends are paid on shares of our common stock,
dividends paid to a Non-U.S. Holder of our common stock will be subject to
withholding of U.S. federal income tax at a 30 percent rate or such lower rate
as may be specified by an applicable income tax treaty. However, if (i)
dividends are effectively connected with the conduct of a trade or business by
the Non-U.S. Holder within the United States and, where a tax treaty applies,
are attributable to a U.S. permanent establishment of the Non-U.S. Holder and
(ii) an Internal Revenue Service Form 4224 or successor form is filed with the
payer, the dividends are not subject to withholding tax, but instead are subject
to U.S. federal income tax on a net basis at applicable graduated individual or
corporate rates. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a rate of 30 percent or such lower rate as may be
specified by an applicable income tax treaty.
Dividends paid to an address outside the United States are presumed to be
paid to a resident of such country (unless the payer has knowledge to the
contrary) for purposes of the withholding discussed above and
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for purposes of determining the applicability of a tax treaty rate. However,
Treasury Regulations that are generally effective for payments made after
December 31, 2000 (the "Final Withholding Tax Regulations"), provide that a
Non-U.S. Holder must comply with certification procedures (or, in the case of
payments made outside the United States with respect to an offshore account,
certain documentary evidence procedures), directly or through an intermediary to
obtain the benefits of a reduced rate under an income tax treaty. In addition,
the Final Withholding Tax Regulations will require a Non-U.S. Holder who
provides an IRS Form 4224 or successor form (as discussed above) also to provide
its U.S. taxpayer identification number.
A Non-U.S. Holder of our common stock eligible for a reduced rate of U.S.
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the IRS.
Gain on Disposition of Conexant Stock
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
with respect to gain recognized on a sale or other disposition of our common
stock unless: (i) the gain is effectively connected with a trade or business of
the Non-U.S. Holder in the United States and, where a tax treaty applies, is
attributable to a U.S. permanent establishment of the Non-U.S. Holder; or (ii)
in the case of a Non-U.S. Holder who is an individual and holds our common stock
as a capital asset, such holder is present in the United States for 183 or more
days in the taxable year of the sale or other disposition and certain other
conditions are met.
An individual Non-U.S. Holder who falls under clause (i) above will, unless
an applicable treaty provides otherwise, be taxed on his or her net gain derived
from the sale under regular graduated U.S. federal income tax rates. An
individual Non-U.S. Holder who falls under clause (ii) above will be subject to
a flat 30 percent tax on the gain derived from the sale, which may be offset by
certain U.S. capital losses.
A Non-U.S. Holder that is a foreign corporation falling under clause (i)
above will be taxed on its gain under regular graduated U.S. federal income tax
rates and may be subject to an additional branch profits tax equal to 30 percent
of its effectively connected earnings and profits within the meaning of the Code
for the taxable year, as adjusted for certain items, unless it qualifies for a
lower rate under an applicable income tax treaty.
Federal Estate Tax
Common stock held by an individual Non-U.S. Holder at the time of death
will be included in such holder's gross estate for U.S. federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding Tax
Under Treasury regulations, Conexant must report annually to the IRS and to
each Non-U.S. Holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends, regardless of whether withholding was
required. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder resides under the provisions of an applicable income
tax treaty.
A backup withholding tax is imposed at the rate of 31 percent on certain
payments to persons that fail to furnish certain identifying information to the
payer. Backup withholding generally will not apply to dividends paid to a
Non-U.S. Holder at an address outside the United States (unless the payer has
knowledge that the payee is a U.S. person). However, in the case of dividends
paid after December 31, 2000, the Final Withholding Tax Regulations provide that
a Non-U.S. Holder generally will be subject to withholding tax at a 31 percent
rate unless certain certification procedures (or in the case of payments made
outside the United States with respect to an offshore account, certain
documentary evidence procedures) are complied with, directly or through an
intermediary. Backup withholding and information reporting generally will also
apply to dividends paid on our common stock at addresses inside the United
States to Non-U.S. Holders that fail to provide certain identifying information
in the manner required. The Final Withholding Tax Regulations
26
<PAGE> 30
provide certain presumptions unless Conexant receives certification from the
holder of the Non-U.S. Holder's Non-U.S. status.
Payment of the proceeds of a sale of our common stock by or through a U.S.
office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner provides the payer with its name and
address and certifies under penalties of perjury that it is a Non-U.S. Holder,
or otherwise establishes an exemption. In general, backup withholding and
information reporting will not apply to a payment of the proceeds of a sale of
our common stock by or through a foreign office of a broker. If, however, such
broker is, for U.S. federal income tax purposes, a U.S. person, a controlled
foreign corporation or a foreign person that derives 50 percent or more of its
gross income for certain periods from the conduct of a trade or business in the
United States (or, in addition, for periods after December 31, 2000, a foreign
partnership in certain circumstances), such payments will be subject to
information reporting, but not backup withholding, unless (i) such broker has
documentary evidence in its records that the beneficial owner is a Non-U.S.
Holder and certain other conditions are met or (ii) the beneficial owner
otherwise established an exemption.
Any amounts withheld under the backup withholding rules generally will be
allowed as a refund or a credit against such holder's U.S. federal income tax
liability provided the required information is furnished in a timely manner to
the IRS.
SELLING SECURITYHOLDERS
The shares which may be resold hereunder by the selling securityholders
are:
- shares issued by us in connection with the acquisition of all of the
outstanding shares of Microcosm at the closing of the Microcosm
acquisition transaction;
- shares issued prior to the date of this prospectus upon exercise of stock
options granted by us at the closing of the Microcosm acquisition
transaction in connection with the surrender and cancellation of all of
the outstanding Microcosm options;
- shares issued by us in connection with the acquisition of the wireless
broadband business of Oak Technology, Inc.; and
- shares issued by us in connection with the acquisition of Istari.
The shares originally issued at the closing of the Microcosm, Oak
Technology Ltd. and Istari acquisition transactions and the shares issued prior
to the date of this prospectus upon exercise of Conexant options granted to
former option holders of Microcosm were issued in transactions exempt from the
registration requirements of the Securities Act. 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 their
shares of our common stock.
The following table sets forth information, as of February 16, 2000, with
respect to the selling securityholders and the shares of common stock
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 shares of common stock. Because the selling
securityholders may offer all or some portion of the common stock, we cannot
estimate the amount of 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 shares of common stock since the date on
which they provided the information regarding their shares in transactions
exempt from the registration requirements of the Securities Act. No selling
securityholder named in the table below beneficially owns one percent or more of
our common stock
27
<PAGE> 31
based on 202,571,118 shares of common stock outstanding on February 4, 2000.
Information concerning other selling securityholders will be set forth in
prospectus supplements from time to time, if required.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK SHARES OF
OWNED PRIOR COMMON STOCK
NAME TO THE OFFERING OFFERED HEREBY
- ---- --------------- --------------
<S> <C> <C>
MICROCOSM ACQUISITION:
Donna Brailey............................................... 466 466
Jenny Brayne................................................ 58 58
Christopher Bryson.......................................... 87 87
Peter Davies................................................ 2,211 2,211
Jerome Garez................................................ 425 425
Christian Hess.............................................. 87 87
Graham Jones................................................ 525 525
Amanda Karn................................................. 87 87
Richard Mayo................................................ 66,354 66,354
Andrew John Millard......................................... 73 73
John Michael Millard........................................ 73 73
Stuart Millard.............................................. 56 56
Ya Nong Ning................................................ 174 174
Mark Richardson............................................. 583 583
Gary Steele................................................. 517,134 517,134
Richard Watts............................................... 49,337 49,337
Colin Whitfield............................................. 291 291
Mark Wills.................................................. 87 87
Shen Chia Wong.............................................. 147,678 147,678
3i Group, plc............................................... 147,875 147,875
Vertex Technology Fund II, Ltd.............................. 147,875 147,875
Any other holder of shares issued in
the Microcosm acquisition or future
transferee from any such holder........................... 441,894 441,894
OAK TECHNOLOGY LTD. ACQUISITION:
Oak Technology, Inc......................................... 293,794 293,794
ISTARI DESIGN ACQUISITION:
Steven Gardner.............................................. 35,895 35,895
James Petronovich........................................... 35,895 35,895
George Peponides............................................ 28,716 28,716
TOTAL:...................................................... 1,917,730 1,917,730
</TABLE>
Each of the selling securityholders set forth in the table under the
caption "Microcosm Acquisition" is a party to the Stock Purchase Agreement dated
as of January 6, 2000 with Conexant. Oak Technology, Inc. is a party to the Bill
of Sale and Assignment Agreement dated as of January 19, 2000 with Conexant.
Each of the selling securityholders set forth in the table under "Istari
Acquisition" is a party to the Registration Rights Agreement dated as of
November 9, 1999 with Conexant.
Each of the following individuals, prior to the acquisition of Microcosm on
January 6, 2000, held and continues to hold the following positions with
Microcosm: Gary Steele, Chairman, President and Chief Executive Officer;
Alistair Blaxill, Vice President of Marketing; Stephen King, Vice President of
Sales; Richard Mayo, Vice President of Applications; Mark Richardson, Vice
President of Finance; Richard Watts,
28
<PAGE> 32
Vice President of Research; Nick Weiner, Vice President of Engineering; and
Brian Williams; Vice President of Production Engineering.
Prior to the acquisition of Istari Design, Inc. on November 9, 1999, James
Petronovich was Chairman of the Board and Chief Executive Officer, George
Peponides was Chief Financial Officer, and Steven Gardner was Secretary of
Istari Design, Inc.
In addition, as of the date of this prospectus, each of the individual
selling securityholders set forth in the table, other than Charles Irving and
Shen Chia Wong, is an employee of Conexant or one of its subsidiaries.
All of the shares received by the selling securityholders at the closing of
the Microcosm, Oak Technology Ltd. and Istari acquisition transactions or upon
the exercise of their Conexant options were "restricted securities" under the
Securities Act prior to this registration.
Certain shares covered by this prospectus and held by the former
shareholders of Istari are subject to repurchase rights on the part of Conexant
and may not be sold by such shareholders until such repurchase rights have
lapsed. Shares of Istari common stock held by the Istari shareholders
immediately prior to the merger were subject to repurchase rights on the part of
Istari pursuant to Stock Purchase Agreements entered into between Istari and
each of its shareholders. For each full month in a 60-month period (beginning
with the date of employment) that an Istari shareholder remained employed by
Istari, the number of Istari shares subject to Istari's repurchase right would
be reduced by one-sixtieth ( 1/60th). Istari's right to repurchase the Istari
shares could be exercised upon the occurrence of certain events, including the
Istari shareholder ceasing to be an employee of Istari for any reason or a
merger of Istari in which the Istari shares are converted into other property.
The repurchase right entitled Istari to repurchase the Istari shares at the same
price per share paid by the Istari shareholder. To the extent Istari elected not
to exercise its repurchase rights, those rights could be assigned to any
successor to Istari. Pursuant to the Agreement and Plan of Reorganization with
Conexant, the shares of Istari common stock that were subject to the repurchase
right were converted in the merger into shares of our common stock, subject to
the same repurchase rights on the part of Conexant as were held by Istari with
respect to the Istari shares prior to the merger. The repurchase price per share
was also adjusted by the conversion ratio in the merger.
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.
PLAN OF DISTRIBUTION
The selling securityholders and their successors, which term includes their
transferees, pledgees or donees or their successors, may sell the 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 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 our
common stock may be listed or quoted at the time of sale, including the
Nasdaq National Market,
29
<PAGE> 33
- 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 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 common stock in the course of hedging the
positions they assume with selling securityholders. The selling securityholders
may also sell the common stock short and deliver these securities to close out
such short positions, or loan or pledge the common stock to broker-dealers that
in turn may sell these securities.
The aggregate proceeds to the selling securityholders from the sale of the
common stock offered by them hereby will be the purchase price of the 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
common stock to be made directly or through agents. We will not receive any of
the proceeds from the offering of shares by the selling securityholders.
Our outstanding common stock is listed for trading on the Nasdaq National
Market.
In order to comply with the securities laws of some states, if applicable,
the common stock may be sold in these jurisdictions only through registered or
licensed brokers or dealers.
The selling securityholders and any broker-dealers or agents that
participate in the sale of the 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 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.
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 common stock by the selling
securityholders.
A selling securityholder may decide not to sell any 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 common stock. Any securities
covered by this prospectus which qualify for sale pursuant to Rule 144 of the
Securities Act may be sold under Rule 144 rather than pursuant to this
prospectus. In addition, a selling securityholder may transfer, devise or gift
the common stock by other means not described in this prospectus.
30
<PAGE> 34
With respect to a particular offering of the 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 shares of 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.
Under the Stock Purchase Agreement, the holders of the shares of common
stock received at the closing of the Microcosm acquisition transaction or upon
exercise of the stock options received in the Microcosm acquisition transaction
have a right to register their shares of common stock under applicable federal
and state securities laws under certain circumstances and at certain times. The
Microcosm registration rights provide that the Microcosm selling securityholders
and Conexant will indemnify each other and their respective directors, officers,
employees, stockholders, agents and controlling persons against specific
liabilities in connection with the offer and sale of the 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 Microcosm selling securityholders incidental to the
registration, offering and sale of the common stock to the public, but each
Microcosm selling securityholder will be responsible for payment of commissions,
concessions, fees and discounts of underwriters, broker-dealers and agents, if
any.
Under the Bill of Sale and Assignment Agreement, Oak Technology, Inc. has
the right to register its shares of common stock under applicable federal and
state securities laws under certain circumstances and at certain times. The Bill
of Sale and Assignment Agreement also provides for indemnification or
contribution substantially similar to the indemnification and contribution
provisions contained in the Stock Purchase Agreement. Oak Technology, Inc. will
pay a pro rata portion of certain of our expenses incidental to the
registration, offering and sale of the common stock to the public, and will be
responsible for payment of commissions, concessions, fees and discounts of
underwriters, broker-dealers and agents, if any. Such pro rata portion will be
based upon the percentage of Oak Technology's registrable shares included in the
registration statement, of which this prospectus is a part, as compared to the
total number of shares registered in the registration statement.
Under the Agreement and Plan of Reorganization, the former shareholders of
Istari have the right to register their shares of common stock under applicable
federal and state securities laws under certain circumstances and at certain
times. The Istari registration rights provide that the Istari selling
securityholders will indemnify us and our directors, our officers who sign the
registration statement and any controlling persons of Conexant, and we will
indemnify each selling securityholder, any underwriter for such selling
securityholder and any controlling persons of such selling securityholder,
against specific liabilities in connection with the offer and sale of the 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 Istari selling securityholders
incidental to the registration, offering and sale of the 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, if any.
LEGAL MATTERS
The validity of the issuance of the common stock issued at the closing of
the Microcosm, Oak Technology Ltd. and Istari acquisitions, issued upon exercise
of the stock options prior to the date of this prospectus and issuable on
exercise of the stock options, will be passed upon for us by our Senior Vice
President, General Counsel and Secretary, Dennis E. O'Reilly, Esq.
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<PAGE> 35
EXPERTS
The consolidated financial statements and the financial statement schedule
incorporated in this prospectus by reference from Conexant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1999 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.
The consolidated financial statements of Maker Communications, Inc.
incorporated by reference in this prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are incorporated herein in reliance upon the authority of
said firm as experts in giving said reports.
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 shares of common stock offered by
this prospectus:
- Our Annual Report on Form 10-K for the fiscal year ended September 30,
1999 (including the portions of our Proxy Statement for our 2000 Annual
Meeting of Shareowners that are incorporated therein by reference);
- Our Quarterly Report on Form 10-Q for the quarter ended December 31,
1999;
- Our Current Report on Form 8-K dated January 4, 2000, as amended by our
Current Report on Form 8-K/A dated January 11, 2000;
- Our Current Report on Form 8-K dated February 16, 2000; and
- The descriptions of the common stock and the preferred share purchase
rights contained on pages 78 and 85-87 in our Registration Statement on
Form 10, as amended (File Number 00-24923) dated
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<PAGE> 36
December 1, 1998, as amended by Part II, Item 2 of our Quarterly Report
on Form 10-Q for the quarter ended December 31, 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 Office of the
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" 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
products and those of our customers;
- demand for and market acceptance of new and existing products;
- successful development of new products;
- timing of new product introductions;
- successful integration of Maker Communications, Inc. following its
acquisition, as well as the successful integration of our other recent
acquisitions;
- 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;
- our labor relations and those of our customers and suppliers;
- uncertainties of litigation; and
- other risks and uncertainties.
------------------------
The Conexant logo is a trademark of Conexant Systems, Inc. Other brands, names
and trademarks contained in this prospectus are the property of their respective
owners.
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<PAGE> 37
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CONEXANT SYSTEMS, INC.
COMMON STOCK
(INCLUDING ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
------------------------
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> 38
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Conexant will pay all expenses incident to the offering and sale to the
public of the common stock being registered, other than any commissions and
discounts of underwriters, dealers or agents and any transfer taxes, except that
Oak Technology, Inc. will pay its pro rata portion of certain of such expenses.
Such pro rata portion will be based upon the percentage of Oak Technology's
registrable shares included in this registration statement as compared to the
total number of shares registered hereunder. Such expenses are set forth in the
following table. All of the amounts shown are estimates except the Securities
and Exchange Commission (the "Commission") registration fee.
<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Commission Registration Fee................................. $ 57,096
*Costs of Printing.......................................... $ 27,500
*Legal Fees and Expenses.................................... $ 50,000
*Accounting Fees and Expenses............................... $ 7,500
*Miscellaneous Expenses..................................... $ 7,904
--------
*Total............................................ $150,000
</TABLE>
- ---------------
* Estimated
ITEM 15. LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law 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 restated certificate
of incorporation provides that our directors are not liable to the Conexant or
its shareowners 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
Conexant or its shareowners, (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 Delaware General Corporation Law 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. Our directors and officers are insured against certain liabilities for
actions taken in such capacities, including liabilities under the Securities
Act.
ITEM 16. INDEX TO EXHIBITS.
<TABLE>
<S> <C>
4.a.1 Restated Certificate of Incorporation of Conexant, filed as
Exhibit 4.1 to Conexant's Registration Statement on Form S-8
(Registration No. 333-68755), is incorporated herein by
reference.
4.a.2 Amendment to Restated Certificate of Incorporation of
Conexant.
4.a.3 Amended By-Laws of Conexant, filed as Exhibit 4.2 to
Conexant's Registration Statement on Form S-8 (Registration
No. 333-68755), is incorporated herein by reference.
4.a.4 Specimen certificate for 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.a.5 Rights Agreement, dated as of November 30, 1998, by and
between Conexant 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.
</TABLE>
II-1
<PAGE> 39
<TABLE>
<S> <C>
4.a.6 First Amendment to Rights Agreement, dated as of December 9,
1999, filed as Exhibit 4.1 to Conexant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1999, is
incorporated herein by reference.
4.b.1 Registration Rights attached as Schedule 7.4(a) to the Stock
Purchase Agreement dated as of January 6, 2000 among
Conexant and the Shareholders and Option Holders of
Microcosm Communications Limited.
4.b.2 Registration Rights attached as Schedule 10.1 to the Bill of
Sale and Assignment Agreement dated as of January 19, 2000
between Conexant and Oak Technology, Inc.
4.b.3 Registration Rights Agreement dated as of November 10, 1999
among Conexant and the Shareholders of Istari Design, Inc.
4.c.1 Conexant's Microcosm Communications Limited Stock Option
Plan.
4.c.2 Form of Stock Option Agreement under Conexant's Microcosm
Communications Limited Stock Option Plan.
5 Opinion of Conexant's Senior Vice President, General Counsel
and Secretary, Dennis E. O'Reilly, Esq.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
23.2 Consent of Arthur Andersen LLP, independent public
accountants.
23.3 Consent of Dennis E. O'Reilly, Esq., contained in his
opinion filed as Exhibit 5 to this Registration Statement.
23.4 Consent of Chadbourne & Parke LLP.
23.5 Consent of Manches & Co.
24 Power of Attorney authorizing certain persons to sign this
Registration Statement on behalf of certain directors and
officers of Conexant.
</TABLE>
ITEM 17. UNDERTAKINGS.
A. The Company 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;
(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;
(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 clauses (i) and (ii) do not apply if the information
required to be included in a post-effective amendment by those clauses is
contained in periodic reports filed with or furnished to the Commission by
the Company pursuant to Section 13 or 15(d) of the Exchange Act that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE> 40
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Company's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the provisions described above, or otherwise, the Company
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company 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 Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE> 41
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 17TH DAY
OF FEBRUARY, 2000.
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 17TH DAY OF FEBRUARY, 2000 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
DWIGHT W. DECKER* Chairman of the Board and Chief Executive
- ----------------------------------------------------- Officer (principal executive officer) and
Director
DONALD R. BEALL* 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> 42
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
4.a.1 Restated Certificate of Incorporation of Conexant, filed as
Exhibit 4.1 to Conexant's Registration Statement on Form S-8
(Registration No. 333-68755), is incorporated herein by
reference.
4.a.2 Amendment to Restated Certificate of Incorporation of
Conexant.
4.a.3 Amended By-Laws of Conexant, filed as Exhibit 4.2 to
Conexant's Registration Statement on Form S-8 (Registration
No. 333-68755), is incorporated herein by reference.
4.a.4 Specimen certificate for 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.a.5 Rights Agreement, dated as of November 30, 1998, by and
between Conexant 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.
4.a.6 First Amendment to Rights Agreement, dated as of December 9,
1999, filed as Exhibit 4.1 to Conexant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1999, is
incorporated herein by reference.
4.b.1 Registration Rights attached as Schedule 7.4(a) to the Stock
Purchase Agreement dated as of January 6, 2000 among
Conexant and the Shareholders and Option Holders of
Microcosm Communications Limited.
4.b.2 Registration Rights attached as Schedule 10.1 to the Bill of
Sale and Assignment Agreement dated as of January 19, 2000
between Conexant and Oak Technology, Inc.
4.b.3 Registration Rights Agreement dated as of November 10, 1999
among Conexant and the Shareholders of Istari Design, Inc.
4.c.1 Conexant's Microcosm Communications Limited Stock Option
Plan.
4.c.2 Form of Stock Option Agreement under Conexant's Microcosm
Communications Limited Stock Option Plan.
5 Opinion of Conexant's Senior Vice President, General Counsel
and Secretary, Dennis E. O'Reilly, Esq.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
23.2 Consent of Arthur Andersen LLP, independent public
accountants.
23.3 Consent of Dennis E. O'Reilly, Esq., contained in his
opinion filed as Exhibit 5 to this Registration Statement.
23.4 Consent of Chadbourne & Parke LLP.
23.5 Consent of Manches & Co.
24 Power of Attorney authorizing certain persons to sign this
Registration Statement on behalf of certain directors and
officers of Conexant.
</TABLE>
<PAGE> 1
Exhibit 4.a.2
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
CONEXANT SYSTEMS, INC.
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
Conexant Systems, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Company"), does
hereby certify as follows:
FIRST: Resolutions setting forth a proposed amendment to the
Restated Certificate of Incorporation of the Company, declaring said amendment
to be advisable and directing that said amendment be submitted to the
stockholders of the Company for their consideration were duly adopted by the
Board of Directors of the Company at a meeting held on December 8 and 9, 1999.
SECOND: Thereafter, pursuant to the By-laws of the Company,
the annual meeting of stockholders of the Company was duly held on February 10,
2000, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware setting forth a summary of the proposed changes to be
effected by said
<PAGE> 2
amendment, at which meeting a majority of the outstanding shares of stock
entitled to vote thereon, as prescribed by statute and by the Restated
Certificate of Incorporation of the Company, were voted in favor of said
amendment.
THIRD: Said amendment would amend the Restated Certificate of
Incorporation of the Company by deleting the first paragraph of Article FOURTH
and substituting in lieu thereof the following new first paragraph of Article
FOURTH, to read in its entirety as follows:
"FOURTH: The total number of shares of all classes of stock
which the Corporation shall have the authority to issue is
1,025,000,000, of which 25,000,000 shares without par value
are to be of a class designated Preferred Stock and
1,000,000,000 shares of the par value of $1 each are to be of
a class designated Common Stock."
FOURTH: Said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FIFTH: Said amendment shall become effective immediately upon
filing of this Certificate of Amendment of Restated Certificate of Incorporation
with the Secretary of State of the State of Delaware.
2
<PAGE> 3
IN WITNESS WHEREOF, the Company has caused this certificate to
be signed by its officer thereunto duly authorized, this 16th day of February,
2000.
CONEXANT SYSTEMS, INC.
By: /s/ Dennis E. O'Reilly
---------------------------------
Name: Dennis E. O'Reilly
Title: Senior Vice President,
General Counsel and
Secretary
3
<PAGE> 1
Exhibit 4.b.1
SCHEDULE 7.4(a)
REGISTRATION RIGHTS
The following sets forth the terms and conditions of the registration
rights to which the Sellers are entitled pursuant to Section 7.4(a) of the Stock
Purchase Agreement:
SECTION 1. Definitions. Unless otherwise defined herein, capitalized
terms used herein shall have the meaning set forth in Article I of the Stock
Purchase Agreement:
"Account" shall have the meaning set forth in Section 3(a) hereof.
"Affiliate" means, with respect to any specified person, an
"affiliate", as defined in Rule 144 under the Securities Act, of such person.
"Aggregate Closing Consideration" means One Hundred Twenty Eight
Million Six Hundred Thousand dollars ($128,600,000).
"Amendment Effectiveness Deadline Date" shall have the meaning set
forth in Section 2(e) hereof.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in The City of London or
in New York City are authorized or obligated by law or executive order to close.
"Effectiveness Period" means the period of two years from the later of
(a) the Closing or (b) any Subsequent Delivery Date, or such shorter period
ending on the date that all Registrable Shares have ceased to be Registrable
Shares.
"Initial Registration Deadline" shall have the meaning set forth in
Section 3(a) hereof.
"Initial Registration Default" shall have the meaning set forth in
Section 3(a) hereof.
<PAGE> 2
"Initial Shelf Registration Statement" shall have the meaning set forth
in Section 3(a) hereof.
"Liquidated Damages Payment Amount" shall have the meaning set forth in
Section 3(a) hereof.
"Notice and Questionnaire" means a written notice delivered to Buyer
containing substantially the information called for by the Selling
Securityholder Notice and Questionnaire attached as Annex A to this Schedule
7.4(a).
"Notice Shareholder" means any Shareholder that on any date has
delivered a Notice and Questionnaire to Buyer on or prior to such date.
"Prospectus" means 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.
The terms "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registrable Shares" means all shares of Buyer Stock issued or issuable
in connection with (x) the purchase of the Shares and exchange of Company
Options for Buyer Options as set forth in Sections 2.2, 2.3, 2.4, 2.5 and 3.5 of
the Stock Purchase Agreement and (y) the exercise of such Buyer Options and any
and all securities issued or issuable with respect to such shares of Buyer Stock
upon any stock split or stock dividend or into which such shares of Buyer Stock
have been or may be converted or exchanged in connection with any merger,
consolidation, recapitalization 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 Buyer 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
2
<PAGE> 3
with respect to transfer restrictions required under the Stock Purchase
Agreement is removed or removable in accordance with the terms of the Stock
Purchase Agreement or such legend, as the case may be.
"Rule 144" means 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.
"Schedule 7.4(a) Indemnified Party" shall have the meaning set forth in
Section 6(c) hereof.
"Schedule 7.4(a) Indemnifying Party" shall have the meaning set forth
in Section 6(c) hereof.
"Sellers' Account" shall have the meaning set forth in Section 3(a)
hereof.
"Shareholders" means collectively the Sellers.
"Shelf Registration Statement" shall mean the registration statement
referred to in Section 2(a) hereof or any registration statement substituted by
Buyer therefore pursuant to Sections 2(c) or 2(d) hereof.
"Stock Purchase Agreement" means the Stock Purchase Agreement to which
this Schedule 7.4(a) is attached.
"Subsequent Delivery Date" means any date, other than the Closing Date,
on which Buyer delivers Registrable Shares to any Seller as a result of the
occurrence of a Subsequent Event.
A "Subsequent Event" occurs when Buyer becomes obligated to deliver
Buyer Stock to (1) any Option Holder upon exercise of a Buyer Option or (2) any
Shareholder pursuant to Sections 2.3, 2.4 or 2.5 of the Stock Purchase
Agreement.
"Subsequent Registration Default" shall have the meaning set forth in
Section 3(d) hereof.
"Subsequent Shelf Registration Statement" shall have the meaning set
forth in Section 3(d) hereof.
"Suspension Period" shall have the meaning set forth in Section 2(b)
hereof.
3
<PAGE> 4
SECTION 2. Required Registration.
(a) Buyer shall prepare and file or cause to be prepared and filed with
the SEC (1) as soon as practicable, but in any event within sixty (60) days
after the Closing Date, a registration statement for an offering to be made on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act
registering (A) the resale from time to time by the Shareholders thereof of all
of the Registrable Shares delivered at the Closing or otherwise capable of being
registered at such time and (B) the issuance by Buyer of Buyer Stock upon
exercise of any Buyer Options delivered at the Closing, and (2) if necessary, as
soon as practicable, but in any event within sixty (60) days after each
Subsequent Event an additional registration statement for an offering to be made
on a delayed or continuous basis pursuant to Rule 415 of the Securities Act
registering (x) the resale from time to time of any additional Registrable
Shares delivered upon the occurrence of a Subsequent Event and (y) the issuance
by Buyer of Buyer Stock upon exercise of any Buyer Options delivered upon the
occurrence of a Subsequent Event. (Each registration statement required to be
filed pursuant to the preceding sentence, a "Shelf Registration Statement".)
Each Shelf Registration Statement shall be on Form S-3 or another appropriate
form permitting registration of such Registrable Shares for resale by such
Shareholders in accordance with the methods of distribution elected by the
Shareholders and set forth in such Shelf Registration Statement. Buyer shall use
its commercially reasonable efforts to cause each Shelf Registration Statement
to be declared effective under the Securities Act as promptly as is practicable
after the filing thereof with the SEC, but in any event within ninety (90) days
after the Closing Date or the relevant Subsequent Delivery Date, as the case may
be, and to keep such Shelf Registration Statement continuously effective under
the Securities Act until the expiration of the Effectiveness Period.
Notwithstanding the foregoing sentence, in the event that the staff of the SEC
notifies Buyer or its counsel (whether orally or in writing) that a Shelf
Registration Statement will not be reviewed ("No-Review"), the Buyer shall
notify each Shareholder within five (5) Business Days of such notification and
use its commercially reasonable efforts to cause such Shelf Registration
Statement to be declared effective (including by requesting acceleration of the
Shelf Registration Statement) no later than fifteen (15) days after receipt of
such notification from the staff of the SEC.
At the time a Shelf Registration Statement is declared effective, each
Shareholder that became a Notice
4
<PAGE> 5
Shareholder on or prior to the date ten (10) Business Days (or in the event of a
No-Review, five (5) Business Days) prior to such time of effectiveness shall be
named as a selling securityholder in such Shelf Registration Statement and the
related Prospectus in such a manner as to permit such Shareholder to deliver
such Prospectus to purchasers of Registrable Shares in accordance with
applicable law.
In the event that any public offering pursuant to this Agreement shall
involve, in whole or in part, an underwritten offering (which shall require the
prior consent of Buyer), Buyer shall have the right to designate an underwriter
or underwriters as the lead or managing underwriter(s) of such underwritten
offering who shall be reasonably acceptable to Shareholders owning a majority of
the Registrable Shares proposed to be sold therein. Each Shareholder agrees that
if such Shareholder's Registrable Shares, or any portion thereof, are sold in
any public offering involving, in whole or in part, an underwritten offering,
then such Shareholder will enter into a customary underwriting agreement with
the underwriter(s) selected pursuant to the preceding sentence.
Notwithstanding the foregoing, Buyer may delay in filing any Shelf
Registration Statement and may withhold efforts to cause such Shelf Registration
Statement to become effective if the Buyer determines in good faith that such
filing or effectiveness might (1) interfere with or affect the negotiation or
completion of any transaction or other material event that is being contemplated
by Buyer (whether or not a final decision has been made to undertake such
transaction at the time the right to delay is exercised), or (2) involve initial
or continuing disclosure obligations that might not be in the best interest of
Buyer's shareowners. Buyer may exercise such right to delay the filing or
effectiveness of each registration statement one time and may delay the filing
or effectiveness of such Shelf Registration Statement for not more than sixty
(60) days beyond the relevant period set forth in the first paragraph of this
Section 2(a).
(b) Following the effectiveness of a Shelf Registration Statement filed
pursuant to this Section 2, Buyer may suspend at any time the availability of
such Shelf Registration Statement and the related Prospectus upon (i) the
issuance by the SEC of a stop order with respect to such Shelf Registration
Statement or the initiation of proceedings with respect to such Shelf
Registration Statement under Section 8(d) or 8(e) of the Securities Act, (ii)
the occurrence of any event or the existence of any fact as a result of which
(A) any Shelf Registration
5
<PAGE> 6
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 (B) 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 (iii) the
occurrence or existence of any pending corporate development, including without
limitation any such development that may (y) interfere with or affect the
negotiation or completion of any transaction or other material event that is
being contemplated by Buyer (whether or not a final decision has been made to
undertake such transaction at the time the right to suspend is exercised), or
(z) involve initial or continuing disclosure obligations that might not be in
the best interest of Buyer's shareowners, that, in the reasonable discretion of
Buyer, makes it appropriate to suspend the availability of any Shelf
Registration Statement and the related Prospectus (each of (i), (ii) and (iii)
above is hereinafter referred to as a "Suspension Period"); provided that the
duration of a Suspension Period under subsections (ii) and (iii) shall not
extend beyond thirty (30) days. Notwithstanding the foregoing, Buyer shall be
limited to no more than two Suspension Periods under subsections (ii) and (iii)
above in any rolling 12-month period. Buyer shall use its reasonable efforts to
end any Suspension Period as promptly as practicable under the circumstances
and, in the case of subsection (iii) above, as soon as, in the discretion of
Buyer, such suspension is no longer appropriate.
Provided that a Shareholder has timely delivered to Buyer a Notice and
Questionnaire, Buyer shall be obligated to notify such Shareholder in writing of
the existence of a Suspension Period. Upon receipt of any notice from Buyer of a
Suspension Period, the Shareholders shall forthwith discontinue any disposition
of Registrable Shares until the earlier of (1) the end of the Suspension Period
or (2) the Shareholders (i) are advised in writing by Buyer that the use of the
applicable Prospectus may be resumed, (ii) have received copies of a
supplemental or amended Prospectus, if applicable, and (iii) have received
copies of any additional or supplemental filings which are incorporated or
deemed to be incorporated by reference into such Prospectus.
(c) The Shareholders acknowledge that Buyer's obligations under this
Section 2 may be satisfied, in Buyer's sole discretion, by the inclusion of the
Registrable Shares in any eligible registration statement filed by Buyer
6
<PAGE> 7
for the benefit of any of its shareowners other than the Shareholders or by the
amendment of any existing Shelf Registration Statement.
(d) In the event that any Shelf Registration Statement shall cease to
be effective, Buyer shall promptly prepare and file a new registration statement
covering the Registrable Shares previously covered by such Shelf Registration
and shall use its best efforts to have such registration statement declared
effective as soon as possible. Any such registration statement shall be
considered a "Shelf Registration Statement" hereunder.
(e) Each Shareholder who wishes to sell Registrable Shares pursuant to
a Shelf Registration Statement and related Prospectus agrees that it will do so
only in accordance with Section 2(b) and this Section 2(e). Each Shareholder
wishing to sell Registrable Shares pursuant to a Shelf Registration Statement
and related Prospectus agrees to deliver a Notice and Questionnaire to Buyer at
least ten (10) Business Days prior to any intended distribution of Registrable
Shares under the Shelf Registration Statement (or in the event of a No-Review,
five (5) Business Days prior to the date the Shelf Registration Statement is
expected to be declared effective). From and after the date any Shelf
Registration Statement is declared effective, Buyer shall, as promptly as
practicable after the date a Notice and Questionnaire is delivered, and in any
event within ten (10) Business Days after such date, if required by applicable
law, file with the SEC a post-effective amendment to such 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 Shareholder
delivering such Notice and Questionnaire is named as a selling securityholder in
such Shelf Registration Statement and the related Prospectus in such a manner as
to permit such Shareholder to deliver such Prospectus to purchasers of the
Registrable Shares in accordance with applicable law and, if Buyer 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;
provided that if such Notice and Questionnaire is delivered during a Suspension
Period, Buyer shall take the actions set forth above as soon as possible upon
expiration of the Suspension Period. Notwithstanding anything
7
<PAGE> 8
contained herein to the contrary, (i) Buyer shall be under no obligation to name
any Shareholder that is not a Notice Shareholder 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 Suspension Period if such Suspension Period shall be in
effect on the Amendment Effectiveness Deadline Date.
SECTION 3. Liquidated Damages.
(a) If the Shelf Registration Statement to be filed pursuant to Section
2(a)(1) of this Schedule 7.4(a) (the "Initial Shelf Registration Statement") has
not been declared effective by the SEC on or prior to the 90th day after the
Closing Date (the "Initial Registration Deadline"), Buyer shall deposit in a
joint bank account maintained in The City of London selected by the Sellers'
Representative and reasonably satisfactory to Buyer (the "Account") an amount
equal to one-half of one percent (0.5%) of the Aggregate Closing Consideration
(the "Liquidated Damages Payment Amount") on each of the date (1) of the Initial
Registration Deadline, (2) which is thirty (30) days after the Initial
Registration Deadline and (3) which is sixty (60) days after the Initial
Registration Deadline. Any balance in the Account shall be invested in
accordance with such instructions as may be given by Buyer. If the Initial Shelf
Registration Statement has not been declared effective on or prior to the 180th
day after the Closing Date (the "Initial Registration Default"), Buyer and the
Shareholders agree that all amounts in the Account as of the date of the Initial
Registration Default shall be released to an account designated by the Sellers'
Representative, for the benefit of the Sellers (the "Sellers' Account") on the
next Business Day following the date of the Initial Registration Default.
(b) For each 30-day period after the Initial Registration Default,
Buyer shall deposit the Liquidated Damages Payment Amount in the Account on the
first Business Day of any such 30 day period. Buyer and the Shareholders agree
that amounts deposited in the Account pursuant to this Section 3(b) shall be
released to the Sellers' Account at the end of every 30-day period thereafter
until such time as the Initial Registration Statement shall have been declared
effective.
(c) If the Initial Shelf Registration Statement has been declared
effective on or prior to the 180th day after the Closing Date, Buyer and the
Shareholders agree that all amounts in the Account, together with any interest
8
<PAGE> 9
thereon, shall be released to Buyer on the next Business Day immediately
following the day that the Initial Registration Statement is declared effective.
If the Initial Registration Statement is declared effective on or prior to the
end of any thirty (30) day period following the 180th day after the Closing
Date, the Shareholders and Buyer agree that amounts then held in the Account for
payment under Section 3(b), together with interest thereon, shall be released to
Buyer.
(d) If (i) any Shelf Registration Statement other than the Initial
Shelf Registration Statement (a "Subsequent Shelf Registration Statement") has
not been declared effective by the SEC on or prior to the date specified in
Section 2(a)(2) of this Schedule 7.4(a) or (ii) if any Subsequent Shelf
Registration Statement is filed and declared effective but shall thereafter
cease to be effective or fail to be usable for any period of thirty (30)
consecutive days other than as a result of a Suspension Period (each a
"Subsequent Registration Default"), Buyer agrees to pay liquidated damages in an
amount equal to $1.50 per share per annum for all Registrable Shares subject to
such Subsequent Shelf Registration Statement, which shall accrue from the date
such Subsequent Registration Default occurs until the default is cured. All
liquidated damages accrued and unpaid under this Section (3)(d) shall be paid on
the last day of each month following such default or, if earlier, the date the
relevant Subsequent Registration Default is cured.
SECTION 4. Registration Procedures. When Buyer effects the registration
of the Registrable Shares under the Securities Act pursuant to Section 2 hereof,
Buyer will, at its expense, as promptly as practicable:
(a) Subject to Section 2(e) and in accordance with the Securities Act
and the rules and regulations of the SEC, prepare and file with the SEC such
amendments to each Shelf Registration Statement and supplements to the
Prospectus contained therein as may be necessary to keep such Shelf Registration
Statement effective for the Effectiveness Period and such Shelf Registration
Statement and Prospectus accurate and complete for the Effectiveness Period;
(b) Furnish to the Shareholders such reasonable number of copies of
each Shelf Registration Statement (including exhibits), any preliminary or final
Prospectus, any amendment or supplement to any of the foregoing and such other
documents as the Shareholders may reasonably request, including any documents
incorporated by reference in the
9
<PAGE> 10
Shelf Registration Statement or the Prospectus, in order to facilitate the
public offering of the Registrable Shares;
(c) Use its best efforts to register or qualify the Registerable Shares
covered by any Shelf Registration Statement and to maintain such registration or
qualification under such state securities or blue sky laws as any of the
Shareholders shall reasonably request and do any and all other reasonable acts
and things that may be necessary or, advisable to enable a Shareholder to
consummate the disposition of the Shareholders' Registrable Shares in such
jurisdiction, except that Buyer shall not for any purpose be required to execute
a general consent to service of process or to qualify to do business as a
foreign corporation in any jurisdiction where it is not so qualified;
(d) Notify the Shareholders, (i) promptly after it shall receive notice
thereof, of the date and time when any Shelf Registration Statement and each
post-effective amendment thereto has become effective and (ii) of the initial
filing of any Shelf Registration Statement with the SEC;
(e) Notify the Shareholders promptly of any request by the SEC for the
amending or supplementing of any Shelf Registration Statement or Prospectus or
for additional information;
(f) Notify each Shareholder, at any time when a Prospectus relating to
the Registerable Shares is required to be delivered under the Securities Act, of
any event which would cause any such Prospectus or any other Prospectus as then
in effect to include an 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 promptly prepare and file with the SEC, and promptly
notify the Shareholders of the filing of, such amendments or supplements to any
Shelf Registration Statement or Prospectus as may be necessary to correct any
such statements or omissions;
(g) Advise the Shareholders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of any Shelf Registration Statement or the
initiation or threatening of any proceeding for that purpose and promptly use
its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued;
10
<PAGE> 11
(h) Use its best efforts to list or qualify all Registrable Shares
covered by any Shelf Registration Statement on any securities exchange or
inter-dealer quotation system on which the Buyer Stock is then listed or quoted;
(i) Permit a single firm of counsel designated by the Shareholders
(which initially shall be Weil, Gotshal & Manges) a reasonable period of time
prior to the filing of the Shelf Registration Statement with the SEC to review
any Shelf Registration Statement, and shall not file such Shelf Registration
Statement in a form to which such counsel reasonably objects;
(j) Provide such information as is required for any filings required to
be made with the National Association of Securities Dealers, Inc.; and
(k) Otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the SEC, and make available to its
Shareholders, as soon as reasonably practicable, an earning statement covering
the period of at least 12 months, beginning with the first full calendar month
after the effective date of each Shelf Registration Statement, which earning
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder.
SECTION 5. Expenses. With respect to any registration effected pursuant
to Section 2 hereof, all fees, costs and expenses of and incidental to such
registration and the public offering in connection therewith, including the
reasonable fees and expenses of one firm of counsel for the Shareholders, shall
be borne by Buyer; provided, however, that the Shareholders shall bear their own
underwriting discounts or commissions, selling or placement agent or broker fees
and commissions, and transfer taxes, if any, in connection with the sales of
securities by such Shareholders.
SECTION 6. Indemnification.
(a) By Buyer. Buyer will indemnify each Shareholder and each of its
officers, directors, stockholders, partners, employees and agents and each
person controlling such Shareholder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Schedule 7.4(a), against all expenses,
claims, losses, damages and liabilities (or actions in respect thereof),
including any of the foregoing incurred in
11
<PAGE> 12
settlement of any litigation (including reasonable attorneys' fees), arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any Shelf Registration Statement or Prospectus (including, in
each case, all documents incorporated by reference therein, as such documents
may have been updated by later dated documents), or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or any
violation by Buyer of any rule or regulation promulgated under the Securities
Act applicable to Buyer and relating to action or inaction required of Buyer in
connection with any such registration, qualification or compliance; provided,
however, that Buyer will not be liable in any such case to the extent that any
such claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission or alleged untrue statement or omission, made in
reliance upon and in conformity with written information furnished to Buyer by
such Shareholder and stated to be specifically for use therein or by a
Shareholder's failure to deliver a copy of the relevant Shelf Registration
Statement or Prospectus or any amendments or supplements thereto after Buyer has
furnished that Shareholder or underwriter with copies of the same. In connection
with a firm or best efforts underwritten offering, to the extent customarily
required by the managing underwriter, Buyer will indemnify the underwriters,
their officers and directors and each such person who controls the underwriters
(within the meaning of Section 15 of the Securities Act), to the extent
customary in such agreements.
(b) By the Shareholders. Each Shareholder will, if Registrable Shares
held by such Shareholder are included in the securities as to which such
registration is being effected, indemnify Buyer, each of its directors,
officers, stockholders, partners, employees and agents and each person who
controls Buyer within the meaning of Section 15 of the Securities Act, and each
other such Shareholder, each of its officers, directors, partners, employees and
agents and each person controlling such Shareholder within the meaning of
Section 15 of the Securities Act, against all claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation (including reasonable attorneys' fees),
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any Shelf Registration Statement or Prospectus,
12
<PAGE> 13
or 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) is made in such Shelf
Registration Statement or Prospectus, in reliance upon and in conformity with
written information furnished to Buyer by such Shareholder and stated to be
specifically for use therein; provided, however, that the obligation to
indemnify will be individual to each Shareholder and shall be limited to an
amount equal to the net proceeds received by such Shareholder of Registrable
Shares sold in connection with such registration. In connection with a firm or
best efforts underwritten offering, to the extent customarily required by the
managing underwriter, each Shareholder, severally and not jointly, will
indemnify the underwriters, their officers and directors and each person who
controls the underwriters (within the meaning of Section 15 of the Securities
Act), to the extent customary in such agreements; provided, however, that the
obligation to indemnify will be individual to each Shareholder and shall be
limited to an amount equal to the net proceeds received by such Shareholder of
Registrable Shares sold in connection with such registration.
(c) Each party entitled to indemnification under this Section 7 (the
"Schedule 7.4(a) Indemnified Party") shall give notice to the party required to
provide indemnification (the "Schedule 7.4(a) Indemnifying Party") promptly
after such Schedule 7.4(a) Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Schedule 7.4(a)
Indemnifying Party to assume the defense of any such claim or any litigation
resulting therefrom; provided that counsel for the Schedule 7.4(a) Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Schedule 7.4(a) Indemnified Party (which approval shall not be
unreasonably withheld), and the Schedule 7.4(a) Indemnified Party may
participate in such defense at such party's expense; provided, however, that the
Schedule 7.4(a) Indemnifying Party shall pay such expense if representation of
such Schedule 7.4(a) Indemnified Party by the counsel retained by the Schedule
7.4(a) Indemnifying Party would be inappropriate due to actual or potential
differing interests between the Schedule 7.4(a) Indemnified Party and any other
party represented by such counsel in such proceeding. The failure of any
Schedule 7.4(a) Indemnified Party to give notice as provided herein shall not
relieve the Schedule 7.4(a) Indemnifying Party of its obligations under this
Agreement, except to the extent, but only to the extent, that the Schedule
7.4(a) Indemnifying Party's ability to
13
<PAGE> 14
defend against such claim or litigation is impaired as a result of such failure
to give notice. No Schedule 7.4(a) Indemnifying Party in the defense of any such
claim or litigation, shall, except with the consent of each Schedule 7.4(a)
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Schedule 7.4(a) Indemnified Party of a release
from all liability in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 7 is held by a
court of competent jurisdiction (by the entry of a final judgment or decree and
the expiration of time to appeal or the denial of the last right of appeal) to
be unavailable to a Schedule 7.4(a) Indemnified Party with respect to any loss,
liability, claim, damage, or expense referred to therein, then the Schedule
7.4(a) Indemnifying Party, in lieu of indemnifying such Schedule 7.4(a)
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Schedule 7.4(a) Indemnified Party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the Schedule 7.4(a) Indemnifying Party on the one hand and of
the Schedule 7.4(a) Indemnified Party on the other in connection with the
statements or omissions that resulted in such loss, liability, claim, damage, or
expense as well as any other relevant equitable considerations. The relative
fault of the Schedule 7.4(a) Indemnifying Party and of the Schedule 7.4(a)
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Schedule 7.4(a) Indemnifying Party or by the Schedule 7.4(a) Indemnified Party
and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) The parties hereto agree that it would not be just and equitable if
contribution pursuant this Section 7 were determined by pro rata allocation or
by any other method of allocation that does not take account of the equitable
considerations referred to in Section 7(d). Notwithstanding anything herein to
the contrary, no participating holder of Registrable Shares will be required to
contribute any amount in excess of the amount by which the net proceeds received
by such participating holder from the sale of Registrable Shares pursuant to the
Shelf Registration Statement exceeds the amount of any damages that such
participating Shareholder has otherwise been
14
<PAGE> 15
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
(f) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement entered
into in connection with an underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
(g) The indemnification and contribution provided for under this
Schedule 7.4(a) will remain in full force and effect regardless of any
investigation made by or on behalf of the Schedule 7.4(a) Indemnified Party or
any officer, director or controlling person of the Schedule 7.4(a) Indemnified
Party and will survive the completion of any offering of Registrable Shares in
any Shelf Registration Statement under this Schedule 7.4(a).
SECTION 7. Information by Shareholder. The Shareholder or Shareholders
wishing to sell any Registrable Shares in any registration shall furnish to
Buyer such information regarding such Shareholder or Shareholders and the
distribution proposed by such Shareholder or Shareholders as Buyer may request
in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Schedule 7.4(a).
SECTION 8. Delay of Registration. The Shareholders shall not have any
right to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of these registration rights.
SECTION 9. Rule 144. Buyer agrees that it will use its best efforts to
file with the SEC in a timely manner all reports and other documents required to
be filed by Buyer under the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder, to the extent required from time
to time, to enable each Shareholder to sell Registrable Shares without
registration under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144, or (ii) any similar rule or regulation hereafter
adopted by the SEC, until the earlier to occur of the date (a) the Registrable
Shares covered thereby have been sold pursuant to a Shelf
15
<PAGE> 16
Registration Statement, or (b) by which each Shareholder may sell all of its or
his Registrable Shares covered thereby under Rule 144(k). Buyer also agrees to
furnish to each Shareholder forthwith upon request any information which such
Shareholder may reasonably request in availing itself of Rule 144.
SECTION 10. Termination of Buyer's Obligations. Buyer shall have no
obligations to register or maintain any Shelf Registration Statement governing
Registrable Shares and no penalties or liquidated damages will accrue or be
payable as a result of such failure to register or maintain any Shelf
Registration Statement, (a) if all Registrable Shares have been registered and
sold pursuant to a Shelf Registration Statement effected pursuant to this
Schedule 7.4(a), or (b) with respect to any particular Shareholder, at such time
as all Registrable Shares held by such Shareholder may be sold under Rule
144(k), as it may be amended from time to time, including but not limited to
amendments that reduce that period of time that securities must be held before
such securities may be sold pursuant to such Rule.
SECTION 11. Successors and Assigns. This Schedule 7.4(a) shall inure to
the benefit of and be binding upon the successors and assigns of each of the
parties hereto including any person to whom Registrable Shares are transferred
in accordance with the provisions of the Stock Purchase Agreement.
SECTION 12. Amendment and Waivers. Except as otherwise provided herein,
the provisions of this Schedule 7.4(a) may not be amended, modified or
supplemented, and waivers or consents to departure from the provisions hereof
may not be given unless agreed upon in writing by Buyer, the holders of a
majority of the Registrable Shares and the holders of a majority of the
Registrable Shares held by the Non-Warrantor Sellers.
16
<PAGE> 1
Exhibit 4.b.2
Schedule 10.1
REGISTRATION RIGHTS
The following sets forth the terms and conditions of the registration
rights to which Seller is entitled pursuant to Section 10.1 of the Bill of Sale
and Assignment and Assumption Agreement (the "Agreement"):
SECTION 1. Definitions. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings set forth in Article I of the
Agreement:
"Demand Registration" shall have the meaning set forth in Section 2(a)
hereof.
"Demand Registration Statement" shall have the meaning set forth in
Section 2(a) hereof.
"Effectiveness Period" means the period of six months, or such shorter
period ending on the earlier of (i) the date that all Registrable Shares have
ceased to be Registrable Shares and (ii) three months after the one year
anniversary of the date of the Agreement; provided, however, that if Seller is
unable to sell such Registrable Shares as a result of the occurrence of any
events described in Sections 4(c) or 4(e) during any period in which the Demand
Registration Statement remains effective, the Effectiveness Period shall be
extended by the number of days in such period.
"Eligible Period" means the period commencing six months after the date
of the Agreement and terminating nine months after the date of the Agreement.
"Exchange Act" means the U.S. Securities Exchange Act of 1934, as
amended.
"Piggyback Registration" shall have the meaning set forth in Section
3(a) hereof.
"Prospectus" means the prospectus included in any Registration
Statement, 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.
"Registrable Shares" means all shares of Buyer Stock issued pursuant to
Section 3.1(a) of the Agreement and any and all securities issued with respect
to such shares of
<PAGE> 2
Buyer Stock upon any stock split or stock dividend or into which such shares of
Buyer Stock have been converted or exchanged in connection with any merger,
consolidation, recapitalization or similar event until, in the case of any such
security, 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 Buyer or (iii) its sale pursuant to
Rule 144.
"Registration Statement" means any registration statement prepared and
filed with the SEC pursuant to a Demand Registration and/or Piggyback
Registration.
"Rule 144" means 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.
"Schedule 10.1 Indemnified Party" shall have the meaning set forth in
Section 6(c) hereof.
"Schedule 10.1 Indemnifying Party" shall have the meaning set forth in
Section 6(c) hereof.
"Suspension Period" shall have the meaning set forth in Section 4(e)
hereof.
SECTION 2. Demand Registration.
(a) Request for Registration. At any time during the Eligible Period,
Seller may demand once, by written notice to Buyer, that Buyer effect a
registration of all or part of its Registrable Shares under the Securities Act
(a "Demand Registration"), provided that the aggregate number of Registrable
Shares demanded to be registered have a market value of at least $5 million as
measured by the closing sale price of Buyer's Common Stock as reported by the
NASDAQ Stock Market on the NASDAQ trading day preceding the day of such demand.
Subject to Section 2(c) below, no later than 60 days following receipt by Buyer
of such written notice from Seller, Buyer shall prepare and file (or cause to be
filed) with the SEC a registration statement on Form S-3 (or any applicable
successor form) with respect to the sale by Seller of all such Registrable
Shares which Seller has requested to be registered (a "Demand Registration
Statement"), and Buyer will use its reasonable best efforts to have such Demand
Registration Statement declared effective within 90 days following receipt by
Buyer of such written notice from Seller.
S 10.1-2
<PAGE> 3
(b) Selection of Underwriters. In the event that in the sole discretion
of Buyer, any Demand Registration is effected in connection with any public
offering which shall involve, in whole or in part, an underwritten offering,
Buyer shall have the right to designate an underwriter or underwriters as the
lead or managing underwriter(s) of such underwritten offering. Seller agrees
that if any Registrable Shares are sold in connection with any public offering
involving, in whole or in part, an underwritten offering, then Seller will enter
into a customary underwriting agreement with the underwriter(s) selected
pursuant to the preceding sentence.
(c) Delay in Filing. Notwithstanding the foregoing, Buyer may delay in
filing a Demand Registration Statement and may withhold efforts to cause such
Demand Registration Statement to become effective if Buyer determines in good
faith that such registration might (1) interfere with or affect the negotiation
or completion of any material transaction or other material event that is being
contemplated by Buyer (whether or not a final decision has been made to
undertake such material transaction at the time the right to delay is
exercised), or (2) involve initial or continuing disclosure obligations that
might not be in the best interest of Buyer's shareowners. Buyer may exercise
such right to delay the filing or effectiveness of a Demand Registration
Statement two times and may delay the filing or effectiveness of such
registration statement for not more than 90 days beyond the relevant period set
forth in Section 2(a). Upon any delay by Buyer pursuant to this Section 2(c)
which lasts more than 60 days, Seller may rescind its notice given pursuant to
Section 2(a), and Seller will be deemed not to have exercised its right to
effect a Demand Registration as a result of such notice.
(d) Effective Demand Registration. A registration shall not constitute
a Demand Registration until the Demand Registration Statement has become
effective and, subject to Section 4(e)(i), remains continuously effective with
the SEC for the lesser of (i) the period during which all Registrable Shares
registered in the Demand Registration are sold and (ii) the Effectiveness
Period. Except as provided in Section 4(e)(i), in the event that a Demand
Registration Statement shall cease to be effective prior to such period, Buyer
shall promptly prepare and file a new Demand Registration Statement covering the
Registrable Shares previously covered by such Demand Registration Statement and
shall use its reasonable best efforts to have such new Demand Registration
Statement declared effective as soon as possible.
S 10.1-3
<PAGE> 4
(e) Satisfaction of Buyer's Obligation. Seller acknowledges that, after
Seller delivers a written notice to Buyer to effect a Demand Registration
pursuant to Section 2(a), Buyer's obligations under this Section 2 may be
satisfied, in Buyer's sole discretion, by the inclusion of the Registrable
Shares in any registration statement filed by Buyer for the benefit of Buyer or
any of its shareowners other than Seller. Seller will retain all rights provided
for herein applicable to a Demand Registration in connection with any Demand
Registration effected as described in this Section 2(e).
SECTION 3. Piggyback Registrations.
(a) Right to Piggyback. Whenever, during the period commencing on the
date of the Agreement and ending 18 months after the date of the Agreement,
Buyer proposes to register under the Securities Act on behalf of any of its
shareowners any shares of Common Stock of Buyer (except for the registration of
securities to be offered pursuant to an employee benefit plan on Form S-3 or
Form S-8 or pursuant to a registration made on Form S-4 or any successor forms
then in effect) at any time other than pursuant to a Demand Registration and the
registration form to be used may be used for the registration of the Registrable
Shares (a "Piggyback Registration"), Buyer will so notify Seller in writing no
later than 30 days prior to the filing date of a registration statement in
connection therewith. The notice shall offer to include in such filing the
amount of Registrable Shares as Seller may request. Seller shall (i) advise
Buyer in writing within 15 days after the date of receipt of such offer from
Buyer, setting forth the number of Registrable Shares for which registration is
requested, and (ii) deliver to Buyer a letter from counsel to Seller to the
effect that registration under the Securities Act is or may be required for the
sale of such Registrable Shares. Notwithstanding the foregoing, (i) Buyer hereby
notifies Seller that it is proposing to register under the Securities Act
certain shares of Common Stock of Buyer issued in connection with the
acquisition of Microcosm Communications Limited by Buyer (the "Microcosm
Registration") and hereby offers to include in a registration statement on Form
S-3 all of the Registrable Shares, (ii) within 15 days of the date of the
Agreement, Seller shall advise Buyer in writing of the number of Registrable
Shares, if any, for which registration is requested and shall deliver a
completed Notice and Questionnaire satisfactory to Buyer with respect to certain
information about Seller specifically for use in the registration statement if
any Registrable Shares are to be included therein, and (iii) if any Registrable
Shares are to be included therein, such Microcosm Registration shall
S 10.1-4
<PAGE> 5
otherwise constitute a Piggyback Registration for purposes of this Section 3. If
at any time after giving any such written notice of its intention to effect any
registration of securities and prior to the effective date of the Registration
Statement filed in connection with such registration, Buyer shall determine for
any reason not to register any securities which gave rise to the Piggyback
Registration, Buyer may, in its sole discretion, give written notice of such
determination to Seller and thereupon it shall be relieved of its obligation to
register any Registrable Shares in connection with such registration. If the
offering subject to any notice given pursuant to this Section 3(a) is to be
underwritten, Seller shall sell the Registrable Shares to be included in the
registration to or through the underwriter or underwriters of the securities
being registered upon terms generally comparable to the terms applicable to
others, and if any underwriter or underwriters reasonably determine that the
number of shares included in the Registration Statement is more than can be sold
in an orderly fashion, then the number of shares which Seller and any other
holders of Buyer's Common Stock having piggyback registration rights will be
permitted to include in such registration statement will be reduced pro rata in
proportion to the number of shares proposed to be included in such registration
by Seller and any other holders having piggyback registration rights to an
amount reasonably acceptable to the underwriter or underwriters.
(b) Selection of Underwriters. If any Piggyback Registration is an
underwritten offering, Buyer will select the investment banker(s) and manager(s)
that will administer the offering and Buyer and Seller shall enter into a
customary underwriting agreement with such investment banker(s) and manager(s).
SECTION 4. Registration Procedures.
(a) Obligations of Buyer. Whenever Buyer effects the registration of
Registrable Shares under the Securities Act pursuant to Section 2 or Section 3
hereof, Buyer shall:
(1) Prepare and file (or cause to be filed) with the SEC a
Registration Statement on Form S-3 (or any applicable successor form) with
respect to the applicable Registrable Shares and use its reasonable best
efforts to cause the Registration Statement to become effective;
(2) Prepare and file with the SEC such amendments to the
Registration Statement and amendments or supplements to the Prospectus
contained therein as
S 10.1-5
<PAGE> 6
may be necessary to keep such Registration Statement effective and such
Registration Statement and Prospectus accurate and complete for the
Effectiveness Period;
(3) Furnish to Seller copies of the Registration Statement, any
preliminary or final Prospectus, any amendment or supplement to any of the
foregoing and such other documents as Seller may reasonably request in order
to facilitate the public offering of the Registrable Shares;
(4) Use its reasonable best efforts to register or qualify the
Registrable Shares covered by the Registration Statement and to maintain
such registration or qualification under such state securities or blue sky
laws as Seller shall reasonably request and do any and all other reasonable
acts and things that may be necessary or advisable to enable Seller to
consummate the disposition of the Registrable Shares in such jurisdiction,
except that Buyer shall not for any purpose be required to execute a general
consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction where it is not so qualified;
(5) Notify Seller, promptly after it shall receive notice thereof,
of the date and time when any Registration Statement and each post-effective
amendment thereto has become effective;
(6) Notify Seller promptly of any request by the SEC for the
amending or supplementing of any Registration Statement or Prospectus or for
additional information;
(7) Notify Seller, at any time when a Prospectus relating to the
Registrable Shares is required to be delivered under the Securities Act, of
any event which would cause any such Prospectus or any other Prospectus as
then in effect to include an 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 light of the circumstances under which they were
made, not misleading, and promptly prepare and file with the SEC, and
promptly notify Seller of the filing of, such amendments or supplements to
any Registration Statement or Prospectus as may be necessary to correct any
such statements or omissions;
S 10.1-6
<PAGE> 7
(8) Notify Seller, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the SEC
suspending the effectiveness of any Registration Statement or the initiation
or threatening of any proceeding for that purpose and promptly use its
reasonable best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued;
(9) Use its reasonable best efforts to list or qualify all
Registrable Shares covered by any Registration Statement on any securities
exchange or inter-dealer quotation system on which Buyer's Common Stock is
then listed or quoted; and
(10) Otherwise use commercially reasonable efforts to comply with
all applicable rules and regulations of the SEC, and make available to
Seller, as soon as reasonably practicable, an earning statement covering the
period of at least 12 months, beginning with the first full calendar month
after the effective date of each Registration Statement, which earning
statement shall satisfy the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder.
(b) Seller Information. Notwithstanding anything to the contrary
contained herein, Buyer may require that Seller, as a condition to any Demand
Registration or to having Registrable Shares included in any Piggyback
Registration, furnish to Buyer such information regarding Seller and the
contemplated distribution of its Registrable Shares as shall be required to be
included in the applicable Registration Statement, and that such information be
furnished to Buyer in writing and signed by Seller and stated to be specifically
for use in the related Registration Statement, Prospectus or other document
incident thereto.
(c) Notice to Discontinue. Seller agrees that, upon receipt of any
notice from Buyer of any event of the kind described in Section 4(a)(7) hereof,
Seller will discontinue disposition of Registrable Securities until Seller
receives copies of the supplemented or amended Prospectus contemplated by
Section 4(a)(7). In addition, if Buyer requests, Seller will deliver to Buyer
(at Buyer's expense) all copies of the Prospectus covering the Registrable
Shares current at the time of receipt of the notice.
(d) Notice by Seller. Whenever Seller has requested that any
Registrable Shares be registered pursuant
S 10.1-7
<PAGE> 8
to this Schedule 10.1, Seller shall notify Buyer, at any time when a Prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event (to Seller's knowledge and as to matters concerning
Seller) as a result of which the Prospectus included in the Registration
Statement contains an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(e) Suspension of Registration. Notwithstanding anything to the
contrary contained herein, following the effectiveness of a Registration
Statement registering Registrable Shares (whether pursuant to a Demand
Registration or a Piggyback Registration), Buyer may suspend at any time the
availability of such Registration Statement and any related Prospectus upon (i)
the issuance by the SEC of a stop order with respect to such Registration
Statement or the initiation of proceedings with respect to such Registration
Statement under Section 8(d) or 8(e) of the Securities Act, (ii) the occurrence
of any event or the existence of any fact as a result of which (A) 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 (B) 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
(iii) the occurrence or existence of any pending corporate development,
including without limitation any such development that might (A) interfere with
or affect the negotiation or completion of any material transaction or other
material event that is being contemplated by Buyer (whether or not a final
decision has been made to undertake such material transaction at the time the
right to delay is exercised), or (B) involve initial or continuing disclosure
obligations that might not be in the best interest of Buyer's shareowners, that,
in the reasonable discretion of Buyer, makes it appropriate to suspend the
availability of any Registration Statement and the related Prospectus (any
suspension of the availability of a Registration Statement and related
Prospectus upon any event described in any of subsections (i), (ii) and (iii)
above is hereinafter referred to as a "Suspension Period"); provided that the
duration of a Suspension Period under subsections (ii) and (iii) shall not
extend beyond 120 days. Notwithstanding the foregoing, Buyer shall be limited to
no more than two Suspension Periods under subsections (ii) and (iii) above in
S 10.1-8
<PAGE> 9
any rolling 12-month period. Buyer shall endeavor to end any Suspension Period
as promptly as practicable under the circumstances.
Buyer shall notify Seller in writing of the existence of a Suspension
Period. Upon receipt of any notice from Buyer of a Suspension Period, Seller
shall forthwith discontinue any disposition of Registrable Shares until Seller
(i) is advised in writing by Buyer that the use of the applicable Prospectus may
be resumed, (ii) has received copies of a supplemental or amended Prospectus, if
applicable, and (iii) has received copies of any additional or supplemental
filings which are incorporated or deemed to be incorporated by reference into
such Prospectus.
SECTION 5. Registration Expenses. With respect to any Demand
Registration effected pursuant to Section 2 hereof (other than a Demand
Registration which is effected as described in Section 2(e) hereof), all fees,
costs and expenses of and incidental to such Demand Registration and the public
offering in connection therewith shall be borne by Seller, and shall be paid by
Seller to Buyer within three days after any request therefor is made by Buyer.
With respect to any Piggyback Registration effected pursuant to Section 3 hereof
or any Demand Registration which is effected as described in Section 2(e)
hereof, all fees, costs and expenses of and incidental to such Piggyback
Registration and the public offering in connection therewith shall be borne by
Seller on a pro rata basis according to the percentage of Seller's Registrable
Shares included in such Piggyback Registration or Demand Registration to the
total number of shares registered in connection therewith, and shall be paid by
Seller to Buyer within three days after any request therefor is made by Buyer.
Notwithstanding the foregoing, Seller will not be obligated to reimburse Buyer
for salary and overhead costs of Buyer's internal personnel or fees for auditing
any Buyer financial statements in connection with any Demand Registration or
Piggyback Registration.
SECTION 6. Indemnification.
(a) By Buyer. In the event of any registration of Registrable Shares
under the Securities Act pursuant to this Schedule 10.1, to the fullest extent
permitted by law, Buyer will indemnify Seller and each of its officers,
directors, employees and agents and each person controlling Seller (within the
meaning of Section 15 of the Securities Act) against all expenses, claims,
losses, damages and liabilities arising out of any untrue or allegedly untrue
statement of a material fact contained in any Registration
S 10.1-9
<PAGE> 10
Statement registering Registrable Shares or any Prospectus contained therein or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, provided, however, that
Buyer will not be liable in any such case to the extent that any such expense,
claim, loss, damage or liability arises out of any untrue or allegedly untrue
statement or omission or alleged omission resulting from information furnished
to Buyer by Seller specifically for use therein or Seller's failure to deliver a
copy of the Registration Statement or Prospectus or any amendments or
supplements thereto after Buyer has been requested to furnish Seller, or has
furnished Seller, with copies of the same.
(b) By Seller. In the event of any registration of Registrable Shares
under the Securities Act pursuant to this Schedule 10.1, to the fullest extent
permitted by law, Seller will indemnify Buyer, each of its officers, directors,
employees and agents and each person controlling Buyer (within the meaning of
Section 15 of the Securities Act) against all expenses, claims, losses, damages
and liabilities arising out of any untrue or allegedly untrue statement of a
material fact contained in any Registration Statement registering Registrable
Shares or any Prospectus contained therein or any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading, but only to the extent that such untrue or allegedly
untrue statement or omission or alleged omission resulted from any information
furnished to Buyer by Seller specifically for use therein; provided, however,
that Seller's obligation to indemnify shall be limited to an amount equal to the
net proceeds received by Seller from Registrable Shares sold in connection with
any such registration.
S 10.1-10
<PAGE> 11
(c) Each party entitled to indemnification under this Section 6 (the
"Schedule 10.1 Indemnified Party") shall give notice to the party required to
provide indemnification (the "Schedule 10.1 Indemnifying Party") promptly after
such Schedule 10.1 Indemnified Party has actual knowledge of any claim as to
which indemnity may be sought, and shall permit the Schedule 10.1 Indemnifying
Party to assume the defense of any such claim or any litigation resulting
therefrom; provided that the Schedule 10.1 Indemnified Party may participate in
such defense at such party's expense. The failure of any Schedule 10.1
Indemnified Party to give notice as provided herein shall not relieve the
Schedule 10.1 Indemnifying Party of its obligations under this Section 6, except
to the extent that the Schedule 10.1 Indemnifying Party's ability to defend
against such claim or litigation is impaired as a result of such failure to give
notice. No Schedule 10.1 Indemnifying Party shall be liable for any settlement
of any claim or proceeding effected without its written consent. No Schedule
10.1 Indemnifying Party in the defense of any such claim or proceeding shall,
except with the consent of each Schedule 10.1 Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Schedule 10.1 Indemnified Party of a release from all liability in respect to
such claim or proceeding.
(d) If the indemnification provided for in this Section 6 is held by a
court of competent jurisdiction (by the entry of a final judgment or decree and
the expiration of time to appeal or the denial of the last right of appeal) to
be unavailable to a Schedule 10.1 Indemnified Party with respect to any expense,
claim, loss, damage or liability referred to therein, then the Schedule 10.1
Indemnifying Party, in lieu of indemnifying such Schedule 10.1 Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Schedule 10.1
Indemnified Party as a result of such expense, claim, loss, damage or liability
in such proportion as is appropriate to reflect the relative fault of the
Schedule 10.1 Indemnifying Party on the one hand and of the Schedule 10.1
Indemnified Party on the other in connection with the statements or omissions
that resulted in such expense, claim, loss, damage or liability as well as any
other relevant equitable considerations. The relative fault of the Schedule 10.1
Indemnifying Party and of the Schedule 10.1 Indemnified Party shall be
determined by reference to, among other things, whether the untrue or allegedly
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Schedule 10.1
Indemnifying Party or by the Schedule 10.1 Indemnified Party
S 10.1-11
<PAGE> 12
and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Seller and Buyer agree that it would not be just and equitable if
contribution pursuant this Section 6 were determined by pro rata allocation or
by any other method of allocation that does not take account of the equitable
considerations referred to in Section 6(d). Notwithstanding anything to the
contrary contained herein, Seller will not be required to contribute any amount
pursuant to Section 6(d) in excess of the amount by which the net proceeds
received by Seller from the sale of Registrable Shares pursuant to any
Registration Statement exceeds the amount of any damages Seller has otherwise
been required to pay by reason of such untrue or allegedly untrue statement or
omission or alleged omission. Notwithstanding anything to the contrary contained
herein, no Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution from any
Person who was not guilty of such fraudulent misrepresentation.
(f) The indemnification and contribution provided for under this
Schedule 10.1 will survive the sale of Registrable Shares covered by any
Registration Statement under this Schedule 10.1.
SECTION 7. Not Assignable. Seller may not assign any of the rights
granted under this Schedule 10.1 to any other Person.
SECTION 8. Delay of Registration. Notwithstanding anything to the
contrary contained herein, Seller shall not have any right to obtain or seek an
injunction restraining or otherwise delaying any registration of securities of
Buyer as the result of any controversy that might arise with respect to the
interpretation or implementation of any provision of this Schedule 10.1.
SECTION 9. Limitation of Obligations.
(a) Notwithstanding anything to the contrary contained herein, Buyer
shall have no obligations to register or maintain any Registration Statement
covering Registrable Shares (i) if all Registrable Shares have been registered
and sold pursuant to a Registration Statement effected pursuant to this Schedule
10.1 or (ii) if all Registrable Shares held by Seller may be sold within a three
month period under Rule 144.
S 10.1-12
<PAGE> 13
(b) Notwithstanding anything to the contrary contained herein,
neither Seller nor Buyer will have any liability under this Schedule 10.1
(whether or not related to any breach or alleged breach hereof) or in connection
with any Demand Registration or Piggyback Registration for any consequential,
special, incidental or punitive damages or lost profits.
S 10.1-13
<PAGE> 1
Exhibit 4.b.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of the
10 day of November, 1999, by and among Conexant Systems, Inc., a Delaware
corporation (the "Company"), and the Common Stock investors listed on the
signature page hereto (each an "Investor," and collectively, the "Investors)."
RECITALS
WHEREAS, the Company, the Investors, Istari Design, Inc., a California
corporation, and Istari Acquisition Corp., a Delaware corporation, are parties
to that certain Agreement and Plan of Reorganization dated November 10, 1999
(the "Merger Agreement"); and
WHEREAS, the Merger Agreement grants the Investors registration rights
with respect to shares of the Company's Common Stock issuable to the Investors
under the terms of the Merger Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Agreement:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 1.10 hereof.
(d) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(e) The terms "register," "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means the Common Stock
issuable or issued to the Investors in accordance with the Merger Agreement and
any shares of Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in
<PAGE> 2
exchange for or in replacement of the shares referenced above, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which his rights under this Section 1 are not assigned.
(g) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are held by the Holders and are Registrable Securities.
(h) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Company Registration. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act on a Form S-3 in connection with the
public offering of such securities solely for cash (other than a registration
relating solely to the sale of securities to participants in a Company stock
plan, a registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities or a registration in which the
only Common Stock being registered is Common Stock issuable upon conversion of
debt securities which are also being registered), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after the Company
provides such notice in accordance with Section 2.5, the Company shall, subject
to the provisions of Section 1.6, cause to be registered under the Act all of
the Registrable Securities that each such Holder has requested to be registered.
1.3 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.4 Expenses of Company Registration. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.2 for each Holder (which right may be assigned as provided
in Section 1.10), including (without limitation) all registration, filing and
qualification fees, printers and accounting fees relating or apportionable
thereto and, in connection with an underwritten offering, the fees and
disbursements of counsel for the Company in its capacity as counsel to the
Company and the selling Holders hereunder (if Company counsel does not make
itself available for this purpose, the Company will pay the reasonable fees and
disbursements of counsel for the Company and one counsel for the selling Holders
selected by such selling Holders), but excluding underwriting discounts and
commissions relating to Registrable Securities.
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<PAGE> 3
1.5 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, at its expense, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to sixty (60) days or until
the distribution contemplated in the Registration Statement has been completed;
provided, however, that (i) such 60-day period shall be extended for a period of
time equal to the period the Holder refrains from selling any securities
included in such registration at the request of an underwriter of Common Stock
(or other securities) of the Company; and (ii) in the case of any registration
of Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 60-day period shall be extended, if necessary,
to keep the registration statement effective until all such Registrable
Securities are sold, provided that Rule 415, or any successor rule under the
Act, permits an offering on a continuous or delayed basis, and provided further
that applicable rules under the Act governing the obligation to file a
post-effective amendment permit, in lieu of filing a post-effective amendment
which (i) includes any prospectus required by Section 10(a)(3) of the Act or
(ii) reflects facts or events representing a material or fundamental change in
the information set forth in the registration statement, the incorporation by
reference of information required to be included in (i) and (ii) above to be
contained in periodic reports filed pursuant to Section 13 or 15(d) of the 1934
Act in the registration statement.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, or any amendments or supplements to the
prospectus, in conformity with the requirements of the Act, and such other
documents as they may reasonably request in order to facilitate the disposition
of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
3
<PAGE> 4
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
1.6 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock (including an
initial public offering), the Company shall not be required under Section 1.2 to
include any of the Holders' securities in such underwriting unless they accept
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not, jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by shareholders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling shareholders
according to the total amount of securities entitled to be included therein
owned by each selling shareholder or in such other proportions as shall mutually
be agreed to by such selling shareholders). For purposes of the preceding
parenthetical concerning apportionment, for any selling shareholder which is a
holder of Registrable Securities and which is a partnership or corporation, the
partners, retired partners and shareholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
shareholder," and any pro rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder," as defined in this sentence.
1.7 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.8 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act,
4
<PAGE> 5
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Act or the 1934 Act, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations (each a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the Act, the 1934 Act or any state securities law;
and the Company will pay to each such Holder, underwriter or controlling person
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this Section 1.8(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act or the 1934 Act, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will pay any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this Section 1.8(b), in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Section 1.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this Section 1.8(b) exceed the gross proceeds from the offering received
by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the
5
<PAGE> 6
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.8, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.8.
(d) If the indemnification provided for in this Section 1.8 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section
1.8 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1 and otherwise.
1.9 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144; and
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<PAGE> 7
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act.
1.10 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities, provided: (a) the Company is, within a reasonable
time after such transfer, furnished with written notice of the name and address
of such transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.11 below;
and (c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act.
1.11 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 1 upon the
expiration of two (2) years following the date any Registrable Securities are
first issued to the Investors pursuant to the Merger Agreement. Notwithstanding
the foregoing, no Holder shall be entitled to exercise any rights hereunder with
respect to any Registrable Securities that such Holder can sell pursuant to Rule
144 promulgated under the Act and any other rule or regulation of the SEC that
may at any time permit a Holder to sell securities of the Company to the public
without registration.
2. Miscellaneous.
2.1 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
2.2 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California
applicable to agreements entered into, to be wholly performed in and among
residents exclusively of, California.
2.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
2.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 Notices. Unless otherwise expressly provided herein, all
notices, requests, demands, instructions, documents and other communications to
be given hereunder by either
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<PAGE> 8
party to the other shall be in writing, shall be sent to the address/fax number
set forth below (provided that any party may at any time change its address for
notice or other such information by giving written notice thereof in accordance
with this Section), and shall be deemed to be duly given upon the earliest of
(i) hand delivery, (ii) the first business day after sending by reputable
overnight delivery service for next-day delivery, (iii) the third business day
after sending by first class United States mail, properly addressed, postage
prepaid, certified or registered, (iv) the time of successful facsimile
transmission (or in the event the time of receipt of the fax in the city where
the fax is received is not during regular business hours on a business day, then
at the customary hour for the opening of business on the next business day), but
in either case only if a complete copy is also sent by first class United States
mail (postage prepaid) on the same day as facsimile transmission or on the next
business day, or (v) the date actually received by the other party. All notices
shall be properly addressed to the parties at the addresses set forth in the
signature pages hereto. Any party may change its address or fax number for the
purposes of this paragraph by giving notice of the new address to each of the
other parties hereto in the manner set forth above. Rejection or other refusal
to accept, or the inability to deliver because of a changed address of which no
notice was given, shall not affect the date of such notice sent in accordance
with this Section.
2.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
2.7 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
2.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
2.9 Entire Agreement; Amendment; Waiver. This Agreement
constitutes the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.
2.10 Disputes. If the parties are unable, after good faith
negotiations, which each hereby covenants to undertake, to resolve any dispute
arising between them within fifteen (15) days after notice is given of such
dispute, then the dispute will be referred to arbitration (which the parties
agree is the exclusive means of resolving any such dispute) before one (1)
arbitrator in Orange County, California, or any other place mutually agreed upon
by the parties
8
<PAGE> 9
hereto, in accordance with the applicable rules then in effect of the Judicial
Arbitration and Mediation Service (the "JAMS Rules") (or any other form of
arbitration mutually acceptable to the parties). Such arbitrator shall be
selected by the mutual agreement of the Company and the holders of a majority of
the Registrable Securities who are parties to the dispute, or if no mutual
agreement can be reached within ten (10) days after the termination of the
fifteen day period referenced above, then such arbitrator shall be appointed by
the arbitration service. The civil discovery statutes of the State of California
shall apply to such arbitration. The determination made in accordance with the
rules of JAMS (or such other form of arbitration as the parties may mutually
agree) shall be delivered in writing to the parties hereto and shall be final,
binding and conclusive on the parties hereto, and the amount of the claim, if
any, determined to exist shall be a valid claim and no further remedy shall be
available to either party with respect to such dispute and judgment may be
entered upon such decision in accordance with applicable law in any court having
jurisdiction thereof. The arbitration award shall include (i) a provision that
the prevailing party in such arbitration recover its costs relating to the
arbitration and reasonable attorneys' fees from the other party, (ii) the amount
of such costs and fees, and (iii) an order that the losing party pay the fees
and expenses of the arbitrator.
2.11 No Conflicts. The Company hereby represents and warrants that
the Company's obligations under this Agreement are not in conflict with its
obligations under any other agreement the Company has entered into with any
other party.
2.12 Further Assurances. Each of the parties hereto shall,
following the date of this Agreement, and without charge to the other, take such
additional actions and execute, deliver and file such additional instruments as
may be reasonably requested by the other parties hereto that are necessary or
appropriate to give effect to the transactions contemplated by this Agreement.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY: CONEXANT SYSTEMS, INC.
By: /s/ Matt Rhodes
-------------------------------------
Name: Matt Rhodes
Title: Senior Vice President & General
Manager, Personal Computing
Division
Address: 4311 Jamboree Road, MC E10-005
Newport Beach, CA 92660
Telephone: (919) 483-4445
-------------------------------
Facsimile: (949) 483-6169
-------------------------------
INVESTORS:
/s/ Steven Gardner
-----------------------------------------
Steven Gardner
Address: 4423 Alhambra St
-------------------------------
San Diego, CA 92107
-------------------------------
Telephone:
-------------------------------
Facsimile:
-------------------------------
/s/ James Petranovich
-----------------------------------------
James Petranovich
Address: 1190 Encinitas Blvd F219
-------------------------------
Encinitas, CA 92024
-------------------------------
Telephone:
-------------------------------
Facsimile:
-------------------------------
<PAGE> 11
/s/ George Peponides
-----------------------------------------
George Peponides
Address: 592 Crest Drive
-------------------------------
Encinitas, CA 92024
-------------------------------
Telephone:
-------------------------------
Facsimile:
-------------------------------
<PAGE> 1
Exhibit 4.c.1
CONEXANT SYSTEMS, INC.
MICROCOSM COMMUNICATIONS LIMITED
STOCK OPTION PLAN
SECTION 1: PURPOSE
In connection with the purchase by Conexant Systems, Inc.
("Conexant") of all the issued and outstanding shares of Microcosm
Communications Limited ("Microcosm") pursuant to the Stock Purchase Agreement,
all Microcosm Options outstanding under the Microcosm Executive Share Option
Scheme will be surrendered and canceled and in exchange, Conexant Options will
be granted. In addition, as additional consideration for the surrender and
cancellation of their Microcosm Options, the holders of Microcosm Options will
be entitled receive additional Conexant Options upon the terms and conditions
set forth in the Stock Purchase Agreement. The purpose of the Plan is to provide
a means for Conexant to perform its obligations under the Stock Purchase
Agreement with respect to the holders of Microcosm Options.
SECTION 2: DEFINITIONS
For the purpose of the Plan, the following terms shall have
the meanings set forth below:
Acquisition. The purchase by Conexant of all of the issued and
outstanding ordinary, "A" ordinary and preference shares of Microcosm.
Option Agreement. An agreement entered into between Conexant
and a Participant setting forth the terms and conditions applicable to
a Conexant Option granted to the Participant.
Board of Directors. The Board of Directors of Conexant.
Closing Date. The Closing Date as defined in the Stock
Purchase Agreement.
Conexant. Conexant Systems, Inc., a Delaware corporation.
Conexant Option. An option to purchase Conexant Shares granted
under the Plan in connection with the Acquisition. All Conexant Options
issued under
<PAGE> 2
the Plan will be Non-qualified stock options, and are not intended to
comply with the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended.
Conexant Shares. Shares of Common Stock, par value $1 per
share, of Conexant.
Fair Market Value. The closing price of Conexant Stock as
reported in the NASDAQ reporting system on the relevant date, or if no
sale of Conexant Shares is reported for such date, the next preceding
day for which there is a reported sale.
Microcosm. Microcosm Communications Limited, a corporation
incorporated under the laws England and Wales.
Microcosm Option. An option to purchase Microcosm Shares
granted pursuant to the Microcosm Executive Share Option Scheme.
Microcosm Shares. Ordinary shares of Microcosm.
Participant. Any person who as at the opening of business on
the Closing Date held one or more outstanding Microcosm Options and any
transferee of the Conexant Options granted hereunder.
Plan. This Microcosm Communications Limited Stock Option Plan.
Securities Act. The Securities Act of 1933, and any successor
statute, as it may be amended from time to time.
Stock Purchase Agreement. The Stock Purchase Agreement dated
as of January 6, 2000 among Conexant and the Shareholders and Option
Holders of Microcosm.
SECTION 3: CONEXANT SHARES AVAILABLE UNDER PLAN
The total number of Conexant Shares which may be delivered
upon exercise of Conexant Options shall be that number of Conexant Shares as
shall be necessary to provide to the holders of Microcosm Options, in the form
of Conexant Options, their portion of the consideration paid or to be paid by
Conexant pursuant to Sections 2.2(b), 2.3(b), 2.3(d), 2.3(e), 2.4(b) or 2.5(b)
of the Stock Purchase Agreement, as adjusted from time to time as herein
provided. Conexant Shares which may be delivered upon exercise of Conexant
Options may consist in whole or in part of treasury or authorized but unissued
shares, or shares may be acquired, subsequently or in
2
<PAGE> 3
anticipation of the transaction, in the open market to satisfy the requirements
of the Plan. Conexant will at all times reserve a sufficient number of
authorized and unissued Conexant Shares to satisfy all outstanding Conexant
Options in full.
SECTION 4: CONEXANT OPTION PROVISIONS
a. Option Agreements. Each Conexant Option under the Plan
shall be evidenced by a Stock Option Agreement. Each Stock Option Agreement
shall set forth the number of Conexant Shares subject to the Conexant Option,
which shall be determined in accordance with the provision of Sections 2.2(b),
2.3(b), 2.3(d), 2.3(e), 2.4(b) and 2.5(b) of the Stock Purchase Agreement, and
shall incorporate the Stock Option Terms and Conditions attached as Annex A
hereto. In the event of any conflict between a Stock Option Agreement and the
Plan, the terms of the Plan shall govern.
b. Exercising Options. (i) The Conexant Options will be
immediately exercisable and entitle the respective holders thereof to purchase
such number of Conexant Shares at such exercise price as shall be determined
pursuant to the terms of the Stock Purchase Agreement. The exercise price of
such Conexant Options shall be as determined pursuant to the Stock Purchase
Agreement and have been approved by the Chief Executive Officer of Conexant and
may be less than the Fair Market Value on the date of grant (but shall be not
less than $1 per share); provided, however, that the purchase price of the
Conexant Shares with respect to which a Conexant Option or portion thereof is
exercised shall be payable in full in cash or in Conexant Shares, in a
combination of cash and Conexant Shares or a cashless exercise. The value of any
Conexant Share delivered in payment of the exercise price shall be its Fair
Market Value on the date the Conexant Option is exercised. No fractional shares
of stock will be issued or accepted.
(ii) From and after the effective date of the resolutions of
the Board of Directors referred to in the immediately following sentence,
Participants may simultaneously exercise such Conexant Options and sell to
Conexant the number of Conexant Shares thereby acquired necessary to make
payment of the exercise price of the Conexant Options and any applicable
personal withholding taxes (a "cashless exercise"). Within 30 days after the
Closing Date, the Conexant Board of Directors will pass a resolution authorizing
the purchase by Conexant of that number of Conexant Shares issued upon exercise
of Conexant Options, at a price per share equal to the Fair Market Value of
Conexant Shares on the day Conexant the Conexant Option is exercised, as is
necessary so that the proceeds of such purchases would be sufficient to pay the
exercise price of the Conexant Options and any applicable personal withholding
taxes in connection with such exercise.
3
<PAGE> 4
c. Rights as a Shareowner. A Participant shall have no rights
as a shareowner with respect to any shares covered by a Conexant Option until
the date the Participant becomes the holder of record with respect thereof.
Except as provided in Section 7, no adjustment shall be made for dividends or
other rights.
d. Withholding. Whenever the exercise of any option, or the
delivery of any Conexant Shares upon exercise of a Conexant Option or transfer
thereof, gives rise to any personal taxes required by law to be withheld from
the Participant, Conexant will have the right as a condition thereto to deduct
from any payment to be made by Conexant or ChaseMellon under the Plan (including
by retaining the notional proceeds received by Conexant on a cashless exercise
of Conexant Options by a sale to Conexant or the cash proceeds received by
ChaseMellon from a cashless exercise of Conexant Options and remitting the cash
or cash equivalent to Microcosm in order for Microcosm to withhold the
applicable personal taxes in connection with such cashless exercise) or to
require the Participant to remit to Conexant an amount sufficient to satisfy
such tax obligation. A Participant may satisfy the withholding obligation by
paying the amount of any taxes in cash or Conexant Shares may be delivered to
Conexant or deducted from the payment or, in accordance with Section 4(b)(ii),
sold to satisfy the obligation in full or in part. If such tax withholding
obligation is paid in Conexant Shares, tax amounts shall be limited to the
statutory minimum as required by law.
SECTION 5: AMENDMENT AND TERMINATION
Except as provided in Section 7, (a) the Plan and the Conexant
Options subject thereto may not be amended, suspended or terminated without the
consent in writing of the holders of then outstanding Conexant Options
representing at least 75% of the Conexant Shares underlying such Conexant
Options and (b) without the approval of the shareowners of Conexant, (i) the
number of Shares provided in Section 3 may not be increased and (ii) the
exercise price of any Conexant Option may not be reduced; provided, however,
that no such amendment, suspension or termination shall impair the rights of any
holder of Conexant Options without such holder's consent.
SECTION 6: PLAN ADMINISTRATION
The Board of Directors shall exercise all responsibilities,
powers and authority relating to the administration of the Plan.
SECTION 7: ADJUSTMENTS
If there shall be any change in or affecting Conexant Shares
on account of any merger, consolidation, reorganization, recapitalization,
reclassification, stock
4
<PAGE> 5
dividend, stock split or combination, or other distribution to holders of
Conexant Shares (other than a cash dividend), there shall be made or taken such
amendments to the Plan and such adjustments and actions thereunder as the Board
of Directors may deem appropriate under the circumstances, provided that such
adjustments and actions do not materially adversely affect the Participants or
any holder of Conexant Options granted hereunder, and provided further that in
the event of a recapitalization, reorganization or reclassification of Conexant,
the Conexant Options shall be exercisable for such consideration as that for
which the Conexant Shares are exchanged. Such amendments, adjustments and
actions may include, without limitation, changes in the number of Conexant
Shares which may be issued or transferred pursuant to the Plan, the number of
Conexant Shares subject to outstanding Conexant Options and the related exercise
price per share or a requirement that holders of Conexant Options to exercise
such Conexant Options and become holders of Conexant Shares upon the occurrence
of certain events. Without limiting the generality of the foregoing, (i) if any
such change in or affecting Conexant Shares shall result in an increase in the
number of outstanding Conexant Shares, the number of Conexant Shares remaining
subject to the Plan shall be proportionately increased and the price for each
Conexant Share then covered by an outstanding Conexant Option shall be
proportionately reduced, and (ii) if any such change in or affecting Conexant
Shares shall result in a decrease in the number of outstanding Conexant Shares,
the number of Conexant Shares remaining subject to the Plan shall be
proportionately decreased and the price for each Conexant Share then covered by
an outstanding Conexant Option shall be proportionately increased.
SECTION 8: MISCELLANEOUS
a. Until a registration statement registering the Option
Shares has been declared effective by the Securities Exchange Commission, in
connection with the delivery of any Conexant Shares upon exercise of a Conexant
Option, Conexant shall have the right to require as a condition of such delivery
that the recipient represent the following:
5
<PAGE> 6
(i) that he or she is an accredited investor as such
term is defined in Rule 501(a) under the Securities Act and is
acquiring the Conexant Shares issuable upon exercise of the Conexant
Options for its own account for investment purposes only and not with a
view to, or for sale or resale in connection with, any public
distribution thereof or with any present intention of selling,
distributing or otherwise disposing of any of such shares in violation
of the Securities Act; or
(ii) that he or she is not a U.S. person within the
meaning of Rule 902(k) of Regulation S under the Securities Act, which
term includes: (i) a natural person resident in the United States; (ii)
a partnership or corporation organized or incorporated under the laws
of the United States; (iii) an estate of which any executor or
administrator is a U.S. person; (iv) a trust of which any trustee is a
U.S. person; (v) an agency or branch of a foreign entity located in the
United States; (vi) a non-discretionary account or similar account
(other than an estate or trust) held by a dealer or other fiduciary for
the benefit or account of a U.S. person; (vii) a discretionary account
or similar account (other than an estate or trust) held by a dealer or
other fiduciary organized, incorporated or (if an individual) resident
in the United States; and (viii) a partnership or corporation (A)
organized or incorporated under the laws of any foreign jurisdiction
and (B) formed by a U.S. person principally for the purpose of
investing in securities not registered under the Securities Act, unless
it is organized or incorporated, and owned, by accredited investors (as
defined in Rule 501(a) under the Securities Act) who are not natural
persons, estates or trusts; or
(iii) any other matters as Conexant may reasonably
request of such Conexant Option holder in order to establish to the
reasonable satisfaction of Conexant that another exemption from the
registration requirements of the Securities Act is applicable.
b. Conexant shall bear all expenses and costs in connection
with the operation of the Plan, including costs related to the purchase, issue
or transfer of Conexant Shares, but excluding personal taxes imposed on any
person receiving a payment or delivery of Shares under the Plan.
SECTION 9: INTERPRETATIONS AND DETERMINATIONS
The Board of Directors shall have the power from time to time
to interpret the Plan, to adopt, amend and rescind procedural rules and
regulations relating to the
6
<PAGE> 7
exercise of Conexant Options under the Plan, and to take all other actions that
the Board of Directors shall deem necessary or appropriate for the
implementation and administration of the Plan.
SECTION 10: EFFECTIVE DATE
The Plan shall become effective as of the Closing Date.
SECTION 11: TERMS OF OPTIONS
Each Conexant Option granted under the Plan will be
exercisable for a period of two years from the date of grant.
7
<PAGE> 1
CONEXANT SYSTEMS, INC. Exhibit 4.c.2
MICROCOSM COMMUNICATIONS LIMITED STOCK OPTION PLAN
STOCK OPTION AGREEMENT
STOCK OPTION TERMS AND CONDITIONS
THE OPTIONS HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES (AS DEFINED IN RULE 902(L) UNDER THE
SECURITIES ACT) OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS
DEFINED IN RULE 902(k) UNDER THE SECURITIES ACT) EXCEPT AS SET FORTH BELOW. THE
OPTIONS ARE BEING OFFERED AND SOLD ONLY (a) IN OFFERS AND SALES OUTSIDE THE
UNITED STATES TO PERSONS OTHER THAN U.S. PERSONS OR (b) IN A PRIVATE PLACEMENT
IN THE UNITED STATES TO "ACCREDITED INVESTORS" (AS DEFINED IN RULE 501(a) UNDER
THE SECURITIES ACT). DURING THE PERIOD TWO YEARS AFTER THE GRANT DATE OF AN
OPTION, THE OPTIONS MANY NOT BE RESOLD OR OTHERWISE TRANSFERRED EXCEPT (a) TO
CONEXANT SYSTEMS, INC. OR ANY SUBSIDIARY THEREOF, (b) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES
IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT, (d) PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OR (e) PURSUANT TO ANY
OTHER EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT (IF AVAILABLE).
DURING THE PERIOD ONE YEAR AFTER THE GRANT DATE OF AN OPTION, HEDGING
TRANSACTIONS INVOLVING OPTIONS ACQUIRED IN A TRANSACTION PURSUANT TO REGULATION
S UNDER THE SECURITIES ACT MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE
SECURITIES ACT.
<PAGE> 2
1. Definitions
Capitalized terms used and not defined herein shall have the
respective meanings assigned to such terms in the Plan. As used in these Stock
Option Terms and Conditions, the following words and phrases shall have the
respective meanings ascribed to them below unless the context in which any of
them is used clearly indicates a contrary meaning:
(a) ChaseMellon. ChaseMellon Shareholder Services, the Stock
Option Administrator whom Conexant has engaged to administer and process certain
stock option exercises.
(b) Conexant. Conexant Systems, Inc., a Delaware corporation.
(c) Grant Date. The Closing Date, as defined in the Stock
Purchase Agreement and set forth in the letter dated January 6, 2000, to which
the Stock Option Terms and Conditions are attached.
(d) IVR. Integrated Voice Response system that is used to
facilitate all stock option transactions conducted through ChaseMellon.
(e) Microcosm. Microcosm Communications Limited, a corporation
incorporated under the laws of England and Wales.
(f) Options. The stock option or stock options listed in the
first paragraph of the letter dated January 6, 2000 to which these Stock Option
Terms and Conditions are attached and which together with these Stock Option
Terms and Conditions constitutes the Stock Option Agreement.
(g) Option Shares. The Shares issuable or transferable on
exercise of the Options.
(h) Plan. Conexant's Microcosm Communications Limited Stock
Option Plan, as such Plan may be amended and in effect at the relevant time.
(i) Shares. Shares of Conexant common stock, par value $1 per
share, or any shares into which they are exchanged or reclassified.
(j) Stock Option Agreement. These Stock Option Terms and
Conditions together with the letter dated January 6, 2000 to which they are
attached.
2
<PAGE> 3
(k) Stock Purchase Agreement. Stock Purchase Agreement dated
as of January 6, 2000 by and between Conexant and the Shareholders and Option
Holders of Microcosm Communications Limited.
2. When Options May be Exercised.
The Options may be exercised, in whole or in part (but only
for a whole number of shares) and at one time or from time to time, at
any time after the Grant Date until two years after the Grant Date.
3. Exercise Procedure Prior to Registration.
(a) Until the holder of Options has been notified by Conexant
that a registration statement registering the Option Shares to be issued upon
exercise of the Options (the "Registration Statement") has been declared
effective by the Securities and Exchange Commission (the "SEC"), to exercise all
or any part of Options any holder of Options (or any other person entitled to
exercise the Options) must contact the Conexant Office of Stock Administration
at (949) 483-4525. Full payment of the exercise price for the Option Shares may
be made: (i) in cash; (ii) in Shares; (iii) in a combination of cash and Shares;
or (iv) subject to Section 5, by cashless exercise.
(b) In connection with such exercise, Conexant may require
that the exercise contain or be accompanied by written acknowledgment that such
holder is making the representations and warranties contained in Section 8 as of
the date of exercise. In addition, in the case of an exercise of the Options by
any person other than the original holder seeking to exercise the Options, the
Secretary of Conexant may require additional documents to establish to its
satisfaction that the person seeking to exercise the Options is entitled to do
so.
(c) An exercise of the whole or any part of the Options shall
be effective:
(i) if a holder of Options elects to pay the exercise price
for the Option Shares entirely in cash, after full payment of the
exercise price and personal withholding taxes (if applicable) is made
to Conexant (such payment must be received within five business days
after the exercise) and upon receipt by Conexant of any documents
required pursuant to Section 3(b); and
(ii) if a holder of Options elects to pay the exercise price
of the Option Shares in Shares or in a combination of Shares and cash,
after full payment of the exercise price (as defined in Section 3(f))
and personal withholding taxes (if
3
<PAGE> 4
applicable) is made to Conexant (such payment must be received within
five business days after the exercise) and upon receipt by Conexant of
any documents required pursuant to Section 3(b).
(iii) A holder of Options (or a person entitled to exercise
the Options) who chooses to use already-owned Shares to pay all or part
of the exercise price for the Option Shares to be purchased on exercise
of any of the Options must deliver to Conexant one or more certificates
(and executed stock powers), or authorize the book-entry transfer to
Conexant of shares, representing:
- at least the number of Shares whose value, based on
the closing price of Common Stock of Conexant on the
NASDAQ reporting system on the day the holder of
Options has exercised his or her Options, equals the
exercise price for those Option Shares; or
- any lesser number of Shares a holder of Options
desires to use to pay the exercise price for those
Option Shares and a cheque in the amount of such
exercise price less the value of the Shares
delivered, based on the closing price of Common Stock
of Conexant on the NASDAQ reporting system on the day
the Options have been exercised.
(iv) Notwithstanding any other provision of this Stock Option
Agreement, the Secretary of Conexant may limit the number, frequency or
volume of successive exercises of any of the Options in which payment
is made, in whole or in part, by delivery of Shares pursuant to this
subparagraph (c) to prevent unreasonable pyramiding of such exercises.
(d) If a holder of Options chooses to pay the exercise price
for the Option Shares to be purchased on exercise of any of the Options entirely
by cash, payment must be made by delivering to Conexant a cheque for, or by wire
transfer of the full amount of the exercise price for those Option Shares.
In accordance with Section 3(f), full payment of the exercise
price for the Option Shares purchased must be made within five business days
after the exercise is received by Conexant.
(e) Subject to Section 5, a holder of Options may be entitled
to exercise the Options through a cashless exercise (as defined in Section 5).
4
<PAGE> 5
(f) A stock certificate representing the number of Option
Shares purchased will be issued as soon as practicable (i) after Conexant has
received full payment therefor or (ii) at Conexant's election in its sole
discretion, after Conexant has received (x) full payment of the exercise price
of those Option Shares and (y) any reimbursement in respect of personal
withholding taxes due pursuant to Section 7. Any certificates for Conexant
Shares issued upon exercise of the Options shall bear a legend stating, among
other things, that the Option Shares issued upon exercise of the Options have
not been registered under the Securities Act of 1933, as amended (the
"Securities Act") and have not been registered or qualified under blue sky or
other securities laws of any state of the United States.
4. Exercise Procedure After Registration.
(a) Following notification by Conexant that the Registration
Statement has been declared effective by the SEC, any holder of Options (or any
other person entitled to exercise the Options) who wishes to exercise all or any
part of Options must contact the administrator, ChaseMellon, by using the IVR
system or the website set up under the Conexant stock program as follows:
(i) contact ChaseMellon using a touch-tone phone and follow
the instructions provided (or contact ChaseMellon using a rotary phone
and speak to a Customer Service Representative);
(ii) confirm the Option transaction through the IVR system by
receiving a confirmation number;
(iii) at any time the holder of Options may speak to a
Customer Service Representative for assistance;
(iv) full payment of the exercise price for the Option Shares
to be purchased on exercise of the Options may be made: (i) in cash;
(ii) in Shares; (iii) in a combination of cash and Shares; or (iv)
subject to Section 5, by cashless exercise.
(v) in the case of an exercise of the Options by any person
other than the original holder seeking to exercise the Options, such
documents as ChaseMellon or the Secretary of Conexant may require
additional documents to establish to its satisfaction that the person
seeking to exercise the Options is entitled to do so.
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<PAGE> 6
(b) An exercise of the whole or any part of the Options shall
be effective:
(i) if a holder of Options elects to pay the exercise price
for the Option Shares entirely in cash, (i) upon confirmation of the
transaction by using the IVR system and full payment of the exercise
price and personal withholding taxes (if applicable) are received by
ChaseMellon within five business days after the confirmation; and (ii)
receipt by Conexant of any documents required pursuant to Section
4(a)(v); and
(ii) if a holder of Options elects to pay the exercise price
of the Option Shares in Shares or in a combination of Shares and cash:
(i) upon confirmation of the transaction by using the IVR system and
full payment of the exercise price (as defined in Section 4(d)) and
personal withholding taxes (if applicable) are received by ChaseMellon
within five business days following the confirmation; and (ii) receipt
of any documents required pursuant to Section 4(a)(v).
(iii) Once the Registration Statement has been declared
effective by the SEC, a holder of Options (or a person entitled to
exercise the Options) who chooses to use already-owned Shares to pay
all or part of the exercise price for the Option Shares to be purchased
on exercise of any of the Options must deliver to ChaseMellon one or
more certificates (and executed stock powers), or authorize the
book-entry transfer to Conexant of shares, representing:
- at least the number of Shares whose value, based on
the closing price of Common Stock of Conexant on the
NASDAQ reporting system on the day the holder of
Options has exercised his or her Options through the
IVR system, equals the exercise price for those
Option Shares; or
- any lesser number of Shares a holder of Options
desires to use to pay the exercise price for those
Option Shares and a cheque in the amount of such
exercise price less the value of the Shares
delivered, based on the closing price of Common Stock
of Conexant on the NASDAQ reporting system on the day
the Options have been exercised through the IVR
system.
(iv) Notwithstanding any other provision of this Stock Option
Agreement, the Secretary of Conexant may limit the number, frequency or
volume of successive exercises of any of the Options in which payment
is made,
6
<PAGE> 7
in whole or in part, by delivery of Shares pursuant to this
subparagraph (b) to prevent unreasonable pyramiding of such exercises.
(c) If a holder of Options, or other person entitled to
exercise the Options, chooses to pay the exercise price for the Option Shares to
be purchased on exercise of any of the Options entirely in cash, payment must be
made by delivering to ChaseMellon a cheque for the full amount of the exercise
price for those Option Shares, or by wire transfer.
In accordance with Section 4(d), full payment of the exercise
price for the Option Shares purchased must be made within five business days
after the exercise has been conducted and confirmed through the IVR system.
(d) An exercise conducted and confirmed through the IVR
system, whether or not full payment of the exercise price for the Option Shares
is received by ChaseMellon, shall constitute a binding contractual obligation by
the holder of Options (or any other person entitled to exercise the Options) to
proceed with and complete that exercise of the Options (but only so long as the
holder of Options, or such other person, continues to be entitled to exercise
the Options on that date). By the holder's acceptance of this Stock Option
Agreement, the holder of Options agrees to deliver or cause to be delivered to
ChaseMellon any balance of the exercise price for the Option Shares to be
purchased upon the exercise pursuant to the transaction conducted through the
IVR system required to pay in full the exercise price for those Option Shares,
that payment being (i) in cash, (ii) in Shares, (iii) in a combination of cash
and Shares or (iv) subject to Section 5, by a cashless exercise, on or before
the later of the fifth business day after the date on which the holder of
Options (or any other person entitled to exercise the Options) confirms the
transaction through the IVR system. If such payment is not made, the holder of
Options (and any other person entitled to exercise the Options) authorizes
Conexant, in its discretion, to set off against salary payments or other amounts
due or which may become due the holder of Options (or any other person entitled
to exercise the Options) from Conexant (other than amounts payable under the
Stock Purchase Agreement) any balance of the exercise price for those Option
Shares remaining unpaid thereafter.
(e) Subject to Section 5, a holder of Options may be entitled
to exercise the Options through a cashless exercise (as defined in Section 5).
(f) A book entry statement or stock certificate representing
the number of Option Shares purchased will be issued as soon as practicable (i)
after ChaseMellon has received full payment therefor or (ii) at Conexant's or
ChaseMellon's election in its
7
<PAGE> 8
sole discretion, after Conexant or ChaseMellon has received (x) full payment of
the exercise price of those Option Shares and (y) any reimbursement in respect
of personal withholding taxes due pursuant to Section 7.
5. Cashless Exercise.
(a)(i) Until the resolutions authorizing the repurchase by
Conexant of Option Shares described in Section 5(a)(ii) is passed by
the Board no holder of Options shall be permitted to make a cashless
exercise.
(ii) From and after the effective date of the resolutions of
the Board of Directors referred to in the immediately following
sentence, a holder of Options (or any other person entitled to exercise
the Options) may simultaneously exercise such Options and sell to
Conexant the number of Option Shares thereby acquired necessary to make
payment of the exercise price of the Options and any applicable
personal withholding taxes (a "cashless exercise"). Within 30 days
after the Closing Date (as defined in the Stock Purchase Agreement),
the Conexant Board of Directors will pass a resolution authorizing the
purchase by Conexant of that number of Option Shares issued upon
exercise of Options, at a price per share equal to the closing price of
Common Stock on the NASDAQ reporting system on the day the Option is
exercised, as is necessary so that the proceeds of such purchases would
be sufficient to pay the exercise price of the Option and any
applicable personal withholding taxes. From the date on which the Board
adopts such resolution authorizing the repurchase by Conexant of Option
Shares until the date on which the Registration Statement has been
declared effective by the SEC, a holder of Options shall be permitted
to make a cashless exercise solely by notifying the Conexant Office of
Stock Administration.
(iii) Once Conexant has received notice that the Registration
Statement has been declared effective by the SEC, a holder of Options
shall be permitted to make a cashless exercise through ChaseMellon,
using the IVR system or the Conexant stock program website.
6. Transferability.
(a) The Options and the Option Shares to be issued upon
exercise of the Options have not been registered under the Securities Act of
1933, as amended (the "Securities Act") and have not been registered or
qualified under blue sky or other securities laws of any state of the United
States.
8
<PAGE> 9
(b) The Options and the Option Shares to be issued upon
exercise of the Options may not be offered, sold, assigned, pledged,
hypothecated, gifted, encumbered or otherwise disposed of or transferred unless
registered under the Securities Act and any other applicable law of any
jurisdiction, or disposed of pursuant to an exemption from registration. Any
certificates for Conexant Shares issued upon exercise of the Options shall bear
a legend to the foregoing effect. Hedging transactions involving the Conexant
Options may not be conducted unless in compliance with the Securities Act.
(c) Pursuant to the Stock Purchase Agreement, Conexant has
agreed to file one or more registration statements under the Securities Act
covering the Option Shares that are issued upon exercise of the Options granted
under the Plan. The Options and the Option Shares have not been registered under
the Securities Act or any applicable U.S. state securities laws and may not be
offered or transferred, sold, assigned, pledged, hypothecated, gifted,
encumbered or otherwise disposed of prior to the date which is two years after
the date of original issue of such Option Shares except (i) to Conexant or any
subsidiary of Conexant or (ii) pursuant to a registration statement which has
been declared effective under the Securities Act or (iii) pursuant to offers and
sales to non-U.S. persons that occur outside the United States in an offshore
transaction within the meaning of Rule 902 of Regulation S under the Securities
Act or (iv) pursuant to Rule 144 under the Securities Act or (v) pursuant to any
other available exemption from the registration requirements of the Securities
Act, if in the opinion of counsel reasonably acceptable to Conexant such
exemption is applicable. No Option Shares and/or Options may be transferred in
violation of the provisions of any applicable U.S. federal or state, United
Kingdom or other jurisdiction's securities laws.
7. Withholding.
Conexant or ChaseMellon shall have the right, in connection
with the exercise of the Options in whole or in part, to deduct from any payment
to be made by Conexant or ChaseMellon under the Plan an amount equal to the
personal taxes required to be withheld by law with respect to such exercise
(including by retaining the notional proceeds received by Conexant on a cashless
exercise of Options by a sale to Conexant or the cash proceeds received by
ChaseMellon from a cashless exercise of Options and remitting the cash or cash
equivalent to Microcosm in order for Microcosm to withhold the applicable
personal taxes in connection with such cashless exercise) or to require the
holder of the Options (or any other person entitled to exercise the Options) to
pay to it an amount sufficient to provide for any such taxes so required to be
withheld. By his or her acceptance of this Stock Option Agreement, the holder of
the Options agrees (for himself or herself and on behalf of any other person who
becomes entitled to exercise the
9
<PAGE> 10
Options) that if Conexant or ChaseMellon elects to require the holder of the
Options (or such other person) to remit an amount sufficient to pay such
personal withholding taxes, the holder of the Options (or such other person)
must remit that amount within five business days after the confirmation of the
Option exercise (Sections 3(f) and 4(d)). If such payment is not made, Conexant,
in its discretion, shall have the same right of set-off with respect to payment
of the personal withholding taxes in connection with the exercise of the Option
as provided under Section 3(f) with respect to payment of the exercise price.
8. Rights as Shareowner.
A holder of Options will not have any rights as a shareowner
with respect to any Option Shares unless and until he or she becomes the holder
of such Option Shares on the books and records of Conexant in accordance with
Section 3(f) or 4(d).
9. Representations and Warranties.
Until the Registration Statement has been declared effective
by the SEC, in connection with the delivery of any Option Shares upon exercise
of an Option, Conexant will have the right to require as a condition of such
delivery that the holder of the Option represent and warrant the following:
(a) he or she is an accredited investor as such term is
defined in Rule 501(a) under the Securities Act and is acquiring the Option
Shares issuable upon exercise of the Options for its own account for investment
purposes only and not with a view to, or for sale or resale in connection with,
any public distribution thereof or with any present intention of selling,
distributing or otherwise disposing of any of such shares in violation of the
Securities Act; or
(b) he or she is not a U.S. person within the meaning of Rule
902(k) of Regulation S under the Securities Act, which term includes: (i) a
natural person resident in the United States; (ii) a partnership or corporation
organized or incorporated under the laws of the United States; (iii) an estate
of which any executor or administrator is a U.S. person; (iv) a trust of which
any trustee is a U.S. person; (v) an agency or branch of a foreign entity
located in the United States; (vi) a non-discretionary account or similar
account (other than an estate or trust) held by a dealer or other fiduciary for
the benefit or account of a U.S. person; (vii) a discretionary account or
similar account (other than an estate or trust) held by a dealer or other
fiduciary organized, incorporated or (if an individual) resident in the United
States; and (viii) a partnership or corporation (A) organized or incorporated
under the laws of any foreign jurisdiction and (B) formed by a U.S. person
principally for the purpose of investing in securities not registered under the
10
<PAGE> 11
Securities Act, unless it is organized or incorporated, and owned, by accredited
investors (as defined in Rule 501(a) under the Securities Act) who are not
natural persons, estates or trusts; or
(c) any other matters as Conexant may reasonably request of
such Option holder in order to establish to the reasonable satisfaction of
Conexant that another exemption from the registration requirements of the
Securities Act is applicable.
10. Headings.
The section headings contained in these Stock Option Terms and
Conditions are solely for the purpose of reference, are not part of the
agreement of the parties and shall in no way affect the meaning or
interpretation of this Stock Option Agreement.
11. References.
All references in these Stock Option Terms and Conditions to
Sections, paragraphs, subparagraphs or clauses shall be deemed to be references
to Sections, paragraphs, subparagraphs and clauses of these Stock Option Terms
and Conditions unless otherwise specifically provided.
12. Entire Agreement.
This Stock Option Agreement, the Plan and the other
Transaction Documents (as defined in the Stock Purchase Agreement) embody the
entire agreement and understanding between Conexant and the holder of Options
with respect to the Options, and there are no representations, promises,
covenants, agreements or understandings with respect to the Options other than
those expressly set forth in Transaction Documents.
13. Applicable Laws and Regulations.
This Stock Option Agreement and Conexant's obligation to issue
Option Shares hereunder are governed by the laws of Delaware and the Federal law
of the United States.
11
<PAGE> 12
January 6, 2000
- --Name--
- --Address_1--
- --Address_2--
Dear Optionee:
We are pleased to notify you that as of the Closing Date, as defined in the
Stock Purchase Agreement among Conexant and the Shareholders and Option Holders
of Microcosm Communications Limited, you have been granted the following stock
option(s) under the Microcosm Communications Limited Stock Option Plan (the
Plan):
Type of Grant Number of Shares Option Price
------------- ---------------- ------------
--NQ-- --Shares-- --Price--
These stock option(s) have been granted, and may be exercised only upon the
terms and conditions of this Stock Option Agreement, subject in all respects to
the provisions of the Plan, as it may be amended. The attached Stock Option
Terms and Conditions are incorporated in and are part of this Stock Option
Agreement.
This stock option grant is also subject to the condition that you acknowledge
this stock option grant by signing and returning the duplicate copy of this
letter to:
Conexant Systems, Inc.
Office of the Secretary
4311 Jamboree Road
Newport Beach, California 92660-3095
In executing this Stock Option Agreement, you acknowledge that you
understand that, in order to perform its requirements under this Plan. Conexant
may process personal data and/or sensitive personal data about you. Such data
include but are not limited to the information provided above and any changes
thereto, other appropriate personal and financial data about you and your
purchases under the Plan from time to time. You
<PAGE> 13
hereby give your explicit consent to Conexant to process any such personal data
and/or sensitive personal data. You also hereby give your explicit consent to
the Company to transfer any such personal data and/or sensitive personal data
outside the country in which you work or are employed. The legal persons for
whom your personal data are intended are Conexant Systems, Inc., Microcosm
Communications Limited and ChaseMellon Shareholder Services, L.L.C. You
acknowledge that you have been informed of your right of access and correction
to your personal data by applying to Mark Richardson, Microcosm Communications
Limited.
A copy of the Plan is also enclosed. Please carefully read the enclosed
documents and retain them for future reference.
CONEXANT SYSTEMS, INC.
By:
-----------------------------------
Dennis E. O'Reilly
Senior Vice President,
General Counsel and Secretary
Acknowledged and Agreed:
- ------------------------------------
Name: --Name--
2
<PAGE> 1
Exhibit 5
Conexant Systems, Inc.
4311 Jamboree Road
Newport Beach, CA 92660
February 16, 2000
Conexant Systems, Inc.
4311 Jamboree Road
Newport Beach, CA 92660
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 (a) the resale of shares of common stock, par value $1 per share,
of the Company (together with the associated Preferred Share Purchase Rights,
the "Common Stock") previously issued by the Company in (i) the acquisition of
all outstanding ordinary, "A" ordinary and preference shares and options to
purchase ordinary shares of Microcosm Communications Limited ("Microcosm
Acquisition"); (ii) the acquisition of all outstanding ordinary shares of Oak
Technology Ltd., and (iii) the merger of a wholly-owned subsidiary of the
Company with and into Istari Design, Inc. (collectively, the "Issued Shares");
(b) the resale of shares of Common Stock previously issued upon exercise of
options issued in the Microcosm Acquisition under the Company's Microcosm
Communications Limited Stock Option Plan (the "Plan") (the "Issued Option
Shares"); and (c) the offer and sale by the Company of shares of Common Stock to
be issued upon exercise of options not previously exercised which were issued in
the Microcosm Acquisition under the Plan (the "Option Shares"), I advise as
follows:
The Common Stock is to be offered and sold by certain securityholders of
the Company. As Senior Vice President, General Counsel and Secretary of the
Company, I am
<PAGE> 2
-2- February 16, 2000
familiar with the Restated Certificate of Incorporation and By-Laws of the
Company, each as amended to the date hereof, and have reviewed the Registration
Statement on Form S-3 to be filed by the Company under the Act with respect to
the Issued Shares, the Issued Option Shares and Option Shares (the
"Registration Statement") and the corporate proceedings taken by the Company
in connection with the authorization of the Issued Shares, the Issued Option
Shares and the Option Shares. I have also examined originals, or copies
certified to my satisfaction, of such corporate records of the Company and
other instruments, certificates of public officials and representatives of the
Company, and other documents as I have deemed necessary as a basis for the
opinion hereinafter expressed. In such examination, I have assumed the
genuineness of all signatures, the authenticity of all documents submitted to
me as originals and the conformity with the originals of all documents
submitted to me as copies. As to question of fact material to this opinion, I
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 I deem relevant, I am of the opinion that the Issued Shares
and any Issued Option Shares issued on or prior to the date hereof have been
legally and validly issued, fully paid and non-assessable and that the Option
Shares and any Issued Option Shares to be issued prior to the effective date of
the Registration Statement, when issued pursuant to the Plan, will be legally
and validly issued, fully paid and non-assessable.
<PAGE> 3
-3-
February 16, 2000
I express no opinion herein as to any laws other than the laws of the State
of California, the Delaware General Corporation Law (including the applicable
provisions of the Delaware Constitution and the applicable reported judicial
decisions related thereto) and the Federal laws of the United States.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. I also consent to the reference to me under the caption
"Legal Matters" in the Prospectus constituting a part of the Registration
Statement.
Very truly yours,
Dennis E. O'Reilly, Esq.
Senior Vice President
General Counsel and Secretary
<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 October 29, 1999,
appearing in the Annual Report on Form 10-K of Conexant Systems, Inc. for the
year ended September 30, 1999, and to the reference to us under the heading
"Experts" in the Prospectus, which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
Costa Mesa, California
February 16, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-3 of Conexant Systems, Inc.
of our report dated February 10, 1999 on the consolidated financial statements
of Maker Communications, Inc. included in Conexant Systems, Inc.'s Form 8-K
dated February 16, 2000 and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 16, 2000
<PAGE> 1
Exhibit 23.4
CONSENT OF CHADBOURNE & PARKE LLP
We consent to the reference to this firm under the caption "U.S. Federal Income
Tax Considerations" in the Prospectus, which is a part of this Registration
Statement.
CHADBOURNE & PARKE LLP
New York, New York
February 16, 2000
<PAGE> 1
Exhibit 23.5
CONSENT OF MANCHES & CO.
We consent to the reference to this firm under the caption "U.K. Tax
Considerations" in the Prospectus, which is a part of this Registration
Statement.
MANCHES & CO.
London, England
February 16, 2000
<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 registering under the
Securities Act of 1933, as amended (the "Securities Act"), (i) the resale by
certain holders of shares of Common Stock, par value $1 per share, of the
Company ("Common Stock") previously issued by the Company in private placements
pursuant to Regulation S or Section 4(2) under the Securities Act, including
such shares issued (a) to the shareholders of Microcosm Communications Limited
in connection with the acquisition by the Company of all of the outstanding
shares and options of Microcosm Communications Limited (the "Microcosm
Acquisition"); (b) to Oak Technology, Inc. in connection with the acquisition by
the Company of the wireless broadband business unit of Oak Technology, Inc.; and
(c) to the shareholders of Istari Design, Inc. in connection with the
acquisition by the Company of Istari Design, Inc.; (ii) the resale by certain
holders of shares of Common Stock issued or delivered by the Company in private
placements pursuant to Regulation S or Section 4(2) under the Securities Act
upon the exercise, prior to the effective date of the Registration Statement, of
stock options issued in the Microcosm Acquisition under the Company's Microcosm
Communications Limited Stock Option Plan; and (iii) the offer and sale by the
Company of shares of Common Stock issuable or deliverable upon exercise of stock
options issued in the Microcosm Acquisition under the Company's Microcosm
Communication Limited Stock Option Plan, and any and all amendments (including
post-effective amendments) and supplements to such Registration Statement.
<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 February 1, 2000
/s/ Donald R. Beall Director February 9, 2000
----------------------
Donald R. Beall
</TABLE>
<PAGE> 2
<TABLE>
<S> <C> <C>
--------------------- Director February , 2000
Richard M. Bressler
/s/ F. Craig Farrill Director February 2, 2000
----------------------
F. Craig Farrill
/s/ Jerre L. Stead Director February 8, 2000
--------------------
Jerre L. Stead
/s/ Balakrishnan S. Iyer Senior Vice President and February 1, 2000
-------------------------- Chief Financial Officer
Balakrishnan S. Iyer (principal financial officer)
/s/ Steven M. Thomson Vice President and Controller February 2, 2000
----------------------- (principal accounting officer)
Steven M. Thomson
</TABLE>
2
