<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 000-24923
CONEXANT SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 25-1799439
- ------------------------ ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
4311 JAMBOREE ROAD
NEWPORT BEACH, CALIFORNIA 92660-3095
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(949) 483-4600
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Registrant's number of shares of common stock outstanding as of February 4, 2000
was 202,571,118.
================================================================================
<PAGE> 2
CONEXANT SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Condensed Balance Sheets -- December 31, 1999 and
September 30, 1999 3
Consolidated Condensed Statements of Operations -- Three Months
Ended December 31, 1999 and 1998 4
Consolidated Condensed Statements of Cash Flows -- Three Months
Ended December 31, 1999 and 1998 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONEXANT SYSTEMS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 277,516 $ 398,516
Receivables, net of allowances of $6,545 and
$9,658 at December 31 and September 30, 1999 286,508 238,940
Inventories, net 222,712 224,477
Deferred income taxes 81,860 81,860
Other current assets 63,866 35,381
----------- -----------
Total current assets 932,462 979,174
Property, plant and equipment, net 759,166 723,013
Intangible assets, net 51,437 47,824
Other assets 244,479 91,939
----------- -----------
Total assets $ 1,987,544 $ 1,841,950
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 224,509 $ 265,151
Deferred revenue on shipments to distributors 29,170 21,027
Accrued compensation and benefits 70,808 48,530
Other current liabilities 30,176 40,013
----------- -----------
Total current liabilities 354,663 374,721
Convertible subordinated notes 350,000 350,000
Other long-term liabilities 99,371 82,076
----------- -----------
Total liabilities 804,034 806,797
----------- -----------
Commitments and contingencies -- --
Shareholders' equity:
Preferred and junior preferred stock (no par value, 25,000
shares authorized, no shares issued or outstanding) -- --
Common stock ($1.00 par value, 500,000 shares authorized;
198,118 and 196,387 outstanding at December 31
and September 30, 1999, respectively) 198,128 196,387
Additional paid-in capital 836,820 769,563
Retained earnings 121,883 70,052
Accumulated other comprehensive income 29,468 149
Treasury stock, at cost (528) --
Unearned compensation (2,261) (998)
----------- -----------
Total shareholders' equity 1,183,510 1,035,153
----------- -----------
Total liabilities and shareholders' equity $ 1,987,544 $ 1,841,950
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
CONEXANT SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------------
1999 1998
--------- ---------
<S> <C> <C>
Net revenues $ 509,963 $ 294,678
Cost of goods sold 277,446 216,754
--------- ---------
Gross margin 232,517 77,924
Operating expenses:
Research and development 88,477 71,109
Selling, general and administrative 68,168 64,016
Amortization of intangibles 2,405 2,064
Special charges -- Rockwell retained assets -- 20,000
Special charges -- other -- 17,906
--------- ---------
Total operating expenses 159,050 175,095
--------- ---------
Operating income (loss) 73,467 (97,171)
Other income, net 578 (143)
--------- ---------
Income (loss) before provision
(benefit) for income taxes 74,045 (97,314)
Provision (benefit) for income taxes 22,214 (40,191)
--------- ---------
Net income (loss) $ 51,831 $ (57,123)
========= =========
Net income per share:
Basic $ 0.26
=========
Diluted $ 0.24
=========
Number of shares used in per share computation:
Basic 196,715
=========
Diluted 228,974
=========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
CONEXANT SYSTEMS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 51,831 $ (57,123)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 46,762 51,764
Deferred income taxes -- 11,564
Amortization of deferred compensation--restricted stock 449 --
Special charges -- Rockwell retained assets -- 20,000
Special charges -- other -- 17,906
Changes in assets and liabilities:
Receivables (47,568) 30,606
Inventories 1,765 58,876
Accounts payable (40,642) (58,048)
Accrued expenses and other current liabilities 30,535 16,771
Other 16,692 (35,310)
--------- ---------
Net cash provided by operating activities 59,824 57,006
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (84,656) (14,845)
Investments in and advances to businesses (105,498) --
--------- ---------
Net cash used in investing activities (190,154) (14,845)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of debt -- (725)
Net transfers to Rockwell -- (42,154)
Proceeds from exercise of stock options 9,330 --
--------- ---------
Net cash provided by (used in) financing activities 9,330 (42,879)
--------- ---------
Net decrease in cash and cash equivalents (121,000) (718)
Cash and cash equivalents at beginning of period 398,516 14,000
--------- ---------
Cash and cash equivalents at end of period $ 277,516 $ 13,282
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
CONEXANT SYSTEMS, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
On December 31, 1998, Conexant Systems, Inc. (formerly named Rockwell
Semiconductor Systems, Inc.) (the "Company" or "Conexant"), became an
independent, separately traded, publicly-held company when Rockwell
International Corporation ("Rockwell") spun off its semiconductor systems
business ("Semiconductor Systems") by means of a distribution (the
"Distribution") of all the outstanding shares of common stock of the Company to
the shareholders of Rockwell in a tax-free spin-off. In the Distribution, each
Rockwell shareholder of record on December 11, 1998 received one share of
Conexant common stock, along with an associated preferred share purchase right,
for every two shares of Rockwell common stock (prior to the effect of Conexant's
October 1999 stock split).
The unaudited consolidated condensed financial statements through the date of
the Distribution present the historical financial position, results of
operations, and cash flows of Semiconductor Systems, as it was spun off, and
exclude the assets, liabilities, and results of operations of non-semiconductor
businesses retained by Rockwell. The financial statements prior to the
Distribution are not necessarily indicative of what the financial position,
results of operations, or cash flows would have been had Conexant been an
independent public company during such periods. Financial data included in the
accompanying unaudited consolidated condensed financial statements for periods
subsequent to the Distribution have been prepared on a basis that reflects the
historical assets, liabilities, and operations of the business contributed to
Conexant by Rockwell.
Prior to the Distribution, Rockwell provided certain management services that
were allocated based on sales in proportion to total Rockwell sales. Rockwell
continues to provide certain services to the Company (primarily research and
development activities) under the terms of a transition agreement. Costs for
these services and programs are billed to Conexant based on actual usage and are
included in Conexant's unaudited consolidated condensed statements of
operations. Management believes that the methods of billing these costs are
reasonable and that the costs charged to Conexant are approximately those which
would have been incurred on a stand-alone basis.
In the opinion of management, the accompanying consolidated condensed financial
statements contain all adjustments, consisting of adjustments of a normal
recurring nature, as well as the special charges recorded in the first quarter
of 1999 (see Note 2), necessary to present fairly the financial position,
results of operations, and cash flows of Conexant. The results of operations for
interim periods are not necessarily indicative of the results that may be
expected for a full year. These statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1999.
FISCAL PERIODS
For presentation purposes, references made to the quarter ended December 31,
1998 relate to the actual fiscal 1999 first quarter ended January 1, 1999, as
previously reported.
STOCK SPLIT
Common share and per common share amounts for all periods presented have been
restated to reflect the two-for-one stock split (in the form of a dividend)
effected on October 29, 1999 for shareholders of record as of September 24,
1999.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the current
period presentation.
RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. When adopted, SFAS 133
will require the Company to record all derivatives as an asset or liability in
the balance sheet, measured at fair value. Derivatives that are not hedges must
be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in fair value of derivatives will
either offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings, or be recognized in other
comprehensive income until the hedged item is recognized in earnings. The
6
<PAGE> 7
change in a derivative's fair value related to the ineffective portion of a
hedge, if any, will generally be immediately recognized in earnings.
Implementation of SFAS 133 is required as of the beginning of fiscal year 2001
and is not expected to have a material effect on the Company's financial
position or results of operations.
2. SPECIAL CHARGES
ROCKWELL RETAINED ASSETS: Prior to the Distribution, the Company distributed its
wafer fabrication facilities in Colorado Springs, Colorado (and the related tax
benefit) to Rockwell. The transition agreement with Rockwell provided for the
lease of the Colorado Springs facilities by Conexant through April 30, 1999,
pursuant to a triple-net lease under which Conexant paid all costs of the
facilities. In the first fiscal quarter of 1999, Conexant recorded a special
charge for an additional asset impairment of $20 million for the Colorado
Springs wafer fabrication facilities as a result of Rockwell's decision to
further write-down the facilities, which were retained by Rockwell as part of
the spin-off. This non-cash charge was required to be reported in the Company's
last fiscal quarter as a subsidiary of Rockwell.
OTHER: In the fourth fiscal quarter of 1998, Conexant restructured its business
and recorded special charges of $147 million. In the first fiscal quarter of
1999, Conexant recorded additional special charges of $18 million. The
additional charges include $17 million relating to the Voluntary Early
Retirement Program (VERP) and $1 million relating to decommissioning equipment,
activities at foreign subsidiaries, and contract cancellations at the Colorado
Springs wafer fabrication facilities. The restructuring actions are
substantially complete.
3. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) for the three months ended December 31, 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Net income (loss) $ 51,831 $(57,123)
Other comprehensive income:
Foreign currency translation adjustments 2,207 (3,845)
Unrealized gains on marketable securities 43,856 1,726
Income taxes (16,744) --
-------- --------
Other comprehensive income (loss) 29,319 (2,119)
-------- --------
Comprehensive income (loss) $ 81,150 $(59,242)
======== ========
</TABLE>
Accumulated other comprehensive income consists of the following:
<TABLE>
<CAPTION>
AS OF
----------------------------
DECEMBER 31, SEPTEMBER 30,
1999 1999
----------- -------------
<S> <C> <C>
Unrealized gains on marketable securities $ 43,856 $ --
Foreign currency translation adjustments 2,356 149
Income taxes (16,744) --
-------- --------
Accumulated other comprehensive income $ 29,468 $ 149
======== ========
</TABLE>
4. NET INCOME (LOSS) PER SHARE
Prior to the December 31, 1998 spin-off of Conexant from Rockwell, Conexant was
not an independent company. Consequently, for periods prior to the spin-off, net
income (loss) per share is not presented and pro forma net loss per share
(computed as if the spin-off had occurred on October 1, 1998) is shown below.
The number of pro forma weighted average shares outstanding used in the
computation of pro forma net loss per share for the quarter ended December 31,
1998 was based upon the weighted average number of Rockwell shares and share
equivalents outstanding during the period, adjusted for the distribution ratio
of one share of the Company's common stock for every two shares of Rockwell
common stock and for the effect of Conexant's October 1999 two-for-one stock
split. These pro forma results are not indicative of future results.
7
<PAGE> 8
Pro forma basic and diluted loss per share for the quarter ended December 31,
1998 is as follows (in thousands, except per share data):
THREE MONTHS ENDED
DECEMBER 31, 1998
-----------------
Net loss $(57,123)
Pro forma basic and diluted net loss per share $ (0.30)
Pro forma basic and diluted weighted average
common shares outstanding 189,870
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------------
PRO FORMA
1999 1998
--------- ---------
<S> <C> <C>
Income:
Net income (loss) available to common shareholders - basic $ 51,831 $ (57,123)
Interest expense on convertible subordinated notes,
net of tax 2,299 --
--------- ---------
Net income (loss) available to common shareholders - diluted $ 54,130 $ (57,123)
========= =========
Shares:
Weighted-average shares outstanding - basic 196,715 189,870
Effect of dilutive securities:
Stock options 16,791 --
Restricted stock 315 --
Convertible subordinated notes 15,153 --
--------- ---------
Weighted-average shares outstanding - diluted 228,974 189,870
========= =========
Net income (loss) per share:
Basic $ 0.26 $ (0.30)
========= =========
Diluted $ 0.24 $ (0.30)
========= =========
</TABLE>
The effect of common share equivalents outstanding for the three months ended
December 31, 1998 was not included in the computation of pro forma diluted loss
per share as their effect was antidilutive.
5. INVENTORIES
Inventories, net consist of the following (in thousands):
DECEMBER 31, SEPTEMBER 30,
1999 1999
------------ -------------
Raw materials, parts, and supplies $ 35,362 $ 29,998
Work-in-process 137,131 160,781
Finished goods 50,219 33,698
-------- --------
Inventories, net $222,712 $224,477
======== ========
6. CONTINGENT LIABILITIES
Claims have been asserted against Conexant for utilizing the intellectual
property rights of others in certain of the Company's products. The resolution
of these matters may entail the negotiation of a license agreement, a
settlement, or the resolution of such claims through arbitration or litigation.
On October 14, 1997, Brent Townshend ("Townshend") filed suit against Rockwell
and Conexant in the Superior Court of California for San Mateo County seeking an
injunction to halt the sale of products containing Conexant's K56Flex(TM)
chipsets and requesting unspecified damages, claiming that Conexant had engaged
in unfair competition, misappropriation of trade secrets, breach of contract and
breach of confidence by using technical information allegedly disclosed in
confidence by Mr. Townshend to accelerate its
8
<PAGE> 9
development of 56 Kbps modem technology. In January 1999, Townshend dismissed
his State Court action and re-filed the same claims and three new claims for
patent infringement in the U.S. District Court for the Northern District of
California. In the Federal action, Townshend alleges that each of his patents
(the "Townshend Patents") covers certain aspects of the V.90 standard and are
infringed by Conexant's 56 Kbps products. In the Federal action, Townshend seeks
injunctive relief, compensatory damages, restitution and exemplary and punitive
damages. Townshend and 3Com Corporation had publicly announced that 3Com was the
exclusive licensee for the Townshend Patents and acted as Townshend's agent in
sublicensing the Townshend Patents to third parties. More recently, Townshend
and 3Com publicly announced that Townshend has reacquired exclusive control over
the licensing and enforcement of the patents as well as other ownership rights,
while 3Com retained a non-exclusive license to practice the Townshend
inventions. Conexant has filed its answer to Townshend and counterclaims against
Townshend and claims against 3Com. Conexant is vigorously defending its position
that it independently developed the 56 Kbps modem technology using entirely its
own skills and public domain information and will vigorously contest the
infringement claims and the validity of the asserted patents.
Various other lawsuits, claims and proceedings have been or may be instituted or
asserted against Rockwell or Conexant or their respective subsidiaries,
including those pertaining to product liability, intellectual property,
environmental, safety and health, and employment matters.
In connection with the Distribution, Conexant assumed responsibility for all
contingent liabilities and current and future litigation (including
environmental and intellectual property proceedings) against Rockwell or its
subsidiaries in respect of Semiconductor Systems.
The outcome of litigation cannot be predicted with certainty and some lawsuits,
claims or proceedings may be disposed of unfavorably to Conexant. Many
intellectual property disputes have a risk of injunctive relief and there can be
no assurance that a license will be granted. Injunctive relief could have a
material adverse effect on the financial condition or results of operations of
Conexant. Based on its evaluation of matters which are pending or asserted and
taking into account Conexant's reserves for such matters, management of Conexant
believes the disposition of such matters will not have a material adverse effect
on the financial condition or results of operations of Conexant.
7. ACQUISITIONS
In November 1999, Conexant acquired Istari Design Inc. ("Istari"), a provider of
consulting and contract engineering services for communication systems design
and implementation. The Company intends for Istari to be integrated with its
product development organizations. Aggregate consideration for the acquisition
was $6.0 million, paid in the form of $0.4 million cash and 100,506 shares of
Conexant common stock. The transaction was recorded under the purchase method of
accounting.
In December 1999, Conexant entered into an agreement to acquire Maker
Communications, Inc. ("Maker"), a fabless semiconductor company that develops
and markets high-performance programmable network processors, software
solutions, and development tools. Under the agreement, Conexant will issue 0.66
of a share of Conexant common stock in exchange for each share of Maker common
stock. The transaction is subject to customary regulatory approvals and the
approval of Maker's shareholders and, although there can be no assurance, is
expected to be completed during the quarter ending March 31, 2000. Holders of
approximately 35% of Maker's outstanding common stock have executed agreements
to vote their shares in favor of the transaction. The total value of the
consideration for the acquisition of Maker is approximately $957.1 million,
based on the closing price of Conexant common stock on December 17, 1999 of
$69.625. The acquisition of Maker will be recorded under the purchase method of
accounting.
In October 1999, Conexant entered into a $150 million strategic agreement with a
vendor under which Conexant will receive foundry capacity to support its future
growth. As part of the agreement, Conexant advanced $75 million to the vendor
and will advance an additional $75 million to the vendor in fiscal 2001.
8. SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest, net of amounts capitalized, for the three months ended
December 31, 1999 was $6.4 million. Cash paid for income taxes for the three
months ended December 31, 1999 was approximately $9.5 million. For the three
months ended December 31, 1998, all interest and income tax payments were made
by Rockwell.
Significant noncash transactions during the three months ended December 31, 1999
include income tax benefits of approximately $52.7 million resulting from
employee stock transactions which were credited to additional capital. During
the three months ended
9
<PAGE> 10
December 31, 1998, Conexant transferred its wafer fabrication facilities in
Colorado Springs, Colorado (and the related tax benefit) with a book value of
approximately $59 million to Rockwell as well as certain other tax benefits of
$25 million related to a litigation matter.
9. SUBSEQUENT EVENTS
ACQUISITIONS
In January 2000, Conexant acquired Microcosm Communications Limited
("Microcosm"), a technology leader in the field 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 contingent indemnification obligations. The
closing payment was made by delivery of 1,523,430 shares of common stock to the
shareholders of Microcosm and 94,078 stock options 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 the form
of shares of common stock and stock options, if certain performance and
technology goals are achieved.
Also in January 2000, Conexant acquired the wireless broadband business unit of
Oak Technology, Inc. located in Bristol, England through the acquisition of all
outstanding ordinary shares of its wholly-owned subsidiary, Oak Technology Ltd.
and certain assets related to that business. The purchase price was
approximately $25 million, paid in a combination of 293,794 shares of Conexant
common stock and $5 million in cash.
In connection with these acquisitions, Conexant granted the sellers certain
registration rights. The acquisitions of Microcosm and the wireless broadband
business unit of Oak Technology, Inc. will each be recorded under the purchase
method of accounting.
CONVERTIBLE SUBORDINATED NOTES
In February 2000, Conexant completed a private offering of $650 million
principal amount of its 4% Convertible Subordinated Notes due 2007 for net
proceeds (after costs of issuance) of approximately $632 million. The notes are
general unsecured obligations of Conexant and interest on the notes is payable
in arrears semiannually on each February 1 and August 1. The notes are
convertible, at the option of the holder, into shares of the Company's common
stock at a conversion price of $108 per share, subject to certain adjustments.
The notes may be redeemed, at Conexant's option, on or after February 6, 2003 at
a declining premium to par.
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This information should be read in conjunction with the unaudited
consolidated condensed financial statements and the notes thereto included in
this Quarterly Report, and the audited consolidated financial statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in the Company's Annual Report on Form 10-K
for the year ended September 30, 1999.
The results of operations for the periods prior to the January 1, 1999
spin-off from Rockwell reflect the Company's operations as a subsidiary of
Rockwell. The results of operations subsequent to that date reflect the
Company's operations as a stand-alone entity. The results of operations for
periods when the Company was a subsidiary of Rockwell may not be indicative of
the results of operations of the Company had it been a stand-alone entity during
such periods.
RESULTS OF OPERATIONS
The following table summarizes the net revenues of the Company's five
product platforms (dollars in thousands):
THREE MONTHS ENDED DECEMBER 31,
-----------------------------------------
1999 1998
----------------- ------------------
Personal Computing $190,096 38% $152,277 52%
Network Access 118,547 23 41,727 14
Wireless Communications 103,018 20 45,214 15
Digital Infotainment 67,126 13 39,444 13
Personal Imaging 31,176 6 16,016 6
--------- --- -------- ---
Totals $509,963 100% $294,678 100%
======== === ======== ===
NET REVENUES: Net revenues of $510.0 million for the first quarter of
fiscal 2000, compared to $294.7 million for the first quarter of fiscal 1999,
included revenue growth in each of the Company's product platforms. The
"expansion platform" products (all products excluding the Personal Computing
products) continue to be the Company's fastest-growing products.
Net revenues for Personal Computing increased by 25% for the first
quarter of fiscal 2000 over the first quarter of fiscal 1999. The increase
principally reflects increasing unit volume in PC-based dial-up modems, led by
the Company's V.90 software modem, partially offset by lower average selling
prices and the ongoing shift toward lower priced products.
Net revenues for the Network Access product platform increased 184% for
the first quarter of fiscal 2000 over the first quarter of fiscal 1999 as demand
continued to be fueled by the ongoing global upgrading of the Internet
infrastructure. Shipments of the AnyPort multi-service access product family had
significant growth as networking original equipment manufacturers continued
their deployment of IP gateways. Revenue growth among the Company's broadband
access portfolio, including symmetrical and asymmetrical digital subscriber line
products, resulted from continued strong demand from a broad customer base of
DSL access multiplexer and customer premise equipment manufacturers. Finally,
the Company's WAN transport portfolio had significant growth as the result of
the strong demand in the T/E framers, ATM, and SONET product portfolios.
Within the Wireless Communications platform, net revenues increased 128%
for the first quarter of fiscal 2000 compared to the first quarter of fiscal
1999. Demand for digital cellular handsets remains strong worldwide. There was
continued growth in shipments of power amplifiers and radio frequency subsystems
used in both CDMA and GSM digital cellular handsets, along with substantial
growth in DSS chipsets for digital cordless telephone applications.
For our Digital Infotainment platform, net revenues increased 70% for
the first quarter of fiscal 2000 over the first quarter of fiscal 1999. The
revenue growth reflects solid demand for PCI and side-port video decoders (for
"TV in the PC" applications), satellite set-top box tuners and demodulators, and
back-channel telephony solutions.
Net revenues for Personal Imaging increased 95% for first quarter of
fiscal 2000 over the first quarter of fiscal 1999. The increase was mainly due
to record unit shipments of fax modems and facsimile engines to leading office
equipment OEMs and increased penetration of the expanding multifunction
peripheral market. In addition, revenues for the first quarter of fiscal 1999
were affected by the economic recession in the Asia-Pacific markets during that
period.
GROSS MARGIN: Gross margin was $232.5 million (46% of net revenues) for
the first quarter of fiscal 2000, compared to $77.9 million (26% of net
revenues) for the similar period in fiscal 1999. The gross margins achieved in
the first quarter of fiscal 2000
11
<PAGE> 12
reflect better product mix, and higher factory utilization at our wafer
fabrication facilities. In addition, gross margin for the first quarter of
fiscal 1999 was adversely affected by unusually high inventory costs which
resulted from low manufacturing capacity utilization during the preceding four
months.
RESEARCH AND DEVELOPMENT: Research and development expenses were $88.5
million for the first quarter of fiscal 2000, compared to $71.1 million for the
first quarter of fiscal 1999. The first quarter of fiscal 1999 reflects certain
cost-cutting actions taken in the fourth quarter of fiscal 1998, including
headcount reductions, design center closures, and certain project cancellations.
The increase in expenses for the fiscal 2000 first quarter reflects higher
engineering headcount and related costs associated with the Company's refocused
efforts to develop technology to expand its product portfolio.
SELLING, GENERAL, AND ADMINISTRATIVE: Selling, general, and
administrative expenses were $68.2 million (13% of sales) for the first quarter
of fiscal 2000 compared to $64.0 million (22% of sales) for the first quarter of
fiscal 1999. The change reflects the Company's increased investment in its sales
and marketing organizations, partially offset by lower spending for advertising
and purchased services. The Company also incurred higher compensation and
related expenses in the fiscal 2000 first quarter, principally reflecting the
development of corporate infrastructure to support Conexant's recent and
anticipated future growth.
SPECIAL CHARGES - ROCKWELL RETAINED ASSETS: In the first quarter of
fiscal 1999, Conexant recorded a special charge for an additional asset
impairment of $20 million for the Colorado Springs wafer fabrication facilities
as a result of Rockwell's decision to further write-down the facilities, which
were retained by Rockwell as part of the spin-off. This non-cash charge was
required to be reported in the Company's last fiscal quarter as a subsidiary of
Rockwell.
SPECIAL CHARGES - OTHER: In the first fiscal quarter of 1999, Conexant
recorded additional special charges of approximately $18 million. The additional
charges include approximately $17 million relating to a voluntary early
retirement program and $1 million relating to decommissioning equipment,
activities at foreign subsidiaries, and contract cancellations at the Colorado
Springs wafer fabrication facilities.
OTHER INCOME, NET: Other income, net was $0.6 million for the first
quarter of fiscal 2000, compared to net expenses of $0.1 million for the similar
period in fiscal 1999. Other income for the first quarter of fiscal 2000
reflects increased interest income resulting from higher invested cash balances,
partially offset by the interest expense on the $350 million convertible notes.
PROVISION (BENEFIT) FOR INCOME TAXES: The income tax provision for the
first quarter of fiscal 2000 was $22.2 million (approximately 30% of pretax
income). In the similar period of fiscal 1999, an income tax benefit of $40.2
million was recorded due to a loss from operations. The tax rate reflects the
positive impact of various tax credits available to the Company, including state
tax credits and federal research and experimentation tax credits. However, the
Company's book effective tax rate will increase in the second quarter of fiscal
2000 as a result of nondeductible amortization of goodwill resulting from the
recently completed acquisitions of Microcosm and the wireless broadband business
unit of Oak Technology Inc., and from the pending acquisition of Maker
Communications, Inc.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $59.8 million for the first
quarter of fiscal 2000, compared to cash provided by operating activities of
$57.0 million for the similar period in fiscal 1999. Operating cash flows
reflect the Company's net income of $51.8 million and noncash charges of $47.2
million, offset by net working capital increases of approximately $39.2 million.
The working capital increases include a $47.6 million increase in receivables
principally due to increased sales and a $40.6 million decrease in accounts
payable due to the timing of vendor payments. These amounts were partially
offset by a $30.5 million increase in accrued expenses and other current
liabilities, a $13.0 million reduction of prepaid expenses, and other working
capital changes.
Investing activities used $190.2 million of cash during the first
quarter of fiscal 2000, compared to $14.8 million for the similar period in
fiscal 1999. Capital expenditures totaled $84.7 million during the most recent
period, as the Company increased its investment in new process technologies
including its gallium arsenide wafer manufacturing facility in Newbury Park,
California and the expansion of its assembly and test operations in Mexicali,
Mexico. In addition, the Company made investments in, or advances to, businesses
totaling $105.5 million, including a $75.0 million advance to a vendor and
approximately $30.5 million of equity investments, principally in early-stage
communications technology companies. The vendor advance was made pursuant to a
multi-year wafer supply agreement under which the Company will receive foundry
capacity to support future growth. Cash used in
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<PAGE> 13
investing activities during the comparable period of the prior year for capital
expenditures ($14.8 million) reflects the results of activities associated with
its restructuring plan in anticipation of the spin-off from Rockwell.
The Company's financing activities provided cash of $9.3 million during
the first quarter of fiscal 2000, representing proceeds from the exercise of
stock options. During the similar period of fiscal 1999, cash used in financing
activities of $42.9 million was principally transfers of available cash balances
to Rockwell.
The Company's principal sources of liquidity are its existing cash
reserves, cash generated from operations, and available borrowings under its
$350 million secured credit facility. As of December 31, 1999, there were no
borrowings outstanding under the credit facility. Cash and cash equivalents at
December 31, 1999 totaled $277.5 million compared to $398.5 million at September
30, 1999. Working capital at December 31, 1999 totaled $577.8 million compared
to $604.5 million at September 30, 1999.
In addition, in February 2000 Conexant completed the sale of $650
million principal amount of its 4% Convertible Subordinated Notes due 2007 for
net proceeds (after costs of issuance) of approximately $632 million. The notes
are general unsecured obligations of Conexant and interest on the notes is
payable in arrears semiannually on each February 1 and August 1. The notes are
convertible, at the option of the holder, into shares of the Company's common
stock at a conversion price of $108 per share, subject to certain adjustments.
The notes may be redeemed, at Conexant's option, on or after February 6, 2003 at
a declining premium to par.
The Company believes that its existing sources of liquidity, along with
cash expected to be generated from future operations, will be sufficient to fund
operations, research and development efforts, and anticipated capital
expenditures and advances for the foreseeable future. However, the Company
continues to evaluate acquisition opportunities to extend its technology
portfolio and design expertise and expand its product offerings. In addition the
Company's manufacturing operations are capital intensive, and the Company may
need to increase its capital spending to obtain sufficient manufacturing
capacity to support continued revenue growth. In order to complete any such
acquisitions or increased capital expenditures, the Company may seek to obtain
additional borrowings or issue additional shares of its common stock. There can
be no assurance that such financing will be available on terms favorable to the
Company, or at all.
RECENT ACQUISITIONS
In December 1999, Conexant entered into an agreement to acquire Maker
Communications, Inc., a fabless semiconductor company that develops and markets
high-performance programmable network processors, software solutions, and
development tools. Under the agreement, Conexant will issue 0.66 of a share of
Conexant common stock in exchange for each share of Maker common stock. The
total value of the consideration for the acquisition of Maker is approximately
$957.1 million, based on the closing price of Conexant common stock on December
17, 1999 of $69.625. The transaction is subject to customary closing conditions,
including regulatory approvals and the approval of Maker's shareholders. While
no assurance can be given, the transaction is expected to be completed during
the second quarter of fiscal 2000.
The acquisitions will each be recorded under the purchase method of
accounting. As a result of the acquisitions of Microcosm and the wireless
broadband business unit of Oak Technology, Inc., and assuming completion of the
acquisition of Maker, the Company expects to record additional goodwill and
intangible assets of approximately $1.0 billion. In each of the five years
following the acquisitions, we expect to record approximately $207 million of
non-deductible amortization of intangible assets. In addition, upon completion
of each of these acquisitions, the Company expects to record a non-recurring
charge for the value of the purchased in-process research and development, the
amounts of which have not been finally determined. The purchase price allocation
for each of these acquisitions, including the amount of the charge for purchased
in-process research and development, is preliminary and will be revised upon
receipt of final valuation information. Such revisions to the purchase price
allocation will also affect the amounts of amortization of intangible assets.
YEAR 2000 READINESS DISCLOSURE
During the first week of calendar 2000, Conexant completed the
transition from calendar 1999 to calendar 2000 with no significant reported
impact on its operations. The Company continues to monitor its products,
business systems, infrastructure, and manufacturing systems to ensure that
latent defects do not manifest themselves over the next few months. However,
there can be no assurance that Year 2000 issues will not have a material adverse
impact on the Company, since the Company's evaluation process is not yet
complete and it is early in the year 2000.
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<PAGE> 14
In addition, the Company continues to monitor the impact of the Year
2000 on those suppliers and other third parties on whom the Company is dependent
for key raw materials, components, products, or services. Based upon information
currently available, the Company believes that its most reasonably likely worst
case Year 2000 scenario would relate to a temporary disruption in the supply of
key raw materials, components, products, or services resulting from problems
with the systems and services of third parties, rather than with its internal
systems or products. The Company continues to maintain critical supplier
contingency plans, including alternate sourcing and stockpiling of materials,
and these plans will be validated and modified as needed as the Company learns
about disruptions, if any, caused by the Year 2000 date rollover.
Conexant incurred total costs of approximately $6 million, including the
cost of purchasing certain hardware and software, to complete its Year 2000
project. Approximately $5 million of this amount was for capital investments,
with the remainder (primarily salary costs) charged to expense as incurred.
Monitoring costs or other Year 2000 project costs past January 1, 2000 are not
expected to be significant.
CAUTIONARY STATEMENT
This Quarterly Report contains statements relating to future results of
the Company (including certain projections and business trends) that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected as
a result of certain risks and uncertainties. These risks and uncertainties
include, but are not limited to: global economic and market conditions,
including the cyclical nature of the semiconductor industry and the markets
addressed by the Company's and its customers' products; demand for, and market
acceptance of, new and existing products; successful development of new
products; the timing of new product introductions; the successful integration of
acquisitions; the availability and extent of utilization of manufacturing
capacity and raw materials; pricing pressures and other competitive factors;
changes in product mix; fluctuations in manufacturing yields; product
obsolescence; the ability to develop and implement new technologies and to
obtain protection of the related intellectual property; the successful
implementation of the Company's diversification strategy; labor relations of the
Company, its customers and suppliers; and the uncertainties of litigation, as
well as other risks and uncertainties including those discussed in the Company's
Annual Report on Form 10-K for the year ended September 30, 1999 or detailed
from time to time in the Company's Securities and Exchange Commission filings.
Reference is made to the "Certain Business Risks" section on pages 10 to 20 of
the Annual Report. These forward-looking statements are made only as of the date
hereof, and the Company undertakes no obligation to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial instruments include cash and cash equivalents,
marketable securities, and long-term debt. At December 31, 1999, the carrying
values of the Company's cash and cash equivalents approximated their carrying
value due to the short maturities of these instruments. The Company's long-term
debt consists of convertible subordinated notes with interest at a fixed rate.
Consequently, the Company does not have significant cash flow exposure on its
long-term debt. However, the fair value of the convertible subordinated notes is
subject to significant fluctuation due to their convertibility into shares of
Conexant common stock.
The Company's marketable securities consist of an equity investment in a
semiconductor company, initially made for the promotion of business and
strategic objectives, which are subject to equity price risk. Such securities
are classified as available for sale and, as of December 31, 1999, unrealized
gains of $27.1 million (net of related income taxes of $16.7 million) on these
securities are included in other comprehensive income. The following table shows
the fair values of the Company's investments and its long-term debt as of
December 31, 1999 (in thousands):
Carrying Value Fair Value
-------------- ----------
Cash and equivalents $277,516 $ 277,516
Marketable securities (including unrealized gains
of $43.9 million) 59,234 59,234
Long-term debt 350,000 1,033,000
The Company transacts business in various foreign currencies, and the
Company has established a foreign currency hedging program utilizing foreign
currency forward exchange contracts to hedge certain foreign currency
transaction exposures (principally the Japanese yen). Under this program, the
Company seeks to offset foreign currency transaction gains and losses with gains
and losses on the forward contracts, so as to mitigate its overall risk of
foreign transaction gains and losses. The Company does not enter into forward
contracts for trading purposes. At December 31, 1999, the Company held foreign
currency forward exchange contracts
14
<PAGE> 15
(principally to sell Japanese yen at specified rates) having an aggregate
notional amount of $49.8 million, at a notional weighted average exchange rate
of approximately 102.1 yen to one dollar. The gains and losses relating to these
forward contracts are deferred and included in the measurement of the foreign
currency transaction subject to the hedge. The net unrealized gain/loss on the
forward contracts outstanding at December 31, 1999 was not material to the
Company's consolidated financial statements. Based on the Company's overall
currency rate exposure at December 31, 1999, a 10 percent change in currency
rates would not have had a material effect on the financial position, results of
operations or cash flows of the Company.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 14, 1997, Brent Townshend ("Townshend") filed suit against
Rockwell and Conexant in the Superior Court of California for San Mateo County
seeking an injunction to halt the sale of products containing Conexant's
K56Flex(TM) chipsets and requesting unspecified damages, claiming that Conexant
had engaged in unfair competition, misappropriation of trade secrets, breach of
contract and breach of confidence by using technical information allegedly
disclosed in confidence by Mr. Townshend to accelerate its development of 56
Kbps modem technology. In January 1999, Townshend dismissed his State Court
action and re-filed the same claims and three new claims for patent infringement
in the U.S. District Court for the Northern District of California. In the
Federal action, Townshend alleges that each of his patents (the "Townshend
Patents") covers certain aspects of the V.90 standard and are infringed by
Conexant's 56 Kbps products. In the Federal action, Townshend seeks injunctive
relief, compensatory damages, restitution and exemplary and punitive damages.
Townshend and 3Com Corporation had publicly announced that 3Com was the
exclusive licensee for the Townshend Patents and acted as Townshend's agent in
sublicensing the Townshend Patents to third parties. More recently, Townshend
and 3Com publicly announced that Townshend has reacquired exclusive control over
the licensing and enforcement of the patents as well as other ownership rights,
while 3Com retained a non-exclusive license to practice the Townshend
inventions. Conexant has filed its answer to Townshend and counterclaims against
Townshend and claims against 3Com. Conexant is vigorously defending its position
that it independently developed the 56 Kbps modem technology using entirely its
own skills and public domain information and will vigorously contest the
infringement claims and the validity of the asserted patents.
On July 29, 1991, Shumpei Yamazaki filed suit against a Japanese
subsidiary of Rockwell in the Tokyo District Court, Twenty-ninth Civil Division
for patent infringement relating to Conexant's facsimile modem chipsets seeking
685 million yen (approximately $6.4 million based on the exchange rate on
January 31, 2000) and court costs. In October 1998, the District Court rendered
its decision dismissing the suit, from which decision Mr. Yamazaki appealed. On
April 12, 1999, Mr. Yamazaki presented his position, as well as additional
causes of action at the first portion of the appellate hearing. Conexant
presented its position to the appellate court on June 16, 1999. The Court will
hear arguments on Mr. Yamazaki's new causes of action in April 2000. Conexant
believes it has meritorious defenses to these claims and is vigorously defending
this action.
On May 30, 1997, Klaus Holtz filed suit against Rockwell in the U.S.
District Court for the Northern District of California for patent infringement
relating to Conexant's modem products utilizing the V.42bis standard for data
compression. On September 30, 1998, the Court barred any alleged damages arising
before May 30, 1997. On December 17, 1998, the Court issued an order construing
the claims of the patent. Conexant filed a motion for Summary Judgment of
Non-Infringement on February 22, 1999. A hearing was held thereon on June 14,
1999. On October 25, 1999, the Company was notified that the Court found in
favor of the Company and the case was dismissed. Holtz filed a notice of appeal
to the court of appeals for the Federal circuit on November 18, 1999. Conexant
believes it has meritorious defenses to these claims and is vigorously defending
this action.
Various other lawsuits, claims and proceedings have been or may be
instituted or asserted against Rockwell or Conexant or their respective
subsidiaries, including those pertaining to product liability, intellectual
property, environmental, safety and health, and employment matters.
In connection with the Distribution, Conexant assumed responsibility for
all current and future litigation (including environmental and intellectual
property proceedings) against Rockwell or its subsidiaries in respect of
Semiconductor Systems.
The outcome of litigation cannot be predicted with certainty and some
lawsuits, claims or proceedings may be disposed of unfavorably to Conexant. Many
intellectual property disputes have a risk of injunctive relief and there can be
no assurance that a license will be granted. Injunctive relief could have a
material adverse effect on the financial condition or results of operations of
Conexant.
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<PAGE> 16
Based on its evaluation of matters which are pending or asserted and taking into
account Conexant's reserves for such matters, management of Conexant believes
the disposition of such matters will not have a material adverse effect on the
financial condition or results of operations of Conexant.
ITEM 2. CHANGES IN SECURITIES
In November 1999, in connection with the Company's acquisition of Istari
Design Inc., the Company issued 100,506 shares of its common stock pursuant to
an exemption from registration. The holders of such shares have been granted
certain registration rights.
In January 2000, the Company issued shares of its common stock in
connection with the acquisitions of Microcosm Communications Limited (1,523,430
shares) and the wireless broadband business unit of Oak Technology, Inc.
(293,794 shares), in each case pursuant to an exemption from registration. The
holders of such shares have been granted certain registration rights.
Each outstanding share of common stock, par value $1 per share, of
Conexant also evidences one preferred share purchase right. Each preferred share
purchase right entitles the registered holder to purchase from Conexant one
two-hundredth of a share of Series A Junior Participating Preferred Stock.
Pursuant to the First Amendment to Rights Agreement dated as of December 9, 1999
between Conexant and ChaseMellon Shareholder Services, L.L.C., as Rights Agent,
the Rights Agreement dated as of November 30, 1998 was amended to increase the
exercise price of each preferred share purchase right to $300, subject to
adjustment.
In addition, the Rights Agreement was amended to provide that in
connection with the issuance or sale of our common stock following the date the
preferred share purchase rights are no longer attached to the common stock (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) Conexant 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 Conexant and in existence prior to the Distribution Date, and
(b) Conexant 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.
Conexant will not be obligated to issue any of these certificates if, and to the
extent that, Conexant is advised by counsel that the issuance of those
certificates would create a significant risk of material adverse tax
consequences to Conexant 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.
ITEM 5. OTHER INFORMATION
In February 2000, Conexant completed the sale of $650 million principal
amount (including $150 million principal amount sold pursuant to an option
granted to the initial purchaser) of its 4% Convertible Subordinated Notes due
2007 for net proceeds (after costs of issuance) of approximately $632 million.
The press release announcing this transaction is filed as Exhibit 99.1 hereto.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
2.1 Agreement and Plan of Merger, dated as of December 18, 1999, among
Conexant Systems, Inc., Merlot Acquisition Corp. and Maker
Communications, Inc., filed as Exhibit 2.01 to the Company's
Registration Statement on Form S-4 (Registration No. 333-96033),
incorporated herein by reference.
2.2 Stock Purchase Agreement, dated as of January 6, 2000, by and among
Conexant Systems, Inc. and the shareholders and option holders of
Microcosm Communications Limited.
4.1 First Amendment to Rights Agreement, dated as of December 9, 1999,
between Conexant Systems, Inc. and ChaseMellon Shareholder Services,
L.L.C., as rights agent.
4.2 Indenture, dated as of February 1, 2000, between the Company and Bank
One Trust Company, National Association, as trustee, including the form
of the Company's 4% Convertible Subordinated Notes Due February 1, 2007
attached as Exhibit A thereto, filed as Exhibit 4.04 to the Company's
Registration Statement on Form S-4 (Registration No. 333-96033),
incorporated herein by reference.
10.1 Fourth Amendment to Loan Documents, dated as of November 23, 1999 among
Conexant Systems, Inc., certain of its subsidiaries, the Lenders and the
Issuing Banks thereunder, and Credit Suisse First Boston, as
administrative agent.
12 Statement re: computation of ratios.
27 Financial Data Schedule.
99.1 Press release dated January 28, 2000, relating to offering of $500
million convertible subordinated notes.
(b) Reports on Form 8-K
Report on Form 8-K dated January 4, 2000, as amended January 11, 2000,
reporting the Company's agreement to acquire Maker Communications, Inc.
The Company did not file any Current Reports on Form 8-K during the
quarter ended December 31, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONEXANT SYSTEMS, INC.
(Registrant)
Date: February 11, 2000 By /s/ Balakrishnan S. Iyer
----------------------------------
Balakrishnan S. Iyer
Senior Vice President and
Chief Financial Officer
(principal financial officer)
Date: February 11, 2000 By /s/ Steven M. Thomson
----------------------------------
Steven M. Thomson
Vice President and Controller
(principal accounting officer)
Date: February 11, 2000 By /s/ Dennis E. O'Reilly
----------------------------------
Dennis E. O'Reilly
Senior Vice President,
General Counsel and Secretary
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EXHIBIT INDEX
2.2 Stock Purchase Agreement, dated as of January 6, 2000, by and among
Conexant Systems, Inc. and the shareholders and option holders of
Microcosm Communications Limited.
4.1 First Amendment to Rights Agreement, dated as of December 9, 1999,
between Conexant Systems, Inc. and ChaseMellon Shareholder Services,
L.L.C., as rights agent.
10.1 Fourth Amendment to Loan Documents, dated as of November 23, 1999 among
Conexant Systems, Inc., certain of its subsidiaries, the Lenders and the
Issuing Banks thereunder, and Credit Suisse First Boston, as
administrative agent.
12 Statement re: computation of ratios.
27 Financial Data Schedule.
99.1 Press release dated January 28, 2000, relating to offering of $500
million convertible subordinated notes.
<PAGE> 1
EXHIBIT 2.2
================================================================================
STOCK PURCHASE AGREEMENT
by and among
CONEXANT SYSTEMS, INC.
and
THE SHAREHOLDERS AND OPTION HOLDERS OF
MICROCOSM COMMUNICATIONS LIMITED
----------------------------------
Dated as of January 6, 2000
-----------------------------------
================================================================================
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TABLE OF CONTENTS
<TABLE>
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ARTICLE I Definitions........................................................2
ARTICLE II PURCHASE AND SALE OF SHARES AND EXCHANGE OF OPTIONS..............17
Section 2.1. Purchase and Sale of Shares and Exchange of Options.......17
Section 2.2. Closing Payments..........................................18
Section 2.3. Payment of Indemnification Holdback.......................20
Section 2.4. Technology Earn-Out.......................................25
Section 2.5. Performance Earn-Out......................................27
Section 2.6. Buyer Stock and Buyer Options.............................30
Section 2.7. Earn-Out Protections......................................33
Section 2.8. Consideration Adjustments.................................35
Section 2.9. Pond Stock Certificates...................................36
ARTICLE III CLOSING.........................................................37
Section 3.1. Closing...................................................37
Section 3.2. Closing Deliveries of Sellers.............................37
Section 3.3. Closing Deliveries of Buyer...............................38
Section 3.4. Transfer Taxes............................................39
Section 3.5. Non-Warrantor Sellers Finders' Fees.......................39
Section 3.6. Sellers Expense Amount....................................40
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF EACH SELLER....................40
ARTICLE V REPRESENTATIONS AND WARRANTIES OF WARRANTOR SELLERS...............40
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER..........................40
ARTICLE VII COVENANTS.......................................................40
Section 7.1. Public Announcements......................................40
Section 7.2. Further Assurances........................................41
Section 7.3. Confidential Information..................................41
</TABLE>
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<TABLE>
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Section 7.4. Registration Rights.......................................42
Section 7.5. Employment Matters........................................43
Section 7.6. Power of Attorney.........................................43
Section 7.7. Stock Certificates; Option Agreements.....................43
ARTICLE VIII RELEASES AND WAIVERS...........................................44
Section 8.1. General Release...........................................44
Section 8.2. Waiver of Preemptive Rights...............................45
ARTICLE IX [INTENTIONALLY OMITTED]..........................................46
ARTICLE X [INTENTIONALLY OMITTED]...........................................46
ARTICLE XI SURVIVAL.........................................................46
Section 11.1. Survival..................................................46
ARTICLE XII INDEMNIFICATION.................................................47
Section 12.1. Individual Warrantor Indemnification......................47
Section 12.2. Joint Warrantor Indemnification...........................47
Section 12.3. Buyer Indemnification.....................................48
Section 12.4. Indemnification Procedures................................48
Section 12.5. Procedures for Third Party Claims.........................53
Section 12.6. Certain Rights and Limitations............................57
ARTICLE XIII RESTRICTIVE COVENANT...........................................63
Section 13.1. Non-compete...............................................63
Section 13.2. Non-solicitation of Employees.............................64
Section 13.3. Remedies..................................................64
Section 13.4. Severability..............................................64
Section 13.5. Non-exclusivity...........................................64
ARTICLE XIV GENERAL PROVISIONS..............................................65
Section 14.1. Assignment................................................65
Section 14.2. Parties in Interest.......................................65
Section 14.3. Amendment.................................................66
Section 14.4. Waiver; Remedies..........................................66
Section 14.5. [Intentionally omitted]...................................66
Section 14.6. Fees and Expenses.........................................66
Section 14.7. Notices...................................................67
</TABLE>
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<TABLE>
<CAPTION>
Page
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Section 14.8. Captions; Currency........................................69
Section 14.9. Entire Agreement..........................................69
Section 14.10. Severability..............................................70
Section 14.11. Consent to Jurisdiction; Waiver of Jury Trial.............70
Section 14.12. Schedules and Exhibits; Disclosure........................71
Section 14.13. Governing Law.............................................72
Section 14.14. Counterparts..............................................72
Section 14.15. Specific Performance......................................72
Section 14.16. Construction; Interpretation..............................72
Section 14.17. Performance by Certain Affiliates.........................73
Section 14.18. Warrantor Representative..................................73
Section 14.19. Non-Warrantor Representative..............................76
</TABLE>
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<TABLE>
<CAPTION>
EXHIBITS
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<S> <C>
Exhibit A - Technology Milestones
Exhibit B - Representations and Warranties of Each Seller
Exhibit C - Representations and Warranties of Warrantor Sellers
Exhibit D - Representations and Warranties of Buyer
</TABLE>
<TABLE>
<CAPTION>
SCHEDULES
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<S> <C>
Schedule 2.2 - Closing Payments; Sellers Expense Amounts
Schedule 3.5 - Non-Warrantor Sellers Finders' Fees
Schedule 4.4 - Title to Stock
Schedule 4.5 - Government Approvals
Schedule 5.1 - Foreign Establishments and Jurisdictions in which the
Company Transacts Business
Schedule 5.2 - No Breach
Schedule 5.3 - Company Stock and Options Outstanding
Schedule 5.5 - Affiliate Transactions
Schedule 5.6(g) - Residence for Tax Purposes
Schedule 5.6(j) - Tax Correspondence
Schedule 5.6(p) - Tax Audit Matters
Schedule 5.6(u) - Stamp Duty
Schedule 5.7(b) - Commitments Relating to Intellectual Property
Schedule 5.7(c) - Intellectual Property Matters
Schedule 5.7(d) - Confidentiality
Schedule 5.8(a) - Debenture
Schedule 5.8(c) - Leased Premises
Schedule 5.9(a) - Contracts
Schedule 5.9(b) - Certain Contracts
Schedule 5.9(c) - Contract Matters
Schedule 5.9(d) - Change in Control Provisions
Schedule 5.10(a) - Litigation
Schedule 5.12(a) - Statutory Accounts and Management Accounts
Schedule 5.12(b) - Liabilities
Schedule 5.12(e) - Year 2000
Schedule 5.13(a) - Compliance with Laws
Schedule 5.14 - Licenses
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C>
Schedule 5.15(a) - Collective Bargaining
Schedule 5.15(b) - Plans
Schedule 5.15(c) - Employee Agreements
Schedule 5.15(d) - Employee Information
Schedule 5.15(e) - Non-UK Employees
Schedule 5.16(a) - Material Adverse Effect
Schedule 5.16(b) - Material Events
Schedule 5.18 - Governmental Approvals
Schedule 5.20(a) - Insurance Policies
Schedule 5.20(b) - Insurance Against All Risks
Schedule 5.21 - Bank Accounts and Powers of Attorney
Schedule 5.23 - Supplemental Information Reviewed by the
Buyer and/or Its Legal and Financial
Advisors
Schedule 7.4(a) - Registration Rights
Schedule 7.5 - Employment Matters
</TABLE>
v
<PAGE> 7
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT dated as of January 6, 2000 by and
between CONEXANT SYSTEMS, INC., a Delaware corporation ("Buyer"), the
shareholders of MICROCOSM COMMUNICATIONS LIMITED, a corporation incorporated
under the laws of England and Wales (registration number 3116655) (the
"Company"), set forth on the signature pages hereof (each a "Shareholder" and
collectively, the "Shareholders"), and the option holders of the Company set
forth on the signature pages hereof (each an "Option Holder" and collectively,
the "Option Holders" and, together with the Shareholders, the "Sellers").
W I T N E S S E T H :
WHEREAS, the Shareholders are the registered holders of all the
issued (a) ordinary shares, par value 0.0333 pence each (the "Ordinary Shares"),
of the Company, (b) A ordinary shares, par value 0.0333 pence each (the "Class A
Shares"), of the Company and (c) convertible redeemable preference shares, par
value 0.0333 pence each (the "Preference Shares"), of the Company (the Ordinary
Shares, the Class A Shares and the Preference Shares are sometimes referred to
herein collectively as the "Shares"); and
WHEREAS, the Option Holders are the owners of all the Company
Options (as defined below) granted and unexercised immediately prior to the
Closing (as defined below);
WHEREAS, Buyer desires to purchase from Sellers, and Sellers
desire to sell to Buyer, all of the issued Shares and Buyer and Sellers desire
to cancel all Company Options in exchange for the grant of Buyer Options (as
defined below) upon the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual representations, warranties, covenants and agreements hereinafter
contained, the parties agree as follows:
<PAGE> 8
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have
the following meanings (such meanings to be equally applicable to both the
singular and the plural forms of the terms defined):
"Action" means any legal, administrative, governmental or
regulatory proceeding or other action, suit, proceeding, claim, arbitration,
mediation, alternative dispute resolution procedure, inquiry or investigation by
or before any arbitrator, mediator, court or other Governmental Entity.
"Adjusted Sum" shall have the meaning set forth in Section
2.8(a)(i).
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with
such Person. For purposes of the immediately preceding sentence, the term
"control" (including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through ownership of voting securities, by contract or otherwise.
"Aggregate Closing Consideration" means One Hundred Twenty
Million dollars ($120,000,000), less the Sellers Expense Amount.
"Aggregate Unresolved Indemnity Claim Amount" means an amount
equal to the aggregate Indemnity Claim Amounts set forth in all Notices of Claim
that have been given by Buyer on or prior to the Holdback Release Date that
remain outstanding and unresolved on that date, except to the extent that Buyer
no longer has the right to claim any portion of the Indemnity Claim Amount set
forth in any such Notice of Claim by reason of the provisions of Section
12.4(b)(ii)(4), as such amount may be reduced from time to time after the
Holdback Release Date to the extent that any
2
<PAGE> 9
such Indemnity Claim Amount is resolved and no longer outstanding.
"Agreement" means this Stock Purchase Agreement, as the same may
be amended, modified or supplemented from time to time in accordance with its
terms.
"Audit Notice" shall have the meaning set forth in Section
2.5(c).
"Authorized Agent" shall have the meaning set forth in Section
14.11(a).
"Business" means the business and operations of the Company as
conducted on the date hereof, including (i) researching, developing, designing,
engineering, manufacturing, selling and supporting of CMOS, BiCMOS and Bipolar
integrated circuits for fiber optics, including "Physical Layer" chips and chip
sets for ATM, FDDI, ESCON, Ethernet, Fast Ethernet, Gigabit Ethernet, Fibre
Channel, SONET and Fiber-Array applications and (ii) activities related to the
foregoing.
"Business Day" shall have the meaning set forth in Schedule
7.4(a).
"Business Intellectual Property" shall have the meaning set
forth in Section 5.7(a)(iii) of Exhibit C.
"Buyer" shall have the meaning set forth in the preamble to this
Agreement.
"Buyer Group" means Buyer and its Affiliates (including the
Company) and their respective employees, directors, officers and
representatives, individually and collectively.
"Buyer Option" means options to purchase shares of Buyer Stock
granted by Buyer under Buyer's Microcosm Communications Limited Stock Option
Plan.
"Buyer SEC Filings" shall have the meaning set forth in Section
6.9(a) of Exhibit D.
"Buyer Stock" means shares of Common Stock, par value $1 per
share, of Buyer.
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<PAGE> 10
"Class A Shares" shall have the meaning set forth in the
recitals to this Agreement.
"Closing" shall have the meaning set forth in Section 3.1.
"Closing Date" shall have the meaning set forth in Section 3.1.
"Closing Market Price" means the average of the daily closing
sale prices per share of Buyer Stock as reported by the NASDAQ Stock Market (as
published in The Wall Street Journal, Eastern United States Edition) for the ten
consecutive NASDAQ trading days ending January 4, 2000 (December 21, 22, 23, 27,
28, 29, 30 and 31, 1999 and January 3 and 4, 2000) which the parties agree is
equal to $66.48125.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Companies Act" means the Companies Act 1985 of the U.K.
"Company" shall have the meaning set forth in the preamble to
this Agreement.
"Company Options" means options to purchase Ordinary Shares that
are outstanding as of the date hereof (whether or not vested) as set forth on
Schedule 5.3.
"Consents" means consents, waivers, approvals, requirements,
allowances, novations, authorizations, declarations, filings, registrations and
notifications.
"Continuing Employee" shall have the meaning set forth in
Section 7.5(a).
"Contracts" means all agreements, undertakings, contracts,
obligations and commitments (whether written or oral), including all
Intellectual Property and other license agreements, manufacturing agreements,
supply agreements, purchase orders, sales orders, distributor agreements, sales
representation agreements, warranty agreements, indemnity agreements, service
agreements, employment and consulting agreements, guarantees, credit agreements,
notes, mortgages,
4
<PAGE> 11
security agreements, financing leases, leases (including Leases), comfort
letters, swap agreements (as defined in 11 U.S.C. 101(53B)), confidentiality
agreements, joint venture agreements, partnership agreements, open bids, powers
of attorney, memoranda of understanding and letters of intent, including, in
each case, all amendments, modifications and supplements thereto and waivers and
consents thereunder.
"Damages" means any and all losses, Liabilities, claims,
damages, deficiencies, diminutions in value, fines, payments, Taxes, Liens,
costs and expenses, whether known or unknown, and whenever or however arising
and whether or not resulting from Third Party Claims (including the costs and
expenses of any and all Actions or other legal matters; all amounts paid in
connection with any demands, assessments, judgments, settlements and compromises
relating thereto; interest and penalties with respect thereto; and costs and
expenses, including attorneys', accountants' and other experts' fees and
expenses, incurred in investigating, preparing for or defending against any such
Actions or other legal matters or in asserting, preserving or enforcing an
Indemnitee's rights hereunder).
"Designated Action" means any action referred to in Sections
12.1(b) and 12.1(c), and any falsity, breach or inaccuracy of any representation
or warranty made by any Warrantor Seller in Section 4.4 of Exhibit B.
"Dispute Notice" means a written notice of an objection to a
Notice of Claim that sets forth in reasonable detail the basis for such
objection and the amount of the Indemnity Claim Amount to which the objection is
made, if calculable.
"Earn-Out Statement" shall have the meaning set forth in Section
2.5(c).
"Employment Agreement" means an agreement between Buyer and each
of Gary Steele, Richard Mayo, Richard Watts, Mark Richardson, Alistair Blaxill,
Stephen King, Nicholas Weiner, Brian Williams, Rudolf van Ettinger, Andrew
Benford, Paul Denny and Graham Jones.
"Environment" means the natural and man-made environment and all
or any of the following media namely:
5
<PAGE> 12
air, water and land including air within buildings and air within other natural
or man-made structures above or below ground and groundwater.
"Environmental Laws" means any and all applicable Laws and
Licenses issued, promulgated or entered into by any Governmental Entity and all
codes of practice and guidance notes relating to the Environment, human health
or the health of animals or plants or concerning health and safety matters or
the generation, treatment, use, discharge, storage or disposal of any material,
chemical, or substance that, whether because of its nature, form, condition or
quantity, is regulated under applicable Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Final Order" means a final order of a court of competent
jurisdiction, (i) from which there is no right of appeal to a higher court or
(ii) with respect to which either (A) all applicable time periods during which
an appeal may be made have expired or (B) a period of six months has elapsed
from the date on which the order which would otherwise be the subject of the
appeal was issued and no appeal has been taken, whichever is the earliest to
occur.
"Fiscal 2000" means the period beginning on April 1, 1999 and
ending March 31, 2000.
"Fiscal 2001" means the period beginning on April 1, 2000 and
ending April 15, 2001.
"Fully Diluted Per-Share Closing Payment" means the amount equal
to the quotient of (i) the Aggregate Closing Consideration, divided by (ii) the
Fully Diluted Share Number, which the parties agree is $22.36.
"Fully Diluted Per-Share Indemnification Release Amount" means
the amount equal to the quotient of (i) the Indemnification Release Amount,
divided by (ii) the Fully Diluted Warrantor Share Number.
"Fully Diluted Per-Share Performance Earn-Out Amount" means the
amount equal to the quotient of (i) the
6
<PAGE> 13
Performance Earn-Out Amount, divided by (ii) the Fully Diluted Warrantor Share
Number.
"Fully Diluted Per-Share Technology Earn-Out Amount" means the
amount equal to the quotient of (i) the Technology Earn-Out Amount, divided by
(ii) the Fully Diluted Warrantor Share Number.
"Fully Diluted Per-Share Warrantor Closing Payment" means the
amount equal to the remainder of (i) the Fully Diluted Per-Share Closing
Payment, minus (ii) the Fully Diluted Per-Share Warrantor Holdback Amount, which
the parties agree is $16.34.
"Fully Diluted Per-Share Warrantor Holdback Amount" means the
amount equal to the quotient of (i) Eighteen Million dollars ($18,000,000),
divided by (ii) the Fully Diluted Warrantor Share Number, which the parties
agree is $6.02.
"Fully Diluted Per-Share Warrantor Resolved Claim Amount" means
the amount equal to the quotient of (i) the applicable Warrantor Resolved Claim
Amount, divided by (ii) the Fully Diluted Warrantor Share Number.
"Fully Diluted Share Number" means the aggregate number of
Shares issued immediately prior to the Closing plus the aggregate number of
Shares subject to Company Options granted and unexercised immediately prior to
the Closing, which the parties agree is 5,239,495.
"Fully Diluted Warrantor Share Number" means the aggregate
number of Shares issued immediately prior to the Closing held by Warrantor
Sellers plus the aggregate number of Shares subject to Company Options granted
and unexercised immediately prior to the Closing, which the parties agree is
2,991,395.
"Governmental Entity" means, in any jurisdiction, any (i)
federal, state, local, foreign or international government, (ii) court, arbitral
or other tribunal, (iii) governmental or quasi-governmental authority of any
nature (including any political subdivision, instrumentality, branch,
department, official or entity) or (iv) agency, commission, authority or body
exercising, or
7
<PAGE> 14
entitled to exercise, any administrative, executive, judicial, legislative,
police, regulatory or taxing authority or power of any nature.
"Gross Margin" means, for any specified period, an amount equal
to the quotient (expressed as a percentage) of (i) the remainder of (A) Sales,
minus (B) the cost of sales (including the cost of purchased materials, labor
and overhead (including depreciation) directly associated with product
manufacturing, royalty and other intellectual property costs, warranty costs
arising in the relevant year in respect of goods shipped in the relevant year
and sustaining engineering expenses pertaining to products sold), divided by
(ii) Sales in each case, as recorded in the financial records of the Company in
accordance with the historical practices of the Company.
"Holdback" means an amount equal to Eighteen Million dollars
($18,000,000).
"Holdback Release Date" means the date which is fifteen (15)
months after the Closing Date.
"Indemnification Release Amount" means the excess, if any, of
(i) $18,000,000 over (ii) the sum of (A) the aggregate Indemnity Amount Payable
by Warrantor Sellers with respect to Joint Indemnity Claims as of the Holdback
Release Date, plus (B) the Aggregate Unresolved Indemnity Claim Amount with
respect to Joint Indemnity Claims as of the Holdback Release Date.
"Indemnification Release Market Price" means, with respect to
any Indemnification Release Payment Date, the average of the daily closing sale
prices per share of Buyer Stock as reported by the NASDAQ Stock Market (as
published in The Wall Street Journal, Eastern United States Edition, or, if not
published therein, in another authoritative source mutually selected by Buyer
and the Warrantor Representative) for the ten consecutive full NASDAQ trading
days immediately preceding the first full NASDAQ trading day prior to such
Indemnification Release Payment Date.
"Indemnification Release Payment Date" means any applicable date
(not earlier than 10 days after the Holdback
8
<PAGE> 15
Release Date) on which any amount is paid to the Warrantor Sellers or any
Warrantor Seller pursuant to Section 2.3.
"Indemnifying Party" means any member of Buyer Group or any
member of the Seller Group who or which is or may be obligated to provide
indemnification pursuant to this Agreement, except as otherwise expressly
provided in Section 12.4(a).
"Indemnitee" means (i) in the case of any claim for
indemnification pursuant to Section 12.1 or 12.2, Buyer, acting for itself or as
agent on behalf of any member of the Buyer Group or (ii) in the case of any
claim for indemnification pursuant to Section 12.3, any Warrantor Seller, acting
for itself or as agent on behalf of any member of the Seller Group.
"Indemnity Amount Payable" means any amount of an Indemnity
Claim Amount which has become an Indemnity Amount Payable in accordance with
Section 12.4(b).
"Indemnity Claim Amount" means the amount of Damages claimed in
any Notice of Claim, which amount, if not finally determined, may be a good
faith estimate of the Damages that may be subject to indemnification pursuant to
this Agreement.
"Individual Indemnity Claim" means any claim made for
indemnification pursuant to Section 12.1.
"Individual Warrantor Resolved Claim Amount" shall have the
meaning set forth in Section 2.3(e).
"Insurance Policies" shall have the meaning set forth in Section
5.20(a) of Exhibit C.
"Intellectual Property" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents (including utility and design patents,
industrial designs and utility models), patent applications and patent and
invention disclosures, and all other rights of inventorship, worldwide, together
with all reissuances, continuations, continuations-in-part, divisions,
revisions, supplementary protection certificates, extensions and re-examinations
thereof; (b) all registered and unregistered
9
<PAGE> 16
trademarks, service marks, trade names, trade dress, logos, business, corporate
and product names and slogans, worldwide, and registrations and applications for
registration thereof; (c) all copyrights in copyrightable works, and all other
rights of authorship, worldwide, and all applications, registrations and
renewals in connection therewith; (d) all mask works and semiconductor chip
rights, worldwide, and all applications, registrations and renewals in
connection therewith; (e) all trade secrets and confidential business and
technical information (including ideas, research and development, know-how,
formulas, technology, compositions, manufacturing and production processes and
techniques, technical data, engineering, production and other designs, plans,
drawings, engineering notebooks, industrial models, software, specifications,
financial, marketing and business data, pricing and cost information, business
and marketing plans and customer and supplier lists and information); (f) all
computer and electronic data, data processing programs, documentation and
software, both source code and object code (including flow charts, diagrams,
descriptive texts and programs, computer print-outs, underlying tapes, computer
databases and similar items), computer applications and operating programs; (g)
all rights to sue for and remedies against past, present and future
infringements of any or all of the foregoing and rights of priority and
protection of interests therein under the Laws of any jurisdiction worldwide;
(h) all copies and tangible embodiments of any or all of the foregoing (in
whatever form or medium, including electronic media); and (i) all other
proprietary, intellectual property and other rights relating to any or all of
the foregoing.
"Investment Agreement" shall have the meaning set forth in
Section 8.1(a).
"Joint Indemnity Claim" means any claim made for indemnification
pursuant to Section 12.2.
"Joint Warrantor Resolved Claim Amount" shall have the meaning
set forth in Section 2.3(c).
"knowledge", with respect to the Warrantor Sellers, shall have
the meaning set forth in Section 14.16(b).
10
<PAGE> 17
"Laws" means all laws, statutes, constitutions, treaties, rules,
regulations, directives, ordinances, codes, judgments, rulings, orders, writs,
decrees, stipulations, injunctions and determinations of all Governmental
Entities.
"Leased Premises" shall have the meaning set forth in Section
5.8(c) of Exhibit C.
"Leases" means all leases, subleases, licenses, rights to occupy
or use and other Contracts with respect to real property, including, in each
case, all amendments, modifications and supplements thereto and waivers and
consents thereunder.
"Liability" means any and all claims, debts, liabilities,
obligations and commitments of whatever nature, whether known or unknown,
asserted or unasserted, fixed, absolute or contingent, matured or unmatured,
accrued or unaccrued, liquidated or unliquidated or due or to become due, and
whenever or however arising (including those arising out of any Contract or
tort, whether based on negligence, strict liability or otherwise) and whether or
not the same would be required by UK GAAP to be reflected as a liability in
financial statements or disclosed in the notes thereto.
"Licenses" means all Consents, licenses, permits, certificates,
variances, exemptions, franchises and other approvals or authorizations issued,
granted, given, required or otherwise made available by any Governmental Entity.
"Lien" means any charge, equitable interest, lien, encumbrance,
option, proxy by way of security, pledge, security interest, mortgage, right of
first refusal, right of preemption, transfer or retention of title agreement, or
restriction by way of security of any kind or nature, including any restriction
on use, voting, transfer, receipt of income or exercise of any other attribute
of ownership.
"Management Accounts" shall have the meaning set forth in
Section 5.12(a) of Exhibit C.
"Management Sellers" shall mean the following Warrantor Sellers:
Gary Steele, Richard Mayo and Richard Watts.
11
<PAGE> 18
"Material Adverse Effect" means any material adverse effect on
the business, condition (financial or otherwise), operations, results of
operations, assets or liabilities of the Company taken as a whole.
"Material Contract" shall have the meaning set forth in Section
5.9(a) of Exhibit C.
"Non-Warrantor Representative" shall have the meaning set forth
in Section 14.19(a).
"Non-Warrantor Sellers" means 3i Group plc, Vertex Technology
Fund II Limited, Defta-Pond Co-Investment L.P., Pond Ventures I L.P., Charles
Irving and Shen Chia Wong.
"Notice of Claim" means a written notice of a claim for
indemnification pursuant to this Agreement that (1) sets forth in reasonable
detail the basis for such claim, (2) sets forth the Indemnity Claim Amount, and
(3) sets forth the name of any person against whom the claim is being made.
"October 31, 1999 Balance Sheet" means the balance sheet of the
Company as of October 31, 1999 included in the Management Accounts.
"officer" means, in respect of the Company, any officer other
than its independent auditors.
"Olswang" means solicitors Olswang of 90 Long Acre, London WC2E
9TT, England.
"Option Agreements" means the Stock Option Agreements (including
the Terms and Conditions attached thereto and made a part thereof) evidencing
the grant of Buyer Options made pursuant to the terms of this Agreement.
"Option Holder" shall have the meaning set forth in the preamble
to this Agreement.
"Ordinary Shares" shall have the meaning set forth in the
recitals to this Agreement.
"Osborne Clarke" means solicitors Osborne Clarke of Apex Plaza,
Forbury Road, Reading RG1 1AX, England.
12
<PAGE> 19
"Own Use Intellectual Property" shall have the meaning set forth
in Section 5.7(a)(ii) of Exhibit C.
"Performance Earn-Out Amount" shall have the meaning set forth
in Section 2.5(a).
"Performance Earn-Out Market Price" means the average of the
daily closing sale prices per share of Buyer Stock as reported by the NASDAQ
Stock Market (as published in The Wall Street Journal, Eastern United States
Edition, or, if not published therein, in another authoritative source mutually
selected by Buyer and the Warrantor Representative) for the ten consecutive full
NASDAQ trading days immediately preceding the first full NASDAQ trading day
prior to the Performance Earn-Out Payment Date.
"Performance Earn-Out Payment Date" means the date not more than
10 days after the Performance Earn-Out Amount is resolved in accordance with
Section 2.5(c).
"Permit" means any License required under any Environmental Law.
"Permitted Liens" means Liens for (i) Taxes, assessments and
other governmental charges, if such Taxes, assessments or charges shall not be
due and payable; and (ii) inchoate workmen's, repairmen's or other similar Liens
or retentions of title in respect of raw materials and supplies not yet paid
for, in each case arising or incurred in the ordinary course of business
consistent with past practices in respect of obligations which are not overdue,
minor title defects and recorded easements, which workmen's, repairmen's or
other similar Liens, retentions of title, minor title defects and recorded
easements do not, individually or in the aggregate, impair the continued use,
occupancy, value or marketability of title of the property to which they relate
or the Business, assuming that the property is used on substantially the same
basis as such property is currently being used by the Company.
"Person" means any individual, firm, partnership, joint venture,
trust, corporation, limited liability entity, unincorporated organization,
estate or other entity (including a Governmental Entity).
13
<PAGE> 20
"Plans" shall have the meaning set forth in Section 5.15(b) of
Exhibit C.
"Preference Shares" shall have the meaning set forth in the
recitals to this Agreement.
"Product Intellectual Property" shall have the meaning set forth
in Section 5.7(a)(i) of Exhibit C.
"Registration Rights" means the registration rights and
obligations set forth on Schedule 7.4(a).
"Representatives" means, with respect to any Person, such
Person's Affiliates, directors, officers, employees, agents, consultants,
advisors and other representatives, including legal counsel, accountants and
financial advisors.
"Sales" means, for any specified period, all revenues from the
direct sale by the Company of products of the Company, as recorded in the
financial records of the Company when such products are shipped in accordance
with the historical practices of the Company, after taking into account all
returns of and rebates for products sold and reserves therefor.
"Schedule 5.23 Documents" shall have the meaning set forth in
Section 5.23 of Exhibit C.
"SEC" means the U.S. Securities and Exchange Commission.
"Securities Act" means the U.S. Securities Act of 1933, as
amended.
"Seller Group" means the Warrantor Sellers and their respective
Affiliates (other than the Company) and their respective employees, directors,
officers and representatives, individually and collectively.
"Sellers" shall have the meaning set forth in the preamble to
this Agreement.
"Sellers Expense Amount" means the aggregate amount of all
Sellers Expenses paid at or prior to the Closing Date or which are known by
Warrantor Representative
14
<PAGE> 21
to be payable after the Closing Date as set forth on Schedule 2.2.
"Sellers Expenses" means any and all fees and out-of-pocket
costs and expenses (including any fees and expenses of counsel to the Company or
any Sellers, Broadview International Ltd. and other investment bankers, advisors
or experts retained by the Company or any Seller) incurred by the Company or the
Sellers in connection with the Transaction.
"Shareholder" shall have the meaning set forth in the preamble
to this Agreement.
"Shares" shall have the meaning set forth in the recitals to
this Agreement.
"Statutory Accounts" shall have the meaning set forth in Section
5.12(a) of Exhibit C.
"Subscription Agreement" shall have the meaning set forth in
Section 8.1(a).
"Tax Claims" shall have the meaning set forth in Section
12.6(j)(iv).
"Tax Returns" shall have the meaning set forth in Section 5.6(a)
of Exhibit C.
"Tax Warranties" shall have the meaning set forth in Section
12.6(j)(iv).
"Taxes" means all taxes, charges, duties, fees, levies or other
assessments, including corporation tax, advance corporation tax, the charge
under Section 419 of the Taxes Act 1988, income tax, capital gains tax, the
charge under Section 601(2) of the Taxes Act 1988, value added tax, excise
duties, property, sales, use, gross receipts, recording, insurance profits,
license, withholding, payroll, employment, net worth, transfer, social security,
environmental, occupation and franchise taxes, the charge to tax under Schedule
9A of the Value Added Tax Act 1994, customs and other import duties, inheritance
tax, stamp duty, stamp duty reserve tax, capital duties, national insurance
contributions, local authority council taxes, petroleum revenue tax, foreign
taxation and duties, amounts
15
<PAGE> 22
payable in consideration for the surrender of group relief or advance
corporation tax or refunds pursuant to Section 102 of the Finance Act 1989 and
any payment whatsoever which the Company may be or become bound to make to any
Person as a result of the operation of any enactment relating to any such taxes
or duties imposed by any Governmental Entity and all penalties, charges,
interest and additions relating to any of the foregoing or resulting from a
failure to comply with the provisions of any enactment relating to taxation.
"Taxes Act 1988" means the Income and Corporation Taxes Act 1988
of the U.K.
"Technology Earn-Out Amount" shall have the meaning set forth in
Section 2.4(a).
"Technology Earn-Out Market Price" means the average of the
daily closing sale prices per share of Buyer Stock as reported by the NASDAQ
Stock Market (as published in The Wall Street Journal, Eastern United States
Edition, or, if not published therein, in another authoritative source mutually
selected by Buyer and the Warrantor Representative) for the ten consecutive full
NASDAQ trading days immediately preceding the first full NASDAQ trading day
prior to the Technology Earn-Out Payment Date.
"Technology Earn-Out Milestone Achievement" means achievement by
the Company of the events set forth in Exhibit A.
"Technology Earn-Out Payment Date" shall have the meaning set
forth in Section 2.4(a).
"Third Party Claim" means any claim or demand that is made by a
person who is not a party to this Agreement (or a member of the Buyer Group or
the Seller Group entitled to indemnification under this Agreement) against any
member of the Buyer Group or any member of the Seller Group and such claim or
demand does or is likely to result in a claim for indemnification by such member
of the Buyer Group or such member of the Seller Group for indemnification
pursuant to this Agreement.
"Transaction" means the transactions contemplated by the
Transaction Documents.
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<PAGE> 23
"Transaction Documents" means this Agreement and all other
instruments, certificates and documents delivered or required to be delivered by
Sellers, the Warrantor Representative or Buyer pursuant to this Agreement.
"UK GAAP" means generally accepted accounting principles in the
United Kingdom.
"Value Added Tax" means value added tax as provided for in the
Value Added Tax Act 1994 of the U.K. and legislation supplemental thereto or
replacing, modifying or consolidating it; references to income or profits or
gains earned, accrued or received shall include income or profits or gains
treated as earned, accrued or received for the purposes of any legislation.
"Warrantor Indemnity Amount" means, on any given determination
date, the aggregate Indemnity Amount Payable by Warrantor Sellers to Buyer with
respect to all Joint Indemnity Claims accumulated through the date of
determination.
"Warrantor Representative" shall have the meaning set forth in
Section 14.18(a).
"Warrantor Sellers" means all Sellers, other than the
Non-Warrantor Sellers.
"Warrantor Shareholder" means all Shareholders, other than the
Non-Warrantor Sellers.
ARTICLE II
PURCHASE AND SALE OF SHARES AND EXCHANGE OF OPTIONS
Section 2.1. Purchase and Sale of Shares and Exchange of
Options.
(a) Shares. Subject to the terms and conditions of this
Agreement, each Shareholder, in reliance on the covenants, representations and
warranties of Buyer contained herein, will at the Closing sell and deliver (with
full title guarantee according to the laws of England and Wales) to Buyer all
Shares owned by such Shareholder on the date
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hereof, and Buyer, in reliance on the covenants, representations and warranties
of each of the Sellers contained herein, will purchase and acquire from the
Shareholders at the Closing all such Shares, free and clear of all Liens.
(b) Company Options. Subject to the terms and conditions of this
Agreement, each Option Holder, in reliance on the covenants, representations and
warranties of Buyer contained herein, will at the Closing deliver for
cancellation to Buyer such Option Holders' letters of grant and option
certificates, if any, in respect of all Company Options owned by such Option
Holder on the date hereof, and such Company Options will be deemed surrendered
and canceled and be of no further force or effect, and Buyer, in reliance on the
covenants, representations and warranties of each of the Sellers contained
herein, will at the Closing exchange therefor Buyer Options.
Section 2.2. Closing Payments.
(a) Shares. Subject to the terms and conditions set forth
herein, in consideration for the sale and delivery of the Shares, at the Closing
Buyer will deliver the following:
(i) to Osborne Clarke, stock certificates duly
registered in the name of each Non-Warrantor Seller representing that
number of shares of Buyer Stock, subject to Section 2.6(c) (fractional
shares), equal to (A) the product of (1) the number of Shares owned by
such Non-Warrantor Seller immediately prior to the Closing, multiplied
by (2) the Fully Diluted Per-Share Closing Payment, divided by (B) the
Closing Market Price; and
(ii) to Olswang, stock certificates duly registered in
the name of each Warrantor Shareholder (other than Daniel Draper)
representing that number of shares of Buyer Stock, subject to Section
2.6(c) (fractional shares), equal to (A) the product of (1) the number
of Shares owned by such Warrantor Shareholder immediately prior to the
Closing, multiplied by (2) the Fully Diluted Per-Share Warrantor
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Closing Payment, divided by (B) the Closing Market Price; and
(iii) to the account designated by Osborne Clarke set
forth on Schedule 2.2, an amount in dollars (by wire transfer of
immediately available funds) equal to $221.78, representing the
aggregate amount of the cash payments payable to the Non-Warrantor
Sellers in respect of fractional shares required pursuant to Section
2.6(c) (fractional shares), together with a statement of the names and
amounts payable to each Non-Warrantor Seller; and
(iv) to the account designated by Olswang set forth on
Schedule 2.2, an amount in dollars (by wire transfer of immediately
available funds) equal to $768.58, representing the aggregate amount of
the cash payments payable to the Warrantor Shareholders in respect of
fractional shares required pursuant to Section 2.6(c) (fractional
shares), together with a statement of the names and amounts payable to
each Warrantor Shareholder; and
(v) to the account designated by Daniel Draper set forth
on Schedule 2.2, an amount in dollars (by wire transfer of immediately
available funds) equal to $196,059.61, representing the product of (1)
12,000 which represents the number of shares held by Daniel Draper
immediately prior to the Closing, multiplied by (2) the Fully Diluted
Per-Share Warrantor Closing Payment.
(b) Company Options. Subject to the terms and conditions set
forth herein, in consideration for the termination, cancellation and surrender
of the Company Options, at the Closing Buyer will deliver (x) to Olswang, in
replacement of all Company Options held by each Option Holder immediately prior
to the Closing, a Buyer Option duly registered in the name of such Option Holder
and (y) to Olswang, an amount (payable by wire transfer of immediately available
funds) in dollars equal to $1,307.82, representing the cash payments payable to
the Option Holders in respect of fractional shares required pursuant to Section
2.6(c) (fractional shares), together with a statement of the names and amounts
payable to each Option Holder. The number of
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shares of Buyer Stock subject to each such Buyer Option will equal the number of
shares of Buyer Stock, subject to Section 2.6(c) (fractional shares), equal to
(A) the product of (1) the number of Ordinary Shares subject to all such Company
Options held by such Option Holder being replaced immediately prior to the
Closing, multiplied by (2) the Fully Diluted Per-Share Warrantor Closing
Payment, divided by (B) the Closing Market Price. The per-share exercise price
of each such Buyer Option will equal the aggregate exercise prices of all such
Company Options held by such Option Holder being replaced immediately prior to
the Closing, divided by the aggregate number of shares of Buyer Stock subject to
such Buyer Option. Each such Buyer Option will be immediately exercisable, will
have a term expiring two years after the Closing Date and will be subject to the
terms and conditions of the Option Agreement.
Section 2.3. Payment of Indemnification Holdback.
(a) Indemnification Release Amount. As additional consideration,
within 10 days after the Holdback Release Date, Buyer will pay to each Warrantor
Seller (by delivery of Buyer Stock, Buyer Options and money as provided in
Section 2.3(b)) such Warrantor Seller's pro rata portion of the Indemnification
Release Amount.
(b) Payment of Indemnification Release Amount. Buyer shall pay
to the Warrantor Sellers the following:
(i) by delivery to each Warrantor Shareholder of stock
certificates duly registered in the name of each Warrantor Shareholder
(other than Daniel Draper) representing that number of shares of Buyer
Stock, subject to Section 2.6(c) (fractional shares), equal to (A) the
product of (1) the number of Shares owned by such Warrantor Shareholder
immediately prior to the Closing, multiplied by (2) the Fully Diluted
Per-Share Indemnification Release Amount, divided by (B) the
Indemnification Release Market Price; and
(ii) by delivery to each Option Holder of Buyer Options
duly registered in the name of each Option Holder exercisable for that
number of shares of Buyer Stock, subject to Section 2.6(c) (fractional
shares), equal to (A) the product of (1) the number of
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Shares subject to all Company Options outstanding immediately prior to
the Closing held by such Option Holder, multiplied by (2) the Fully
Diluted Per-Share Indemnification Release Amount, divided by (B) the
remainder of (x) the Indemnification Release Market Price, minus (y)
$1.00. Each such Buyer Option will have a per-share exercise price of
$1.00, will be immediately exercisable, will have a term expiring two
years after the date of grant and will be subject to the terms and
conditions of the Option Agreement; and
(iii) by delivery to each Warrantor Seller of Buyer's
check for an amount in dollars equal to the aggregate amount of the cash
payments in respect of fractional shares payable to such Warrantor
Seller pursuant to Section 2.6(c); and
(iv) by delivery to the account designated by Daniel
Draper set forth on Schedule 2.2, of dollars (by wire transfer of
immediately available funds) equal to the product of (A) 12,000, which
represents the number of Shares held by Daniel Draper immediately prior
to the Closing, multiplied by (B) the Fully Diluted Per-Share
Indemnification Release Amount;
provided, however, that for each Warrantor Seller, if Buyer has made one or more
Individual Indemnity Claims with respect to such Warranty Seller, the payments
to such Warrantor Seller pursuant to this Section 2.2(b) shall not be made
except to the extent that the amounts specified in Sections 2.3(b)(i)(A),
2.3(b)(ii)(A) and/or 2.3(b)(iv) exceed an amount equal to the sum of (i) the
aggregate unpaid Indemnity Amount Payable by such Warrantor Seller with respect
to such Individual Indemnity Claims as of the Holdback Release Date, plus (ii)
the Aggregate Unresolved Indemnity Claim Amount with respect to such Individual
Indemnity Claims as of the Holdback Release Date.
(c) Joint Warrantor Resolved Claim Amount. Buyer will be
obligated to pay to each Warrantor Seller (by delivery of Buyer Stock, Buyer
Options and money as provided in Section 2.3(d)), within 10 days after such
amount is determined in accordance with this Section 2.3(c), such Warrantor
Seller's pro rata portion of an Indemnity Claim Amount with respect to a Joint
Indemnity Claim represented
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by any unresolved Notice of Claim given by Buyer on or before the Holdback
Release Date if, when and to the extent that after the Holdback Release Date (i)
such Indemnity Claim Amount with respect to such Joint Indemnity Claim has been
resolved to the satisfaction of Buyer in favor of the Warrantor Sellers, (ii)
Buyer receives a Final Order resolving such Indemnity Claim Amount with respect
to such Joint Indemnity Claim in favor of the Warrantor Sellers or (iii) Buyer
no longer has the right to claim such portion of the Indemnity Claim Amount by
reason of the provisions of Section 12.4(b)(ii)(4) (in each case, a "Joint
Warrantor Resolved Claim Amount"), but only to the extent that such Joint
Warrantor Resolved Claim Amount does not exceed the remainder of (x) Eighteen
Million dollars ($18,000,000), minus (y) the sum of (A) the Indemnification
Release Amount paid pursuant to Section 2.3(a) and all Joint Warrantor Resolved
Claim Amounts with respect to Joint Indemnity Claims theretofore paid to the
Warrantor Sellers pursuant to this Section 2.3(c), plus (B) the Warrantor
Indemnity Amount as of such date of determination, plus (C) the Aggregate
Unresolved Indemnity Claim Amounts with respect to Joint Indemnity Claims that
remain outstanding and unresolved on such date of determination.
(d) Payment of Joint Warrantor Resolved Claim Amount. Each Joint
Warrantor Resolved Claim Amount with respect to a Joint Indemnity Claim payable
pursuant to Section 2.3(c) will be paid by Buyer in accordance with the
following payment procedures:
(i) by delivery to each Warrantor Shareholder of stock
certificates duly registered in the name of each Warrantor Shareholder
(other than Daniel Draper) representing that number of shares of Buyer
Stock, subject to Section 2.6(c) (fractional shares), equal to (A) the
product of (1) the number of Shares owned by such Warrantor Shareholder
immediately prior to the Closing, multiplied by (2) the Fully Diluted
Per-Share Warrantor Resolved Claim Amount, divided by (B) the
Indemnification Release Market Price; and
(ii) by delivery to each Option Holder of Buyer Options
duly registered in the name of each Option Holder exercisable for that
number of shares of Buyer Stock, subject to Section 2.6(c) (fractional
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shares), equal to (A) the product of (1) the number of Shares subject to
all Company Options outstanding immediately prior to the Closing held by
such Option Holder, multiplied by (2) the Fully Diluted Per-Share
Warrantor Resolved Claim Amount, divided by (B) the difference of (x)
the Indemnification Release Market Price, minus (y) $1.00. Each such
Buyer Option will have a per-share exercise price of $1.00, will be
immediately exercisable, will have a term expiring two years after the
date of grant and will be subject to the terms and conditions of the
Option Agreement; and
(iii) by delivery to each Warrantor Seller of Buyer's
check for an amount in dollars equal to the aggregate amount of the cash
payments in respect of fractional shares payable to such Warrantor
Seller pursuant to Section 2.6(c); and
(iv) by delivery to the account designated by Daniel
Draper set forth on Schedule 2.2, of dollars (by wire transfer of
immediately available funds) equal to the product of (A) 12,000, which
represents the number of Shares held by Daniel Draper immediately prior
to the Closing, multiplied by (B) the Fully Diluted Per-Share Warrantor
Resolved Claim Amount;
provided, however, that for each Warrantor Seller, if Buyer has made one or more
Individual Indemnity Claims with respect to such Warrantor Seller, the payments
to such Warrantor Seller pursuant to this Section 2.3(d) shall not be made
except to the extent that the amounts specified in Sections 2.3(d)(i)(A),
2.3(d)(ii)(A) and/or 2.3(d)(iv) exceed an amount equal to the sum of (i) the
aggregate unpaid Indemnity Amount Payable of such Warrantor Seller with respect
to such Individual Indemnity Claims as of the date the Joint Warrantor Resolved
Claim Amount is determined, plus (ii) the Aggregate Unresolved Indemnity Claim
Amount with respect to such Individual Indemnity Claims as of the date the Joint
Warrantor Resolved Claim Amount is determined.
(e) Individual Warrantor Resolved Claim Amount. Buyer will be
obligated to pay to each Warrantor Seller against whom an Individual Indemnity
Claim has been made by Buyer (by delivery of Buyer Stock, Buyer Options and
money
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as provided in Section 2.3(f)), within 10 days after such amount is determined
in accordance with this Section 2.3(e), the portion of an Indemnity Claim Amount
with respect to an Individual Indemnity Claim made against such Warrantor Seller
in an unresolved Notice of Claim given by Buyer on or before the Holdback
Release Date if, when and to the extent that after the Holdback Release Date (i)
such Indemnity Claim Amount with respect to such Individual Indemnity Claim set
forth in such Notice of Claim has been resolved to the satisfaction of Buyer in
favor of the Warrantor Seller, (ii) Buyer receives a Final Order resolving the
Indemnity Claim Amount with respect to such Individual Indemnity Claim set forth
in such Notice of Claim in favor of the Warrantor Seller or (iii) Buyer no
longer has the right to claim such portion of the Indemnity Claim Amount with
respect to such Individual Indemnity Claim by reason of the provisions of
Section 12.4(b)(ii)(4) (in each case, an "Individual Warrantor Resolved Claim
Amount"), but only to the extent that such Individual Warrantor Resolved Claim
Amount does not exceed the remainder of (x) such Warrantor Seller's pro rata
portion of the Holdback minus (y) the sum of (A) such Warrantor Seller's pro
rata portion of the Indemnification Release Amount or any Joint Warrantor
Resolved Claim Amount actually paid to such Warrantor Seller, plus (B) all
Individual Warrantor Resolved Claim Amounts theretofore paid to such Warrantor
Seller pursuant to this Section 2.3(e), plus (C) the aggregate Indemnity Amount
Payable by such Warrantor Seller to Buyer with respect to all Individual
Indemnity Claims against such Warrantor Seller accumulated through the date of
determination, plus (D) the Aggregate Unresolved Indemnity Claim Amounts with
respect to Individual Indemnity Claims against such Warrantor Seller that remain
outstanding and unresolved on such date of determination, plus (E) such
Warrantor Seller's pro rata portion of the Warrantor Indemnity Amount and the
Aggregate Unresolved Indemnity Claim Amount with respect to Joint Indemnity
Claims that remain outstanding and unresolved on such date of determination.
(f) Payment of Individual Warrantor Resolved Claim Amount. Each
Individual Warrantor Resolved Claim Amount payable pursuant to Section 2.3(e)
will be paid by Buyer to the Warrantor Seller against whom the Individual
Indemnity Claim was made:
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(i) by delivery to such Warrantor Seller (other than
Daniel Draper), if a Warrantor Shareholder, of stock certificates duly
registered in the name of such Warrantor Seller representing that number
of shares of Buyer Stock, subject to Section 2.6(c) (fractional shares),
equal to the Individual Warrantor Resolved Claim Amount, divided by the
Indemnification Release Market Price; and
(ii) by delivery to such Warrantor Seller, if an Option
Holder, of Buyer Options duly registered in the name of such Warrantor
Seller exercisable for that number of shares of Buyer Stock, subject to
Section 2.6(c) (fractional shares), equal to (A) the Individual
Warrantor Resolved Claim Amount, divided by (B) the difference of (x)
the Indemnification Release Market Price, minus (y) $1.00. Each such
Buyer Option will have a per-share exercise price of $1.00, will be
immediately exercisable, will have a term expiring two years after the
date of grant and will be subject to the terms and conditions of the
corresponding Option Agreement; and
(iii) by delivery to such Warrantor Seller of Buyer's
check for an amount in dollars equal to the aggregate amount of the cash
payments in respect of fractional shares payable to such Warrantor
Seller pursuant to Section 2.6(c); and
(iv) if such Warrantor Seller is Daniel Draper, by
delivery to the account designated by Daniel Draper set forth on
Schedule 2.2, of dollars (by wire transfer of immediately available
funds) equal to the Individual Warrantor Resolved Claim Amount.
Section 2.4. Technology Earn-Out.
(a) As additional consideration, on the applicable date set
forth below (the "Technology Earn-Out Payment Date"), Buyer will pay to the
Warrantor Shareholders (by delivery of shares of Buyer Stock and Buyer Options
and money as provided in Section 2.4(b)), an aggregate amount equal to the
following amount (the "Technology Earn-Out Amount"):
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(i) If on or prior to the first anniversary of the
Closing Date, Technology Earn-Out Milestone Achievement occurs, then,
within 10 days after the first anniversary of the Closing Date, Buyer
will pay $11,400,000 in accordance with the provisions of Section
2.4(b); or
(ii) If after the first anniversary of the Closing Date
and on or prior to the second anniversary of the Closing Date,
Technology Earn-Out Milestone Achievement occurs, then, within 10 days
after Technology Earn-Out Milestone Achievement occurs, Buyer will pay
$11,400,000 in accordance with the provisions of Section 2.4(b); or
(iii) If Technology Earn-Out Milestone Achievement does
not occur on or prior to the second anniversary of the Closing Date, no
amount will be paid by Buyer and the Technology Earn-Out Amount will be
$0.
(b) The Technology Earn-Out Amount will be paid by Buyer on the
Technology Earn-Out Payment Date in accordance with the following payment
procedures set forth below, with the "Fully Diluted Per-Share Payment Amount"
being the Fully Diluted Per-Share Technology Earn-Out Amount and the "Payment
Market Price" being the Indemnification Technology Earn-Out Market Price:
(i) by delivery to each Warrantor Shareholder of stock
certificates duly registered in the name of each Warrantor Shareholder
(other than Daniel Draper) representing that number of shares of Buyer
Stock, subject to Section 2.6(c) (fractional shares), equal to (A) the
product of (1) the number of Shares owned by such Warrantor Shareholder
immediately prior to the Closing, multiplied by (2) the Fully Diluted
Per-Share Payment Amount, divided by (B) the Payment Market Price; and
(ii) by delivery to each Option Holder of Buyer Options
duly registered in the name of each Option Holder exercisable for that
number of shares of Buyer Stock, subject to Section 2.6(c) (fractional
shares), equal to (A) the product of (1) the number of Shares subject to
each Company Option outstanding
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immediately prior to the Closing held by such Option Holder, multiplied
by (2) the Fully Diluted Per-Share Amount, divided by (B) the remainder
of (x) the Payment Market Price, minus (y) $1.00. Each such Buyer Option
will have a per-share exercise price of $1.00, will be immediately
exercisable; will have a term expiring two years after the date of grant
and will be subject to the terms and conditions of the Option Agreement;
and
(iii) by delivery to each Warrantor Seller of Buyer's
check for an amount in dollars equal to the aggregate amount of the cash
payments in respect of fractional shares payable to such Warrantor
Seller pursuant to Section 2.6(c); and
(iv) by delivery to the account designated by Daniel
Draper set forth on Schedule 2.2, of dollars (by wire transfer of
immediately available funds) equal to the product of (1) 12,000, which
represents the number of Shares held by Daniel Draper immediately prior
to the Closing, multiplied by (2) the Fully Diluted Per-Share Payment
Amount.
Section 2.5. Performance Earn-Out.
(a) As additional consideration, on the Performance Earn-Out
Payment Date Buyer will pay to the Warrantor Sellers (by delivery of shares of
Buyer Stock, Buyer Options and money as provided in Section 2.5(b)), an
aggregate amount equal to the following amount (the "Performance Earn-Out
Amount"):
(i) $0, if the Company's Sales for Fiscal 2000 and
Fiscal 2001, combined, are less than $24.5 million or if Gross Margin in
Fiscal 2001 is less than 70 percent; or
(ii) $20 million, if the Company's Sales for Fiscal 2000
and Fiscal 2001, combined, equal or exceed $24.5 million, but are less
than $27.5 million, and Gross Margin in Fiscal 2001 is at least 70
percent; or
(iii) $30 million, if the Company's Sales for Fiscal
2000 and Fiscal 2001, combined, equal or exceed
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$27.5 million, but are less than $30 million, and Gross Margin in Fiscal
2001 is at least 70 percent; or
(iv) $40 million, if the Company's Sales for Fiscal 2000
and Fiscal 2001, combined, equal or exceed $30 million, and Gross Margin
in Fiscal 2001 is at least 70 percent.
(b) The Performance Earn-Out Amount will be paid by Buyer on the
Performance Earn-Out Payment Date in accordance with the payment procedures set
forth in Section 2.4(b), with the "Fully Diluted Per-Share Payment Amount" being
the Fully Diluted Per-Share Performance Earn-Out Amount and the "Payment Market
Price" being the Indemnification Performance Earn-Out Market Price.
(c) On or before May 31, 2001, Buyer will deliver to the
Warrantor Representative (in the same manner as a Notice of Claim with respect
to a Joint Indemnity Claim is made pursuant to Section 12.4(a)(y)), with copies
to the Non-Warrantor Representative and James Bailey at PricewaterhouseCoopers,
a statement prepared by Buyer setting out the amount of Sales and Gross Margin
of the Company for Fiscal 2000 and Fiscal 2001 and the amount, if any, of the
Performance Earn-Out Amount payable pursuant to Section 2.5(a) with appropriate
supporting calculations and supporting documentation (the "Earn-Out Statement").
Within 60 days after receipt (as determined in accordance with the provisions of
Section 12.4(a) with respect to a Notice of Claim with respect to a Joint
Indemnity Claim) by the Warrantor Representative of such Earn-Out Statement from
Buyer, the Warrantor Representative may exercise the right (held on behalf of
the Warrantor Sellers) to audit the Earn-Out Statement by so notifying Buyer and
the Company in a written statement specifying the amount of the additional
payments to which the Warrantor Representative believes the Warrantor Sellers
are entitled and the nature and reasons for the Warrantor Representative's
disagreement with Buyer's determination (an "Audit Notice"). If the Warrantor
Representative does not exercise the audit rights within such 60-day period, the
Warrantor Representative shall be deemed to have accepted the Sales and Gross
Margin amounts and the Performance Earn-Out Amount set forth therein as final
and binding. If the Warrantor Representative does issue an Audit Notice, then
during the 30-day period
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following Buyer's receipt of the Audit Notice, Buyer and the Warrantor
Representative shall attempt in good faith to resolve the disagreement with
respect to the Earn-Out Statement, and during such 30-day period an independent
auditing firm selected by the Warrantor Representative shall be given full
access to the books and records of the Company and its Affiliates relevant to
Sales and Gross Margin for the purposes of auditing, at the expense of the
Warrantor Sellers, the Earn-Out Statement. If the Warrantor Representative and
Buyer are unable to resolve any such disagreement within such 30-day period, the
matter shall be submitted to an independent accounting firm of international
reputation reasonably acceptable to the Warrantor Representative and Buyer. The
Warrantor Representative and Buyer shall use reasonable best efforts to cause
the independent accounting firm to render its determination on the matter within
90 days of its submission by the Warrantor Representative and Buyer. Such
determination shall be, absent manifest error, final, conclusive and binding
upon Buyer and all Warrantor Sellers. Buyer shall pay the Performance Earn-Out
Amount in accordance with Sections 2.5(a) and 2.5(b). The fees and expenses for
the independent accounting firm (A) shall be paid by the Warrantor Sellers if
Buyer's determination is affirmed by the accounting firm, or (B) shall be
apportioned between Buyer and the Warrantor Sellers, if the accounting firm
determines that an additional amount is due Warrantor Sellers over and above the
Performance Earn-Out Amount determined by Buyer; such apportionment shall be
made so that Buyer shall pay the percentage of the fees and expenses equal to
the percentage determined by dividing (x) the additional amount to be paid by
Buyer to the Warrantor Sellers by (y) the disputed additional amount asserted by
the Warrantor Representative.
(d) Notwithstanding any other provision of this Agreement, to
the extent the Technology Earn-Out Amount and/or the Performance Earn-Out Amount
become payable by Buyer pursuant to Sections 2.4 and 2.5 of this Agreement, such
amounts will be paid in full without any set-off, deduction or withholding
whatsoever.
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Section 2.6. Buyer Stock and Buyer Options.
(a) Securities Act Exemption. The issuance of Buyer Stock and
Buyer Options pursuant to this Agreement is intended to be exempt from the
registration requirements of the Securities Act pursuant to Regulation S and
Section 4(2) thereunder and from applicable state securities laws. Each of the
Sellers and Buyer hereby agrees to take all reasonable actions and to execute
all necessary documents to qualify the issuance of Buyer Stock and Buyer Options
for such exemptions; provided, however, that any action to be taken by the
Sellers should be at Buyer's expense, such expense not to be unreasonable.
(b) Stock Certificates; Stock Option Agreements.
(i) Until the earlier of such time as (A) the shares of Buyer
Stock are resold pursuant to Rule 144, (B) such shares of Buyer Stock are
eligible to be resold under Rule 144(k) or (C) a registration statement under
the Securities Act covering such shares of Buyer Stock is declared effective,
each stock certificate, book-entry statement, confirmation, transaction
statement or other instrument evidencing Buyer Stock issued (x) pursuant to this
Agreement or (y) upon the exercise of Buyer Options issued pursuant to this
Agreement, shall bear a legend in substantially the following form:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE 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. BY ITS
ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT EITHER(A) IT IS NOT A
U.S. PERSON AND IS PHYSICALLY OUTSIDE THE UNITED STATES AT THE TIME IT
IS ACQUIRING THE SHARES OR (B) IT IS AN 'ACCREDITED INVESTOR' (AS
DEFINED IN RULE 501(A) UNDER THE SECURITIES ACT), (2) AGREES THAT IT
WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THE SHARES
RESELL OR OTHERWISE TRANSFER THE SHARES EXCEPT (A) TO THE COMPANY OR ANY
SUBSIDIARY THREOF, (B) PURSUANT TO AN EFFECTIVE
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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), (3) AGREES THAT IT WILL GIVE TO EACH
PERSON TO WHOM THE SHARES ARE TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND AND (4) IF IT HAS ACQUIRED THE SHARES IN A
TRANSACTION PURSUANT TO REGULATION S UNDER THE SECURITIES ACT, AGREES
THAT IT WILL NOT WITHIN ONE YEAR ENGAGE IN HEDGING TRANSACTIONS
INVOLVING THESE SECURITIES UNLESS IN COMPLIANCE WITH THE ACT. IN
CONNECTION WITH ANY TRANSFER OF THESE SECURITIES WITHIN TWO YEARS AFTER
ORIGINAL ISSUANCE OF THESE SECURITIES, IF THE PROPOSED TRANSFER IS OTHER
THAN PURSUANT TO REGULATION S OR RULE 144 UNDER THE SECURITIES ACT, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRANSFER AGENT AND
THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS
EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS
BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT
TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT."
(ii) Each Option Agreement evidencing a Buyer Option delivered
by Buyer pursuant to this Agreement, shall bear a legend in substantially the
following form:
"THE OPTIONS EVIDENCED BY THIS AGREEMENT 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. BY ITS ACQUISITION HEREOF,
THE HOLDER (1) REPRESENTS THAT EITHER (A) IT IS NOT A U.S. PERSON AND IS
PHYSICALLY OUTSIDE THE UNITED STATES AT THE TIME IT IS ACQUIRING THE
OPTIONS OR (B) IT IS AN 'ACCREDITED INVESTOR' (AS DEFINED IN RULE 501(A)
UNDER THE SECURITIES ACT), (2) AGREES THAT IT WILL NOT WITHIN TWO YEARS
AFTER THE GRANT DATE OF THE OPTIONS RESELL OR OTHERWISE TRANSFER THE
OPTIONS EXCEPT (A) TO THE COMPANY OR ANY SUBSIDIARY THREOF, (B) PURSUANT
TO AN
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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), (3) AGREES THAT IT
WILL GIVE TO EACH PERSON TO WHOM THE OPTIONS ARE TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND AND (4) IF IT HAS ACQUIRED
THE OPTIONS IN A TRANSACTION PURSUANT TO REGULATION S UNDER THE
SECURITIES ACT, AGREES THAT IT WILL NOT WITHIN ONE YEAR ENGAGE IN
HEDGING TRANSACTIONS INVOLVING THESE SECURITIES UNLESS IN COMPLIANCE
WITH THE ACT. IN CONNECTION WITH ANY TRANSFER OF THE OPTIONS WITHIN TWO
YEARS AFTER ORIGINAL ISSUANCE OF THE OPTIONS, IF THE PROPOSED TRANSFER
IS OTHER THAN PURSUANT TO REGULATION S OR RULE 144 UNDER THE SECURITIES
ACT, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE COMPANY
SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT
TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT."
(iii) All Buyer Options issued pursuant to Sections 2.2(b),
2.3(b)(iii), 2.3(d)(ii), 2.3(f)(ii), 2.4(b)(ii) and 2.5(b) will be on
the same terms and conditions (as set forth in the Option Agreement)
except that the exercise prices, number of shares of Buyer Stock subject
to such Buyer Options and grant dates will vary.
(c) Fractional Shares of Buyer Stock. With respect to any
payment by Buyer to be made by delivery of Buyer Stock or Buyer Options pursuant
to Sections 2.2(a), 2.2(b), 2.3(b), 2.3(d), 2.3(f), 2.4(b), 2.5(b) or 3.5, no
fractional shares of Buyer Stock will be issued and no Buyer Options exercisable
for fractional shares of Buyer Stock will be granted and any holder of Shares or
Company Options entitled pursuant to this Agreement to receive a fraction of a
share of Buyer Stock or a Buyer Option exercisable for a fraction of a share of
Buyer Stock but for this Section 2.6(c) will be entitled only to receive a cash
payment in lieu thereof, without interest, in an amount, less the
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amount of any withholding taxes which may be required thereon, equal to the
product of (i) the fraction of a share to which such holder would otherwise have
been entitled multiplied by (ii) the Closing Market Price, the Indemnification
Release Market Price, the Technology Earn-Out Market Price or the Performance
Earn-Out Market Price, as the case may be. For purposes of paying such cash in
lieu of fractional shares, with respect to each Seller, all shares of Buyer
Stock to be delivered and Buyer Options to be granted pursuant this Agreement on
any given payment date will be aggregated, and no Seller will receive cash in
lieu of fractional shares in an amount equal to or greater than the value of one
full share of Buyer Stock on such payment date.
Section 2.7. Earn-Out Protections. To preserve the Business for
the purposes of allowing the Warrantor Sellers to receive the payment
contemplated by Sections 2.4 (Technology Earn-Out) and 2.5 (Performance
Earn-Out), Buyer and Sellers agree that following the Closing, until the later
of the Technology Earn-Out Payment Date and the Performance Earn-Out Payment
Date, except with the prior written consent of Mr. Gary Steele (such consent not
to be unreasonably withheld or delayed having regard to the best interests of
the Company as a going concern), Buyer will not, and will not cause or permit
any of its subsidiaries to:
(i) cause the Business to cease in whole or in any material
part;
(ii) terminate the employment of any of the Warrantor Sellers,
except for gross misconduct justifying dismissal, or with the approval
of Gary Steele (or the chief executive officer of the Company at the
time if Gary Steele is no longer a director of the Company) in the case
of any Management Seller other than Gary Steele, or remove Gary Steele
from the Board of Directors of the Company;
(iii) deliberately, knowingly or recklessly interfere with or take
any action which is reasonably likely to materially and adversely affect
the relationship of the Company with any of its customers;
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(iv) take any action deliberately designed, or which is
reasonably likely, to prevent the Business from being carried on in the
ordinary course in all material respects;
(v) take any action deliberately designed, or which is
reasonably likely, to divert away from the Company any business
opportunities that first become available to the Company in relation to
business of the same type as conducted by the Company on the Closing
Date;
(vi) take any action knowingly or deliberately designed, or
reasonably likely to:
(A) cause the Business to be conducted other than on an
arm's length basis, except that treasury, finance, human
resources, legal, tax, accounting, insurance, employee benefits,
property management, investor relations and similar functions
may be conducted on such terms as Buyer determines from time to
time in the ordinary course of business;
(B) cause a material change in the nature of the
Business;
(C) cause any new employee or consultant (who is not
employed, seconded to or engaged by the Company at the Closing)
to be employed, seconded to or engaged by the Company or cause
to be terminated the employment of such person except in
accordance with their respective Employment Agreements, or with
the approval of Gary Steele;
(D) cause any change in the location of the Company's
principal office in Bristol, England; or
(E) materially adversely affect the relationship of the
Company with its sources of revenues or its suppliers, except
any such effect as may result from consummation of the
Transaction;
(vii) fail to provide sufficient working capital for the
Business; or
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(viii) sell the Company or a material part of the Business of
the Company or transfer a material part of the Business of the Company
to any direct or indirect subsidiary of Buyer unless it has first paid
the maximum amounts which may be earned under Sections 2.4 and 2.5 in
full; provided, however, that notwithstanding the foregoing, Buyer may
transfer the Shares of the Company in whole or in part, to any direct or
indirect wholly-owned subsidiary of Buyer.
Section 2.8. Consideration Adjustments.
(a) Adjustments re Watts and Steele. Notwithstanding the payment
provisions of this Article II Buyer has agreed that the amounts to be received
by Gary Steele and Richard Watts pursuant to Section 2.2 (Closing Payments),
Section 2.3 (Payment of Indemnification Holdback Release Amount), Section 2.4
(Technology Earn-Out) and Section 2.5 (Performance Earn-Out) will be adjusted as
follows:
(i) any payment to be made to Gary Steele pursuant to Sections
2.2, 2.3, 2.4 or 2.5 shall be reduced by an amount equal to the amount
that would have otherwise been payable (but for this Section 2.8)
multiplied by a fraction, the numerator of which is $2,600,000, and the
denominator of which is $85,797,849 (the "Adjusted Sum"); and
(ii) the Adjusted Sum shall be paid to Richard Watts provided
that the total Adjusted Sum which will be paid to Richard Watts shall
not exceed $2,600,000; and
(iii) the total Adjusted Sum which shall be deducted from what
would but for this Section 2.8 be Gary Steele's pro rata share of the
total consideration shall not exceed $2,600,000.
(b) Method of Payment. Payments to be made to Richard Watts
pursuant to this Section 2.8(b) shall be made in shares of Buyer Stock. The
number of shares of Buyer Stock shall be calculated in the same manner as set
out in Sections 2.2, 2.3, 2.4 and 2.5.
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(c) Consequential Effect. Payments and reductions made pursuant
to this Section 2.8(c) shall for all purposes of this Agreement be deemed to,
and shall adjust the consideration paid to Gary Steele and Richard Watts.
(d) Claims against Watts.
(i) Buyer agrees that in respect of any claim made against
Richard Watts pursuant to this Agreement (over and above the Holdback)
Richard Watts may satisfy that claim (if admitted or proven) by
surrendering to Buyer such number of shares of Buyer Stock (issued
pursuant to this Agreement including pursuant to Section 2.8(b)) as at
the market price of such shares on the last NASDAQ trading day before
surrender of such Buyer Stock equal to the amount of the claim provided
that:
(A) if Richard Watts has before satisfaction of such a
claim sold any of the Buyer Stock issued to him pursuant to this
Agreement in an arms-length transaction to a person not
affiliated with him, Buyer may pursue Richard Watts for the net
cash amount received by him for such Buyer Stock; and
(B) in no circumstances shall Richard Watts be liable to
pay to the Buyer pursuant to a claim under this Agreement a sum
greater than the aggregate of (1) Buyer Stock (issued to him
pursuant to this Agreement including pursuant to Section 2.8(b))
valued at the date of payment of any claim; and (2) the net cash
proceeds of sale of any such shares of Buyer Stock referred to
in Section 2.8(d)(i)(A).
(ii) Section 2.8(d)(i) shall not affect any of the limitations
in Section 12.6 which shall continue to apply to Richard Watts
notwithstanding this Section 2.8.
Section 2.9. Pond Stock Certificates. Notwithstanding the
provisions of Sections 2.2(a)(i) and 3.5, Defta-Pond Co-investment L.P., Pond
Ventures I L.P. and
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Pond Venture Nominees Ltd. hereby direct Buyer to register the stock
certificates representing any shares of Buyer Stock that Defta-Pond
Co-investment L.P. and Pond Ventures I L.P. are entitled to receive pursuant to
this Agreement in the name of Pond Venture Nominees Ltd.
ARTICLE III
CLOSING
Section 3.1. Closing. The closing of the purchase and sale of
the Shares and the cancellation of the Company Options (the "Closing") will take
place (i) simultaneously at the offices of Manches & Co., Aldwych House, 81
Aldwych, London WC2B 4RP, England, at 9:00 p.m. London time on the date of this
Agreement, or (ii) at such other place, date and time as Seller and Buyer may
agree. The date and time at which the Closing actually occurs is referred to
herein as the "Closing Date".
Section 3.2. Closing Deliveries of Sellers.
(a) At the Closing, the Warrantor Sellers will deliver to Buyer
the following:
(i) share certificates representing the Shares, accompanied by
duly executed stock transfer forms in favor of Buyer, in form
satisfactory to Buyer and any other documents that are necessary to
transfer to Buyer good and marketable title to the Shares, free and
clear of any Liens;
(ii) letters of grant and option certificates, if any, in
respect of all outstanding Company Options;
(iii) written resignations of Richard Irving and David Ong,
being all the directors of the Company other than Gary Steele (including
acknowledgments of such directors and officers that they have no claims
outstanding for compensation or otherwise or for any payment under the
U.K. Employment Rights Act 1996) effective as of the Closing Date;
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(iv) the resignation of PricewaterhouseCoopers as auditors of
the Company;
(v) the statutory books of the Company;
(vi) certified copy of resolutions adopted at a meeting of the
Board of Directors of the Company at which the following actions were
taken:
(A) approval of the transfer of the Shares;
(B) acceptance of the resignations referred to in
Section 3.2(a)(iv);
(C) appointment of Raouf Halim and Jasmina Theodore as
directors of the Company effective as of the Closing; and
(D) adoption of amendments to the Company Share Option
Scheme to provide for the exercise by Daniel Draper of all of
his Company Options prior to the Closing;
(vii) the Employment Agreements duly executed by each individual
party to such agreement; and
(viii) receipts from each payee of the Sellers Expense Amount
set forth on Schedule 2.2 acknowledging receipt of such payment and
payment in full of such Sellers Expense Amount.
(b) At the Closing, the Non-Warrantor Sellers will deliver to
Buyer share certificates representing the Shares, accompanied by duly executed
stock transfer forms in favor of Buyer, in form satisfactory to Buyer and any
other documents that are necessary to transfer to Buyer good and marketable
title to the Shares, free and clear of any Liens.
Section 3.3. Closing Deliveries of Buyer. At the Closing, Buyer
will deliver to the Persons referred to in Section 2.2 the following:
(a) share certificates representing the Buyer Stock required to
be delivered by Section 2.2(a);
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(b) the Buyer Options required to be delivered by Section
2.2(b);
(c) the payment, by wire transfer to the account of Daniel
Draper set forth on Schedule 2.2, of dollars in the amount required by Section
2.2(a)(v);
(d) the payment, by wire transfer to the accounts of Olswang and
Osborne Clarke set forth on Schedule 2.2, of dollars in the aggregate amount of
the cash payments for fractional shares of Buyer Stock and Buyer Options for
fractional shares payable pursuant to Section 2.6(c); and
(e) certified copy of the resolutions adopted by the Board of
Directors of Buyer approving the Transactions, including the issuance of shares
of Buyer Stock pursuant to this Agreement, and adopting the Microcosm
Communications Limited Stock Option Plan.
Section 3.4. Transfer Taxes. All applicable sales and transfer
Taxes (including any stock transfer Taxes due as a result of the sale of the
Shares and Taxes, if any, imposed upon the transfer of real and personal
property) and filing, recording, registration, stamp, documentary and other
Taxes and fees payable in connection with the Transaction will be paid by Buyer.
Section 3.5. Non-Warrantor Sellers Finders' Fees. On the Closing
Date, Buyer will pay finders' fees (payable in shares of Buyer Stock as set
forth below) in an aggregate amount equal to Eight Million Six Hundred Thousand
dollars ($8,600,000) to the Non-Warrantor Sellers (which shall be paid in the
individual amounts set forth in Schedule 3.5). Such fees shall be paid by
delivery to each Non-Warrantor Seller of, (x) stock certificates registered in
the name of such Non-Warrantor Seller representing that number of shares of
Buyer Stock, subject to Section 2.6(c), equal to the quotient of (i) the amount
set forth opposite such Non-Warrantor Seller's name in Schedule 3.5, divided by
(ii) the Closing Market Price and (y) dollars (by wire transfer of immediately
available funds) equal to the cash payments payable to such Non-Warrantor Seller
pursuant to Section 2.6(c).
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Section 3.6. Sellers Expense Amount. On the Closing Date, Buyer
will pay the Sellers Expense Amount in cash by wire transfer of the amount set
forth in Schedule 2.2.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF EACH SELLER
Each Seller, severally and not jointly, and only as to himself,
herself or itself, makes the representation and warranties to Buyer set forth on
Exhibit B.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF WARRANTOR SELLERS
Each Warrantor Seller, jointly and severally, makes the
representations and warranties to Buyer set forth on Exhibit C.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby makes the representations and warranties to Sellers
set forth on Exhibit D.
ARTICLE VII
COVENANTS
Section 7.1. Public Announcements. No press release or
announcement concerning the transactions contemplated hereby will be issued by
any Seller or the Company without the prior consent of Buyer or by Buyer without
the prior consent of the Warrantor Representative, except as such release or
announcement may be required by law, rule or regulation, in which case the
Person required to make the release or announcement will allow the Person whose
consent would otherwise be required reasonable time to
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comment on such release or announcement in advance of such issuance.
Section 7.2. Further Assurances.
(a) From time to time, as and when requested by any party to
this Agreement, the other parties will execute and deliver, or cause to be
executed and delivered, all such documents and instruments and will take, or
cause to be taken, all such reasonable actions, as such other party may
reasonably deem necessary or desirable to consummate the Transaction or to give
Buyer the benefits of a shareholder of the Company after the Closing (including,
prior to Buyer being registered in the statutory books of the Company, voting,
consenting to any action or otherwise exercising any rights as a shareholder, in
each case, as may be directed by Buyer); provided, however, that any action to
be taken by any party pursuant to this Section 7.2(a) shall be at the expense of
the party requesting such action, such expenses not to be unreasonable, except
that with respect to the issuance of Buyer Stock such action shall be at Buyer's
expense and with respect to the Registration Rights such expenses shall be borne
as provided in Section 5 of Schedule 7.4(a).
(b) Anything contained in this Agreement to the contrary
notwithstanding, none of the parties to this Agreement or their Affiliates will
be required to commence litigation or divest or hold separate any business or
assets in connection with the consummation of the Transaction.
Section 7.3. Confidential Information.
(a) From and after the Closing, each Seller will, and will cause
each of its Affiliates (in the case of a Non-Warrantor Seller, only its direct
or indirect wholly-owned subsidiaries and any Person of which such Non-Warrantor
Seller is a direct or indirect wholly-owned subsidiary) and its and their
Representatives to (i) maintain in strict confidence any and all confidential
information concerning the Company and (ii) refrain from using any and all such
information for its own benefit or to compete with or otherwise to the detriment
of Buyer or its Affiliates (including the Company). It is understood that no
Seller shall have any liability hereunder with respect to
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information that (i) is in or, through no fault of such Seller or any of its
Representatives, comes into the public domain or (ii) such Seller is legally
required to disclose.
(b) In the event that any Seller or any of its Affiliates (in
the case of a Non-Warrantor Seller, only its direct or indirect wholly-owned
subsidiaries and any Person of which such Non-Warrantor Seller is a direct or
indirect wholly-owned subsidiary) or its or their Representatives are required
by Law to disclose any such information, except where such disclosure has been
required by the Inland Revenue or other taxing authorities such Seller will
promptly notify Buyer in writing so that Buyer may seek a protective order
and/or other motion to prevent or limit the production or disclosure of such
information. If such motion has been denied, then the Person required to
disclose such information may disclose only such portion of the such information
which (i) based on advice of such Seller's outside legal counsel is required by
Law to be disclosed (provided that the Person required to disclose such
information will use all reasonable efforts to preserve the confidentiality of
the remainder of such information) or (ii) Buyer consents in writing to having
disclosed. Such Seller will not, and will not permit any of its Affiliates (in
the case of a Non-Warrantor Seller, only its direct or indirect wholly-owned
subsidiaries and any Person of which such Non-Warrantor Seller is a direct or
indirect wholly-owned subsidiary) or its or their Representatives to, oppose any
motion for confidentiality brought by Buyer or the Company. Such Seller will
continue to be bound by its obligations pursuant to this Section 7.3 for any
information that is not required to be disclosed, or that has been afforded
protective treatment, pursuant to such motion.
Section 7.4. Registration Rights.
(a) From and after the Closing, each Seller and Buyer will have
the Registration Rights set forth on Schedule 7.4(a) with respect to shares of
Buyer Stock (a) received by such Seller pursuant to Sections 2.2(a), 2.3(b)(i),
2.3(d)(i), 2.3(f)(i), 2.4(b)(i) and 2.5(b) and (b) issued to such Seller upon
the exercise of Buyer Options received by such Seller pursuant to Sections
2.2(b), 2.3(b)(ii), 2.3(d)(ii), 2.3(f)(ii), 2.4(b)(ii) and 2.5(b).
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(b) Each Seller hereby agrees to be bound by all obligations and
agreements with respect to registration rights applicable to Sellers set forth
on Schedule 7.4(a).
Section 7.5. Employment Matters.
(a) Buyer agrees that, following the Closing, it shall extend to
each employee of the Company on the Closing Date (a "Continuing Employee")
membership in Buyer's U.K. Pension, Life, Medical and Permanent Health Insurance
plans (subject to the terms and conditions of the plans in force from time to
time) and in the case of Stephen King and Daniel Draper, the U.S. equivalent of
such plans.
(b) Buyer also agrees that it will offer each Continuing
Employee (i) the salary set forth opposite such Continuing Employee's name on
Schedule 7.5, (ii) the award of options under Buyer's stock option plans in the
amount set forth opposite such Continuing Employee's name on Schedule 7.5 and
(iii) membership in Buyer's Peak Performance Bonus Plan or MBO Bonus Plan with
the potential bonus amount set forth opposite such Continuing Employee's name of
Schedule 7.5.
(c) The extension of benefits and terms specified in this
Section 7.5 by Buyer to any such Continuing Employee is conditional upon such
Continuing Employee entering into a letter of amendment to his or her Service
Agreement in a form substantially similar to the form of letter of amendment
entered into at the Closing by Alistair Blaxill.
Section 7.6. Power of Attorney. As promptly as practicable and
in any event no later than 10 Business Days after the Closing Date, each
Warrantor Seller shall execute and deliver to Buyer a power of attorney in
respect of the rights attached to such Warrantor Seller's Shares in the form
attached as Schedule 7.6.
Section 7.7. Stock Certificates; Option Agreements.
Notwithstanding the provisions of Sections 2.2(a), 2.2(b), 3.3(a), 3.3(b) and
3.5, as promptly as practicable and in any event no later than 10 Business Days
after the Closing Date, Buyer shall deliver to the Sellers the original stock
certificates representing shares of Buyer
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Stock and Buyer Options required to be delivered to Sellers pursuant to Sections
2.2(a), 2.2(b), 3.3(a), 3.3(b) and 3.5.
ARTICLE VIII
RELEASES AND WAIVERS
Section 8.1. General Release.
(a) For and in consideration of the amounts payable to each
Seller under the Transaction Documents, effective as of the Closing Date, each
Seller hereby releases, acquits and forever discharges the Company and its
Affiliates, and each of their present and former officers, directors and
employees and each of their respective heirs, executors, administrators,
successors and assigns, of and from any and all manner of action or actions,
cause or causes of action, demands, rights, Damages, debts, dues, sums of money,
accounts, reckonings, costs, expenses, responsibilities, covenants, contracts,
controversies, agreements, Actions and claims whatsoever, whether known or
unknown, of every name and nature, both in law and in equity, which such Seller,
or its heirs, executors, administrators, successors or assigns ever had, now
has, or which it or, its heirs, executors, administrators, successors or assigns
hereafter may have or shall have against the Company or any other Person
referred to above arising out of any matters, causes, acts, conduct, claims,
circumstances or events occurring or failing to occur or conditions existing at
or prior to the Closing, including under (i) any account or Contract between the
Company, on the one hand, and such Seller or any Affiliate of such Seller (in
the case of a Non-Warrantor Seller, only its direct or indirect wholly-owned
subsidiaries or any Person of which such Non-Warrantor Seller is a direct or
indirect wholly-owned subsidiary), on the other hand, (ii) the Subscription
Agreement dated May 13, 1998 between the Company, Gary Steele, Richard Mayo,
Richard Watts and Defta-Pond Co-investment L.P. (the "Subscription Agreement")
and (iii) the Investment Agreement dated July 22, 1999 between the Company, Gary
Steele, 3i Group plc, Vertex Technology Fund II, Ltd., Defta-Pond Co-investment
L.P. and Pond Ventures I L.P. (the "Investment Agreement"), other than
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such Seller's rights under existing employment Contracts and the Employment
Agreements and the Transaction Documents.
(b) Each Seller hereby:
(i) consents to the transfer of the Shares to Buyer
pursuant to Article 13.5 of the Company's Articles of Association; and
(ii) consents to the transfer of shares by Gary Steele
before May 13, 2001 pursuant to Article 13.10 of the Company's Articles
of Association; and
(iii) consents to the sale of a controlling interest in
the Company and waives all rights of tag-along "at the same price per
share" pursuant to Article 15.2 of the Company's Articles of
Association; and
(iv) consents to every other Seller taking all action
required to be taken by that Seller under this Agreement and the entry
into this Agreement by each other Seller, on and subject to the terms of
this Agreement irrespective of any term in the Company's Articles of
Association or the Investment Agreement or the Subscription Agreement;
and
(v) to the extent such Seller is a party to such
agreement, hereby releases the Company and each other Seller party to
such agreement from all obligations under the Investment Agreement and
the Subscription Agreement, including any liability for antecedent
breach.
Section 8.2. Waiver of Preemptive Rights. For and in
consideration of the amounts payable to each Seller under the Transaction
Documents, each Seller hereby waives any and all preemptive rights or any
option, contract or other rights to purchase capital stock of the Company that
such Seller has or is or may be entitled to receive, including those which are
vested in them pursuant to Article 14 of the Company's Articles of Association,
and including those which arose or arise as a result of any event or transaction
(whenever occurring), including the execution,
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delivery or performance of any Transaction Document or consummation of the
Transaction.
ARTICLE IX
[INTENTIONALLY OMITTED]
ARTICLE X
[INTENTIONALLY OMITTED]
ARTICLE XI
SURVIVAL
Section 11.1. Survival. The respective representations and
warranties of each Seller and Buyer contained in this Agreement (other than
Sellers' representations and warranties contained in Section 4.4 (Title to
Stock) of Exhibit B, the Warrantor Sellers' representations and warranties
contained in Sections 5.3 (Capitalization) and 5.6 (Taxes) of Exhibit C and
Buyer's representations and warranties contained in Section 6.7 (Buyer Stock) of
Exhibit D) will survive the execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and the Closing Date and
will continue in full force and effect until the Holdback Release Date and then
terminate and expire with respect to any theretofore unasserted claims arising
out of or otherwise in respect of any falsity, breach or inaccuracy of such
representations and warranties. Warrantor Sellers' representations and
warranties contained in Section 5.6 (Taxes) of Exhibit C, will survive the
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby and the Closing Date until the seventh anniversary of the
Closing and then expire with respect to any theretofore unasserted claims
arising out of or otherwise in respect of any falsity, breach or inaccuracy of
such representations and warranties. Sellers' representations and warranties
contained in Section 4.4 (Title to Stock) of Exhibit B, the Warrantor Sellers'
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representations and warranties contained in Section 5.3 (Capitalization) of
Exhibit C and Buyer's representations and warranties contained in Section 6.7
(Buyer Stock) of Exhibit D will survive the execution and delivery of this
Agreement, the consummation of the transactions contemplated hereby and the
Closing Date without time limitation. Notwithstanding the foregoing, in the
event Buyer sells, transfers or otherwise disposes of the Company or all or
substantially all of the Company's Business to any Person other than any direct
or indirect subsidiary of Buyer, then all representations and warranties of
Sellers shall terminate and expire with respect to any theretofore unasserted
claims arising out of or otherwise in respect of any falsity, breach or
inaccuracy of such representations and warranties.
ARTICLE XII
INDEMNIFICATION
Section 12.1. Individual Warrantor Indemnification. Each
Warrantor Seller shall, severally and not jointly, indemnify, defend and hold
harmless Buyer from and against, and pay or reimburse, as the case may be, Buyer
for, any and all Damages suffered by Buyer or any other member of the Buyer
Group arising out of:
(a) any falsity, breach or inaccuracy of any representation or
warranty made by such Warrantor Seller in Exhibit B to this Agreement on the
date of this Agreement;
(b) any breach or violation by such Warrantor Seller of any
covenant or agreement of such Warrantor Seller contained in Sections 2.1,
7.4(b), 13.1 and 13.2 of this Agreement; or
(c) Any revocation, contest or challenge of, or denial of the
validity, enforceability or binding effect of, Sections 8.1, 8.2, 14.11 and
14.18 by such Warrantor Seller.
Section 12.2. Joint Warrantor Indemnification. The Warrantor
Sellers shall, jointly and severally, indemnify, defend and hold harmless Buyer
from and against, and pay or reimburse, as the case may be, Buyer for, any and
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all Damages suffered by Buyer or any other member of the Buyer Group arising out
of:
(a) any falsity, breach or inaccuracy of any representation or
warranty made by the Warrantor Sellers in Exhibit C to this Agreement on the
date of this Agreement;
(b) any breach or violation of any covenant or agreement of the
Warrantor Sellers contained in this Agreement (other than those set forth in
Section 12.1(b), which are indemnified under such provision); or
(c) Sellers Expenses in excess of the Sellers Expense Amount.
Section 12.3. Buyer Indemnification. Buyer shall indemnify,
defend and hold harmless each Warrantor Seller from and against, and pay or
reimburse, as the case may be, each Warrantor Seller for, any and all Damages
suffered by such Warrantor Seller or any other member of the Seller Group of
such Warrantor Seller arising out of:
(a) any falsity, breach or inaccuracy of any representation or
warranty made by Buyer in this Agreement on the date of this Agreement (other
than in respect of Registration Rights); or
(b) any breach or violation of any covenant or agreement of
Buyer contained in this Agreement (other than in respect of Registration
Rights).
Section 12.4. Indemnification Procedures. The following
procedures shall apply to any claim for indemnification by Buyer or any
Warrantor Seller:
(a) Notice of Claim. A Notice of Claim shall be given as soon as
practicable, but in no event later than thirty days, after the Indemnitee
determines that it is or may be entitled to indemnification pursuant to this
Agreement as follows:
(x) in the case of any claim that is an Individual Indemnity
Claim, by Buyer to each Warrantor Seller against whom
such claim is made, (1) addressed to each such Warrantor
Seller at the address of that Warrantor
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Seller set forth on the signature pages of this
Agreement (or such other address as that Warrantor
Seller may direct in a written notice to Buyer given in
accordance with Section 14.7), and (2) delivered (A)
first, by any recognized overnight courier service that
obtains receipts for deliveries signed on behalf of the
addressee and (B) second, not less than five or more
than fifteen days later, by registered post (if sent to
an address in the United Kingdom) or equivalent means
(if sent to an address outside the United Kingdom). Each
Warrantor Seller against whom an Individual Indemnity
Claim is made shall be the Indemnifying Party for
purposes of the procedures in this Section 12.4 and
Section 12.5 and any Indemnity Amount Payable hereunder
as to each Individual Indemnity Claim against such
Warrantor Seller.
(y) in the case of any claim that is a Joint Indemnity
Claim, by Buyer to the Warrantor Representative and to
each Management Seller, with a copy to the Non-Warrantor
Representative (1) addressed to the Warrantor
Representative and each such Management Seller at the
address of the Warrantor Representative and that
Management Seller set forth on the signature pages of
this Agreement (or such other address as the Warrantor
Representative and that Management Seller may direct in
a written notice to Buyer given in accordance with
Section 14.7), and (2) delivered (A) first, by any
recognized overnight courier service that obtains
receipts for deliveries signed on behalf of the
addressee and (B) second, not less than five or more
than fifteen days later, by registered post (if sent to
an address in the United Kingdom) or equivalent means
(if sent to an address outside the United Kingdom). The
Warrantor Representative shall be the Indemnifying Party
solely for purposes of the procedures
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in this Section 12.4 and Section 12.5 as to each Joint
Indemnity Claim, and no liability in respect of any
Joint Indemnity Claim shall be contested, settled,
admitted, litigated or otherwise dealt with by or on
behalf of the Warrantor Sellers by any person other than
the Warrantor Representative, but any Indemnity Amount
Payable hereunder shall be the joint and several
liability of the Warrantor Sellers as provided in the
other Sections of this Agreement, and not the exclusive
liability of the Warrantor Representative.
(z) in the case of any claim by any Warrantor Seller against
Buyer, by the Warrantor Representative to Buyer at the
address and in the manner provided in Section 14.7. The
Buyer shall be the Indemnifying Party for purposes of
the procedures in this Section 12.4 and Section 12.5 and
any Indemnity Amount Payable hereunder as to each claim
by any Seller.
A Notice of Claim shall be effective on the date of receipt by any person to
whom it is sent and, for purposes of clause (x) and (y), the date of receipt by
the Warrantor Seller or the Warrantor Representative of the Notice of Claim sent
pursuant to clause (2)(A) thereof shall control, unless the Warrantor Seller or
the Warrantor Representative shows that such Notice of Claim was not received,
in which case the date of receipt by the Warrantor Seller or the Warrantor
Representative of the Notice of Claim sent pursuant to clause (2)(B) thereof
shall control.
(b) Dispute Notice. If the Indemnifying Party disputes (x) its
obligation to indemnify the Indemnitee in respect of any claim set forth in a
Notice of Claim, or (y) the Indemnity Claim Amount set forth in a Notice of
Claim, a Dispute Notice shall be given as soon as practicable, but in no event
later than 60 days, after the Notice of Claim becomes effective, as provided in
Section 12.4(a), as follows:
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(1) in the case of any Individual Indemnity Claim, a Dispute
Notice may be given by any Warrantor Seller against whom
such claim is made (solely as to the Individual
Indemnity Claim against such Warrantor Seller), and if
given, shall be sent by the Warrantor Seller to Buyer at
the address and in the manner provided in Section 14.7.
(2) in the case of any Joint Indemnity Claim, a Dispute
Notice may be given only by the Warrantor
Representative, and if given, shall be sent by the
Warrantor Representative to Buyer at the address and in
the manner provided in Section 14.7.
(3) in the case of any claim by any Warrantor Seller against
Buyer, a Dispute Notice may be given by Buyer, and if
given, shall be sent by Buyer to the Warrantor Seller
making such claim against Buyer at the address and in
the manner provided in Section 12.4(a)(x) or (y), as
applicable, for a Notice of Claim to such Warrantor
Seller.
(i) If no Dispute Notice is given within such 60 day
period, the validity of the claim for indemnification and the Indemnity
Claim Amount, each as set forth in the Notice of Claim, shall be deemed
to be agreed, effective on the first day following such 60 day period,
and the Indemnity Claim Amount set forth in the Notice of Claim shall
immediately be an Indemnity Amount Payable of the relevant Indemnifying
Party.
(ii) If a Dispute Notice is given within such 60 day
period, then:
(1) The portion, if any, of the Indemnity Claim Amount
which is not disputed in the Dispute Notice shall immediately be
an Indemnity Amount Payable of the relevant Indemnifying Party.
(2) The Indemnifying Party and the Indemnitee shall
negotiate in good faith to settle the dispute, and the portion,
if any, of the
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Indemnity Claim Amount which the Indemnifying Party and the
Indemnitee agree in writing is payable shall immediately be an
Indemnity Amount Payable of the relevant Indemnifying Party.
(3) If the Indemnifying Party and the Indemnitee are
unable to resolve any portion of the Indemnity Claim Amount
within four months following the date the Dispute Notice is
given, either the Indemnifying Party or the Indemnitee may
initiate legal proceedings in the courts specified in Section
14.11 of this Agreement to obtain judicial resolution of the
dispute.
(4) If neither the Indemnifying Party nor the Indemnitee
initiates legal proceedings in respect of the dispute within six
months following the date the Dispute Notice is given, the
portion of the Indemnity Claim Amount which is disputed shall
not be an Indemnity Amount Payable, and the Indemnitee shall
have no further right, under this Agreement or otherwise, to
seek to recover such amount from the Indemnifying Party or to
withhold such amount from any payment otherwise required
pursuant to Section 2.3.
(5) If the Indemnifying Party or the Indemnitee
initiates legal proceedings within the six month period
specified in Section 12.4(b)(ii)(4), the amount, if any,
determined in a Final Order as payable by the Indemnifying Party
shall be an Indemnity Amount Payable of the relevant
Indemnifying Party as of the date of such Final Order.
(c) Payments of Indemnity Amounts Payable by Buyer. Subject to
the limitations in Section 12.6, Buyer shall pay to each relevant Indemnitee any
Indemnity Amount Payable by Buyer, by wire transfer of immediately available
dollars (or as otherwise directed pursuant to any Final Order or as otherwise
agreed by the Indemnitee and the Indemnifying Party), promptly and in no event
later than ten Business Days after such Indemnity Amount Payable is established
in accordance with this Agreement.
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(d) Payments of Indemnity Amounts Payable by Warrantor Sellers.
Subject to the limitations in Section 12.6, the Warrantor Sellers shall pay to
Buyer any Indemnity Amount Payable by the Warrantor Sellers as follows:
(i) Prior to the Holdback Release Date, each
Indemnifying Party who is a Warrantor Seller shall pay to Buyer any
Indemnity Amount Payable by such Indemnifying Party, by wire transfer of
immediately available dollars (or as otherwise directed pursuant to any
Final Order or as otherwise agreed by the Indemnitee and the
Indemnifying Party), promptly and in no event later than ten Business
Days after such Indemnity Amount Payable is established in accordance
with this Agreement, to the extent, but only to the extent, that, as of
the date any payment is due, the sum of (1) such Indemnity Amount
Payable plus (2) the aggregate amount of all other Indemnity Amounts
Payable of all Warrantor Sellers which have not been paid, in each case,
as of the date any such payment is due, exceeds the Holdback.
(ii) After the Holdback Release Date, each Indemnifying
Party who is a Warrantor Seller shall pay to Buyer any Indemnity Amount
Payable by such Indemnifying Party, by wire transfer of immediately
available dollars (or as otherwise directed pursuant to any Final Order
or as otherwise agreed by the Indemnitee and the Indemnifying Party),
promptly and in no event later than ten Business Days after such
Indemnity Amount Payable is established in accordance with this
Agreement, except that no such payment shall be required to the extent,
but only to the extent that (1) such Indemnity Amount Payable was an
Indemnity Claim Amount that was disputed as of the Holdback Release Date
and (2) such Indemnity Claim Amount has not been paid to the Warrantor
Sellers as a Joint Warrantor Resolved Claim Amount pursuant to Section
2.3(c).
Section 12.5. Procedures for Third Party Claims.
(a) Notice. If a Third Party Claim is made against an
Indemnitee, or an Indemnitee shall otherwise
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learn of an assertion of a Third Party Claim, such Indemnitee will notify the
Indemnifying Party in writing, and in reasonable detail, of the Third Party
Claim as soon as reasonably practicable after becoming aware of such Third Party
Claim and in any event within 30 days after becoming aware of such Third Party
Claim; provided, however, that failure to give any such notification will not
affect the indemnification provided hereunder except to the extent the
Indemnifying Party shall have demonstrated that it has been actually prejudiced
or the amount of the Third Party Claim is increased as a result of such failure.
(b) Defense.
(i) If a Third Party Claim is made against an
Indemnitee, the Indemnifying Party will be entitled to assume the
defense thereof (at the expense of the Indemnifying Party) with counsel
selected by the Indemnifying Party and reasonably satisfactory to the
Indemnitee. Any such assumption must be express and made in a written
notice given by the Indemnifying Party to the Indemnitee.
(ii) Should the Indemnifying Party so elect to assume
the defense of a Third Party Claim, the Indemnifying Party (x) will be
entitled to control (solely and to the exclusion of the Indemnitee,
except as otherwise provided in this Section 12.5) the defense of any
Third Party Claim, at any time, if it unconditionally and irrevocably
acknowledges in writing its obligation to indemnify the Indemnitee for
such Third Party Claim and (y) will not be liable to the Indemnitee for
any legal or other expenses subsequently incurred by the Indemnitee in
connection with the defense thereof as long as the Indemnifying Party
diligently conducts such defense; provided that, if (1) in any
Indemnitee's reasonable judgment a conflict of interest exists in
respect of such Third Party Claim or (2) any Indemnifying Party fails to
provide reasonable assurance to the Indemnitee (upon request of the
Indemnitee) of such Indemnifying Party's financial capacity to defend
such Third Party Claim and provide indemnification with respect thereto,
in either such case, such Indemnitee will have the right to employ
separate counsel to represent such Indemnitee and in
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that event the reasonable fees and expenses of such separate counsel
will be paid by such Indemnifying Party.
(iii) If the Indemnifying Party assumes the defense of
any such Third Party Claim, each Indemnitee will have the right to
participate in the defense thereof and to employ counsel separate from
the counsel employed by the Indemnifying Party, but no Indemnitee may
control the defense of such Third Party Claim, if the Indemnifying Party
has unconditionally and irrevocably acknowledged in writing its
obligation to indemnify the Indemnitee for such Third Party Claim.
(iv) The Indemnifying Party will be liable for the fees
and expenses of counsel employed by the Indemnitee:
(1) for any period in which the Indemnifying Party has
failed to expressly assume the defense of such Third Party
Claim;
(2) for any period in which the Indemnifying Party,
after assuming the defense of a Third Party Claim, fails to
diligently conduct the defense thereof;
(3) for any period in which the Indemnifying Party has
not provided its unconditional and irrevocable written
acknowledgment of its obligation to indemnify for such Third
Party Claim; and
(4) to the extent provided in clause (ii)(y)(1) and
(ii)(y)(2) and (vi) of this Section 12.5(b).
(v) If the Indemnifying Party assumes the defense of any
such Third Party Claim, the Indemnifying Party will promptly supply to
the Indemnitee copies of all correspondence and documents relating to or
in connection with such Third Party Claim and keep the Indemnitee fully
informed of all developments relating to or in connection with such
Third Party Claim (including, without limitation, providing to the
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Indemnitee on request updates and summaries as to the status thereof).
(vi) If the Indemnifying Party chooses to defend a Third
Party Claim, all the Indemnitees will reasonably cooperate with the
Indemnifying Party in the defense thereof (such cooperation to be at the
expense, including reasonable legal fees and expenses, of the
Indemnifying Party).
(c) Settlement. No Indemnifying Party will consent to any
settlement, compromise or discharge (including the consent to entry of any
judgment) of any Third Party Claim without the Indemnitee's prior written
consent; provided, that if the Indemnifying Party unconditionally and
irrevocably acknowledges in writing its obligation to indemnify the Indemnitee
for a Third Party Claim, the Indemnitee will agree to any settlement, compromise
or discharge of such Third Party Claim which the Indemnifying Party may
recommend and which by its terms obligates the Indemnifying Party to pay the
full amount of any Damages in connection with such Third Party Claim and
unconditionally and irrevocably releases the Indemnitee (pursuant to a release
which is reasonably satisfactory to the Indemnitee) completely from all
Liability in connection with such Third Party Claim, provided, however, that the
Indemnitee may refuse to agree to any such settlement, compromise or discharge
(x) that provides for injunctive or other nonmonetary relief affecting the
Indemnitee or (y) that, in the reasonable opinion of the Indemnitee, would
otherwise adversely affect the Indemnitee. If the Indemnifying Party
unconditionally and irrevocably acknowledges in writing its obligation to
indemnify the Indemnitee for a Third Party Claim, the Indemnitee will not
(unless required by law) admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the Indemnifying Party's
prior written consent (which consent will not be unreasonably withheld). If the
Indemnifying Party has not unconditionally and irrevocably acknowledged in
writing its obligation to indemnify the Indemnitee for a Third Party Claim, the
Indemnitee may contest, settle, compromise or discharge such Third Party Claim
on such terms as it considers necessary or appropriate and shall use reasonable
efforts to give the Indemnifying Party prior written notice of the terms of such
settlement,
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but shall have no obligation to obtain the Indemnifying Party's consent thereto.
Section 12.6. Certain Rights and Limitations.
(a) Insurance. No loss, Liability, damage or deficiency shall
constitute Damages to any party to the extent of any insurance proceeds actually
received by such party with respect to such loss, Liability, damage or
deficiency (after deducting reasonable costs and expenses incurred in connection
with recovery of such proceeds).
(b) Small Buyer Claims. No Warrantor Sellers shall be required
to pay to Buyer or any other member of the Buyer Group any amount with respect
to the indemnification of any claims pursuant to this Agreement (either pursuant
to the indemnification provisions in this Agreement, or through other legal
proceedings that may be available under this Agreement, applicable law or
otherwise) until the aggregate amount of Damages actually incurred by the Buyer
Group with respect to such claims exceeds $1,000,000 in the aggregate, in which
event Warrantor Sellers shall be responsible for the full amount of such
Damages.
(c) Maximum Liability of Non-Management Warrantor Sellers. Buyer
and other members of the Buyer Group shall not be entitled to recover from any
Warrantor Seller that is not a Management Seller (either pursuant to the
indemnification provisions in this Agreement, or through other legal proceedings
that may be available under this Agreement, applicable law or otherwise) any
monetary amount in respect of Damages:
(i) except in the case of any Indemnity Amount Payable
arising from any Designated Action, by actual payment of any Indemnity
Amount Payable, and the sole recourse of Buyer for recovery of any such
Indemnity Amount Payable that does not arise out of any Designated
Action shall be to withhold any payment otherwise due to such Warrantor
Seller pursuant to Section 2.3, in accordance with the procedures and at
the times provided in Section 2.3.
(ii) in the case of any Indemnity Amount Payable arising
from Designated Action, for any amount
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in excess of the aggregate amount of consideration actually paid to such
Warrantor Seller hereunder (including Sections 2.2, 2.4 and 2.5).
(iii) by set off against amounts payable pursuant to
Section 2.4 or Section 2.5.
(d) Maximum Liability of Management Warrantor Sellers. Buyer and
other members of the Buyer Group shall not be entitled to recover from any
Warrantor Seller that is a Management Seller (either pursuant to the
indemnification provisions in this Agreement, or through other legal proceedings
that may be available under this Agreement, applicable law or otherwise) any
monetary amount in respect of Damages:
(i) except in the case of any Indemnity Amount Payable
arising from any Designated Action, for any amount in excess of 50% of
the aggregate amount of consideration actually paid to such Warrantor
Seller hereunder (including Sections 2.2, 2.4 and 2.5).
(ii) in the case of any Indemnity Amount Payable arising
from any Designated Action, for any amount in excess of the aggregate
amount of consideration actually paid to such Warrantor Seller hereunder
(including Sections 2.2, 2.4 and 2.5).
(iii) by set off against amounts payable pursuant to
Section 2.4 or Section 2.5.
(e) Reduction of Taxation. In calculating the liability of the
Warrantor Sellers for any Claim there shall be taken into account the amount by
which any taxation for which the Company, Buyer or its Affiliates is now or in
the future accountable or liable to be assessed is reduced or extinguished as a
result of the matter giving rise to such liability, as determined by Buyer in
its reasonable discretion.
(f) Consequential Damages. Neither any Warrantor Seller nor
Buyer shall have any obligation to indemnify any Indemnitee pursuant to this
Agreement against such Indemnitee's own consequential damages or prospective
lost profits arising out of a breach by any member of the Seller
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Group or by Buyer of its representations and warranties in this Agreement.
Nothing in this Section 12.6(f) shall prevent any Indemnitee from being
indemnified for all components of Third Party Claims against such Indemnitee,
including consequential damages or prospective lost profits of such third
parties.
(g) Time Limits. A Notice of Claim for indemnification under
this Agreement may not be given in respect of a claim under Sections 12.1(a),
12.2(a) or 12.3(a) after the date which is the last day of the survival period
specified in Section 11.1 for the representation or warranty the falsity, breach
or inaccuracy of which is or would be the basis for such claim.
(h) Knowledge. A Notice of Claim for indemnification under this
Agreement may not be given in respect of a claim under Sections 12.1(a), 12.2(a)
or 12.3(a) if:
(i) the matter is accurately disclosed in the
appropriate Sections, Schedules and Exhibits of this Agreement; or
(ii) the matter is disclosed in the Statutory Accounts,
or Management Accounts (or any notes thereto) referred to in Section
5.12 of Exhibit C of this Agreement, but only to the extent of any
accrual, liability, provision, reserve or allowance set forth in the
Statutory Accounts, Management Accounts (or any notes thereto); or
(iii) the matter is disclosed in any filing made by
Buyer with the SEC prior to the Closing; or
(iv) the matter is disclosed in or evident from the
documentation listed in Schedule 5.23.
(i) Certain Changes Affecting Warrantor Seller Liabilities. The
Warrantor Sellers shall have no liability under this Agreement for the falsity,
breach or inaccuracy of any representation or warranty herein to the extent, but
only to the extent, that the falsity, breach or inaccuracy of such
representation or warranty results from:
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(i) any act or omission or arrangement before the
Closing carried out at the request of or with the prior written consent
of Buyer; or
(ii) any act or omission on or after the Closing by
Buyer or any of its Subsidiaries (including the Company) or Buyer's
successors in title to the Shares or any of their respective directors,
employees or agents other than in the ordinary course of business; or
(iii) any change after the Closing in the accounting
policies or practices used in preparing the Company's Statutory Accounts
or in the accounting reference date or fiscal year of the Company; or
(iv) any reorganization or change after the Closing in
the ownership of the Company; or
(v) an act, event, occurrence or omission after the
Closing compelled by Law, or from the enactment or amendment after the
Closing of any Law, or a change after the Closing in the interpretation
of any existing or new statute or regulation or in the practice of any
Governmental Entity whether or not having retrospective effect.
(j) Exclusion of Liability; Taxation Only.
(i) The Warrantor Sellers shall not be liable in respect
of a Tax Claim to the extent that such Tax Claim would not have occurred
or arisen but for or is increased by:
(A) any change in the basis of, or method of calculation
of, or any increase in the rate or rates of, Taxes which comes
into effect after the Closing with retrospective effect and
announced after the date of the Agreement; or
(B) the introduction of or any change in any law or in
any practice of or concessions made by a Governmental Entity
having retroactive effect and announced after the Closing.
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(ii) The Warrantor Sellers shall not be liable for any
Tax Claim to the extent that:
(A) it arises wholly or partly out of or is increased by
virtue of a disclaimer by the Company or any Affiliate thereof
after the Closing of any capital allowances available to it; or
(B) it arises or is increased by virtue of a disclaimer
by the Company or any Affiliate thereof after the Closing of
capital or other allowances available to and claimed by the
Company in respect of any period ended on or before the Closing;
or
(C) such Tax Claim arises or is increased by virtue of
the failure or omission by the Company or any Affiliate thereof
to make any claim, election, surrender or disclaimer or give any
notice or consent to any other matter after the Closing, the
making, giving or doing of which was taken into account or
assumed in computing the provision for Tax or deferred Tax in
the Statutory Accounts or Management Accounts and which has been
disclosed to Buyer prior to the Closing; or
(D) such Tax Claim arises or is increased by virtue of
any claim, disclaimer or election made or notice of consent
given by the Company or any Affiliate thereof after the Closing.
(iii) The Warrantor Sellers shall not be liable for any
Tax Claim if and to the extent that any pre-Closing relief is available
to relieve, discharge or otherwise mitigate the liability of the Company
or any Affiliate thereof for Tax which is the subject matter of such Tax
Claim.
(iv) In this Section 12.6(j), the term "Tax Warranties"
means the warranties in Section 5.6 of Exhibit C and "Tax Claims" means
a claim for indemnification under Section 12.2(a) for the falsity,
breach or inaccuracy of the Tax Warranties.
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(k) General.
(i) Any payment made in respect of any Indemnity Amount
Payable by the Warrantor Sellers pursuant to Sections 12.1(a) or 12.2(a)
or 12.2(c) shall be deemed (as between Buyer and the Warrantor Sellers)
to be a reduction in the consideration payable by Buyer to the Warrantor
Sellers for the Shares under this Agreement.
(ii) No Indemnitee shall be entitled to receive more
than one full recovery of any Indemnity Claim Amount. If any Indemnitee
receives from any person other than an Indemnifying Party any payment in
respect of Damages for which such Indemnitee has received actual payment
of an Indemnity Amount Payable from an Indemnifying Party under this
Agreement, and as a result thereof, the Indemnitee shall have received
more than the actual amount of its Damages, the Indemnitee shall repay
to the Indemnifying Party an amount equal to the excess of (x) the sum
of (1) the Indemnity Amount Payable in respect of any Indemnity Claim
Amount plus (2) the amounts paid to such Indemnitee by persons other
than the Indemnifying Party in respect of the same Indemnity Claim
Amount (after deducting any cost, liability, tax or other expense
incurred in obtaining any such payments), over (y) the actual amount of
the Damages of such Indemnitee.
(iii) Each Indemnitee shall use commercially reasonable
efforts to mitigate any damages in respect of which the Indemnitee files
a Notice of Claim under this Agreement.
(l) Richard Watts. In addition to the other limitations in this
Section 12.6, Section 2.8(d) shall apply to any Indemnity Amounts Payable by
Richard Watts.
(m) Non-Warrantor Sellers.
(i) Buyer and other members of the Buyer Group shall not
be entitled to recover from any Non-Warrantor Seller (through legal
proceedings that may be available under this Agreement, applicable law
or otherwise) any monetary amount in respect of Damages
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for any amount in excess of the aggregate amount of consideration
actually paid to such Non-Warrantor Seller hereunder (including Sections
2.2 and 3.5).
(ii) Any payment to Buyer made in respect of any Damages
by the Non-Warrantor Sellers shall be deemed (as between Buyer and the
Non-Warrantor Sellers) to be a reduction in the consideration payable by
Buyer to the Non-Warrantor Sellers for their Shares under this
Agreement.
ARTICLE XIII
RESTRICTIVE COVENANT
Section 13.1. Non-compete.
(a) Each Warrantor Seller covenants and agrees that, for a
period of two years after the Closing Date, none of such Warrantor Seller, any
Affiliate of such Warrantor Seller or any Person now or hereafter controlled by
such Warrantor Seller will, directly or indirectly, in any area of the world,
enter into, engage in, represent, have or acquire more than a 5% interest in any
business engaged in any from or manner, directly or indirectly, in competition
with the Company or any of its Affiliates, including in researching,
development, design, manufacture (including by means of procurement from third
parties components for), integration, maintenance, testing, sale, installation,
certification, modification, repair, servicing or support of any products of the
type being sold or in development by the Company at any time on or prior to the
Closing Date or any derivatives of or improvements to such products.
(b) Notwithstanding the foregoing, the provisions of Section
13.1(a) shall terminate and no longer be in effect in the event that (i) Buyer
has breached its obligations to register the resale of Buyer Stock under the
Securities Act pursuant to the Registration Rights set forth in Schedule 7.4(a)
and has not paid to the Warrantor Sellers the Liquidated Summary Payment Amounts
due and payable thereunder or (ii) Buyer has breached its obligation to pay,
when due, any of the payments to which the Warrantor Sellers
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are entitled pursuant to Sections 2.3, 2.4 and 2.5, except where Buyer is in
good faith disputing such payment.
Section 13.2. Non-solicitation of Employees. For a period of two
years from and after the Closing Date, without the prior written consent of
Buyer, no Seller will, and each Seller will cause its Affiliates (in the case of
a Non-Warrantor Seller, only its direct or indirect wholly-owned subsidiaries
and any Person of which such Non-Warrantor Seller is a direct or indirect
wholly-owned subsidiary) not to, solicit, hire or retain as an employee,
independent contractor or consultant any individual employed by the Company on
the date hereof, other than advertisements or other general solicitations not
directly targeted at such individuals, and will not, and will cause its
Affiliates (in the case of a Non-Warrantor Seller, only its direct or indirect
wholly-owned subsidiaries and any Person of which such Non-Warrantor Seller is a
direct or indirect wholly-owned subsidiary), not to, during such period, induce
or attempt to induce any such employee to terminate his or her employment with
the Company or Buyer by resignation, retirement or otherwise.
Section 13.3. Remedies. No waiver of any breach of the covenant
contained in Section 13.1 or 13.2 shall be implied from any forbearance or
failure of Buyer to take action thereon.
Section 13.4. Severability. Sellers and Buyer agree that, if any
provision of this Article XIII should be adjudicated to be invalid or
unenforceable, such provision shall be deemed deleted herefrom with respect, and
only with respect, to the operation of such provision in the particular
jurisdiction in which such adjudication was made; provided, however, that to the
extent any such provision may be valid and enforceable in such jurisdiction by
limitations on the scope of the activities, geographical area or time period
covered, Sellers and Buyer agree that such provision instead shall be deemed
limited to the extent, and only to the extent, necessary to make such provision
enforceable to the fullest extent permissible under the laws and public policies
in such jurisdiction.
Section 13.5. Non-exclusivity. The covenants contained in this
Article XIII shall be construed and
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<PAGE> 71
enforced independently of any other provision of this Agreement or any other
understanding or agreement between the parties, and the existence of any claim
or cause of action of any Seller against Buyer, of whatever nature, shall not
constitute a defense to the enforcement against such Seller of the covenants
contained herein, except as expressly provided in Section 13.1(b).
ARTICLE XIV
GENERAL PROVISIONS
Section 14.1. Assignment. Except as provided in Schedule 7.4(a)
with respect to the Registration, no party to this Agreement will convey, assign
or otherwise transfer any of its rights or obligations under any Transaction
Document without the prior written consent of Warrantor Representative (in the
case of an assignment by Buyer) or of Buyer (in the case of an assignment by any
Seller), except that Buyer may (without obtaining any consent) assign its
rights, interests or obligations under any Transaction Documents, in whole or in
part, to any direct or indirect subsidiary of Buyer or to any successor to all
or any portion of its business (other than the Business); except that Buyer may
not assign (x) its rights to make claims for indemnification under Article XII
to any person that may acquire the Company or all or substantially all of the
Business or (y) its registration obligations under Schedule 7.4(a). Any
conveyance, assignment or transfer requiring the prior written consent of
Warrantor Representative or Buyer which is made without such consent will be
void ab initio. No assignment of this Agreement will relieve the assigning party
of its obligations hereunder.
Section 14.2. Parties in Interest. This Agreement is binding
upon and is for the benefit of the parties hereto and their respective
successors and permitted assigns, except with respect to Schedule 7.4(a), which
is subject to Section 11 thereof. This Agreement is not made for the benefit of
any Person not a party hereto, and no Person other than the parties hereto or
their respective successors and permitted assigns will acquire or have any
benefit, right, remedy or claim under or by reason of this Agreement, except
that members of the Buyer Group and the
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<PAGE> 72
Seller Group will be entitled to the rights to indemnification provided to the
Buyer Group and the Seller Group, respectively, hereunder.
Section 14.3. Amendment. This Agreement may not be amended,
modified or supplemented except by a written agreement executed by Buyer and the
Warrantor Representative, except with respect to Schedule 7.4(a), which is
subject to Section 12 thereof; provided, however, that to the extent such
amendment, modification or supplement shall affect the Non-Warrantor Sellers
such written agreement shall also be executed by the Non-Warrantor Sellers.
Section 14.4. Waiver; Remedies. No failure or delay on the part
of Buyer, any Seller or Warrantor Representative in exercising any right, power
or privilege under any Transaction Document will operate as a waiver thereof,
nor will any waiver on the part of Buyer, any Seller or Warrantor Representative
of any right, power or privilege under any Transaction Document operate as a
waiver of any other right, power or privilege under any Transaction Document,
nor will any single or partial exercise of any right, power or privilege
thereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege under any Transaction Document. The rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies which the parties may otherwise have at law or in equity; provided,
however, that the monetary limitations on indemnifiable Damages, the time limits
for seeking reimbursement for Damages, and the limitations on set-off rights set
forth in Sections 12.4, 12.5 and all of 12.6 shall apply to any Damages any
party may recover pursuant to such other rights and remedies, when aggregated
with any right to indemnification such party may have pursuant to Article XII,
except that such limitations shall not apply to claims of fraud.
Section 14.5. [Intentionally Omitted]
Section 14.6. Fees and Expenses. Each of the Sellers, on the one
hand, and Buyer, on the other hand, will pay, without right of reimbursement
from the other, all of their respective costs and expenses incident to the
performance of their respective obligations hereunder,
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<PAGE> 73
including the fees and disbursements of counsel, accountants, experts and
consultants employed by the respective parties in connection with the
Transaction, whether or not the Transaction is consummated; provided that Buyer
shall pay or cause to be paid the Sellers' Expense Amount at the Closing.
Section 14.7. Notices. All notices, requests, claims, demands
and other communications required or permitted to be given under any Transaction
Document shall be in writing and will be delivered by hand or telecopied or
sent, postage prepaid, by registered, certified or express mail or reputable
overnight courier service and will be deemed given when so delivered by hand or
telecopied, or three business days after being so mailed (one business day in
the case of express mail or overnight courier service). A copy of any such
notices, requests, claims, demands and other communications to the Warrantor
Representative (other than with respect to indemnification matters subject to
Article XII) shall also be sent to the Non-Warrantor Representative. Except as
otherwise expressly provided in other Sections of this Agreement, all such
notices, requests, claims, demands and other communications will be addressed as
set forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice in accordance with this Section
14.7:
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<PAGE> 74
(a) If to Buyer:
Conexant Systems, Inc.
4311 Jamboree Road
Newport Beach, California 92660-3095
Attention: Dennis E. O'Reilly, Esq.
Senior Vice President,
General Counsel and
Secretary
Telecopy: (949) 483-3206
with a copy to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Peter R. Kolyer, Esq.
Telecopy: (212) 541-5369
(b) If to the Warrantor Representative:
Mr. Gary Steele
23 Central Drive
Elmer Beach Estate
Middleton-on-Sea
West Sussex PO22 7TT
England
Telecopy: 011-44-117-930-2401
with a copy to:
Olswang, Solicitors
90 Long Acre
London WC2E 9TT
England, United Kingdom
Attention: Heather Wilby, Esq.
Telecopy: 011-44-171-208-8800
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<PAGE> 75
(c) If to the Non-Warrantor Representative:
Mr. Richard Irving
c/o Pond Ventures Nominees Ltd.
2055 Gateway Place
Suite 400
San Jose, California 95110
Telecopy: 408-776-3138
with a copy to:
Osborne Clarke, Solicitors
Apex Plaza
Forbury Road
Reading RG1 1AX
England, United Kingdom
Attention: Greg Leyshon, Esq.
Telecopy: 011-44-118-925-2015
(d) If to any Seller, at the address set forth below such
Seller's name on the signature page hereof.
Section 14.8. Captions; Currency. The article and section
captions herein and the table of contents hereto are for convenience of
reference only, do not constitute part of this Agreement and will not be deemed
to limit or otherwise affect any of the provisions hereof. Unless otherwise
specified, all references herein to numbered articles and sections are to
articles and sections of this Agreement and all references herein to exhibits or
schedules are to exhibits or schedules to this Agreement. Unless otherwise
specified, all references contained in any Transaction Document, in any exhibit
or schedule referred to therein or in any instrument or document delivered
pursuant thereto to dollars or "$" shall mean United States Dollars.
Section 14.9. Entire Agreement. This Agreement, the other
Transaction Documents and the Confidentiality Agreement collectively constitute
the entire agreement between the parties with respect to the subject matter
hereof and this Agreement, the other Transaction Documents and the
Confidentiality Agreement supersede all prior
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<PAGE> 76
negotiations, agreements and understandings of the parties of any nature,
whether oral or written, relating thereto.
Section 14.10. Severability. Except with respect to Article XIII
as to which Section 13.4 shall apply, if any provision of any Transaction
Document or the application thereof to any Person or circumstance is determined
by a court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions thereof, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or
unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby.
Section 14.11. Consent to Jurisdiction; Waiver of Jury Trial.
(a) Each of the Sellers, the Warrantor Representative, the
Non-Warrantor Representative, the Company and Buyer hereby irrevocably and
unconditionally submits to the exclusive jurisdiction of (i) the Court of
Chancery in and for the State of Delaware and the Superior Court in and for the
State of Delaware and (ii) the United States District Court for the District of
Delaware for the purposes of any Action arising out of any Transaction Document
or the Transaction (and agrees not to commence any Action relating thereto
except in such courts). Each Seller hereby designates and appoints CT
Corporation Systems, a Delaware corporation, or any successor corporation (the
"Authorized Agent"), as such person's authorized agent upon whom process may be
served in any such Action at the office of such agent at 1209 Orange Street,
Wilmington, Delaware 19801 (or such other address in the State of Delaware as
the Authorized Agent may designate by written notice received by Buyer). Each
Seller represents and warrants that the Authorized Agent has agreed to act as
such agent for services of process and agrees to take any and all action,
including the filing of any and all documents and instruments that may be
necessary to continue such appointment in full force and effect as aforesaid.
Each Seller agrees that service of any process, summons, notice or document upon
the Authorized Agent, and written notice of said service to such Seller at the
address for notices specified in Section 14.7 hereof, mailed by first class mail
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<PAGE> 77
shall be effective service of process upon such Seller for any Action brought
against it in such court with respect to any matters to which it has submitted
to jurisdiction. Buyer further agrees that service of any process, summons,
notice or document hand delivered or sent by U.S. registered mail to its address
set forth in Section 14.7 will be effective service of process upon Buyer for
any Action brought against it in any such court with respect to any matters to
which it has submitted to jurisdiction as set forth above. Each of the Sellers,
the Warrantor Representative, the Non-Warrantor Representative and Buyer
irrevocably and unconditionally waives any objection to the laying of venue of
any Action arising out of any Transaction Document or the Transaction in (i) the
Court of Chancery in and for the State of Delaware and the Superior Court in and
for the State of Delaware or (ii) the United States District Court for the
District of Delaware, and hereby further irrevocably and unconditionally waives
and agrees not to plead or claim in any such court that any such Action brought
in any such court has been brought in an inconvenient forum.
(b) EACH OF THE SELLERS, THE WARRANTOR REPRESENTATIVE, THE
NON-WARRANTOR REPRESENTATIVE AND BUYER IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT
OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE TRANSACTION DOCUMENTS,
THE TRANSACTION OR THE ACTIONS OF THE SELLERS, THE WARRANTOR REPRESENTATIVE, THE
NON-WARRANTOR REPRESENTATIVE OR BUYER IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE OR ENFORCEMENT THEREOF.
Section 14.12. Schedules and Exhibits; Disclosure. All schedules
and exhibits attached hereto are hereby incorporated in and made a part of this
Agreement as if set forth in full herein. Capitalized terms used in any other
Transaction Document or in the schedules or exhibits hereto or thereto but not
otherwise defined therein will have the respective meanings assigned to such
terms in this Agreement. Disclosure of any item in any section of or on any
schedule to this Agreement will not constitute disclosure of such item in any
other section of or on any other schedule to this Agreement, whether or not the
existence of the item or its contents should be or is relevant to any other
section of or schedule to this
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Agreement, unless an explicit cross-reference thereto appears in such other
section or schedule.
Section 14.13. Governing Law. This Agreement will be governed by
and construed in accordance with the internal laws of the State of Delaware
applicable to contracts made and to be performed entirely within such State,
without regard to the conflicts of law principles of such State, except that the
provisions of Section 3.2 as they relate to the procedures for the transfer of
the Shares only and the non-competition provisions of Article XIII will be
governed by and construed in accordance with the internal laws of England and
Wales.
Section 14.14. Counterparts. This Agreement may be executed in
separate counterparts, each such counterpart being deemed to be an original
instrument, and all such counterparts will together constitute the same
agreement.
Section 14.15. Specific Performance. In the event of any actual
or threatened default in, or breach of, any of the terms, conditions and
provisions of any Transaction Document, the party or parties who are or are to
be thereby aggrieved will have the right of specific performance and injunctive
relief giving effect to its or their rights under such Transaction Document, in
addition to any and all other rights and remedies at law or in equity, and all
such rights and remedies will be cumulative. The parties agree that any such
breach or threatened breach would cause irreparable injury, that the remedies at
law for any such breach or threatened breach, including monetary damages, are
inadequate compensation for any loss and that any defense in any action for
specific performance that a remedy at law would be adequate is waived.
Section 14.16. Construction; Interpretation.
(a) The parties have participated jointly in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any Federal, state, local, or foreign Law shall
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be deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. For the purposes of this Agreement, (i)
words in the singular shall be held to include the plural and vice versa and
words of one gender shall be held to include the other gender as the context
requires, (ii) the terms "hereof", "herein", and "herewith" and words of similar
import shall, unless otherwise stated, be construed to refer to this Agreement
as a whole and not to any particular provision of this Agreement, (iii) the word
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation" and (iv) the word "or" shall not be exclusive.
(b) For purposes of this Agreement, "knowledge" or "aware of" or
a similar phrase with respect to the Warrantor Sellers shall mean the knowledge
of Gary Steele, Richard Mayo, Richard Watts, Nick Weiner, Alistair Blaxill,
Stephen King, Brian Williams and Mark Richardson (i) if any such Person is
actually aware of such fact or other matter or (ii) if any such Person could be
expected to discover or otherwise become aware of such fact or other matter
after due inquiry concerning the existence of such fact or other matter
(including review of applicable files relating to such fact or other matter).
Section 14.17. Performance by Certain Affiliates. Each Seller
will cause to be performed and hereby guarantees that the performance of all
actions, agreements, and obligations set forth herein to be performed by any
Affiliate of such Seller (in the case of a Non-Warrantor Seller, only its direct
or indirect wholly-owned subsidiaries and any Person of which such Non-Warrantor
Seller is a direct or indirect wholly-owned subsidiary), except that no Seller
will be deemed to be an Affiliate of Gary Steele by virtue of him being a
director of the Company.
Section 14.18. Warrantor Representative.
(a) Each of the Warrantor Sellers hereby irrevocably makes,
constitutes, and appoints Gary Steele its representative, agent and true and
lawful attorney in fact of and for each of the Warrantor Sellers in connection
with the Transaction Documents and the Transaction ("Warrantor
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<PAGE> 80
Representative"). Each of the Warrantor Sellers hereby authorizes and empowers
Warrantor Representative to make or give any approval, waiver, request, consent,
instruction or other communication on behalf of each of the Warrantor Sellers as
each such Warrantor Seller could do for himself, herself or itself, including
with respect to the amendment of any provision of any Transaction Document (or
any schedule thereto). Each of the Warrantor Sellers authorizes and empowers
Warrantor Representative to receive all demands, notices or other communications
directed to such Seller under any Transaction Document. Each of the Warrantor
Sellers authorizes and empowers Warrantor Representative to (A) take any action
(or to determine to refrain from taking any action) with respect thereto as the
Warrantor Representative may deem appropriate as effectively as if such
Warrantor Seller could act for himself, herself or itself (including, without
limitation, the settlement or compromise of any dispute or controversy), which
action will be binding on all the Warrantor Sellers and (B) execute and deliver
all instruments and documents of every kind incident to the foregoing with the
same effect as if such Warrantor Seller had executed and delivered such
instruments and documents personally. Accordingly, any demands, notices or other
communications directed to any Warrantor Seller hereunder shall be deemed
effective if given to Warrantor Representative. Each of the Warrantor Sellers
agrees to be bound by all actions and failures to act of the Warrantor
Representative in accordance with the provisions of any Transaction Document,
including in connection with any settlement or compromise entered into by the
Warrantor Representative on behalf of one or more of the Warrantor Sellers.
(b) (i) Upon the death, resignation or incapacity of the
Warrantor Representative, or at any other time or from time to time, a successor
may be appointed by Warrantor Sellers holding (or who held prior to the Closing)
Shares and Company Options (determined as if the Shares and Company Options
constitute one class of shares) representing 90% of the Fully Diluted Warrantor
Share Number, but such appointment will not be effective until such successor
shall agree in writing to accept such appointment and notice of the selection of
such successor Warrantor Representative is provided to Buyer; and (ii) if a
successor Warrantor Representative is not appointed pursuant to (i) above within
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60 days of such event, the Warrantor Representative shall be the individual
Warrantor Seller who had the next largest holding of Shares and Company Options
(determined as if the Shares and Company Options constitute one class of Shares)
before the Closing, who agrees in writing to accept such appointment.
(c) Each of the Warrantor Sellers and the Warrantor
Representative agree as follows:
(i) No provisions of this Agreement shall require the
Warrantor Representative to expend or risk his own funds or incur any
liability.
(ii) The Warrantor Representative may act through its
attorneys and agents and shall not be responsible for the misconduct or
negligence of any agent appointed with due care.
(iii) The Warrantor Representative shall not be liable
for any action he takes or omits to take in good faith that he believes
to be authorized or within the rights or powers conferred upon him by
this Agreement.
(iv) The Warrantor Sellers shall reimburse the Warrantor
Representative promptly upon request for (and the Warrantor
Representative shall be entitled to withhold from monies or other
property received on behalf of the Warrantor Sellers) all reasonable
disbursements, advances and expenses incurred or made by him in acting
as Warrantor Representative. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Warrantor
Representative's agents and counsel.
(v) The Warrantor Sellers shall indemnify the Warrantor
Representative against any and all losses, liabilities or expenses
incurred by it arising out of or in connection with acting as Warrantor
Representative under this Agreement and the other Transaction Documents,
including the costs and expenses of enforcing this Agreement and
defending the Warrantor Sellers against any claim whether asserted by
the Buyer or any other person or liability in connection with the
exercise or performance of any of its powers hereunder,
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except to the extent any such loss, liability or expense may be
attributable to its gross negligence, bad faith or willful misconduct.
Section 14.19. Non-Warrantor Representative.
(a) Each of the Non-Warrantor Sellers hereby irrevocably makes,
constitutes, and appoints Richard Irving its representative, of and for each of
the Non-Warrantor Sellers in connection with the Transaction Documents and the
Transaction ("Non-Warrantor Representative").
(b) Upon the death, resignation or incapacity of the
Non-Warrantor Representative, or at any other time or from time to time, a
successor may be appointed by Non-Warrantor Sellers.
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IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the parties hereto as of the date first above written.
CONEXANT SYSTEMS, INC.
By:/s/ Dwight W. Decker
----------------------------------
Name: Dwight W. Decker
Title: Chief Executive Officer
SELLERS:
/s/ Gary Steele
-------------------------------------
Gary Steele
23 Central Drive
Elmer Beach Estate
Middleton-on-Sea
West Sussex PO22 7TT
England
(2,170,000 Ordinary Shares)
/s/ Gary Steele*
-------------------------------------
Donna Brailey
14 Blackmore Drive
Southdown, Bath BA2 1JN
England
(1,900 Ordinary Shares)
/s/ Gary Steele*
-------------------------------------
Jenny Brayne
15 Pinewood Close
Westbury-on-Trym, Bristol BS9 4AJ
England
(237 Ordinary Shares)
<PAGE> 84
/s/ Gary Steele*
-------------------------------------
Christopher Bryson
3 Heol Syr Lewis
Morgans Town, Cardiff CF4 8LE
Wales
(356 Ordinary Shares)
* As Attorney-in-Fact.
/s/ Gary Steele*
-------------------------------------
Peter Davies
2 Shipley Road
Westbury-on-Trym, Bristol BS9 3HS
England
(9,000 Ordinary Shares)
/s/ Gary Steele*
-------------------------------------
Dan Draper
35 SW 101st Avenue,
Portland, Oregon 97225
USA
(12,000 Ordinary Shares)
/s/ Gary Steele*
-------------------------------------
Jerome Garez
33 St. Johns Road
Clifton, Bristol BS8 2HD
England
(1,733 Ordinary Shares)
/s/ Gary Steele*
-------------------------------------
Christian Hess
Noldestrasse. 1
66787 Wadgassen
Germany
(356 Ordinary Shares)
<PAGE> 85
/s/ Gary Steele*
-------------------------------------
Charles Irving
Greyhound House
23-24 George Street
Richmond, Surrey TW9 1HY
England
(51,000 Ordinary Shares)
/s/ Gary Steele*
-------------------------------------
Graham Jones
178 High Street
Wootton Bassett, Wiltshire SN4 7BZ
England
(2,137 Ordinary Shares)
* As Attorney-in-Fact.
/s/ Gary Steele*
-------------------------------------
Amanda Karn
134 Hallen Road
Henbury, Bristol BS10 7RB
England
(356 Ordinary Shares)
/s/ Gary Steele*
-------------------------------------
Richard Mayo
5 North Rocks Road
Paignton, Devon TQ4 6LF
England
(270,000 Ordinary Shares)
/s/ Gary Steele*
-------------------------------------
Andrew John Millard
Garden Flat
48 Hampton Road
Redland, Bristol BS6 6HZ
England
(300 Ordinary Shares)
<PAGE> 86
/s/ Gary Steele*
-------------------------------------
John Michael Millard
Garden Flat
48 Hampton Road
Redland, Bristol BS6 6HZ
England
(300 Ordinary Shares)
/s/ Gary Steele*
-------------------------------------
Stuart Millard
Garden Flat
48 Hampton Road
Redland, Bristol BS6 6HZ
England
(231 Ordinary Shares)
/s/ Gary Steele*
-------------------------------------
Ya Nong Ning
22 Hampden Close
Yate BS37 5UW
England
(712 Ordinary Shares)
* As Attorney-in-Fact.
/s/ Mark Richardson
-------------------------------------
Mark Richardson
61 Bloomfield Avenue
Bath BA2 3AA
England
(2,375 Ordinary Shares)
/s/ Richard Watts
-------------------------------------
Richard Watts
108 York Road
Montpelier, Bristol BS6 5QQ
England
(135,000 Ordinary Shares)
<PAGE> 87
/s/ Mark Richardson*
-------------------------------------
Colin Whitfield
13 Cleave Street
St. Werburghs, Bristol BS2 9UD
England
(1,187 Ordinary Shares)
/s/ Mark Richardson*
-------------------------------------
Mark Wills
3 Princes Court,
Longwell Green, Bristol BS30 7GB
England
(356 Ordinary Shares)
/s/ Mark Richardson*
-------------------------------------
Shen Chia Wong
5 Fl., No. 22-1
Alley 30, Lane 40, Sec. 7
Chung-Sam North Road
Taipei, Taiwan
(375,000 Ordinary Shares)
* As Attorney-in-Fact.
3i GROUP, PLC
91 Waterloo Road
London SE1 8XP
England
(22,727 Ordinary Shares)
(352,773 Preference Shares)
By:/s/ Paul Murray
----------------------------------
Name: Paul Murray
Title: Investment Director
<PAGE> 88
VERTEX TECHNOLOGY FUND II, LTD.
77 Science Park Drive
#02-15 Cintech III
Singapore Science Park
Singapore 0511
(22,727 Ordinary Shares)
(352,773 Preference Shares)
By:/s/ Greg Leyshon**
----------------------------------
Name: Greg Leyshon
Title: Solicitor (Osbourne
Clarke)
** As Attorney-in-Fact for Vertex Technology Fund II Ltd.
DEFTA-POND CO-INVESTMENT L.P.
23-24 George Street
Richmond, Surrey TW9 1HY
England
(521 Ordinary Shares)
(8,085 Preference Shares)
(228,283 Class A Shares)
By: Pond Venture Partners Limited
By:/s/ Gary Steele*
----------------------------------
Name: Gary Steele
Title: Director
* As Attorney-in-Fact.
<PAGE> 89
POND VENTURES I L.P.
2055 Gateway Place
Suite 400
San Jose, California 95110
USA
(4,025 Ordinary Shares)
(62,469 Preference Shares)
(767,717 Class A Shares)
By: Pond Venture Partners limited
By:/s/ Gary Steele*
------------------------------
Name: Gary Steele
Title: Director
* As Attorney-in-Fact.
<PAGE> 90
OPTION HOLDERS:
/s/ Gary Steele*
-------------------------------------
Rahim Akbari
28 Clifton Park Road
Clifton, Bristol BS8 3HL
England
(4,000 Options)
/s/ Gary Steele*
-------------------------------------
Tony Albon
410 Fishponds Road
Upper Eastville, Bristol BS5 6RQ
England
(3,000 Options)
/s/ Gary Steele*
-------------------------------------
Michelle Allen
40 Osprey Park
Thornbury, Bristol BS35 1LY
England
(1,000 Options)
/s/ Gary Steele*
-------------------------------------
Chettan Babla
Basement Flat
13 Southleigh Road
Clifton, Bristol BS8 2BQ
England
(6,000 Options)
<PAGE> 91
/s/ Gary Steele*
-------------------------------------
Andrew Benford
37 Russley Close
Peatmoor, Swindon
Wiltshire SN5 5AG
England
(10,000 Options)
* As Attorney-in-Fact.
/s/ Gary Steele*
-------------------------------------
Nigel Bird
55 Norman Road
Saltford, Bristol BS31 3BH
England
(2,000 Options)
/s/ Gary Steele*
-------------------------------------
Alistair Blaxill
Little Orchard
Ash Green Road
Ash Green, Surrey GU12 6JQ
England
(22,500 Options)
/s/ Gary Steele*
-------------------------------------
Donna Brailey
14 Blackmore Drive
Southdown, Bath BA2 1JN
England
(1,190 Options)
/s/ Gary Steele*
-------------------------------------
Jenny Brayne
15 Pinewood Close
Westbury-on-Trym, Bristol BS9 4AJ
England
(1,024 Options)
<PAGE> 92
/s/ Gary Steele*
-------------------------------------
Christopher Bryson
3 Heol Syr Lewis
Morgans Town, Cardiff CF4 8LE
Wales
(4,536 Options)
/s/ Gary Steele*
-------------------------------------
Mark Caines
22 Camden Road
Southville, Bristol BS3 1QA
England
(1,000 Options)
* As Attorney-in-Fact.
/s/ Mark Richardson*
-------------------------------------
Richard Clark
31 Llanwern Road
Royal Oak, Newport
South Wales NP9 9GF
England
(3,000 Options)
/s/ Mark Richardson*
-------------------------------------
Robin Commander
17 The Common
Patchway, Bristol BS34 6AS
England
(8,000 Options)
/s/ Mark Richardson*
-------------------------------------
Peter Davies
2 Shipley Road
Westbury-on-Trym, Bristol BS9 3HS
England
(12,000 Options)
<PAGE> 93
/s/ Mark Richardson*
-------------------------------------
Leigh Dawkins
96 Crawford Close
Freshbrook, Swindon SN5 8PU
England
(2,000 Options)
/s/ Mark Richardson*
-------------------------------------
Paul Denny
1 Telconia Close
Headley Down
Bordon, Hampshire GU35 8ED
England
(10,000 Options)
/s/ Mark Richardson*
-------------------------------------
Ronald Downes
Flat 6, Central Hall
15 Redcross Street
Bristol BS2 0BA
England
(3,000 Options)
* As Attorney-in-Fact.
/s/ Mark Richardson*
-------------------------------------
Jerome Garez
33 St. Johns Road
Clifton, Bristol BS8 2HD
England
(3,174 Options)
/s/ Mark Richardson*
-------------------------------------
Mark Henderson
Kiaora, Pisgah Road
Talywain, Pontypool
Gwent NP4 7HZ
Wales
(3,000 Options)
<PAGE> 94
/s/ Mark Richardson*
-------------------------------------
Christian Hess
Noldestrasse. 1
66787 Wadgassen
Germany
(15,036 Options)
/s/ Mark Richardson*
-------------------------------------
Michael Higgs
13 Highlands Crescent
Beaufort, Ebbw Vale NP3 5RQ
Wales
(3,000 Options)
/s/ Mark Richardson*
-------------------------------------
Graham Jones
178 High Street
Wootton Bassett, Wiltshire SN4 7BZ
England
(12,214 Options)
/s/ Mark Richardson*
-------------------------------------
Peter Jones
28 Priorsgate
Oakdale, Blackwood
Gwent NP12 0EL
Wales
(6,000 Options)
* As Attorney-in-Fact.
/s/ Mark Richardson*
-------------------------------------
Amanda Karn
134 Hallen Road
Henbury, Bristol BS10 7RB
England
(6,036 Options)
<PAGE> 95
/s/ Mark Richardson*
-------------------------------------
Stephen King
10855 SW Falcon Court
Beaverton, Oregon 97007
USA
(50,000 Options)
/s/ Mark Richardson*
-------------------------------------
David Knight
3 Mariners Way
Pill, Bristol BS20 0BD
England
(1,000 Options)
/s/ Mark Richardson*
-------------------------------------
Iain Lochhead
3 Down Road
Winterbourne Down
Bristol BS37 1BN
England
(8,000 Options)
/s/ Mark Richardson*
-------------------------------------
Sean Lord
Willow Cottage
Alexandra Road
Frome, Somerset BA11 1LU
England
(8,000 Options)
/s/ Mark Richardson*
-------------------------------------
Colin Maddison
5 Lime Tree Cottages
Quenington
Gloucestershire GL7 5BU
England
(5,000 Options)
* As Attorney-in-Fact.
<PAGE> 96
/s/ Mark Richardson*
-------------------------------------
Kevin Marris
Merevale House
West End, Magor NP26 3HT
Wales
(1,000 Options)
/s/ Mark Richardson*
-------------------------------------
Stuart Millard
Garden Flat
48 Hampton Road
Redland, Bristol BS6 6HZ
England
(6,084 Options)
/s/ Mark Richardson*
-------------------------------------
Andrew Millwater
79 Hughes Street
Penygraig, Rhondda AC40 1LX
Wales
(3,000 Options)
/s/ Mark Richardson*
-------------------------------------
Ya Nong Ning
22 Hampden Close
Yate BS37 5UW
England
(3,072 Options)
/s/ Mark Richardson
-------------------------------------
Mark Richardson
61 Bloomfield Avenue
Bath BA2 3AA
England
(22,738 Options)
<PAGE> 97
/s/ Mark Richardson*
-------------------------------------
David Robbins
27 Berkeley Road
Westbury Park, Bristol BS6 7PQ
England
(2,000 Options)
* As Attorney-in-Fact.
/s/ Mark Richardson*
-------------------------------------
Lynda Roberts
11 Bamptons Croft
Emmersons Green, Bristol BS16 7EN
England
(1,000 Options)
/s/ Mark Richardson*
-------------------------------------
Jacqueline Smith
Bishport Avenue
Withywood, Bristol BS13 9EH
England
(100 Options)
/s/ Mark Richardson*
-------------------------------------
Clive Thomas
7 Shannon Close
Pontllanfriath, Blackwood
Gwent NP12 2FW
Wales
(3,000 Options)
/s/ Mark Richardson*
-------------------------------------
Tatsuyuki Torii
793-9 Nakagawa
Omiya-shi, Saitama 330-0831
Japan
(22,500 Options)
<PAGE> 98
/s/ Mark Richardson*
-------------------------------------
Rudolf van Ettinger
Church Farm House
Pound Lane
Hardwicke GL2 4RJ
England
(8,000 Options)
/s/ Richard Watts
-------------------------------------
Richard Watts
108 York Road
Montpelier, Bristol BS6 5QQ
England
(15,000 Options)
* As Attorney-in-Fact.
/s/ Mark Richardson*
-------------------------------------
Nick Weiner
29 Shirehampton Road
Stoke Bishop, Bristol BS9 1EL
England
(45,000 Options)
/s/ Mark Richardson*
-------------------------------------
Colin Whitfield
13 Cleave Street
St. Werburghs, Bristol BS2 9UD
England
(12,119 Options)
/s/ Mark Richardson*
-------------------------------------
Brian Williams
30 Barnfield
Ponthir, Newport
Gwent NP6 1TN
Wales
(22,500 Options)
<PAGE> 99
/s/ Mark Richardson*
-------------------------------------
Mark Wills
3 Princes Court
Longwell Green, Bristol BS30 7GB
England
(1,036 Options)
* As Attorney-in-Fact.
<PAGE> 100
The undersigned is executing this Agreement to evidence the sale
of all its right, title and interest in and to any Shares beneficially owned by
Defta-Pond Co-investments L.P. and Pond Ventures I L.P. and its agreement to
Section 2.9.
pond venture nominees Ltd.
By: /s/ Gary Steele*
----------------------------------
Name: Gary Steele
Title: Managing Director
* As Attorney-in-Fact.
<PAGE> 101
EXHIBIT A
TECHNOLOGY MILESTONES
Customer sampling of a customer quality sample of a 10 gigabit integrated
circuit in the standard chipset.
<PAGE> 102
EXHIBIT B
REPRESENTATIONS AND WARRANTIES OF EACH SELLER
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4.1. Organization ....................... 2
Section 4.2. Authority .......................... 2
Section 4.3. No Breach .......................... 3
Section 4.4. Title to Stock ..................... 3
Section 4.5. Governmental Approvals ............. 4
Section 4.6. No Brokers ......................... 4
Section 4.7. Accredited Investors ............... 4
Section 4.8. Investment Intent .................. 4
Section 4.9. Regulation S ....................... 5
Section 4.10. Transfer Restrictions .............. 6
</TABLE>
<PAGE> 103
REPRESENTATIONS AND WARRANTIES OF EACH SELLER
Each Seller, severally and not jointly, only as to himself,
herself or itself, represents and warrants to Buyer as follows:
(i) Each Warrantor Seller makes the representations and
warranties set forth in Sections 4.1 through 4.6 and in Section 4.9 (except that
Stephen King makes the representations and warranties set forth in Sections 4.7
and 4.8 in lieu of the representations and warranties set forth in Section 4.9);
and
(ii) Each Non-Warrantor Seller makes the representations and
warranties set forth in Sections 4.4, 4.7 and 4.8 (except that Shen Chia Wong
makes the representations and warranties set forth in Section 4.9 in lieu of the
representations and warranties set forth in Sections 4.7 and 4.8):
Section 4.1. Organization. If such Seller is not an individual,
it is duly incorporated under the laws of its jurisdiction of incorporation or
organization.
Section 4.2. Authority. Such Seller that is not an individual
has all requisite power and authority, corporate or otherwise, and such Seller
that is an individual has the capacity, to execute and deliver each Transaction
Document delivered or to be delivered by such Seller and to perform all of such
Seller's obligations hereunder and thereunder. The execution, delivery and
performance by such Seller that is not an individual of each Transaction
Document delivered or to be delivered by such Seller and the consummation by
such Seller of the Transaction have been duly authorized by all necessary and
proper action on the part of such Seller. This Agreement has been duly executed
and delivered by such Seller and constitutes the legal, valid and binding
obligation of such Seller, enforceable against such Seller in accordance with
its terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or affecting
the enforcement of
2
<PAGE> 104
creditors' rights in general and by general principles of equity. Each other
Transaction Document to be delivered by such Seller will be duly executed and
delivered by such Seller and, when so executed and delivered, will constitute
the legal, valid and binding obligation of such Seller, enforceable against such
Seller in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting the enforcement of creditors' rights in general and by
general principles of equity.
Section 4.3. No Breach. None of the execution, delivery or
performance by such Seller of any Transaction Document or the consummation by
such Seller of the Transaction, with or without the giving of notice or the
lapse of time or both, does or will conflict with, or result in a breach or
violation of or a default under, or give rise to a right of amendment,
termination, cancellation or acceleration of any obligation or to a loss of a
benefit under (i) (if such Seller is not an individual) the memorandum and
articles of association (or similar governance document) of such Seller or (ii)
any Law or License to which such Seller or its properties or assets is subject,
except, in the case of item (ii) above only, for those which would not have,
individually or in the aggregate, a Material Adverse Effect.
Section 4.4. Title to Stock. Except as set forth on Schedule
4.4, such Seller has title to, and is the legal and beneficial owner of, or
otherwise is entitled to transfer to Buyer full right, title and interest in and
to, the number of Ordinary Shares, Class A Shares, Preference Shares and Company
Options set forth opposite such Seller's name on Schedule 5.3 (Company Stock and
Options Outstanding). Such shares are free and clear of any Liens. Upon transfer
and delivery to Buyer at the Closing, Buyer will have full title to such Shares,
free and clear of any Liens. The number of Ordinary Shares, Class A Shares,
Preference Shares and Company Options set forth opposite such Seller's name on
Schedule 5.3 (Company Stock and Options Outstanding) constitute all of the
Shares and
3
<PAGE> 105
Company Options over which any voting or dispositive power is held by such
Seller.
Section 4.5. Governmental Approvals. Except as set forth on
Schedule 4.5, no material Consent or order of, with or to any Governmental
Entity is required to be obtained or made by or with respect to such Seller in
connection with the execution, delivery and performance by such Seller of any
Transaction Document or the consummation by such Seller of the Transaction.
Section 4.6. No Brokers. Except for Broadview International Ltd.
and the Non-Warrantor Sellers entitled to receive the finders' fees described in
Section 3.5 of this Agreement, none of such Seller or any of its Affiliates has
authorized or retained any Person to act as an investment banker, broker, finder
or other intermediary (other than legal and accounting professionals) who is or
might be entitled to any fee, commission or payment in connection with the
negotiation, preparation, execution or delivery of any Transaction Document or
the consummation of the Transaction, nor, to the knowledge of such Seller, is
there any basis for any such fee, commission or payment to be claimed by any
Person against such Seller.
Section 4.7. Accredited Investors. Each of the Non-Warrantor
Sellers (other than Shen Chia Wong) and Stephen King represents and warrants,
severally and not jointly, that he, she or it is an accredited investor as such
term is defined in Regulation D under the Securities Act.
Section 4.8. Investment Intent. Each of the Non-Warrantor
Sellers (other than Shen Chia Wong) and Stephen King, severally and not jointly,
represents and warrants that he, she or it is acquiring the Buyer Stock and/or
the Buyer Options pursuant to this Agreement 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.
4
<PAGE> 106
Section 4.9. Regulation S. Each of the Warrantor Sellers (other
than Stephen King) and Shen Chia Wong, severally and not jointly, represents and
warrants that he, she or it:
(a) 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.
(b) has not been offered the shares of Buyer Stock and Buyer
Options in the United States and at the time of execution of this Agreement is
physically outside the United States.
(c) acknowledges and agrees that until the expiration of the
one-year distribution compliance period within the meaning of Rule 902(f) of
Regulation S under the Securities Act, such Seller will only resell the Buyer
Stock or Buyer Options acquired in the Transaction in compliance with the
provisions of Regulation S, pursuant to registration under the Securities Act or
pursuant to an exemption from registration.
5
<PAGE> 107
(d) is acquiring the Buyer Stock and/or Buyer Options for its
own behalf and not on behalf or for the benefit of any U.S. Person and the sale
and resale of the Buyer Stock or Buyer Options has not been pre-arranged with
any U.S. person or buyer in the United States.
(e) acknowledges that Buyer's transfer agent will not be
required to accept for registration of transfer any shares of Buyer Stock
acquired in the Transaction, except upon presentation of evidence satisfactory
to Buyer and the transfer agent that the restrictions set forth therein have
been complied with.
(f) agrees not to engage in hedging transactions with regard to
shares of Buyer Stock or Buyer Options acquired in the Transaction unless in
compliance with the Securities Act.
(g) acknowledges that Buyer will rely upon the truth and
accuracy of the foregoing acknowledgments, representations, warranties and
agreements and agrees that if any of the acknowledgments, representations,
warranties and agreements deemed to have been made by the acquisition of the
Buyer Stock and/or Buyer Options by such Warrantor Seller (other than Stephen
King) or by Shen Chia Wong, as the case may be, are no longer accurate, such
Warrantor Seller (other than Stephen King) or Shen Chia Wong, as the case may
be, shall promptly notify Buyer.
Section 4.10. Transfer Restrictions. Such Seller is aware that
the shares of Buyer Stock and Buyer Options to be issued to such Seller pursuant
to this Agreement have not been registered under the Securities Act or any
applicable U.S. state securities laws, and agrees that the Buyer Stock and Buyer
Options will 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 shares of Buyer
Stock except (a) to Buyer or any Subsidiary of Buyer or (b) pursuant to a
registration statement which has been declared effective under the Securities
Act or (c) pursuant to offers and sales to non-U.S. persons that occur outside
the United
6
<PAGE> 108
States in an offshore transaction within the meaning of Rule 902 of Regulation S
under the Securities Act or (d) pursuant to Rule 144 under the Securities Act or
(e) pursuant to any other available exemption from the registration requirements
of the Securities Act, if in the opinion of counsel reasonably acceptable to
Buyer such exemption is applicable. Such Seller will not transfer any shares of
Buyer Stock and/or Buyer Options in violation of the provisions of any
applicable U.S. federal or state, United Kingdom or other jurisdiction's
securities laws.
7
<PAGE> 109
EXHIBIT C
REPRESENTATIONS AND WARRANTIES OF WARRANTOR SELLERS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 5.1. Organization ........................................................ 1
Section 5.2. No Breach ........................................................... 1
Section 5.3. Capitalization ...................................................... 1
Section 5.4. Equity Interests .................................................... 2
Section 5.5. Affiliate Transactions .............................................. 3
Section 5.6. Taxes ............................................................... 4
Section 5.7. Intellectual Property Matters ....................................... 6
Section 5.8. Assets and Properties ............................................... 9
Section 5.9. Contracts ........................................................... 9
Section 5.10. Litigation ......................................................... 13
Section 5.11. Environmental Matters .............................................. 14
Section 5.12. Financial Information .............................................. 14
Section 5.13. Compliance With Applicable Law ..................................... 16
Section 5.14. Licenses ........................................................... 16
Section 5.15. Employee Matters ................................................... 17
Section 5.16. Absence of Material Adverse Effect and Certain Events .............. 19
Section 5.17. Sufficiency of Assets .............................................. 21
Section 5.18. Governmental Approvals ............................................. 21
Section 5.19. Product Warranty ................................................... 22
Section 5.20. Insurance .......................................................... 22
Section 5.21. Bank Accounts; Powers of Attorney .................................. 23
Section 5.22. No Material Misstatement or Omission ............................... 23
Section 5.23. Supplemental Information Reviewed by the Buyer and/or Its Legal
and Financial Advisers ................................... 23
</TABLE>
<PAGE> 110
REPRESENTATIONS AND WARRANTIES OF WARRANTOR SELLERS
Each Warrantor Seller, jointly and severally, represents and
warrants to Buyer as follows:
Section 5.1. Organization. The Company is a corporation duly
incorporated under the laws of England and Wales as a company limited by shares.
The Company has all requisite power and authority, corporate or otherwise, to
own, lease and operate its assets and properties and to carry on the Business as
presently conducted. Except as set forth on Schedule 5.1, the Company is duly
qualified to transact business and in good standing as a foreign corporation in
each jurisdiction in which the ownership, leasing or holding of its properties
or the conduct or nature of its business makes such qualification necessary. The
failure to be so qualified in any of the jurisdictions set forth in Schedule 5.1
would not have, individually or in the aggregate, a Material Adverse Effect. Set
forth on Schedule 5.1 is a list of the jurisdictions in which the Company
transacts business. True and complete copies of the memorandum and articles of
association and statutory books of the Company, duly written up immediately
prior to the Closing, have previously been delivered or made available to Buyer.
Section 5.2. No Breach. Except as set forth on Schedule 5.2, the
consummation of the Transaction, with or without the giving of notice or the
lapse of time or both, does not or will not result in the creation of any Lien
upon any of the assets or properties of the Company (except for Permitted
Liens), or conflict with, or result in a breach or violation of, or a default
under, or give rise to a right of amendment, termination, cancellation or
acceleration of any obligation or to a loss of a benefit under (i) the
memorandum and articles of association of the Company, (ii) any Contract of the
Company, or (iii) any Law or License to which the Company or its properties or
assets is subject, except, in the case of items (ii) and (iii) above only, for
those which would not have, individually or in the aggregate, a Material Adverse
Effect.
Section 5.3. Capitalization. The authorized share capital of the
Company is Pound Sterling50,332.00 divided into 149,223,900 Ordinary Shares,
996,000 Class A Shares and 776,100 Preference Shares. As of the date hereof,
3,084,536 Ordinary Shares, 996,000 Class A Shares and 776,100 Preference Shares
have been
<PAGE> 111
issued and the Sellers are registered in the register of members as the owners
of such Shares, as set forth on Schedule 5.3. The Company is not registered in
the register of members of the Company as the owner of any Shares. Schedule 5.3
sets forth a list of all Company Options which have been granted by the Company
as of the date hereof and, with respect to each such Company Option, the
exercise price thereof, the number of Shares subject thereto and the owner
thereof. As of the date hereof, (a) 382,859 Ordinary Shares are issuable upon
exercise of outstanding Company Options, (b) 996,000 Ordinary Shares are
issuable upon conversion of outstanding Class A Shares and (c) 776,100 Ordinary
Shares are issuable upon conversion of outstanding Preference Shares. Except for
as set forth in the immediately preceding sentences, no shares or other
securities of the Company have been issued. The entire issued share capital of
the Company is duly authorized, validly issued, and fully paid. After giving
effect to Section 8.2, no person has any preemptive or subscription rights or
any option, contract or other right to purchase capital stock of the Company,
except as otherwise provided by the Companies Act. There are no bonds,
debentures, notes or other indebtedness of any type whatsoever of the Company
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which any shareholders of the
Company may vote. Except for the Company Options set forth on Schedule 5.3, the
Class A Shares set forth on Schedule 5.3, and the Preference Shares set forth on
Schedule 5.3, there are no outstanding options, warrants, calls, demands
Contracts or other rights of any nature to purchase, obtain or acquire or
otherwise relating to, or any securities or obligations convertible into or
exchangeable for, or any voting agreements with respect to, any shares in the
Company or any other securities of the Company. Neither the Company, nor any of
its Affiliates is obligated, pursuant to any securities, options, warrants,
calls, demands, Contracts or other rights of any nature or otherwise, now or in
the future, contingently or otherwise, to issue, deliver, sell, purchase or
redeem any shares in the Company, any other securities of the Company or any
interest in the Company to or from any Person or to issue, deliver, sell,
purchase or redeem any other Contracts of the Company relating to any shares in
or other securities of the Company to or from any Person.
Section 5.4. Equity Interests. The Company does not own any
shares in or other equity interest in any
2
<PAGE> 112
corporation, partnership, limited liability entity or other entity.
Section 5.5. Affiliate Transactions. Except as set forth on and,
in the case of documents that are referred to as attached, attached to Schedule
5.5, there is no:
(a) indebtedness, Contract, arrangement, and since March 31,
1999 there has not been any payment or transfer, directly or indirectly, of any
funds or other property, between the Company, on the one hand, and any
Affiliate, officer, director, secretary or shareholder of the Company or, other
than in respect of the Non-Warrantor Sellers, any Affiliate of any thereof, on
the other hand, except for (i) regularly scheduled cash compensation paid to
employees consistent with written policies of the Company and amounts paid to
employees pursuant to existing employee benefit plans listed on Schedule 5.15(b)
(Plans) and (ii) reimbursements of employees' ordinary and necessary business
expenses incurred in connection with their employment;
(b) interest of any Affiliate, officer, director or shareholder
of the Company or, other than in respect of the Non-Warrantor Sellers, any
Affiliate of any thereof in any assets or properties (whether real, personal, or
mixed and whether tangible or intangible) owned or used by or pertaining to the
Company; or
(c) ownership (whether legal or beneficial) by any Affiliate,
officer, director, secretary or shareholder of the Company or, other than in
respect of the Non-Warrantor Sellers, any Affiliate of any thereof of any
equity, financial or profit interest (except for (x) ownership of less than five
percent of the outstanding capital stock of any corporation that is publicly
traded on any recognized exchange or in the over-the-counter market or (y) any
interest held by any Non-Warrantor Sellers for investment purposes only)in a
Person that has (i) had material business dealings or a material financial
interest in any transaction with the Company (other than business dealings or
transactions conducted in the ordinary course of business with the Company at
prevailing market prices and on prevailing market terms) or (ii) engaged in
competition with the Company with respect to any line of the products or
services of the Company in any market presently served by the Company.
3
<PAGE> 113
Section 5.6. Taxes.
(a) All United Kingdom and foreign Tax returns, reports,
declarations, statements and other documents ("Tax Returns") required to be
filed by or on behalf of the Company have been timely filed with the appropriate
tax authorities or requests for extensions have been timely filed and any such
extensions have been granted and have not expired.
(b) Each such Tax Return was complete and correct in all
material respects.
(c) All Taxes with respect to taxable periods or portions
thereof covered by such Tax Returns and all other material Taxes (without regard
to whether a Tax Return was or is required) for which the Company is otherwise
liable that are due have been paid in full and to the extent the liabilities for
such Taxes are not due, adequate reserves have been established on the October
31, 1999 Balance Sheet of the Company in accordance with UK GAAP.
(d) The Company has timely withheld proper and accurate amounts
from its employees, customers, shareholders and others from whom it is or was
required to withhold Taxes in compliance in all material respects with all
applicable Laws and has timely paid all such withheld amounts to the appropriate
taxing authorities.
(e) All Taxes due with respect to any completed and settled
claims, actions, proceedings, investigations or inquiries by any taxing
authority for which the Company is or might otherwise be liable have been paid
in full.
(f) To the knowledge of the Management Sellers, there are no
claims, actions, proceedings, investigations or inquiries pending with respect
to any Taxes for which the Company is or might otherwise be liable. No taxing
authority has given written notice of the commencement of any claims, actions,
proceedings, investigations or inquiries with respect to any such Taxes. No
issue has arisen in any examination of the Company by any taxing authority that,
if raised with respect to the same or substantially similar facts arising in any
other Tax period not so examined, would result in a deficiency for such other
period, if upheld.
(g) Except as set forth in Schedule 5.1 (Foreign Establishments
and Jurisdictions in which the Company
4
<PAGE> 114
Transacts Business), the Company is and always has been resident in the United
Kingdom for Tax purposes and is not and never has been resident for Tax purposes
in any jurisdiction other than the United Kingdom.
(h) Except as set forth in Schedule 5.1 (Foreign Establishments
and Jurisdictions in which the Company Transacts Business), the United Kingdom
is the only country in which the Company regularly conducts trade or business
whose tax authorities seek to charge Tax on the worldwide profits or gains of
the Company.
(i) The Company has at no time been a member of a group for the
purposes of Part X, Chapter IV of the Taxes Act 1988.
(j) The documents attached to Schedule 5.6(j) and the other
Schedules referred to in this Section 5.6 represent the only material
correspondence or communication to date between the Company and the Inland
Revenue regarding the Tax affairs of the Company, and there is no other
correspondence or communication relating to any tax matters which is reasonably
likely to have a Material Adverse Effect.
(k) [Intentionally Omitted]
(l) The Company is not a "passive foreign investment company",
within the meaning of Section 1297(a) of the Code.
(m) No Liens for Taxes, other than Permitted Liens, exist with
respect to any of the assets or properties of the Company or the Business
Intellectual Property.
(n) [Intentionally Omitted]
(o) The Company has properly operated the Pay As You Earn system
deducting tax as required by law from all payments to or treated as made to
employees and ex-employees of the Company and has timely accounted to the Inland
Revenue for all tax so deducted and all returns required pursuant to Section 203
of the Taxes Act 1988 and regulations made thereunder have been timely made and
are accurate and complete in all respects.
(p) Schedule 5.6(p) contains full details of all dispensations
obtained by the Company and all material details
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of any visit from the Inland Revenue within the last six years including full
details of any settlement made pursuant thereto.
(q) To the knowledge of the Management Sellers, the Company has
not made any payment to or provided any benefit for any officer or employee or
ex-officer or ex-employee of the Company which is not allowable as a deduction
in calculating the profits of the Company for taxation purposes.
(r) [Intentionally Omitted]
(s) The Company is not and never has been either a contractor or
a sub-contractor for the purposes of Chapter IV Part XIII of the Taxes Act 1988.
(t) The Company has paid all national insurance contributions
for which it is liable and has kept proper books and records relating to the
same and has not been a party to any scheme or arrangement to avoid any
liability to account for primary or secondary national insurance contributions.
(u) Except as set forth on Schedule 5.6(u), the Company has duly
paid all stamp duty on documents to which it is a party and which transfer
property or rights to property.
(v) The Company has made all returns and paid all stamp duty
reserve tax in respect of any transaction in securities to which it has been a
party and in respect of which it is liable to account for stamp duty reserve
tax.
(w) The Company has complied with all statutory provisions and
regulations relating to Value Added Tax and has duly paid or provided for all
amounts of Value Added Tax for which the Company is liable.
Section 5.7. Intellectual Property Matters
(a) In this Section 5.7:
(i) "Product Intellectual Property" means all
Intellectual Property owned or used by the Company and comprised in the
Company's products;
(ii) "Own Use Intellectual Property" means all
Intellectual Property owned or used by the Company in the
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conduct of its business, other than the Product Intellectual Property;
and
(iii) "Business Intellectual Property" means the Product
Intellectual Property and the Own Use Intellectual Property.
(b) Set forth on Schedule 5.7(b) and (c) are details of all
Contracts of the Company relating to Product Intellectual Property, including
the distribution or license of, or royalty payments with respect to, Product
Intellectual Property, whether as licensor or licensee, other than agreements
set forth in Schedule 5.9(a) (Contracts) relating to the supply and distribution
of the Company's products, and employment contracts.
(c) Except as set forth on Schedule 5.7(c):
(i) the Company owns all right title and interest in and
to (or, in the case of Product Intellectual Property subject to license
agreements in favor of the Company set forth on Schedule 5.7(b), has an
absolute right to use) all of the Product Intellectual Property, free
and clear of any Liens and free from any requirement of any past,
present or future payments (other than maintenance payments, license
fees or other payments referred to in the Contracts set forth on
Schedule 5.7(b) or specifically disclosed in Schedule 5.7(c));
(ii) the Company is entitled to use the Own Use
Intellectual Property in relation to the Business free from any
outstanding requirement for any payment in respect of such use whether
past present or future and free of any conditions or restrictions except
(in the case of Own Use Intellectual Property licensed to the Company on
a non-exclusive basis) for restrictions of a kind which are customarily
imposed in generally available standard license agreements;
(iii) to the knowledge of the Warrantor Sellers, no
Product Intellectual Property or any service rendered by the Company, or
any product, process or material developed, manufactured, produced, or
used by the Company, or any use by the Company of any Own Use
Intellectual Property, is alleged to infringe upon or
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infringes upon any Intellectual Property or other rights owned or held
by any other Person;
(iv) no Action relating to any Product Intellectual
Property or the Company's use of any Own Use Intellectual Property has
been issued by or against the Company or, to the knowledge of the
Warrantor Sellers, is pending or threatened by or against the Company;
(v) to the knowledge of the Warrantor Sellers, there is
no infringement or misappropriation by any Person of any Product
Intellectual Property or of any Own Use Intellectual Property licensed
exclusively to the Company;
(vi) except as set forth on Schedule 5.7(b), there are
no Contracts between the Company, on the one hand, and any other Person,
on the other hand, under which the Company has granted rights or
licenses in any Business Intellectual Property or has granted an option
to acquire any such rights or licenses;
(vii) the Company has not covenanted or agreed with any
Person not to sue or otherwise enforce any legal rights with respect to
any Business Intellectual Property; and
(viii) except as otherwise provided in any license
agreements in favor of the Company set forth on Schedule 5.7(b) or
5.9(a) (Contracts), all Product Intellectual Property and all Own Use
Intellectual Property owned by the Company was developed entirely by
employees of the Company during the time they were employees of the
Company.
(d) Except as set forth on Schedule 5.7(d), the Company has
taken all reasonable steps (including measures to protect secrecy and
confidentiality) to protect all such rights, title and interest as it
may have in and to all Business Intellectual Property.
(e) The Business Intellectual Property constitutes all
Intellectual Property Rights necessary to conduct fully the Business as
currently conducted.
(f) The Company has no registered Product Intellectual Property
and has not applied for any registered trademarks, patents or designs.
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Section 5.8. Assets and Properties.
(a) Except as to Intellectual Property, which is the subject of
Section 5.7, the Company has (i) good and marketable title to all of its
assets and properties (whether real, personal or mixed, or tangible or
intangible) which it purports to own and (ii) valid lease agreements in
respect of all of its assets and properties (other than Real Property)
which it purports to lease, in each case free and clear of any Liens,
other than Permitted Liens and the fixed and floating charge in favor of
National Westminster Bank plc described in Schedule 5.8(a).
(b) The Company does not own freehold to and has not previously
owned freehold to any Real Property.
(c) Schedule 5.8(c) contains a complete and accurate list of and
copies of documents relating to: (i) all real property leased, subleased or
occupied by the Company pursuant to a Lease (the "Leased Premises") and (ii) all
Leases to which the Company is a party (including all subleases and other Leases
through which the Company has granted any interest in any of the Leased
Premises, or any portion thereof, to any Person). The Company has valid lease
agreements in respect of each of the Leased Premises.
(d) The Company enjoys peaceful and undisturbed possession of
each of the Leased Premises. There are no restrictions imposed by any Lease or
other Contract or by Law which preclude or restrict the ability to use the
Leased Premises for the purposes for which they are currently being used.
Section 5.9. Contracts.
(a) Schedule 5.9(a) lists and attaches copies of all of the
following Contracts of the Company (other than those set forth on Schedule 5.5
(Affiliate Transactions), Schedule 5.7(b) (Commitments Relating to Intellectual
Property), Schedule 5.8(c) (Leased Premises), Schedule 5.15(b) (Plans) or
Schedule 5.15(c) (Employee Agreements)):
(i) all Contracts (or groups of related Contracts) for
the lease (whether as lessor or lessee) of personal property to or from
the Company which provide for lease payments in excess of Pound
Sterling100,000 over the term of the Contract;
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(ii) all Contracts (or groups of related Contracts) for
the purchase or sale of inventories, stock or raw materials, supplies,
products, spare parts or real, personal or mixed property, or for the
furnishing or receipt of services, including customer and supply
Contracts, which provide for payments to or from the Company of Pound
Sterling100,000 or more for each Contract;
(iii) all Contracts concerning any partnership, joint
venture, joint development or other cooperation arrangement;
(iv) all material Contracts providing for management
services or for the services of independent contractors or consultants
(or similar arrangements);
(v) all Contracts providing for advertising, promotional
or marketing services; providing for payment by the Company of Pound
Sterling50,000 or more;
(vi) all Contracts (or groups of related Contracts)
relating to or evidencing indebtedness for the borrowing of money by the
Company (or the creation, incurrence, assumption, securing or guarantee
thereof), including any Contract under which the Company has borrowed
any money from, or issued any note, bond, debenture or other evidence of
indebtedness to, any Person;
(vii) all Contracts (or groups of related Contracts)
under which (A) any Person has directly or indirectly guaranteed any
indebtedness or other Liabilities of the Company or (B) the Company has
directly or indirectly guaranteed any indebtedness or other Liabilities
of any Person (in each case other than endorsements for the purpose of
collection in the ordinary course of business);
(viii) all Contracts (or groups of related Contracts)
under which the Company has directly or indirectly made any material
advance, loan, extension of credit or capital contribution to, or other
investment in, any Person, including employees, or which involve a
sharing of profits, losses, costs or Liabilities by the Company with any
other Person, other than trade accounts payable arising in the ordinary
course of business of the Company;
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(ix) all Contracts (or groups of related Contracts)
providing for or containing any mortgage, pledge, security agreement or
deed of trust or other Contract granting a material Lien upon any assets
or properties of the Company;
(x) all Contracts providing for indemnification of any
Person with respect to material Liabilities relating to any current or
former business of the Company;
(xi) all Contracts with any broker, distributor, dealer,
sales representative, supplier, manufacturer or other Person (other than
Contracts with customers which are disclosed pursuant to clause (ii)
above) relating to the distribution, sale, supply or manufacture of
products providing for payment by or to the Company of Pound
Sterling50,000 or more;
(xii) all Contracts providing for or containing
confidentiality and non-disclosure obligations (other than standard
non-disclosure forms signed by employees generally, copies of which have
been provided to Buyer);
(xiii) all Contracts for the purchase or sale of any
business, corporation, partnership, joint venture, association or other
business organization or any division, material assets, operating unit
or product line thereof (and for purposes of this Section 5.9, material
assets means assets with a value of Pound Sterling50,000 or more and any
assets that are otherwise material to the business, operations,
properties or condition of the Company, taken as a whole);
(xiv) all Contracts which limit or purport to limit the
ability of the Company to compete in any line of business or with any
Person or in any geographic area or which limit or purport to limit or
restrict the ability of the Company with respect to the development,
manufacture, marketing, sale or distribution of, or other rights with
respect to, any products or services;
(xv) all swap agreements (as defined in the definition
of the term Contract);
(xvi) all Contracts with any Governmental Entity;
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(xvii) all Contracts containing any restrictions with
respect to payment of dividends or any other distributions in respect of
the capital stock of the Company which will continue in effect after the
Closing; and
(xviii) all Contracts which are, in the reasonable
opinion of the Management Sellers, otherwise material to the Company
which are not described in any of the categories specified in this
Section 5.9(a).
Each Contract of the Company set forth or required to be set
forth on Schedule 5.5 (Affiliate Transactions), Schedule 5.7(b) (Commitments
Relating to Intellectual Property), Schedule 5.8(c) (Leased Premises), Schedule
5.9(a), Schedule 5.15(b) (Plans) or Schedule 5.15(c) (Employee Agreements) is
referred to herein as a "Material Contract".
(b) Except as set forth on Schedule 5.9(b), each Material
Contract is in full force and effect and is legal, valid, binding and
enforceable in accordance with its terms (subject to general principles of
equity) as to the Company and, to the knowledge of the Management Sellers, each
other party thereto. None of the Material Contracts requires any payments or the
performance of any obligations that could reasonably be expected to have a
Material Adverse Effect.
(c) Except as set forth on Schedule 5.9(c) or 5.9(b), the
Company (and, to the knowledge of the Management Sellers, each of the other
party or parties thereto), has performed in all material respects all
obligations required to be performed by it under each Material Contract. Except
as set forth on Schedule 5.9(c), no event has occurred with respect to the
Company or, to the knowledge of the Management Sellers, with respect to any
other Person that (with or without lapse of time or the giving of notice or
both) contravenes, conflicts with or results in a violation or breach of or give
the Company or any other Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity of, or to cancel, terminate or
modify, any Material Contract. Except as set forth on Schedule 5.9(c), there are
no pending renegotiations of, or requests to renegotiate, any Material Contract
with any Person. The Company has not and, to the knowledge of the Management
Sellers, no other party to any Material Contract has, repudiated any material
provision thereof or terminated any
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Material Contract and the Company has not received any notice that any other
party or parties to any Material Contract intends to exercise any right of
cancellation, termination or non-renewal thereof. The Company has heretofore
delivered to Buyer true and complete copies of all written Material Contracts
and a true and complete written summary of all oral Material Contracts.
(d) Except as set forth on Schedule 5.9(d) or Schedule 5.8(c)
(Leased Premises), (i) there are no "change of control" or similar provisions or
any obligations arising under any Material Contract and (ii) none of the
execution, delivery or performance of any Transaction Document or consummation
of the Transaction will, under the terms, conditions or provisions of any
Material Contract (A) require any Consent of, with or to any Person, (B) result
in any increase in any payment or change in any term or (C) grant any repayment
or repurchase rights to any Person.
Section 5.10. Litigation.
(a) Except as set forth on Schedule 5.10(a) or Schedule 5.7(c)
(Intellectual Property Matters), (i) no judgment, ruling, order, writ, decree,
stipulation, injunction or determination by or with any Governmental Entity to
which the Company or any of its Affiliates is party or by which, the Company or
any of its Affiliates or any assets of any thereof is bound, and which relates
to or affects the Company, the assets, properties, Liabilities or employees of
the Company, any Transaction Document or the Transaction is in effect and (ii)
neither the Company nor any of its Affiliates is party to or engaged in or, to
the knowledge of the Management Sellers, threatened with any Action which
relates to or affects the Company, the assets, properties, Liabilities or
employees of the Company, any Transaction Document or the Transaction, and, to
the knowledge of the Management Sellers, no event has occurred which could
reasonably be expected to result in any such Action.
(b) The Company is not in default under or with respect to any
judgment, ruling, order, writ, decree, stipulation, injunction or determination
of the type described in Section 5.10(a)(i).
(c) No order has been made, petition presented or resolution
passed for the winding-up of the Company and no meeting has been convened for
the purposes of winding-up the
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Company. The Company has not taken and, to the knowledge of the Management
Sellers, no other Person has taken, steps for the appointment of an
administrator or receiver (including an administrative receiver) of all or any
part of the Company's assets. The Company has not made or proposed any
arrangement or composition with its creditors or any class of its creditors for
the relief of its debts. The Company is not insolvent, and is not unable to pay
its debts within the meaning of the Insolvency Act 1986.
(d) None of the Actions set forth on Schedule 5.10(a) or
Schedule 5.7(c) (Intellectual Property Matters), if adversely determined, will
have a Material Adverse Effect.
Section 5.11. Environmental Matters. The Company has obtained all
Permits of a material nature required under Environmental Law and has at all
times complied with all applicable Environmental Laws and with the terms and
conditions of those Permits and has filed all material notifications required.
To the knowledge of the Management Sellers, there are no circumstances which
could reasonably give rise to any modification, suspension or revocation of a
Permit. To the knowledge of the Management Sellers, there are in relation to the
Company no past or present events, conditions, circumstances, activities,
practices or incidents which interfere with or prevent compliance with or which
give rise to any common law or legal liability or otherwise form the basis of
any material claim, action, suit, proceeding, hearing or investigation relating
to the Environment or any breach of Environmental Laws in any jurisdiction in
which the Company has owned or leased property.
Section 5.12. Financial Information.
(a) Set forth on Schedule 5.12(a) are (i) the statutory accounts
of the Company for the fiscal year ended March 31, 1999 filed with the Registrar
of Companies, incorporating a statement of profit and loss, balance sheet and
statement of cash flows for the period then ended, together with the notes
thereto and the unqualified report of PricewaterhouseCoopers thereon (the
"Statutory Accounts"), and (ii) the unaudited management accounts, including the
unaudited balance sheet of the Company as of October 31, 1999 and the related
statements of profit and loss for the seven months ended October 31, 1999 (the
"Management Accounts").
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The Statutory Accounts and the Management Accounts have been prepared from and
in accordance with the books, accounts and financial records of the Company
(which are maintained in accordance with UK GAAP) and in accordance with UK GAAP
consistently applied (except that the Management Accounts are subject to year
end audit adjustments and do not include a statement of cash flow or other notes
thereto). The Statutory Accounts and the Management Accounts give a true and
fair view, in conformity with UK GAAP applied on a consistent basis, of the
financial position of the Company as of the dates to which they have been
prepared and the profits and losses and, in the case of the Statutory Accounts,
cash flows of the Company for the periods set forth therein.
(b) Except for Liabilities (i) in the amounts set forth on
Schedule 5.12(b), (ii) in the amounts set forth in the Management Accounts or
(iii) arising in the ordinary course of business consistent with past practices
since October 31, 1999 and which have not had and cannot reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect or (iv)
arising in connection with the Transaction, the Company does not have any
Liabilities (whether absolute or contingent, or accrued or unaccrued) of a
nature required to be set forth on a balance sheet prepared in accordance with
UK GAAP or disclosed in the notes thereto.
(c) All accounts receivable of the Company arose from bona fide
sales and deliveries of goods or performance of services in the ordinary course
of business. None of such receivables are subject to any performance obligations
by the Company prior to collection. All accounts receivable arising before
October 31, 1999 have been adequately reserved in the October 31, 1999 Balance
Sheet in accordance with UK GAAP. Except as has been reserved against in the
October 31, 1999 Balance Sheet, or as set forth in Schedule 5.10(a)
(Litigation), there is no material dispute with respect to the amount or
validity of any receivables of the Company.
(d) The inventories of the Company consists of items which are
usable and, in the case of finished goods inventory, saleable at prevailing
market prices in the ordinary course of business, except for obsolete materials
and excess quantities, all of which, if purchased before October 31, 1999, have
been written down in accordance with UK GAAP to the lower of cost or net
realizable market value in the October 31, 1999 Balance Sheet. All inventories
of the
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Company have been procured and (in the case of work-in-process and finished
goods inventory, produced for sale) in the ordinary course of business. Except
as reserved against in the October 31, 1999 Balance Sheet, the quantities of
each item of inventory are, in the opinion of the Management Sellers, not
excessive and are consistent with anticipated requirements as of the time such
Contracts therefor were made. The volume of production or purchases and orders
for inventories have not been reduced or increased in anticipation of the
Transaction.
(e) As set forth in Schedule 5.12(e), the Company has made
inquiries of suppliers of computer programs and software used in the operations
of the Company (including critical business systems, facilities, shop floor
controls and the flow of goods and services which the Company procures from
third parties) concerning the ability of such computer programs and software
correctly to recognize, calculate, sort, store, display and/or process dates
outside of the range of 1900-1999, including the years 2000 and beyond, and
correctly to recognize that the year 2000 is a leap year. Products sold by the
Company correctly recognize, calculate, sort, store, display and/or process
dates outside of the range of 1900-1999, including the years 2000 and beyond,
and correctly recognize that the year 2000 is a leap year, to the extent such
products include date sensitive software. Since December 31, 1999, the
operations of the Company have not been materially interrupted or delayed due to
phenomena related to "year 2000".
Section 5.13. Compliance With Applicable Law.
(a) Except as set forth on Schedule 5.13(a), (i) the Company is
in compliance in all material respects and has complied in all material respects
with all Laws applicable to the Company, including all Laws relating to the
exportation of goods and services and export compliance and control, (ii) no
material claims or complaints from any Governmental Entities or other Persons
have been asserted or received by the Company or any of its Affiliates related
to or affecting the Company and, to the knowledge of the Management Sellers, no
claims or complaints are threatened, alleging that the Company or any Affiliate
thereof is in violation of any Laws or Licenses applicable to the Company and
(iii) to the knowledge of the Management Sellers, no investigation, inquiry, or
review by any Governmental Entity with respect to
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the Company is pending or threatened, nor, to the knowledge of the Management
Sellers, has any Governmental Entity indicated an intention to conduct any such
investigation, inquiry or review.
(b) Neither the Company nor any Affiliate thereof, nor any
director, officer, agent, employee or other Person associated with or acting on
behalf of any of the Company or any Affiliate thereof has, directly or
indirectly, used any corporate funds for any unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, made
any unlawful payment to any Governmental Entity or governmental, administrative
or regulatory official or employee or to any political party or campaign from
corporate funds or made any bribe, unrecorded rebate, payoff, influence payment,
kickback or other unlawful payment.
Section 5.14. Licenses. Schedule 5.14 contains a complete and
accurate list of all material Licenses that are held by the Company. Except as
specifically set forth on Schedule 5.14 and Schedule 5.7(b) (Commitments
Relating to Intellectual Property), Schedule 5.8(c) (Leased Premises) and
Schedule 5.9(a) (Contracts), the Licenses listed on Schedule 5.14 constitute all
the Licenses that are necessary for the Company to operate the Business and to
own and use the Company's assets in compliance with all Laws applicable to such
operation, ownership and use. All Licenses set forth as Schedule 5.14 are
validly held by the Company and are in full force and effect. Except as set
forth on Schedule 5.14, no Licenses set forth as Schedule 5.14 will be subject
to suspension, modification, revocation, cancellation, termination or nonrenewal
as a result of the consummation of the Transaction. The Company has complied in
all material respects with all of the terms and requirements of the Licenses of
the Company.
Section 5.15. Employee Matters.
(a) The Company is not a party to any Contract regarding
collective bargaining or other Contract with any labor or trade union or
collective bargaining group representing any employee of the Company, nor does
any labor or trade union or collective bargaining agent represent any employee
of the Company. No Contract regarding collective bargaining has been requested
by, or is under discussion between management of the Company (or any management
group or
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association of which the Company is a member or otherwise a participant) and any
group of employees of the Company, nor are there any representation proceedings
or petitions seeking a representation proceeding presently pending against the
Company, nor are there any other current activities known to Sellers to organize
any employees of the Company into a collective bargaining unit. There are no
unfair labor practice charges or complaints pending or, to the knowledge of
Sellers, threatened against the Company. Except as set forth on Schedule
5.15(a), there has never been any labor strike, slow-down, work stoppage, or
other work-related dispute involving the Company and no such dispute is now
pending or, to the knowledge of the Management Sellers, threatened against the
Company.
(b) Schedule 5.15(b) sets forth a complete and accurate list of
each pension, retirement, savings, profit sharing, deferred compensation,
medical, vision, dental, hospitalization, and other health plan, cafeteria,
flexible benefits, short-term and long-term disability, accident and life
insurance plan, bonus, incentive and special compensation and other plan and
each other employee benefit plan, program or Contract to which the Company
thereof contributes or is required to contribute, or which the Company thereof
sponsors, maintains or administers or which is otherwise applicable to employees
or categories of employees of the Company (other than the Company Options)
(hereinafter referred to collectively as the "Plans").
(c) Schedule 5.15(c) sets forth a complete and accurate list of
each employment Contract (whether written or oral) and employment policy with or
for the benefit of, or otherwise relating to, any employees of the Company.
There are no termination, severance or retention agreements or any other
Contract providing for severance or other termination payments to any employee
whose employment is terminated, except Contracts listed in Schedule 5.15(c).
Neither the Company nor, to the knowledge of Management Sellers, any employee is
in default in any material respect under any employment Contract. Except as
separately set forth on Schedule 5.15(c), none of the execution, delivery or
performance of any Transaction Document or the consummation of the Transaction
will result in any obligation to pay any employees of the Company severance pay
or termination, retention or other benefits, except any benefits offered by the
Buyer after the Closing, the sign-on bonuses to be
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offered to certain employees of the Company at the Closing, and the right of
Option Holders to exercise Company Options immediately as a result of the
Transaction and the exchange of Company Options for Buyer Options pursuant to
this Agreement.
(d) Schedule 5.15(d) contains a complete and accurate list of
the following information (as of December 20, 1999) for each employee and
director of the Company, including each employee on leave of absence, or
disability status: job title; current compensation paid or payable; and the date
on which service commenced.
(e) Except as set forth on Schedule 5.15(e), the Company has
never employed or retained any employees, consultants or independent contractors
to provide services to the Company outside of the United Kingdom and the Company
has never maintained, contributed to or incurred any Liability under any
employee benefit plan, arrangement, program or Contract that is or was subject
to ERISA.
Section 5.16. Absence of Material Adverse Effect and Certain
Events.
(a) Except as set forth on Schedule 5.16(a), no conditions,
circumstances or state of facts exist, and since March 31, 1999, there has not
been any event, occurrence, change, development or circumstances which,
individually or in the aggregate, have had or could reasonably be expected to
have a Material Adverse Effect.
(b) Without limiting the generality of the foregoing, except as
set forth on Schedule 5.16(b) or Schedule 5.15(c) (Employee Agreements), from
and after March 31, 1999, the Company has conducted the Business only in the
ordinary course consistent with past practices and the Company has not:
(i) suffered any loss to its property (whether through
destruction, accident, casualty, expropriation, condemnation or
otherwise) or its business, or incurred any liability, damage, award or
judgment for injury to the property or business of others or for injury
to any person (in each case, whether or not covered by insurance) in
excess of Pound Sterling100,000 in the aggregate;
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(ii) made any capital expenditure or series of capital
expenditures in excess of Pound Sterling50,000 in the aggregate;
(iii) made any change in the rate of compensation,
commission, bonus or other direct or indirect remuneration payable or to
become payable to any of their respective directors, officers, employees
or agents, or agreed or promised (orally or otherwise) to pay,
conditionally or otherwise, any bonus or extra compensation or other
employee benefit to any of such directors, officers, employees or agents
or, if it has done so, the position immediately prior to the date of
this Agreement is set forth in Schedules 5.15(b) and (d);
(iv) sold, assigned, leased or transferred any of its
assets or properties, other than sales of inventory in the ordinary
course of business;
(v) except as set forth in Schedules 5.9(b) and
(c)(Contracts), amended, renegotiated or terminated (other than by
completion thereof) any Material Contract;
(vi) made any change in its accounting methods,
policies, practices or principles;
(vii) waived or released any rights or claims of
material value, including rights or claims under any Material Contract
or waived or released any rights or claims against any Affiliate,
director, officer or shareholder of the Company or any Affiliate or
Associate of any thereof;
(viii) changed or modified any of the credit, collection
or payment policies, procedures or practices of the Company, including
acceleration of collections of receivables, failure to make or delay in
making collections of receivables, acceleration of payment of payables
or other Liabilities or failure to pay or delay in payment of payables
or other Liabilities;
(ix) engaged in any discount activity with customers of
the Company that has accelerated or would accelerate sales that would
otherwise in the ordinary course of business consistent with past
practices be expected to occur in later periods;
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(x) declared, set aside, paid or made any dividend or
other distribution with respect to any of its shares of capital stock,
or otherwise made any payments to any of its shareholders in their
capacity as such, or redeemed, repurchased or otherwise acquired any
shares of its capital stock or other securities or any rights, options
or warrants to acquire any such shares or other securities;
(xi) made any tax election, changed any annual tax
accounting period, amended any tax return, settled or compromised any
income tax liability, entered into any closing agreement, settled any
tax claim or assessment, surrendered any right to claim a tax refund or
failed to make the payments or consent to any extension or waiver of the
limitations period applicable to any tax claim or assessment; or
(xii) entered into any agreement or Contract (other than
the Transaction Documents) to take any of the types of action described
in subclauses (i) through (xi) of this Section 5.16(b).
Section 5.17. Sufficiency of Assets. The assets and properties
of the Company (including the Business Intellectual Property), whether owned,
leased, licensed or otherwise held, constitute (a) all of the material assets
and rights that are used by the Company in the operation of the Business as it
is being conducted as of the date hereof and (b) all the property, real and
personal, tangible and intangible, necessary for the Company to conduct the
Business after the Closing as it is being conducted as of the date hereof.
Section 5.18. Governmental Approvals. Except as set forth on
Schedule 5.18, no material Consent or order of, with or to any Governmental
Entity is required to be obtained or made by or with respect to the Company in
connection with the consummation of the Transaction.
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Section 5.19 Product Warranty. No product manufactured, sold,
leased or delivered or service rendered by the Company is subject to any
guarantee, warranty or other indemnity beyond those set forth in the terms and
conditions of sale contained in the Material Contracts set forth on Schedule
5.9(a) (Contracts) or as implied by Laws of England which can not be waived or
excluded.
Section 5.20. Insurance.
(a) Schedule 5.20(a) sets forth a complete and accurate list of
all insurance policies and surety bonds which the Company maintains with respect
to the Company or its assets, Liabilities, employees, officers or directors
("Insurance Policies"). Except as set forth on Schedule 5.20(a), the Company has
previously delivered to Buyer true and complete copies of all Insurance
Policies.
(b) The Insurance Policies: (i) in the opinion of the Management
Sellers, will not lapse or be subject to suspension, modification, revocation,
cancellation, termination or nonrenewal by reason of the execution, delivery or
performance of any Transaction Document or consummation of the Transaction; (ii)
in the opinion of the Management Sellers, insure the Company in reasonably
sufficient amounts against all risks except as set forth on Schedule 5.20(b)
usually insured against by Persons operating similar businesses or properties in
the localities where such businesses or properties are located and (iii) are
sufficient for compliance with all material requirements of Law and Contracts.
The Company is current in all premiums or other payments due under each
Insurance Policy and, to the knowledge of the Management Sellers, has otherwise
performed in all material respects all of its respective obligations thereunder.
The Company has not received any notice that any Insurance Policy is not in full
force and effect, and the Management Sellers have no knowledge of any event,
circumstance or condition that would cause (or would be reasonably likely to
cause) any Insurance Policy not to be in full force and effect. The Company has
given timely notice to the insurer under each Insurance Policy of all claims
that may be insured thereby.
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Section 5.21. Bank Accounts; Powers of Attorney. Schedule 5.21
sets forth a complete and accurate list of: (a) all bank accounts, investment
accounts and safe deposit boxes maintained by or on behalf of the Company,
including the location and account numbers of all such accounts and safe deposit
boxes, (b) the names of all Persons authorized to take action with respect to
such accounts and safe deposit boxes or who have access thereto and (c) the
names of all Persons holding general or special powers of attorney from the
Company, and with copies of such documents or a summary statement of the terms
thereof if not in writing.
Section 5.22. No Material Misstatement or Omission. The
Transaction Documents (including any schedule or exhibit thereto) do not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements contained in such Transaction Document not
misleading in any material respect.
Section 5.23. Supplemental Information Reviewed by the Buyer
and/or Its Legal and Financial Advisers. Copies of the documents listed on and
attached to Schedule 5.23 (the "Schedule 5.23 Documents") have been supplied to
the Buyer and/or its legal and/or financial advisors at or prior to Closing.
Except as expressly set forth on Schedule 5.16 or in any of the documents listed
on Schedule 5.16, none of the Schedule 5.23 Documents may have, or includes
information concerning any circumstance, event, condition or other matter that
may have, a Material Adverse Effect. None of the Schedule 5.23 Documents is
material, or includes information that is material concerning any circumstance,
event, condition or other matter that is material, for purposes of Sections 5.1
through 5.22 (inclusive) or any Schedules to such Sections.
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<PAGE> 133
EXHIBIT D
REPRESENTATIONS AND WARRANTIES OF BUYER
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 6.1. Organization ............................ 2
Section 6.2. Authority; Binding Obligation ........... 2
Section 6.3. No Breach ............................... 2
Section 6.4. Governmental Approvals .................. 3
Section 6.5. No Brokers .............................. 3
Section 6.6. Investment Intent ....................... 3
Section 6.7. Buyer Stock ............................. 3
Section 6.8. Securities Act Exemptions ............... 3
Section 6.9. SEC Filings; Financial Statements ....... 4
Section 6.10. No Material Adverse Change .............. 4
</TABLE>
<PAGE> 134
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers as follows:
Section 6.1. Organization. Buyer is a corporation duly
organized, validly existing and is in good standing under the laws of the State
of Delaware.
Section 6.2. Authority; Binding Obligation. Buyer has all
requisite corporate power and authority to execute and deliver each Transaction
Document delivered or to be delivered by Buyer and to perform all of its
obligations hereunder and thereunder. The execution, delivery and performance by
Buyer of each Transaction Document delivered or to be delivered by Buyer and the
consummation by Buyer of the Transaction have been or will be duly authorized by
all necessary and proper action on the part of Buyer. This Agreement has been
duly executed and delivered by Buyer and constitutes the legal, valid and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting the
enforcement of creditors' rights in general and by general principles of equity.
Each other Transaction Document to be delivered by Buyer will be duly executed
and delivered by Buyer and, when so executed and delivered, will constitute the
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting the enforcement of creditors' rights in general and by general
principles of equity.
Section 6.3. No Breach. None of the execution, delivery or
performance by Buyer of any Transaction Document or the consummation by Buyer of
the Transaction does or will, with or without the giving of notice or the lapse
of time or both, conflict with, or result in a breach or violation of, or a
default under (a) the Restated Certificate of Incorporation or By-Laws of Buyer,
(b) any Contract to which Buyer is a party or by which any of its properties or
assets are bound or (c) any Law or License or other requirement to which Buyer
or its properties or assets are subject, except, in the case of items (b) and
(c) above only, for those which would not have, individually or in the
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<PAGE> 135
aggregate, a material adverse effect on the ability of Buyer to consummate the
Transaction.
Section 6.4. Governmental Approvals. Except for the Consents
contemplated by the Registration Rights, no material Consent or order of, with
or to any Governmental Entity is required to be obtained or made by or with
respect to Buyer in connection with the execution, delivery and performance by
Buyer of any Transaction Documents or the consummation by Buyer of the
Transaction, other than those which, if not obtained, would not have,
individually or in the aggregate, a material adverse effect on the ability of
Buyer to consummate the Transaction.
Section 6.5. No Brokers. There is no investment banker, broker,
finder or other intermediary which has been retained by or is authorized to act
on behalf of Buyer who is or might be entitled to any fee, commission or payment
in connection with the negotiation, preparation, execution or delivery of any
Transaction Document or the consummation of the Transaction, nor is there any
basis for any such fee, commission or payment to be claimed by any Person
against Buyer.
Section 6.6. Investment Intent. Buyer is purchasing the Shares
for investment for its own account and not with a view to, or for sale in
connection with, any distribution thereof.
Section 6.7. Buyer Stock. The Buyer Stock to be issued to
Sellers pursuant to this Agreement will be duly authorized, validly issued,
fully paid and non-assessable.
Section 6.8. Securities Act Exemptions. The offer and sale of
shares of Buyer Stock in the manner contemplated by this Agreement will be
exempt from the registration requirements of the Securities Act by reason of
Regulation S and/or Section 4(2) under the Securities Act. Neither Buyer, nor
any of its Affiliates, nor any other Person acting on its or their behalf (i)
has or will at any time offer, sell, contract to sell, pledge or otherwise
dispose of shares of Buyer Stock or other securities of Buyer by means of any
form of general solicitation or general advertising (within the meaning of Rule
502(c) under the Securities Act) or otherwise in a manner which would cause the
exemption afforded by Section 4(2) of the Securities Act to cease to be
applicable to the offer and sale of Buyer Stock under this Agreement or (ii) has
made or
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<PAGE> 136
will make any directed selling efforts in the United States (within the meaning
of Rule 902 under the Securities Act).
Section 6.9. SEC Filings; Financial Statements.
(a) Buyer has filed all forms, reports and documents with the
SEC since November 27, 1998 required to be filed by Buyer, each of which, at the
time it was filed, complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act, each as in effect on
the dates such forms, reports or documents were filed. Buyer has heretofore made
available to Sellers' Representative copies, in the form filed with the SEC
(including any amendments thereto), of (i) its Annual Reports on Form 10-K for
the fiscal year ended September 30, 1999 or (ii) all other reports or
registration statements filed by Buyer with the SEC since November 27, 1998
(collectively, the "Buyer SEC Filings"). The Buyer SEC Filings did not contain,
when filed, any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The consolidated financial statements of Buyer included in
the Buyer SEC Filings complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto and present fairly, in accordance with United
States generally accepted accounting principles applied on a consistent basis
(except as may be indicated in the notes thereto), the consolidated financial
position of Buyer and its consolidated subsidiaries as of the dates set forth
therein and their consolidated results of operations and changes in financial
position for the periods then ended (subject, in the case of unaudited interim
financial statements, to normal year-end adjustments). Since September 30, 1999,
there has not been any change, or any application or request for any change, by
Buyer or any of its consolidated subsidiaries in any accounting principles,
methods or policies for financial accounting or tax purposes.
Section 6.10. No Material Adverse Change. Since September 30,
1999, no event has occurred that has had a material adverse effect on the
business, operations, assets and financial condition of Buyer and its
subsidiaries, taken
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as a whole, other than as disclosed in the Buyer SEC Filings.
5
<PAGE> 1
EXHIBIT 4.1
[Conformed Copy]
FIRST AMENDMENT TO RIGHTS AGREEMENT
This FIRST AMENDMENT TO RIGHTS AGREEMENT (the "Amendment") dated
as of December 9, 1999 between Conexant Systems, Inc., a Delaware corporation
(the "Company"), and ChaseMellon Shareholder Services, L.L.C. (the "Rights
Agent") is entered into to amend the Rights Agreement dated as of November 30,
1998 in the following particulars only:
W I T N E S S E T H :
WHEREAS, the Company and the Rights Agent are party to the
Rights Agreement dated as of November 30, 1998 (the "Agreement");
WHEREAS, the Board of Directors of the Company authorized the
increase of the Purchase Price (as defined in the Agreement) to $300 effective
September 13, 1999, subject to adjustment as provided in the Agreement;
WHEREAS, the Board of Directors of the Company has authorized
and directed the issuance of Rights with respect to certain Common Shares of the
Company that may become outstanding after the Distribution Date and an amendment
to the Agreement to so provide; and
WHEREAS, the Company and the Rights Agent desire to amend the
Agreement as set forth herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements hereinafter contained, the parties agree as follows:
1. Definitions. Capitalized terms used in this Amendment and
defined in the Agreement shall, unless otherwise indicated in this Amendment,
have the meanings ascribed to such terms in the Agreement.
2. Amendment of Preamble. The second paragraph of the preamble
of the Agreement is hereby amended by adding at the end thereof the following:
"; provided, however, that Rights may be issued with respect to Common Shares
that shall become outstanding after the Distribution Date and prior to the
earlier of the Redemption Date and the Final Expiration Date in accordance with
the provisions of Section 22 hereof."
<PAGE> 2
3. Amendment of Section 7(a). The last sentence of Section 7(a)
of the Agreement is hereby amended and restated in its entirety to read as
follows:
"The purchase price (the 'Purchase Price') for each one one-hundredth of a
Preferred Share purchasable pursuant to the exercise of a Right shall be $300.00
effective September 13, 1999, and shall be subject to adjustment from time to
time as provided in Section 11 or 13 hereof and shall be payable in lawful money
of the United States of America in accordance with paragraph (c) below."
4. Amendment of Section 22. Section 22 of the Agreement is
hereby amended by adding at the end thereof the following:
"In addition, in connection with the issuance or sale of Common Shares following
the Distribution Date and prior to the earlier of the Redemption Date and the
Final Expiration Date, the Company (a) shall with respect to Common Shares so
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 the Company and in existence prior to the
Distribution Date, and (b) may, in any other case, if deemed necessary or
appropriate by the Board of Directors of the Company, issue Right Certificates
representing the appropriate number of Rights in connection with such issuance
or sale; provided, however, that (i) the Company shall not be obligated to issue
any such Right Certificates if, and to the extent that, the Company shall be
advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Right Certificate would be issued or would create a significant risk of such
options or employee plans or arrangements failing to qualify for otherwise
available special tax treatment, and (ii) no such Right Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof."
5. Interpretation. In the event of any inconsistency or
contradiction between the terms of this Amendment and the Agreement, the
provisions of this Amendment shall prevail and control. Except as expressly
amended by this Amendment, the Agreement shall remain in full force and effect.
6. Effectiveness. This Amendment shall become effective when it
has been executed by each party hereto.
7. Counterparts. This Amendment may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an
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<PAGE> 3
original, and all such counterparts shall together constitute but one and the
same instrument.
8. Governing Law. This Amendment for all purposes shall be
governed by and construed in accordance with the laws of the State of Delaware
applicable to contracts to be made and performed entirely within such State,
without regard to the conflicts of law principles of such State.
9. Severability. If any term, provision, covenant or restriction
of this Amendment is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Amendment and of the Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and attested, all as of the day and year first
above written.
CONEXANT Systems, Inc.
Attest:
By /s/ Jasmina A. Theodore By /s/ Dwight W. Decker
------------------------------------- -------------------------------
Title: Assistant Secretary Title: Chairman and Chief
Executive Officer
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C., as Rights
Agent
Attest:
By /s/ Ron Lug By /s/ Sharon Knepper
------------------------------------- ------------------------------
Title: Vice President Title: Vice President
<PAGE> 1
EXHIBIT 10.1
[Conformed Copy]
FOURTH AMENDMENT TO LOAN DOCUMENTS
THIS FOURTH AMENDMENT ("Amendment"), dated as of November 23,
1999, is entered into by and among Conexant Systems, Inc., (the "Company"), each
of the Subsidiaries party to the Credit Agreement (as defined below) as of the
date hereof (the "Borrower Subsidiaries" and together with the Company, each a
"Borrower" and collectively, the "Borrowers"), the Lenders party to the Credit
Agreement, the Issuing Bank (as defined in the Credit Agreement) and Credit
Suisse First Boston, a bank organized under the laws of Switzerland, acting
through its New York branch, as administrative agent (in such capacity, the
"Administrative Agent") and as collateral agent for the Lenders (in such
capacity, the "Collateral Agent", and together with the Administrative Agent,
the "Agents").
RECITALS
A. The Borrowers, Lenders, the Issuing Bank and the Agents are
parties to a certain Credit Agreement dated as of December 21, 1998 (as amended
prior to the date hereof, the "Credit Agreement") pursuant to which the Lenders
have agreed to extend credit to the Borrower.
B. The Company has requested that the Lenders amend certain
provisions of the Credit Agreement.
C. The parties are willing to amend and modify the Credit
Agreement subject to the terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings, if any, assigned to them in the
Credit Agreement, as amended.
2. AMENDMENT OF CREDIT AGREEMENT.
(a) Section 2.13(c) of the Credit Agreement is amended to read
in its entirety as follows:
"(c) Not later than the third Business Day following the
receipt of Net Cash Proceeds in respect of any Restricted
Indebtedness, which, when added to the Net Cash Proceeds of all
Restricted Indebtedness previously incurred, created or assumed
since the Closing Date exceed $100,000,000 in the aggregate, the
Total Revolving Commitment shall be reduced on a dollar for
dollar basis by the amount of such Net Cash Proceeds from
Restricted Indebtedness in the aggregate in excess of
$100,000,000, provided, however, that in determining the
foregoing
<PAGE> 2
there shall be excluded from Net Cash Proceeds any and all
proceeds arising from Indebtedness referred to in clauses (2)
and (3) of the definition of "Acquisition Cost" in Section 6.4."
(b) Section 6.4(b)(ii) of the Credit Agreement is amended to
read in its entirety as follows:
"(ii) investments selected by the Company in accordance
with its Investment Authority policy as adopted by the Company
on December 14, 1998 (as the same may be amended to time to
time);"
(c) Section 6.4(b)(xiii) of the Credit Agreement is amended to
read in its entirety as follows:
"(xiii) other Investments of any kind in a Related
Business; provided, that:
(x) no Default or Event of Default exists at the
time of making such Investment or would result from the
making of such Investment; and
(y) the Company shall have delivered to the
Administrative Agent a certificate certifying that at
the time of and immediately after giving effect to any
such Investment, the ratio of (1) the Total Debt of the
Company and its Subsidiaries on the date of such
Investment (including all Indebtedness incurred in
connection with or resulting from such Investment that
would constitute Total Debt) to (2) the sum of, without
duplication, (I) Pro Forma Acquisition EBITDA of the
entity, business, property or assets acquired pursuant
to such Investment, plus (II) Consolidated EBITDA, in
each case for the period of four fiscal quarters most
recently ended prior to the date of such Investment,
shall be equal to or less than 2.25:1 on the subject
date; provided, that the Company shall have no
obligation to deliver a certificate certifying the
information set forth in this clause (y) in respect of
any Investment in a Related Business which has an
Acquisition Cost of less than $10,000,000 until the
first to occur of:
(i) the aggregate Acquisition Cost of all such
Investments for which no certificate has been
delivered pursuant to this clause (y) exceeds
$25,000,000, or
(ii) the Company makes such an Investment with
an Acquisition Cost equal to or greater than
$10,000,000, at which time the Company shall
deliver the certificate certifying the
information set forth in this clause (y) on a
combined basis for all such
2
<PAGE> 3
Investments in a Related Business for which no
certificate has previously been delivered
pursuant to such clause; and
(z) in the case of an Investment in a Foreign
Entity, immediately before and after giving effect
thereto:
(i) the dollar equivalent of the aggregate
Company Share of the Tangible Assets of all
Foreign Entities in which the Company or any of
its Subsidiaries holds Investments shall not
exceed 20% of the Tangible Assets of the Company
and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP as of
the date of the most recent financial statements
filed pursuant to Section 5.4 of the Credit
Agreement; and
(ii) the dollar equivalent of the aggregate
Company Share of the Tangible Net Worth of all
Foreign Entities in which the Company or any of
its Subsidiaries holds Investments shall not
exceed 20% of the Tangible Net Worth of the
Company and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP as of
the date of the most recent financial statements
filed pursuant to Section 5.4 of the Credit
Agreement;
provided, however, that this clause (z) shall not permit
Investments of the type referred to in Section
6.4(a)(iv) in a Foreign Entity in which neither the
Company nor any of its Subsidiaries holds an Investment
consisting of capital stock or other equity interests.
For purposes of this Agreement, the terms set forth below shall
have the following meanings:
"Acquisition Cost" shall mean, with respect to any
Investment, the sum of, without duplication, (1) the amount of
any money paid to acquire such Investment, plus (2) the
principal amount of any Indebtedness issued by the Company or
any Subsidiary to acquire such Investment, plus (3) the
principal amount of any Indebtedness assumed in connection with
the acquisition of such Investment (including, in the case of
the acquisition of capital stock or other equity securities of
any person that, after giving effect to such acquisition,
becomes a Subsidiary, the principal amount of the Indebtedness
of such person outstanding on the date it becomes a Subsidiary,
after giving effect to any prepayment or repayment of
Indebtedness made contemporaneously with such acquisition), plus
(4) in the case of any Investment of the type referred to in
Section 6.4(a)(iii), the fair market value, as determined by the
board of directors of the Company, of any property contributed
in kind to any person other than any Subsidiary Guarantor which
is a Domestic Subsidiary.
"Company Share" shall mean, with respect to any Person
in which the
3
<PAGE> 4
Company or any Subsidiary holds an Investment consisting of
capital stock or other equity interests, a percentage equal to
the Company's or such Subsidiary's aggregate interest in the
capital or profits of such Person (whichever is less).
"Foreign Entity" shall mean any Foreign Subsidiary or
any other Person not incorporated or organized under the laws of
the United States of America, any State thereof or the District
of Columbia.
"Intangible Assets" shall mean assets that are
considered to be intangible assets under GAAP.
"Tangible Assets" shall mean, with respect to any
Person, the assets of such Person determined in accordance with
GAAP, exclusive of Intangible Assets of such Person.
"Tangible Net Worth" shall mean, with respect to any
Person, the Net Worth of such Person, less the value of the
Intangible Assets of such Person determined in accordance with
GAAP."
(d) Section 6.5(a)(i) of the Credit Agreement is amended to read
in its entirety as follows:
"(i) if at the time thereof and immediately after giving
effect thereto no Default or Event of Default shall have
occurred and be continuing (A) any wholly-owned Subsidiary may
merge into the Company in a transaction in which the Company is
the surviving corporation, (B) any wholly-owned Subsidiary may
merge into or consolidate with any other wholly-owned Subsidiary
that is a Subsidiary Guarantor and is a Domestic Subsidiary in a
transaction in which the surviving entity is a wholly-owned
Subsidiary that is a Subsidiary Guarantor and is a Domestic
Subsidiary and no person other than the Company or a
wholly-owned Subsidiary that is a Subsidiary Guarantor and is a
Domestic Subsidiary receives any consideration, (C) the Company
or any Subsidiary may merge or consolidate with any other person
in connection with any Investment permitted by Section
6.4(a)(i), provided that, to the extent the Company is a party
to such a merger or consolidation with a Foreign Entity, the
Company shall be the surviving corporation, (D) any wholly-owned
Foreign Entity may merge into or consolidate with any other
wholly-owned Foreign Entity, (E) any wholly-owned Foreign Entity
may merge into or consolidate with the Company or any
wholly-owned Subsidiary that is a Subsidiary Guarantor and is a
Domestic Subsidiary in a transaction in which the surviving
entity is the Company or a wholly-owned Subsidiary that is a
Subsidiary Guarantor and is a Domestic Subsidiary and (F) any
Foreign Entity may merge into or consolidate with any
wholly-owned Foreign Entity in a transaction in which the
surviving entity is a wholly-owned Foreign Entity in a
transaction permitted by Section 6.4; and"
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<PAGE> 5
(e) The parenthetical beginning on the third line of Section
6.5(a)(ii)(C) of the Credit Agreement is amended to read as follows:
"(within 60 days after the occurrence of such sale or
disposition of property)"
3. REPRESENTATIONS AND WARRANTIES. The Borrowers hereby
represent and warrant to the Administrative Agent and the Lenders as follows:
(a) No Default or Event of Default has occurred and is
continuing after giving effect to this Amendment.
(b) The execution, delivery and performance by the Borrowers of
this Amendment has been duly authorized by all necessary corporate and other
action and do not and will not require any registration with, consent or
approval of, notice to or action by, any Person in order to be effective and
enforceable. The Credit Agreement, as amended by this Amendment, constitutes the
legal, valid and binding obligation of the Borrowers parties thereto,
enforceable against them in accordance with its terms.
(c) All representations and warranties of the Borrowers
contained in the Credit Agreement and in the other Loan Documents are true and
correct in all material respects as of the date hereof with the same effect as
though made on the date hereof and as though applied to the Credit Agreement as
herein amended, except to the extent such representations and warranties
expressly relate to an earlier date.
(d) The Borrowers are entering into this Amendment on the basis
of their own investigation and for their own reasons, without reliance upon the
Agents, the Lenders or any other Person.
4. EFFECTIVENESS DATE. This Amendment shall become effective as
of the date (the "Closing Date") as of which the Administrative Agent shall have
received, in form and substance satisfactory to the Administrative Agent,
counterparts (or if elected by the Administrative Agent, an executed facsimile
copy) of (i) this Amendment executed by the Required Lenders, the Borrowers and
the Agents and (ii) the Guarantor Acknowledgment and Consent annexed to this
Amendment, executed by each of the Guarantors.
5. RESERVATION OF RIGHTS. The Borrowers acknowledge and agree
that the execution and delivery by the Agents and the Lenders of this Amendment,
shall not be deemed (i) to create a course of dealing or otherwise obligate the
Agents or the Lenders to forbear or execute similar amendments under the same or
similar circumstances in the future, or (ii) to amend, relinquish or impair any
right of the Agents or the Lenders to receive any indemnity or similar payment
from any Person or entity as a result of any matter arising from or relating to
this Amendment.
6. MISCELLANEOUS.
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<PAGE> 6
(a) Except as herein amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and effect
and all references therein to the Credit Agreement shall henceforth refer to the
Credit Agreement as amended by this Amendment. This Amendment shall be deemed
incorporated into, and a part of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns. No
third party beneficiaries are intended in connection with this Amendment.
(c) This Amendment shall be governed by and construed in
accordance with the law of the State of New York.
(d) This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each of
the parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by the Administrative Agent of a facsimile transmitted document
purportedly bearing the signature of a Lender or a Borrower shall bind such
Lender or such Borrower, respectively, with the same force and effect as the
delivery of a hard copy original. Any failure by the Administrative Agent to
receive the hard copy executed original of such document shall not diminish the
binding effect of receipt of the facsimile transmitted executed original of such
document of the party whose hard copy page was not received by the
Administrative Agent.
(e) This Amendment, together with the Credit Agreement and the
other Loan Documents, contains the entire and exclusive agreement of the parties
hereto with reference to the matters discussed herein and therein. This
Amendment supersedes all prior drafts and communications with respect thereto.
This Amendment may not be amended except in accordance with the provisions of
Section 9.8 of the Credit Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or of
the Credit Agreement, the Pledge Agreement and the Security Agreement.
(g) The Borrowers covenant to pay to or reimburse the
Administrative Agent, upon demand, for all reasonable costs and expenses
(including costs of its outside legal counsel and allocated costs of in-house
counsel) actually incurred by the Administrative Agent in connection with the
development, preparation, negotiation, execution and delivery of this Amendment.
(h) The Borrowers (and each Guarantor by execution of the
Acknowledgment) confirm that the Security Documents secure the Obligations under
the Credit Agreement as amended by this Amendment. Each Guarantor by execution
of the Acknowledgment confirms
6
<PAGE> 7
that the benefit of such Guarantor's Company Guarantee Agreement or Subsidiary
Guarantee Agreement, as applicable, applies to all Obligations under the Credit
Agreement as amended by this Amendment.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Amendment as of the date first above written.
CONEXANT SYSTEMS, INC.
By: /s/ Kerry K. Petry
-----------------------------------------
Name: Kerry K. Petry
Title: Vice President and Treasurer
CONEXANT SYSTEMS FRANCE S.A.S.
By: /s/ Marc Ugolini
-----------------------------------------
Name: Marc Ugolini
Title: Director of Finance & Administration,
Europe
CONEXANT SYSTEMS U.K. LIMITED
By: /s/ Kerry K. Petry
-----------------------------------------
Name: Kerry K. Petry
Title: Treasurer
CONEXANT SYSTEMS HOLDINGS LIMITED
By: /s/ Kerry K. Petry
-----------------------------------------
Name: Kerry K. Petry
Title: Treasurer
CREDIT SUISSE FIRST BOSTON, as a Lender, Issuing
Bank, Administrative Agent, Collateral Agent and
Swingline Lender
By: /s/ Chris T. Horgan
-----------------------------------------
Name: Chris T. Horgan
Title: Vice President
<PAGE> 9
By: /s/ Bill O'Daly
-----------------------------------------
Name: Bill O'Daly
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
as a Lender
By: /s/ Glenn Leyrer
-----------------------------------------
Name: Glenn Leyrer
Title: Vice President
BANK POLSKA KASA OPIEKI, S.A.-PEKAO S.A. GROUP,
NEW YORK BRANCH,
as a Lender
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
BANQUE NATIONALE DE PARIS,
as a Lender
By: /s/ C. Bettles
-----------------------------------------
Name: C. Bettles
Title: Senior Vice President & Manager
By: /s/ Tjalling Terpstra
-----------------------------------------
Name: Tjalling Terpstra
Title: Vice President
COMERICA WEST INCORPORATED,
as a Lender
By: /s/ Emmanuel M. Skevofilax
-----------------------------------------
Name: Emmanuel M. Skevofilax
Title: Vice President
<PAGE> 10
BANK ONE, N.A.
(f.k.a. The First National Bank of Chicago),
as a Lender
By: /s/ Mark A. Isley
-----------------------------------------
Name: Mark A. Isley
Title: First Vice President
KEYBANK NATIONAL ASSOCIATION,
as a Lender
By: /s/ Mary K. Young
-----------------------------------------
Name: Mary K. Young
Title: Assistant Vice President
NATIONAL BANK OF CANADA,
as a Lender
By: /s/ David W. Shaw
-----------------------------------------
Name: David W. Shaw
Title: Vice President
By: /s/ Mark A. Tito
-----------------------------------------
Name: Mark A. Tito
Title: Vice President
TRANSAMERICA COMMERCIAL FINANCE CORPORATION,
as a Lender
By: /s/ Christopher C. Meals
-----------------------------------------
Name: Christopher C. Meals
Title: Vice President - Credit
<PAGE> 11
CHIAO TUNG BANK,
as a Lender
By: /s/ Mike Chiu
-----------------------------------------
Name: Mike Chiu
Title: Senior Vice President & General Manager
HAMILTON BANK,
as a Lender
By: /s/ Hector F. Ramirez
-----------------------------------------
Name: Hector F. Ramirez
Title: Senior Vice President
By: /s/ Adolfo D. Martinez
-----------------------------------------
Name: Adolfo D. Martinez
Title: Senior Vice President
IBM CREDIT CORPORATION,
as a Lender
By: /s/ Sal Grasso
-----------------------------------------
Name: Sal Grasso
Title: Manager of Credit
UBS AG, STAMFORD BRANCH,
as a Lender
By: /s/ Robert H. Riley III
-----------------------------------------
Name: Robert H. Riley III
Title: Executive Director
By: /s/ Wilfred Saint
-----------------------------------------
Name: Wilfred Saint
Title: Associate Director
Loan Portfolio Support, US
<PAGE> 12
GUARANTOR ACKNOWLEDGMENT AND CONSENT
The undersigned, each a guarantor or third party pledgor with
respect to the Borrowers' obligations to the Agents and the Lenders under the
Credit Agreement, each hereby (i) acknowledges and consents to the execution,
delivery and performance by the Company and the Borrower Subsidiaries of the
foregoing Fourth Amendment to Credit Agreement ("Amendment"), and (ii) reaffirm
and agree that the respective guaranty, pledge agreement or security agreement
to which the undersigned is party and all other documents and agreements
executed and delivered by the undersigned to the Administrative Agent or the
Collateral Agent and the Lenders in connection with the Credit Agreement are in
full force and effect, without defense, offset or counterclaim. (Capitalized
terms used herein have the meanings specified in the Amendment.)
GUARANTORS
CONEXANT SYSTEMS, INC.
CONEXANT SYSTEMS WORLDWIDE, INC.
BROOKTREE CORPORATION
BROOKTREE WORLDWIDE SALES CORPORATION
By: /s/ Kerry K. Petry
-----------------------------------------
Name: Kerry K. Petry
Title: Treasurer
November 23, 1999
<PAGE> 1
EXHIBIT 12
CONEXANT SYSTEMS, INC.
STATEMENT RE: COMPUTATION OF RATIOS
(unaudited, dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, 1999
------------------
<S> <C>
RATIO OF EARNINGS TO FIXED CHARGES
Earnings:
Income before provision for income taxes $74,045
Add: Fixed charges, net of capitalized
interest 4,550
-------
$78,595
=======
Fixed charges:
Interest expense $ 3,567
Capitalized interest 624
Interest portion of rental expense 983
-------
$ 5,174
=======
Ratio of earnings to fixed charges 15.2x
=======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONEXANT
SYSTEMS INC.'S UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-02-1999
<PERIOD-END> DEC-31-1999
<CASH> 277,516
<SECURITIES> 0
<RECEIVABLES> 293,053
<ALLOWANCES> 6,545
<INVENTORY> 222,712
<CURRENT-ASSETS> 932,462
<PP&E> 1,673,245
<DEPRECIATION> 914,079
<TOTAL-ASSETS> 1,987,544
<CURRENT-LIABILITIES> 354,663
<BONDS> 350,000
0
0
<COMMON> 198,128
<OTHER-SE> 985,382
<TOTAL-LIABILITY-AND-EQUITY> 1,987,544
<SALES> 509,963
<TOTAL-REVENUES> 509,963
<CGS> 277,446
<TOTAL-COSTS> 277,446
<OTHER-EXPENSES> 88,477
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,567
<INCOME-PRETAX> 74,045
<INCOME-TAX> 22,214
<INCOME-CONTINUING> 51,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,831
<EPS-BASIC> 0.26
<EPS-DILUTED> 0.24
</TABLE>
<PAGE> 1
EXHIBIT 99.1
Editorial contacts: Investor Relations contacts:
Thomas Stites Michael Cortright
Conexant Systems, Inc. Conexant Systems Inc.
949-483-1492 (949) 483-6773
[email protected] [email protected]
CONEXANT COMPLETES OFFERING OF
$500 MILLION OF CONVERTIBLE SUBORDINATED NOTES
NEWPORT BEACH, Calif., January 28, 2000 - Conexant Systems, Inc., (NASDAQ:CNXT),
today announced that it has completed the private offering of $500 million
aggregate principal amount (excluding any proceeds from an over-allotment
option) of its 4% Convertible Subordinated Notes Due 2007. The notes are
convertible into the company's common stock at a conversion price of $108 per
share.
The company intends to use the net proceeds for general corporate purposes,
including potential acquisitions. The securities offered have not been
registered under the Securities Act of 1933, as amended, or applicable state
securities laws, and may not be offered or sold in the United States absent
registration under the Securities Act and applicable state securities laws or
available exemptions from such registration requirements.
Safe Harbor Statement:
This press release contains statements relating to future results of the company
(including certain projections and business trends) that are "forward-looking
statements" as defined in the Private Securities Litigation Reform Act of 1995.
Actual results may differ materially from those projected as a result of certain
risks and uncertainties. These risks and uncertainties include, but are not
limited to: global and market conditions, including, but not limited to, the
cyclical nature of the semiconductor industry and the markets addressed by the
company's and its customers' products; demand for and market acceptance of new
and existing products; successful development of new products; the timing of new
product introductions; the availability and extent of utilization of
manufacturing capacity; pricing pressures and other competitive factors; changes
in product mix; fluctuations in manufacturing yields; product obsolescence; the
ability to develop and implement new technologies and to obtain protection for
the related intellectual property; the successful implementation of the
company's diversification strategy; labor relations of the company, its
customers and suppliers; timely completion of Year 2000 modifications by the
company and its key suppliers and customers; and the uncertainties of
litigation, as well as other risks and uncertainties, including but not limited
to those detailed from time to time in the company's Securities and Exchange
Commission filings. These forward-looking statements are made only as of the
date hereof, and the company undertakes no obligation to update or revise the
forward-looking statements, whether as a result of new information, future
events or otherwise. Other brands and names contained in this release are the
property of their respective owners.
With revenues of approximately $1.5 billion, Conexant is the world's largest
independent company focused exclusively on providing semiconductor products and
systems solutions for communications electronics. With more than 30 years of
experience in developing communications technology, the company draws upon its
expertise in mixed-signal processing 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. The company aligns its business into five
product platforms: Network Access,
<PAGE> 2
Wireless Communications, Digital Infotainment, Personal Imaging, and Personal
Computing. Conexant is a member of the Nasdaq-100 Index, which represents the
largest and most active stocks listed on The Nasdaq Stock Market across major
industry groups. For more information, visit Conexant at www.conexant.com.
# # #
