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Registration Statement No. 333-44094
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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CONEXANT SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Delaware 3674 25-1799439
(State or other jurisdiction of (Primary Standard Industrial Classification Code Number) (I.R.S. Employer
incorporation or organization) Identification No.)
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4311 Jamboree Road
Newport Beach, California 92660-3095
(949) 483-4600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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DENNIS E. O'REILLY, ESQ.
Senior Vice President,
General Counsel and Secretary
Conexant Systems, Inc.
4311 Jamboree Road
Newport Beach, California 92660-3095
(949) 483-4600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
PETER R. KOLYER, ESQ. EDWARD A. SHAPIRO, ESQ.
Chadbourne & Parke LLP Shapiro, Israel & Weiner, P.C.
30 Rockefeller Plaza 100 North Washington Street
New York, New York 10112 Boston, Massachusetts 02114
(212) 408-5100 (617) 742-4200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the
"Securities Act"), check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
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<PAGE> 2
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
<PAGE> 3
THE INFORMATION IN THIS PROXY STATEMENT-PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. CONEXANT SYSTEMS, INC. MAY NOT SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS
EFFECTIVE. THIS PROXY STATEMENT-PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY
STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE> 4
HARRIS & JEFFRIES, INC.
888 WASHINGTON STREET
DEDHAM, MASSACHUSETTS 02026
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August 30, 2000
To the Stockholders of Harris & Jeffries, Inc.:
Harris & Jeffries, Inc. (d/b/a NetPlane Systems) and Conexant Systems, Inc.
have agreed to a merger in which Harris & Jeffries will become a wholly-owned
subsidiary of Conexant.
As a result of the merger, you will receive shares of Conexant common stock
in exchange for any shares of Harris & Jeffries common stock or preferred stock
you own immediately prior to the merger. Any outstanding options for Harris &
Jeffries common stock issued under the Harris & Jeffries Stock Option Plan that
you hold immediately prior to the merger will become options for Conexant common
stock.
The board of directors of Harris & Jeffries invites you to attend a special
meeting of stockholders to be held on Thursday, September 28, 2000 at the
Holiday Inn Boston-Dedham, 55 Ariadne Road, Dedham, Massachusetts 02026,
commencing at 10:00 a.m. local time to consider and vote upon a proposal to
approve and adopt the merger agreement and the merger and the other proposals
described in the notice of special meeting that accompanies this letter.
The board of directors of Harris & Jeffries has carefully considered the
terms of the proposed merger, has determined that the merger agreement and the
merger are in the best interests of Harris & Jeffries and its stockholders, and
unanimously recommends that you vote FOR approval and adoption of the merger
agreement and the merger and FOR each of the other proposals to be voted on at
the special meeting and described in the proxy statement-prospectus that
accompanies this letter.
We appreciate your support in this very important transaction. We are very
enthusiastic about the merger with Conexant and believe that the combined
company will grow and prosper in a competitive marketplace. On behalf of the
board of directors of Harris & Jeffries, I urge you to vote FOR each of the
proposals.
PLEASE READ THE ACCOMPANYING PROXY STATEMENT-PROSPECTUS CAREFULLY FOR
DETAILED INFORMATION ABOUT THE PROPOSED MERGER AND CONSIDER THE RISK FACTORS
BEGINNING ON PAGE 15 OF THE PROXY STATEMENT-PROSPECTUS.
Sincerely,
/s/ Deepak Shahane
Deepak Shahane
President and Chief Executive Officer
<PAGE> 5
HARRIS & JEFFRIES, INC.
888 WASHINGTON STREET
DEDHAM, MASSACHUSETTS 02026
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, SEPTEMBER 28, 2000
TO THE STOCKHOLDERS OF HARRIS & JEFFRIES, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Harris &
Jeffries, Inc. will be held on Thursday, September 28, 2000 at the Holiday Inn
Boston-Dedham, 55 Ariadne Road, Dedham, Massachusetts 02026, commencing at 10:00
a.m. local time for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of July 19, 2000, as amended, by and
among Conexant Systems, Inc., a Delaware corporation, H&J Acquisition Sub,
Inc., a Delaware corporation and a wholly-owned subsidiary of Conexant, and
Harris & Jeffries, Inc., a Massachusetts corporation, and the merger
provided for therein, as described in more detail in the proxy
statement-prospectus that accompanies this notice.
2. To consider and vote upon a proposal to approve an amendment to the
Harris & Jeffries Articles of Organization to increase the number of shares
of Harris & Jeffries common stock authorized for issuance from 14,800,000
shares to 16,280,000 shares.
3. To consider and vote upon a proposal to approve an increase in the
number of shares of Harris & Jeffries common stock for which options may be
granted under the Harris & Jeffries Stock Option Plan from 2,000,000 shares
to 2,771,022 shares.
4. To consider and vote upon a proposal to ratify the following
actions: (a) the amendment of the Harris & Jeffries Stock Option Plan on
November 26, 1996, March 6, 1997, October 19, 1999 and July 19, 2000; (b)
the purchase of NetPlane Network Technologies (India) Private Limited, a
capital contribution made by Harris & Jeffries to NetPlane Network
Technologies (India) Private Limited, and the designation of NetPlane
Systems International, LLC as Harris & Jeffries' nominee to hold 7,252
shares of NetPlane Network Technologies (India) Private Limited on behalf
of Harris & Jeffries; (c) the increase in the number of authorized shares
of common stock of Harris & Jeffries from 6,250,000 shares to 6,900,000
shares effected on October 2, 1998; and (d) the increase in the number of
authorized shares of preferred stock of Harris & Jeffries from 1,150,000
shares to 1,650,000 shares effected on October 2, 1998.
5. To consider and vote upon a proposal to approve an amendment to
the Harris & Jeffries Articles of Organization to eliminate a provision
that gives holders of Harris & Jeffries preferred stock the right to
receive a greater share of the merger consideration than holders of common
stock, in the event that the average daily closing sales prices of Conexant
common stock for the five trading day period preceding the day before the
day the merger becomes effective is less that $37.13 per share (or $37.50
per share if items 2 and 3 are approved by the stockholders at the special
meeting).
6. To transact any other business that may properly come before the
meeting or any adjournment or postponement thereof.
Stockholders of record at the close of business on Monday, August 28, 2000
are entitled to notice of, and to vote at, the special meeting and any
adjournment or postponement thereof.
Holders of shares of Harris & Jeffries common stock on the record date will
be entitled to one vote for each share of common stock held on each matter
submitted to a vote at the special meeting. Holders of shares of Harris &
Jeffries preferred stock on the record date will have the right to vote (x)
together with holders of Harris & Jeffries common stock (as if the preferred
stock had been converted into common stock) on each matter that stockholders
will act upon at the special meeting, and (y) also as a separate class with
respect to the approval and adoption of the merger agreement and the merger and
the proposal to amend the Harris & Jeffries articles of organization referred to
in item 5 above.
The affirmative votes of holders of (i) at least two-thirds of the combined
voting power of the shares of Harris & Jeffries common stock and preferred stock
outstanding and entitled to vote, voting together as a class, and (ii) at least
two-thirds of the shares of Harris & Jeffries preferred stock outstanding and
entitled to vote, voting separately
<PAGE> 6
as a class, are required to approve and adopt the merger agreement and the
merger and the proposal to amend the Harris & Jeffries articles of organization
referred to in item 5 above. The affirmative vote of at least a majority of the
votes entitled to be cast by holders of all shares of Harris & Jeffries common
stock and preferred stock outstanding and entitled to vote, voting together as a
class, is required to approve each of the other matters to be voted on at the
special meeting.
Seven stockholders of Harris & Jeffries, who beneficially own and have
voting control over approximately 69.9% of the outstanding shares of Harris &
Jeffries common stock and 100% of the outstanding shares of Harris & Jeffries
preferred stock, have agreed to vote FOR the approval and adoption of the merger
agreement and the merger. These shares represent more than the number of votes
necessary to approve and adopt the merger agreement and the merger.
Each proposal will be voted on separately by the stockholders of Harris &
Jeffries, and no proposal is conditioned upon the approval of any other
proposal. However, Harris & Jeffries will not proceed with the option grants
that would be authorized if item 3 is approved unless the increase in the
authorized shares described in item 2 is approved.
Please complete, sign, date and promptly return the enclosed form of proxy
in the self-addressed and stamped envelope provided even if you plan to attend
the special meeting. If you decide to attend the special meeting you may vote in
person even if you have returned a proxy.
Holders of outstanding shares of Harris & Jeffries common stock and
preferred stock have the right to dissent from the merger and receive payment
for their shares. The accompanying proxy statement-prospectus describes these
rights in greater detail.
THE BOARD OF DIRECTORS OF HARRIS & JEFFRIES HAS CAREFULLY CONSIDERED THE
TERMS OF THE PROPOSED MERGER, HAS DETERMINED THAT THE MERGER AGREEMENT AND THE
MERGER ARE IN THE BEST INTERESTS OF HARRIS & JEFFRIES AND ITS STOCKHOLDERS, AND
UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE MERGER AND FOR EACH OF THE OTHER PROPOSALS SET FORTH ABOVE.
By Order of the Board of Directors
/s/ David S. Jeffries
David S. Jeffries
Corporate Clerk of Harris & Jeffries, Inc.
Dedham, Massachusetts
August 30, 2000
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND RETURN YOUR PROXY.
PLEASE DO NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY.
<PAGE> 7
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS OF
HARRIS & JEFFRIES, INC.
PROSPECTUS OF
CONEXANT SYSTEMS, INC.
UP TO 2,727,000 SHARES OF COMMON STOCK
(INCLUDING ASSOCIATED PREFERRED SHARE PURCHASE RIGHTS)
Conexant Systems, Inc. and Harris & Jeffries, Inc. have signed a merger
agreement. As a result of the proposed merger, Harris & Jeffries will become a
wholly-owned subsidiary of Conexant.
We are providing this proxy statement-prospectus to you in connection with
the Harris & Jeffries board of directors' solicitation of proxies for use at a
special meeting of the stockholders of Harris & Jeffries.
THIS PROXY STATEMENT-PROSPECTUS PROVIDES YOU WITH ADDITIONAL INFORMATION
ABOUT THE MERGER AGREEMENT AND THE PROPOSED MERGER AND EACH OF THE OTHER
PROPOSALS TO BE VOTED ON AT THE SPECIAL MEETING. CONEXANT PROVIDED THE
INFORMATION CONCERNING CONEXANT. HARRIS & JEFFRIES PROVIDED THE INFORMATION
CONCERNING HARRIS & JEFFRIES. PLEASE SEE "HOW TO OBTAIN MORE INFORMATION"
STARTING ON PAGE 108 FOR ADDITIONAL INFORMATION ABOUT CONEXANT.
Conexant is a Delaware corporation and shares of Conexant common stock
trade on the Nasdaq National Market under the symbol "CNXT". Harris & Jeffries
is a privately held Massachusetts corporation with fewer than fifty
stockholders.
WE STRONGLY URGE YOU TO READ AND CONSIDER CAREFULLY THIS PROXY
STATEMENT-PROSPECTUS IN ITS ENTIRETY, INCLUDING THE MATTERS REFERRED TO UNDER
"RISK FACTORS" BEGINNING ON PAGE 15.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS
PROXY STATEMENT-PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT-PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
We are first mailing this proxy statement-prospectus and the form of proxy
on or about August 30, 2000.
August 30, 2000
<PAGE> 8
TABLE OF CONTENTS
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Page
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ADDITIONAL INFORMATION.................................................................................. iv
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................................................. 1
SUMMARY................................................................................................. 4
RISK FACTORS............................................................................................ 15
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS............................................... 38
THE HARRIS & JEFFRIES SPECIAL MEETING................................................................... 39
Date, Time and Place............................................................................... 39
Matters to be Considered........................................................................... 39
Recommendation of Harris & Jeffries Board of Directors............................................. 40
Record Date........................................................................................ 41
Voting Power; Quorum............................................................................... 41
Vote Required...................................................................................... 41
Proxies............................................................................................ 42
Revocability of Proxies............................................................................ 42
Solicitation of Proxies; Expenses.................................................................. 42
APPRAISAL RIGHTS........................................................................................ 42
THE MERGER.............................................................................................. 44
General............................................................................................ 44
Background of the Merger........................................................................... 48
Harris & Jeffries' Reasons for the Merger.......................................................... 50
Accounting Treatment............................................................................... 52
Material U.S. Federal Income Tax Consequences...................................................... 52
Regulatory Approvals............................................................................... 54
Federal Securities Laws Consequences; Stock Transfer Restrictions.................................. 54
Nasdaq National Market Trading..................................................................... 55
THE MERGER AGREEMENT.................................................................................... 55
The Merger......................................................................................... 55
Closing and Effective Time of the Merger........................................................... 55
Procedure to Exchange Certificates................................................................. 56
Representations and Warranties..................................................................... 56
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i
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Covenants.......................................................................................... 58
Conditions Precedent to the Merger................................................................. 62
Additional Conditions to Conexant's Obligations.................................................... 62
Additional Conditions to Harris & Jeffries' Obligations............................................ 63
Termination........................................................................................ 64
Amendment.......................................................................................... 64
Appointment of Stockholder Representative.......................................................... 64
Indemnification Obligations........................................................................ 65
ADDITIONAL AGREEMENTS................................................................................... 66
Voting Agreements.................................................................................. 66
Letter of Transmittal.............................................................................. 68
Escrow Agreement................................................................................... 68
INFORMATION ABOUT HARRIS & JEFFRIES..................................................................... 68
SELECTED FINANCIAL DATA OF HARRIS & JEFFRIES............................................................ 71
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF HARRIS & JEFFRIES........................................................... 72
INTERESTS OF CERTAIN PERSONS IN THE MERGER.............................................................. 75
Employment Agreements.............................................................................. 76
Non-Competition Agreements......................................................................... 76
Purchase Option Agreement.......................................................................... 76
OWNERSHIP OF HARRIS & JEFFRIES COMMON STOCK BY CERTAIN OWNERS AND MANAGEMENT OF HARRIS & JEFFRIES....... 77
PRICE RANGE OF COMMON STOCK............................................................................. 79
DIVIDEND POLICY......................................................................................... 79
DESCRIPTION OF CONEXANT CAPITAL STOCK................................................................... 79
Common Stock....................................................................................... 80
Preferred Stock.................................................................................... 80
Certain Provisions in Conexant's Restated Certificate of Incorporation and By-Laws................. 82
Conexant Rights Plan............................................................................... 83
DESCRIPTION OF HARRIS & JEFFRIES CAPITAL STOCK.......................................................... 86
Common Stock....................................................................................... 86
Preferred Stock.................................................................................... 86
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ii
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF HARRIS & JEFFRIES AND CONEXANT.................................. 87
EXPERTS................................................................................................ 107
LEGAL MATTERS.......................................................................................... 107
HOW TO OBTAIN MORE INFORMATION......................................................................... 108
LIST OF APPENDICES:
APPENDIX A-1 - Agreement and Plan of Merger, dated as of July 19, 2000, by and among
Conexant Systems, Inc., H&J Acquisition Sub, Inc. and Harris & Jeffries, Inc...................... A-1-1
APPENDIX A-2 - First Amendment of Agreement and Plan of Merger, dated as of
August 28, 2000, by and among Conexant Systems, Inc., H&J Acquisition Sub,
Inc. and Harris & Jeffries, Inc........................................................................ A-2-1
APPENDIX B - Form of Voting Agreement.................................................................. B-1
APPENDIX C - Form of Letter of Transmittal............................................................. C-1
APPENDIX D - Sections 85 through 98 of the Massachusetts Business Corporation Law
Regarding Appraisal Rights ....................................................................... D-1
APPENDIX E - Harris & Jeffries, Inc.'s Audited Financial Statements for the
Years Ended 1997, 1998 and 1999 and Unaudited Condensed Financial
Statements for the six months ended June 30, 1999 and 2000.......... ............................. E-1
</TABLE>
iii
<PAGE> 11
ADDITIONAL INFORMATION
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT CONEXANT FROM DOCUMENTS FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION THAT HAVE NOT BEEN INCLUDED IN OR DELIVERED WITH THIS
PROXY STATEMENT-PROSPECTUS. CONEXANT WILL PROVIDE YOU WITH COPIES OF THIS
INFORMATION, WITHOUT CHARGE, UPON YOUR WRITTEN OR ORAL REQUEST TO:
CONEXANT SYSTEMS, INC.
4311 JAMBOREE ROAD
NEWPORT BEACH, CALIFORNIA 92660-3095
ATTENTION: INVESTOR RELATIONS
TELEPHONE: (949) 483-CNXT (2698)
IN ORDER TO RECEIVE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF THE
SPECIAL STOCKHOLDERS MEETING, YOU SHOULD MAKE YOUR REQUEST NO LATER THAN
THURSDAY, SEPTEMBER 21, 2000.
For more information on the matters incorporated by reference in this proxy
statement-prospectus and the availability of other documents concerning Conexant
that have been filed with the SEC, see "How To Obtain More Information" starting
on page 108.
iv
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS THE PROPOSED TRANSACTION?
A: A merger in which Harris & Jeffries will become a wholly-owned subsidiary
of Conexant.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: You will receive shares of Conexant common stock for any Harris & Jeffries
common stock or preferred stock you own immediately prior to the merger.
Any outstanding options for Harris & Jeffries common stock issued under the
Harris & Jeffries Stock Option Plan that you hold immediately prior to the
merger will become options for Conexant common stock. You will also receive
cash for any fractional share you otherwise might be entitled to receive.
If you own preferred stock, you may also receive cash as additional merger
consideration if the average daily closing sales prices of Conexant common
stock for the five trading day period preceding the day before the day the
merger becomes effective is less than $37.13 per share (or $37.50 per share
if items 2 and 3 are approved by the stockholders at the special meeting)
and the amendment of the Harris & Jeffries articles of organization
referred to in item 5 above is approved by the stockholders at the special
meeting. The number of shares of Conexant common stock you receive and when
you receive them will vary, as described starting on page 44 of this proxy
statement-prospectus.
Q: WILL I BE ABLE TO TRADE THE CONEXANT COMMON STOCK THAT I RECEIVE IN THE
MERGER?
A: Yes. The Conexant common stock will be listed on the Nasdaq National Market
under the symbol "CNXT". Shortly after the merger you will receive
instructions for exchanging your Harris & Jeffries shares for shares of
Conexant common stock. Once you have submitted your Harris & Jeffries stock
certificates, a completed and executed letter of transmittal and other
required documentation in accordance with these instructions, you will be
issued shares of Conexant common stock which you will be free to trade.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting will take place at the Holiday Inn Boston-Dedham, 55
Ariadne Road, Dedham, Massachusetts 02026 on Thursday, September 28, 2000
at 10:00 a.m. local time.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading this proxy statement-prospectus, mark on your form
of proxy how you want to vote, and sign and mail it in the enclosed return
envelope as soon as possible, so your shares will be represented at the
special meeting. If you sign and send in your proxy and do not indicate how
you want to vote, your proxy will be counted as a vote FOR the merger and
each of the other proposals to be voted on at the special meeting. If you
do not send in your proxy or you abstain, it will have the effect of a vote
against the merger and each of the other proposals.
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<PAGE> 13
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Any proxy you give may be revoked at any time before it is voted at the
special meeting. You may revoke a proxy in one of the following three ways:
- you can send a signed written notice stating that you would like
to revoke your proxy,
- you can complete and submit a new form of proxy, or
- you can attend the special meeting and vote in person. Simply
attending the special meeting, however, will not revoke your
proxy; you must request a ballot and vote at the special meeting.
Any written notice of revocation or new proxy must be received by Harris &
Jeffries, Inc., 888 Washington Street, Dedham, Massachusetts 02026,
Attention: David S. Jeffries, Corporate Clerk, prior to the time of the
special meeting.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, you will receive written instructions
for exchanging your stock certificates. You will also receive instructions
explaining what you should do if you have lost your stock certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: Harris & Jeffries intends to complete the merger promptly after the special
meeting and satisfaction of the other conditions to the closing of the
merger set forth in the merger agreement.
Q: WHOM CAN I CALL WITH QUESTIONS?
A: If you have any questions about the merger or any related transactions,
please call David Jeffries at Harris & Jeffries at (781) 329-3200. If you
would like copies of any of the documents we refer to in this proxy
statement-prospectus, you should call Conexant at (949) 483-CNXT (2698) if
the documents relate to Conexant, or call Harris & Jeffries at the above
number if the documents relate to Harris & Jeffries. Please consult your
own legal counsel with respect to any legal questions you may have
concerning the merger agreement and the merger.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: Conexant and Harris & Jeffries each expect the merger to be tax-free except
as noted below. Harris & Jeffries stockholders will not recognize gain or
loss for U.S. federal income tax purposes with respect to Conexant common
stock received in the merger except:
- with respect to any cash received instead of fractional shares of
Conexant common stock;
- in the case of Harris & Jeffries common stockholders who receive
"holdback shares" or "earn-out shares" more than one year after the
effective time of the merger, with respect to a portion of the
holdback shares and earn-out shares received more than six months
after the effective time of the merger; and
- in the case of Harris & Jeffries preferred stockholders who receive
cash amounts as additional merger consideration, with respect to,
perhaps some or all of that cash amount, depending among other things
on your tax basis in your preferred shares, the amount of cash paid to
you as additional merger consideration and the market value of the
Conexant common stock you receive.
2
<PAGE> 14
In addition, if the escrow shares are sold by the escrow agent, Harris &
Jeffries preferred stockholders will recognize taxable gain or loss at the
time of such sale. Set forth in more detail starting on page 45 of this
proxy statement-prospectus is a description of the escrow/holdback shares
and earn-out shares. Set forth in more detail starting on page 52 of this
proxy statement-prospectus is a description of the material U.S. federal
income tax consequences of the merger. The tax consequences to you will
depend on the facts of your own situation. Please consult your own tax
advisor for a full understanding of the tax consequences to you of the
merger.
Q: AM I ENTITLED TO EXERCISE APPRAISAL RIGHTS?
A: Yes. Holders of Harris & Jeffries common stock and preferred stock are
entitled to exercise appraisal rights in connection with the merger,
subject to compliance with applicable procedures described in this proxy
statement-prospectus. However, Conexant has the right to terminate the
merger agreement if appraisal rights are exercised by holders of more than
1% of the total number of shares of Harris & Jeffries common stock and
preferred stock outstanding immediately prior to the merger.
Q: WILL MY RIGHTS AS A HARRIS & JEFFRIES STOCKHOLDER CHANGE AS A RESULT OF THE
MERGER?
A: Yes. Currently your stockholder rights are governed by Massachusetts law
and by Harris & Jeffries' articles of organization and by-laws, while
Conexant shareowner rights are governed by Delaware law and by Conexant's
restated certificate of incorporation and by-laws. You will become a
Conexant shareowner as a result of the merger. In addition, you will
receive as part of the merger consideration a preferred share purchase
right under Conexant's rights plan or "poison pill" that may make a
takeover of Conexant more difficult. Set forth in more detail starting on
page 83 of this proxy statement-prospectus is a description of the
Conexant rights plan. There is a summary comparison of the rights of
stockholders of Harris & Jeffries and Conexant starting on page 87 of this
proxy statement-prospectus.
Q: WHAT DOES THE HARRIS & JEFFRIES BOARD OF DIRECTORS RECOMMEND?
A: The Harris & Jeffries board of directors unanimously recommends that you
vote FOR the proposal to approve and adopt the merger agreement and the
merger and FOR each of the other proposals to be voted on at the special
meeting.
Q: IS EVERYONE TREATED EQUALLY IN THE MERGER?
A: No. Certain directors and officers of Harris & Jeffries may have interests
in the merger agreement and the merger that are different from those of
stockholders who are not also directors or officers. In addition, certain
stockholders have different rights and obligations than other stockholders
under the merger agreement. These differences are explained in more detail
starting on page 75 of this proxy statement-prospectus. Also, under the
terms of the Harris & Jeffries articles of organization, holders of
preferred stock may be entitled to an increased share of the merger
consideration if the price of Conexant common stock is less than $37.13 per
share at the time of the merger (or $37.50 per share if items 2 and 3 are
approved by the stockholders at the special meeting). This will not be the
case if the proposal to amend the Harris & Jeffries articles of
organization referred to in item 5 is approved by the stockholders at the
special meeting. If that proposal is approved, the merger consideration
payable in shares of Conexant common stock will not be affected by the
preferred stockholders' right to a participation as described above.
However, if that proposal is approved, the holders of preferred stock will
be entitled to receive cash as additional merger consideration if the
average daily closing sales prices of Conexant common stock for the five
trading day period preceding the day before the day the merger becomes
effective is less than $37.13 per share (or $37.50 per share if items 2 and
3 are approved by the stockholders at the special meeting). Holders of
common stock and options do not have a similar right.
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SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT-PROSPECTUS AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. YOU SHOULD READ CAREFULLY THIS ENTIRE PROXY
STATEMENT-PROSPECTUS, INCLUDING THE "RISK FACTORS" SECTION BEGINNING ON PAGE
15, AND THE DOCUMENTS WE REFER TO IN THIS PROXY STATEMENT-PROSPECTUS TO FULLY
UNDERSTAND THE MERGER. SEE "HOW TO OBTAIN MORE INFORMATION" BEGINNING ON PAGE
108 OF THIS PROXY STATEMENT-PROSPECTUS.
THE COMPANIES
CONEXANT SYSTEMS, INC.
4311 JAMBOREE ROAD
NEWPORT BEACH, CALIFORNIA 92660-3095
TELEPHONE: (949) 483-4600
Conexant is the world's largest independent company focused exclusively on
providing semiconductor products for communications electronics. With more than
30 years of experience in developing communications products, Conexant 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. Conexant aligns its business into five
product platforms:
- Network Access
- Wireless Communications
- Digital Infotainment
- Personal Imaging
- Personal Computing
Before December 31, 1998, Conexant was a wholly-owned subsidiary of
Rockwell International Corporation and, together with certain other subsidiaries
and divisions of Rockwell, operated Rockwell's semiconductor systems business
("Semiconductor Systems"). On December 31, 1998, Conexant became an independent
public company by means of a tax-free spin-off from Rockwell.
Unless the context otherwise indicates, as used in this proxy
statement-prospectus, all references to Conexant are to Semiconductor Systems
for periods prior to Conexant's spin-off from Rockwell and to Conexant and its
subsidiaries for periods following the spin-off.
H&J ACQUISITION SUB, INC.
4311 JAMBOREE ROAD
NEWPORT BEACH, CALIFORNIA 92660-3095
TELEPHONE: (949) 483-4600
H&J Acquisition Sub is a wholly-owned subsidiary of Conexant and was formed
solely for purposes of the proposed merger. In the merger, H&J Acquisition Sub
will be merged with and into Harris & Jeffries, and H&J Acquisition Sub will no
longer have a corporate existence.
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HARRIS & JEFFRIES (D/B/A NETPLANE SYSTEMS)
888 WASHINGTON STREET
DEDHAM, MASSACHUSETTS 02026
TELEPHONE: (781) 329-3200
Organized as a Massachusetts corporation in 1990, Harris & Jeffries is
engaged in the business of developing communications systems source-code
products, which it licenses to manufacturers of data communications and
telecommunications systems. Harris & Jeffries has become a leading developer of
integrated, portable, "carrier class" network control software and subsystems,
with extensive experience in frame relay, asynchronous transfer mode (ATM),
multiprotocol label switching (MPLS), and internet protocol (IP) technologies,
as well as emerging standards for the coming generation of optical networks.
Harris & Jeffries has licensed its source-code products to more than 200
networking manufacturers, original equipment manufacturers and integrators
worldwide that are developing products for next-generation internet and other
data communications and telecommunications networks. Harris & Jeffries focuses
on the carrier-class capabilities that are required in the service provider
marketplace. Packaged as a leading-edge engineering toolkit, Harris & Jeffries'
software products incorporate high-performance features and an advanced
architecture, with the goal of enabling Harris & Jeffries' customers to
streamline their product development process.
Headquartered in Dedham, Massachusetts, Harris & Jeffries also maintains an
office in Hyderabad, India. Harris & Jeffries employs full-time and part-time
employees at both locations. In Dedham, Harris & Jeffries has often employed
contractors as well. In addition to operations in Dedham and Hyderabad, Harris &
Jeffries also maintains sales offices in Sunnyvale, California and Dallas,
Texas.
SUMMARY OF THE TRANSACTION
In the merger, H&J Acquisition Sub will merge with and into Harris & Jeffries.
Harris & Jeffries will continue as the surviving corporation and will become a
wholly-owned subsidiary of Conexant. Stockholders of Harris & Jeffries (other
than any stockholder who exercises appraisal rights) will receive common stock
of Conexant in exchange for any common stock or preferred stock of Harris &
Jeffries held immediately prior to the merger. Outstanding options to purchase
Harris & Jeffries common stock issued under the Harris & Jeffries Stock Option
Plan will be converted into options to acquire Conexant common stock. Any
stockholder who exercises appraisal rights will receive a cash payment. The
amount of this payment will be an agreed or judicially determined fair value of
the Harris & Jeffries shares held by that stockholder immediately prior to the
merger. Stockholders of Harris & Jeffries who own preferred stock may also
receive cash as additional merger consideration if the average daily closing
sales prices of Conexant common stock for the five trading day period preceding
the day before the day the merger becomes effective is less than $37.13 per
share (or $37.50 per share if items 2 and 3 are approved by the stockholders at
the special meeting) and the amendment of the Harris & Jeffries articles of
organization referred to in item 5 above is approved by the stockholders at the
special meeting.
The number of shares of Conexant common stock you receive and when you
receive them will vary based on a number of factors. These factors and how they
might affect what you receive are summarized below and explained in more detail
starting on page 44 of this proxy statement-prospectus.
There are three basic components of the purchase price to be paid by
Conexant:
- the merger consideration;
- the escrow/holdback shares; and
- the earn-out shares.
The Merger Consideration. The merger consideration refers to the maximum
number of shares of Conexant common stock that will be issued:
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<PAGE> 17
- to everyone who owns Harris & Jeffries common stock or preferred stock
at the time the merger becomes effective; and
- to everyone who owns outstanding options for Harris & Jeffries common
stock (vested and unvested) issued under the Harris & Jeffries Stock
Option Plan and outstanding at the time the merger becomes effective,
if and when those options are exercised.
The merger consideration is 1,808,100 shares of Conexant common stock.
Your share of the merger consideration will vary depending on a number of
factors. The principal factors are:
- whether you hold Harris & Jeffries common stock, preferred stock or
options, and if you hold options, whether and to what extent you
exercise those options;
- whether the Harris & Jeffries stockholders approve the proposals to
increase the authorized number of shares of Harris & Jeffries common
stock from 14,800,000 shares to 16,280,000 shares and to increase the
number of shares for which options may be granted under the Harris &
Jeffries stock option plan, to permit the grant of options for an
additional 1,066,797 shares of Harris & Jeffries common stock
immediately prior to the merger; and
- whether the average closing sale price of Conexant common stock for
the five trading day period preceding the day before the day the
merger becomes effective is less than $37.13 per share (or $37.50
per share if items 2 and 3 are approved by the stockholders at the
special meeting). This will not be a factor if item 5 is approved by
the stockholders at the special meeting.
All of these factors and how they may affect you are summarized below.
The type of Harris & Jeffries securities you hold will affect your share of
the merger consideration.
- If you own Harris & Jeffries preferred stock you will be entitled to
receive shares of Conexant common stock issued as merger consideration
based on the number of shares of Harris & Jeffries common stock you
would own on full conversion of your preferred stock. Currently, that
conversion ratio is 2.7884 shares of Harris & Jeffries common stock
for each share of Harris & Jeffries preferred stock. If the proposals
in items 2 and 3 are approved by the stockholders at the special
meeting, each share of Harris & Jeffries preferred stock will be
convertible into 3.02635 shares of Harris & Jeffries common stock. You
may also be entitled to receive an additional number of shares of
Conexant common stock as a "participation", as described in the
following paragraph, unless item 5 is approved by the stockholders at
the special meeting. If item 5 is approved by the stockholders at the
special meeting, you will be entitled to receive cash as additional
merger consideration if the average daily closing sales prices of
Conexant common stock for the five trading day period preceding the
day before the day the merger becomes effective is less than $37.13
per share (or $37.50 per share if items 2 and 3 are approved by the
stockholders at the special meeting). This cash amount, on a per share
basis, will be equal to the difference between the actual average
daily closing sales prices of Conexant common stock for the five
trading day period preceding the day before the day the merger becomes
effective and $37.13 per share (or $37.50 per share if items 2 and 3
are approved by the stockholders at the special meeting), up to a
maximum amount. The maximum amount is the lesser of $4.00 per share of
Harris & Jeffries preferred stock and the amount that, when combined
with all other payments that might be treated as "boot" under the
Internal Revenue Code, could result in the merger becoming a taxable
transaction.
- If you own Harris & Jeffries common stock you will be entitled to
receive shares of Conexant common stock issued as merger consideration
based solely on the number of shares you own and the "exchange ratio"
described below. You will not be entitled to receive shares in the
participation, if any, paid to preferred stockholders, and your share
of the merger consideration will be reduced if a participation is paid
to preferred stockholders, as described below. If item 5 is approved
by the stockholders at the special meeting, the preferred stockholders
would not be entitled to the participation described below but would
be entitled to receive cash as additional merger consideration as
described in the preceding paragraph. You are not entitled to receive
cash as additional merger consideration in exchange for your shares of
Harris & Jeffries common stock.
- If you own outstanding options issued under the Harris & Jeffries
Stock Option Plan you will not be entitled to receive any shares of
Conexant common stock that may be issued after the Harris & Jeffries
options are converted into options for Conexant common stock, except
to
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<PAGE> 18
the extent your options "vest" in accordance with the terms of the
Harris & Jeffries Stock Option Plan and you elect to exercise and pay
the exercise price (as adjusted by the merger agreement).
The average daily closing sale price of Conexant common stock for the five
trading day period preceding the day before the day the merger becomes effective
will affect your share of the merger consideration if that price is less than
$37.13 per share (or $37.50 per share if items 2 and 3 are approved by the
stockholders at the special meeting) and the proposal to amend the Harris &
Jeffries articles of organization referred to in item 5 is not approved by the
stockholders at the special meeting. This is because the articles of
organization of Harris & Jeffries give holders of preferred stock a right to
more of the consideration paid to stockholders in a merger (and certain other
transactions) if the aggregate consideration to be received by the holders of
preferred stock does not otherwise exceed certain minimum amounts. This
preferential right is referred to as a "participation". The Harris & Jeffries
articles of organization provide that the participation is an amount equal to
the sum of $4.00 per share of preferred stock plus the amount payable to holders
of Harris & Jeffries common stock as if each share of preferred stock had been
converted into common stock. Once the value of the Conexant common stock that
holders of preferred stock receive as merger consideration exceeds $14.00 per
share of preferred stock, they will not be entitled to any participation (other
than to receive shares of Conexant common stock issued as merger consideration
based on the number of shares of Harris & Jeffries common stock they would own
on full conversion of their preferred stock).
If payable, the participation will be paid out of the merger consideration,
and it will therefore reduce the number of shares of Conexant common stock
available to holders of Harris & Jeffries common stock and options. The
participation will only be payable if two conditions exist.
- The first condition that must exist for a participation to be payable is that
the actual average daily closing sales prices of Conexant common stock for
the five trading day period preceding the day before the day the merger
becomes effective must be less than $37.13 per share (or $37.50 per share if
items 2 and 3 are approved by the stockholders at the special meeting). Based
on the average daily closing sale price of Conexant common stock for the five
trading day period preceding the date of mailing this proxy
statement-prospectus, the participation [would/not] be payable. This could
change before the merger becomes effective, however.
- The second condition that must exist for a participation to be payable
is that the stockholders of Harris & Jeffries fail to approve the proposal
to amend the Harris & Jeffries articles of organization referred to in
item 5. If item 5 is approved, a $4.00 per share of preferred stock
participation would be not be payable. The participation would, in effect,
be limited to the amount payable to holders of common stock as if each
share of preferred stock had been converted into common stock. As a
result, the number of shares of Conexant common stock available to holders
of Harris & Jeffries common stock and options would not be reduced as
described above.
Whether the Harris & Jeffries stockholders approve items 2 and 3 to permit
the grant of options for an additional 1,066,797 shares of common stock
immediately prior to the merger will affect your share of the merger
consideration. Your share of the merger consideration will be reduced for each
share subject to any of those new options that are not granted to you. This is
because your share of the merger consideration is determined primarily by your
relative percentage of the fully-diluted share number. The fully-diluted share
number is the total number of shares of Harris & Jeffries common stock that are
outstanding or would be outstanding upon conversion in full of all preferred
stock (after giving effect to the exercise of all outstanding warrants to
purchase preferred stock) and exercise in full of all outstanding options for
common stock, whether vested or unvested, at the time the merger becomes
effective. Since the fully-diluted share number before granting the additional
options would be approximately 15,213,203 shares, the grant of options for an
additional 1,066,797 shares might significantly affect your share of the merger
consideration, particularly if you do not receive any of the additional options.
The actual number of shares of Conexant common stock you receive as merger
consideration will be rounded down to the nearest whole number of shares. You
will receive a cash payment for any fractional share you otherwise would have
been entitled to receive.
The Escrow/Holdback Shares. Conexant will issue up to 200,900 additional
shares of Conexant common stock (either into an escrow account shortly after the
merger or as any indemnification claims made before September 30, 2001 are
resolved) to Harris & Jeffries stockholders and option holders. These shares are
referred to as the escrow/holdback shares. The number of escrow/holdback shares
actually issued will be reduced if Conexant is entitled to recover damages under
indemnification provisions in the merger agreement. The number of
escrow/holdback shares you receive will also depend on your relative percentage
of the fully-diluted share number and any rounding required to avoid the
issuance of fractional shares, as explained below.
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<PAGE> 19
The Earn-Out Shares. Conexant will also issue up to 718,000 additional
shares of Conexant common stock (at quarterly intervals during the year
following the merger) both to Harris & Jeffries stockholders and to persons who
hold Harris & Jeffries options that have "vested" immediately prior to the
merger. These shares are called the earn-out shares. The number of earn-out
shares actually issued will depend on whether and to what extent Harris &
Jeffries achieves certain revenue and operating margin goals set forth in the
merger agreement and described in this proxy statement-prospectus. The number of
earn-out shares you receive will also depend on your relative percentage of the
fully-diluted share number and any rounding required to avoid the issuance of
fractional shares, as explained below.
EXCHANGE RATIO
The term "exchange ratio" refers to the number of shares of Conexant common
stock the stockholders of Harris & Jeffries will be entitled to receive in
exchange for their common stock or preferred stock or on exercise of their
Harris & Jeffries options after they are converted into options for Conexant
common stock. The applicable exchange ratio will depend on whether the Harris &
Jeffries stockholders approve items 2 and 3 to permit the grant of options for
an additional 1,066,797 shares of Harris & Jeffries common stock immediately
prior to the merger. If those proposals are approved and the options are
granted, the exchange ratio will be approximately 0.11106; otherwise, the
exchange ratio will be approximately 0.12177.
The exchange ratio could result in an entitlement to a fractional share. In
that event, you will receive the largest whole number of shares, after rounding
down, and a cash payment equal to the value of any fractional share you
otherwise would be entitled to receive. For example, if you hold 100 shares of
Harris & Jeffries common stock and the exchange ratio is 0.12177, your merger
consideration would be 12 shares of Conexant common stock and a cash payment for
the value of 0.177 of a whole share.
The same exchange ratio will be used to determine:
- the number of shares you receive as merger consideration in the
merger; and
- the number of shares you may be entitled to receive on exercise
of any Harris & Jeffries options after they are converted into
options for Conexant common stock.
A different ratio will be used to determine your portion of any earn-out
shares that may be issued after the merger if Harris & Jeffries achieves certain
revenue and operating margin goals described in this proxy statement-prospectus.
This is because only persons who hold outstanding shares or vested options as of
the effective date of the merger are entitled to participate in this contingent
consideration. The ratio used for this purpose will vary, depending on two
factors. The first factor is whether Harris & Jeffries stockholders approve
items 2 and 3 to permit the grant of options for an additional 1,066,797 shares
of Harris & Jeffries common stock immediately prior to the merger. The second
factor is whether the preferred stockholders are entitled to receive a
participation, unless the proposal to amend the Harris & Jeffries articles or
organization referred to in item 5 above is approved by the stockholders at the
special meeting.
REASONS FOR MERGER
The Harris & Jeffries board of directors believes that the terms of the
merger agreement and the merger are fair to, and in the best interests of,
Harris & Jeffries and its stockholders. In reaching its decision to approve and
adopt the merger agreement and the merger, the Harris & Jeffries board of
directors considered the following factors, among others:
- the terms of the transaction, including Harris & Jeffries'
business, its results of operations and its future prospects for
an initial public offering in an uncertain market for new issues;
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<PAGE> 20
- industry trends toward consolidation and the advantages that the
combined company might have due to potential synergies between
products of Harris & Jeffries and Conexant, Conexant's greater
size and financial strength in the marketplace and Conexant's
greater product portfolio and geographic reach;
- strategic alternatives, including the likelihood of effecting an
alternative transaction and the possibility of continuing as an
independent company; and
- that the merger is expected to be generally tax free for U.S.
federal income tax purposes to Harris & Jeffries stockholders
(except with respect to (i) cash received instead of fractional
shares, (ii) in the case of Harris & Jeffries common
stockholders, a portion of the holdback and earn-out shares and
(iii) in the case of Harris & Jeffries preferred stockholders,
any escrow shares sold from the escrow and, perhaps some or all
of the cash received as additional merger consideration in
certain cases).
RECOMMENDATION OF HARRIS & JEFFRIES BOARD OF DIRECTORS
The Harris & Jeffries board of directors has concluded that the merger
agreement and the merger are fair to, and in the best interests of, Harris &
Jeffries stockholders and unanimously recommends that Harris & Jeffries
stockholders vote FOR the proposal to approve and adopt the merger agreement and
the merger and FOR each of the other proposals to be voted on at the special
meeting.
DATE, TIME AND PLACE OF HARRIS & JEFFRIES SPECIAL MEETING
The special meeting of Harris & Jeffries stockholders will be held on
Thursday, September 28, 2000 at 10:00 a.m. local time at the Holiday Inn
Boston-Dedham, 55 Ariadne Road, Dedham, Massachusetts 02026. At the special
meeting, you will be asked to consider and vote upon a proposal to approve and
adopt the merger agreement and the merger and upon each of the other proposals
listed in the accompanying notice of special meeting of stockholders and
described in this proxy statement-prospectus.
RECORD DATE
The close of business on Monday, August 28, 2000 has been fixed as the
record date for determining the holders of Harris & Jeffries common stock and
preferred stock who are entitled to notice of and to vote at the special
meeting. As of the record date, there were 8,505,500 shares of Harris & Jeffries
common stock outstanding and 1,476,000 shares of preferred stock outstanding.
VOTING POWER; QUORUM
Each holder of record of shares of Harris & Jeffries common stock on the
record date is entitled to one vote per share of Harris & Jeffries common stock
on each matter submitted to a vote at the special meeting.
Each holder of record of shares of Harris & Jeffries preferred stock will
have the right to vote (x) together with holders of Harris & Jeffries common
stock (as if the preferred stock had been converted into common stock) on each
matter that stockholders will act upon at the special meeting, and (y) also as a
separate class with respect to the approval and adoption of the merger agreement
and the merger and the proposal to amend the Harris & Jeffries articles of
organization referred to in item 5 above. Currently, each share of Harris &
Jeffries preferred stock may be converted into 2.7884 shares of Harris &
Jeffries common stock. If the proposals in items 2 and 3 are approved by the
stockholders at the special meeting, each share of Harris & Jeffries preferred
stock will be convertible into 3.02635 shares of Harris & Jeffries common stock.
The presence in person or by proxy of the holders of shares representing a
majority of the voting power of Harris & Jeffries common stock and preferred
stock entitled to vote is necessary to constitute a quorum for the transaction
of business at the special meeting.
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VOTE REQUIRED
The affirmative votes of holders of (i) at least two-thirds of the combined
voting power of the shares of Harris & Jeffries common stock and preferred stock
outstanding and entitled to vote, voting together as a class, and (ii) at least
two-thirds of the shares of Harris & Jeffries preferred stock outstanding and
entitled to vote, voting separately as a class, are required to approve and
adopt the merger agreement and the merger and the proposal to amend the Harris &
Jeffries articles of organization referred to in item 5 above. The affirmative
vote of at least a majority of the votes entitled to be cast by holders of all
shares of common stock and preferred stock outstanding and entitled to vote,
voting together as a class, is required to approve each of the other matters
which the Harris & Jeffries stockholders are being asked to vote on at the
special meeting.
Ethan F. Harris, Deepak Shahane, The Celia M. Jeffries Trust - 1999 (Celia
M. Jeffries, Trustee), The David S. Jeffries Trust - 1999 (David S. Jeffries,
Trustee), InSight Capital Partners II, L.P., InSight Capital Partners (Cayman)
II, L.P. and WI Software Investors LLC have entered into voting agreements with
Conexant in which they agreed to vote all of their shares of Harris & Jeffries
common stock and preferred stock in favor of the approval and adoption of the
merger agreement and the merger. If they do vote in favor, the merger agreement
and the merger will be approved, without regard to the votes cast by any other
stockholder. The voting agreements do not relate to any other proposals to be
voted upon at the special meeting of Harris & Jeffries stockholders.
The directors and executive officers of Harris & Jeffries, together with
their affiliates, hold or control approximately 53.6% of the common stock and
50% of the preferred stock entitled to vote on the merger agreement and the
merger and the other matters being presented for approval at the special
meeting. Conexant and its directors, executive officers and affiliates do not
hold any shares of Harris & Jeffries common stock or preferred stock.
The persons named as proxies on the accompanying form of proxy will vote
your shares as you indicate on the proxy. If you do not specify on the proxy how
to vote your shares, the proxies will vote your shares in favor of the proposal
to approve and adopt the merger agreement and the merger and in favor of each of
the other proposals referred to in items 2 through 5 of the notice of special
meeting. The proxies will have the discretion to vote on any other matters that
properly come before the meeting or any adjournment or postponement thereof
using their best judgment. Abstentions will have the same effect as negative
votes on each of the proposals.
EFFECTIVE TIME OF THE MERGER; EXCHANGE OF SHARES
The merger will become effective at the time that merger documents are
filed with the Secretary of State of the Commonwealth of Massachusetts pursuant
to the Massachusetts Business Corporation Law and the Secretary of State of the
State of Delaware pursuant to the Delaware General Corporation Law. Such filings
are currently expected to occur promptly after the special meeting, subject to
approval and adoption of the merger agreement and the merger at the special
meeting and satisfaction or waiver of the conditions to the merger set forth in
the merger agreement.
If the merger is approved at the special meeting and becomes effective, an
exchange agent will send you detailed instructions with regard to the surrender
of your Harris & Jeffries stock certificates, together with a letter of
transmittal, as soon as reasonably practicable following the effective time of
the merger. You should not submit your certificates to the exchange agent until
you have received these materials. Upon surrender of your shares, you will
receive a book-entry statement setting forth the number of shares of Conexant
common stock you received in the merger and held in uncertificated form for your
account. You will receive cash instead of fractional shares based on the
five-day average closing price per share of Conexant common stock on the Nasdaq
National Market based on the five full trading days preceding the date prior to
the closing of the merger. No interest will be paid or will accrue on any cash
payable instead of any fractional shares of Conexant common stock.
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YOU SHOULD NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY.
ACCOUNTING TREATMENT
The merger will be accounted for as a "purchase" transaction for accounting
and financial reporting purposes, in accordance with generally accepted
accounting principles. Accordingly, a determination of the fair value of Harris
& Jeffries' assets and liabilities will be made in order to allocate the
purchase price to the assets acquired and the liabilities assumed.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The merger has been structured as a tax-free reorganization for U.S.
federal income tax purposes. Accordingly, Harris & Jeffries stockholders
generally will not recognize any gain or loss for U.S. federal income tax
purposes on the exchange of their Harris & Jeffries shares for shares of
Conexant common stock in the merger. However, some Harris & Jeffries
stockholders will recognize gain or loss in connection with the receipt of cash
instead of a fractional share of Conexant common stock and, if any holdback or
earn-out shares are received more than one year after the effective date of the
merger, Harris & Jeffries common stockholders will recognize ordinary income
with respect to a portion of the holdback shares and earn-out shares received
more than six months after the effective time. In addition, if the escrow shares
are sold by the escrow agent, the Harris & Jeffries preferred stockholders will
recognize taxable gain or loss at the time of such sale. Further, if Harris &
Jeffries preferred stockholders receive cash amounts as additional merger
consideration, some or all of that cash amount may be taxable gain, depending
among other things on each preferred stockholder's tax basis in its preferred
shares, the amount of cash paid as additional merger consideration and the
market value of the Conexant common stock received by the preferred stockholder.
Tax matters are very complicated, and the tax consequences of the merger to
each Harris & Jeffries stockholder will depend on the facts of that
stockholder's situation. You are urged to consult your own tax advisor for a
full understanding of the tax consequences of the merger to you.
APPRAISAL RIGHTS
Under Massachusetts law, you are entitled to exercise appraisal rights if
you do not vote to approve the merger agreement and otherwise comply with
Massachusetts law. If you wish to exercise appraisal rights, you must take the
steps described in the section entitled "Appraisal Rights" starting on page 42.
If you do not strictly comply with the statutory requirements, you may lose your
appraisal rights. Conexant has the right to terminate the merger agreement if
Harris & Jeffries stockholders exercise appraisal rights for more than 1.0% of
the total number of shares of Harris & Jeffries common stock and preferred stock
outstanding immediately prior to the merger.
THE MERGER AGREEMENT
We have attached the merger agreement as Appendix A-1 and an amendment to
the merger agreement as Appendix A-2 to this proxy statement-prospectus and they
are incorporated by reference in this proxy statement-prospectus. We encourage
you to read the merger agreement and the amendment to the merger agreement
because they are the legal documents that govern the merger.
Conditions to the Merger. The completion of the merger depends on a number
of conditions being met, including the approval and adoption of the merger
agreement and the merger by Harris & Jeffries stockholders. Where the law
permits, a party to the merger agreement could elect to waive a condition to its
obligation to complete the merger although that condition has not been
satisfied. We cannot be certain when (or if) the conditions to the merger will
be satisfied or waived or that the merger will be completed.
Termination of the Merger Agreement. Conexant and Harris & Jeffries can
agree at any time to terminate the merger agreement without completing the
merger, even if the stockholders of Harris & Jeffries have approved and adopted
it. Also, either Conexant or Harris & Jeffries can decide, without the consent
of the other, to terminate the merger agreement in a number of other situations.
These include a material breach by either Conexant or Harris & Jeffries of the
merger agreement that has not been waived or cured within a reasonable period of
time after written notice to the breaching party, the failure to satisfy
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as of the closing date any of the conditions precedent to the merger as
specified by each of Conexant and Harris & Jeffries, and the failure to complete
the merger by November 30, 2000.
VOTING AGREEMENTS
Conexant has entered into voting agreements with Ethan F. Jeffries, Deepak
Shahane, The Celia M. Jeffries Trust - 1999 (Celia M. Jeffries, Trustee), The
David S. Jeffries Trust - 1999 (David S. Jeffries, Trustee), InSight Capital
Partners II, L.P., InSight Capital Partners (Cayman) II, L.P. and WI Software
Investors LLC. These seven stockholders, who together beneficially own and have
voting control over approximately 69.9% of the shares of Harris & Jeffries
common stock and 100% of the shares of Harris & Jeffries preferred stock, have
agreed to vote for approval and adoption of the merger agreement and the merger.
Their shares represent more than the number of votes necessary to approve and
adopt the merger agreement and the merger even if all other stockholders of
Harris & Jeffries vote against the merger. The voting agreements do not relate
to any other proposals to be voted on at the special meeting of Harris &
Jeffries stockholders. A form of the voting agreement is attached to this proxy
statement-prospectus as Appendix B.
INTERESTS OF CERTAIN PERSONS IN THE MERGER THAT ARE DIFFERENT FROM YOUR
INTERESTS
You should be aware that certain directors, officers and stockholders of
Harris & Jeffries may have interests in the merger that are different from your
interests. For example, Conexant has entered into two-year employment agreements
with Deepak Shahane, David Jeffries, Kevin Smith and Saul Agranoff which provide
compensation and other benefits not currently provided to these individuals by
Harris & Jeffries. Harris & Jeffries' board of directors was aware of these
interests and considered them in approving the merger agreement. In addition,
certain stockholders have different rights and obligations than other
stockholders under the merger agreement. For example, the indemnification
obligations of InSight Capital Partners II, L.P., InSight Capital Partners
(Cayman) II, L.P. and WI Software Investors LLC (the "InSight Stockholders")
differ in certain respects from those of other stockholders. These differences
include limitations on Conexant's ability to recover damages from the InSight
Stockholders that are more favorable to the InSight Stockholders than the
limitations that apply to other Harris & Jeffries stockholders. In addition,
under the articles of organization of Harris & Jeffries, holders of preferred
stock will be entitled to a greater share of the merger consideration than
holders of common stock or options, if the average daily closing sale price of
Conexant common stock for the five trading day period preceding the day before
the day the merger becomes effective is less than $37.13 per share (or $37.50
per share if items 2 and 3 are approved by stockholders at the special meeting).
This will not be the case if the proposal to amend the Harris & Jeffries
articles of organization referred to in item 5 is approved by the stockholders
at the special meeting. If that proposal is approved, the merger consideration
payable in shares of Conexant common stock will not be affected by the preferred
stockholders' right to a participation as described above. However, if that
proposal is approved, the holders of preferred stock will be entitled to receive
cash as additional merger consideration if the average daily closing sales
prices of Conexant common stock for the five trading day period preceding the
day before the day the merger becomes effective is less than $37.13 per share
(or $37.50 per share if items 2 and 3 are approved by the stockholders at the
special meeting). Holders of common stock and options do not have a similar
right.
LISTING OF CONEXANT COMMON STOCK
The shares of Conexant common stock that are to be issued in connection
with the merger will be authorized for listing on the Nasdaq National Market.
The listing of the Conexant common stock to be issued in connection with the
merger is a condition to the merger's completion.
REGULATORY APPROVALS
Except for compliance with federal and state securities laws, the merger is
not subject to federal or state regulatory requirements or approvals.
SUMMARY SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CONEXANT
The following table presents summary selected historical consolidated
financial data of Conexant for each of the five years in the period ended
September 30, 1999 and for the nine months ended June 30, 1999 and 2000. This
financial data was derived from the consolidated financial statements of
Conexant and subsidiaries and its predecessor Rockwell Semiconductor Systems,
Inc., representing the semiconductor business of Rockwell International
Corporation and subsidiaries. The financial data as of and for the year
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<PAGE> 24
ended September 30, 1999 are derived from the audited consolidated financial
statements of Conexant. The financial data for the years ended September 30,
1998, 1997 and 1996 have been derived from the audited combined financial
statements of Semiconductor Systems as part of Rockwell. The financial data as
of June 30, 2000 and for the nine-month periods ended June 30, 1999 and 2000 are
derived from the unaudited consolidated financial statements of Conexant. In the
opinion of management of Conexant, such unaudited consolidated financial
statements include all adjustments, consisting of adjustments of a normal
recurring nature, as well as the fiscal 2000 charges for purchased in-process
research and development and the fiscal 1999 special charges, necessary for a
fair presentation of the financial condition and results of operations of
Conexant for such periods. Operating results for the nine months ended June 30,
2000 are not necessarily indicative of the results that may be expected for the
full year. The following summary financial data should be read in conjunction
with Conexant's "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Conexant's financial statements and related notes
incorporated by reference into this proxy statement-prospectus. See "How To
Obtain More Information" starting on page 108 of this proxy statement-
prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, (1) JUNE 30,
------------------------------------------------------------- ------------------------
1995 1996 1997 1998 1999 1999 2000
-------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues $783,677 $1,470,455 $1,412,325 $1,200,231 $1,444,114 $ 991,940 $1,542,165
Gross margin 300,348 621,461 678,477 312,380 580,862 372,395 713,075
Amortization of intangibles 41 488 9,178 11,020 8,364 6,186 83,603
Purchased in-process
research and development -- 121,000 29,900 -- -- -- 196,362
Special charges -- -- -- 147,306 37,906 37,906 --
Operating income (loss) (2) 106,527 194,101 168,789 (440,158) (3,179) (53,858) (66,688)
Net income (loss) (2) 75,917 83,528 125,824 (262,216) 12,929 (25,116) (133,832)
Net loss per share:
Basic $ (0.65)
Diluted (0.65)
Pro forma net income (loss)
per share (3):
Basic $ 0.35 $ 0.38 $ 0.59 $ (1.32) $ 0.07 $ (0.13)
Diluted 0.35 0.38 0.59 (1.32) 0.06 (0.13)
Weighted average shares outstanding (3):
Basic 217,200 217,600 213,800 197,900 192,551 190,466 218,249
Diluted 217,200 217,600 213,800 197,900 203,484 190,466 218,249
BALANCE SHEET DATA:
Working capital $ 604,453 $ 631,898 $1,353,427
Total assets 1,841,950 1,655,993 4,339,270
Long-term obligations 350,000 350,000 999,997
Shareholders' equity 1,035,153 950,219 2,815,002
</TABLE>
------------------
(1) The fiscal 1999 financial statements include the operating results of
Conexant while it was part of Rockwell prior to January 1, 1999. Financial
data included in the summary selected historical consolidated financial
data of Conexant, for periods subsequent to January 1, 1999, have been
prepared on a basis that reflects the historical assets, liabilities, and
operations of the business contributed to Conexant by Rockwell. Financial
data for periods prior to January 1, 1999 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 the
periods presented.
(2) In fiscal 1997 and 1996, Conexant incurred charges of $30 million and $121
million for purchased in-process research and development relating to the
acquisitions of the Hi-Media broadband communication chipset business of
ComStream Corporation and Brooktree Corporation, respectively.
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<PAGE> 25
In September 1998, Conexant recorded special charges of approximately $147
million related to its decision to close and dispose of its wafer
fabrication facilities in Colorado Springs, Colorado, a worldwide
workforce reduction and certain other actions.
In fiscal 1999, Conexant recorded an additional asset impairment charge of
$20 million for the Colorado Springs wafer fabrication facility as a
result of Rockwell's decision to further write-down the facility and
additional special charges of approximately $18 million related to other
restructuring actions initiated in the fourth quarter of fiscal 1998.
In fiscal 2000, Conexant recorded charges for purchased in-process
research and development totaling $196.4 million related to various
acquisitions accounted for under the purchase method.
(3) Net income (loss) per share has not been presented as Conexant was not an
independent company during each of the full periods. Pro forma net income
(loss) per share has been presented as if the spin-off from Rockwell had
occurred as of October 1, 1994. Subsequent to the spin-off, pro forma net
income (loss) per share is based on Statement of Financial Accounting
Standards No. 128, "Earnings Per Share". Pro forma net income (loss) per
share gives retroactive effect to the 2-for-1 stock split effected in the
form of a stock dividend on October 29, 1999 for shareowners of record on
September 24, 1999.
SUMMARY SELECTED HISTORICAL FINANCIAL DATA OF HARRIS & JEFFRIES
The following table presents summary selected historical financial data of
Harris & Jeffries as of and for each of the five years in the period ended
December 31, 1999 and for the six months ended June 30, 1999 and 2000 and as of
the end of each such period. This financial data was derived from the financial
statements of Harris & Jeffries. The following summary financial data should be
read in conjunction with the section entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Harris & Jeffries"
on page 72 and Harris & Jeffries' financial statements and notes thereto
attached as Appendix E to this proxy statement-prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -----------------
1995 1996 1997 1998 1999 1999 2000
------ ------- ------- ------- ------ ------- ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues $3,415 $ 2,794 $ 5,295 $ 6,117 $8,712 $ 3,107 $5,847
Operating income (loss) 178 (754) (1,268) (2,501) 670 (445) 921
Net income (loss) 114 179 (1,555) (2,550) 665 (450) 683
BALANCE SHEET DATA:
Cash and cash equivalents 40 61 321 93 629 10 1,036
Working capital 46 (144) 277 (516) 800 (312) 1,253
Total assets 1,335 929 2,635 2,361 3,699 2,234 4,477
Long-term debt, less current portion 38 27 32 80 42 126 26
Stockholders' equity 179 358 984 145 1,454 253 2,166
</TABLE>
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<PAGE> 26
RISK FACTORS
You should carefully consider and evaluate all of the information in this
proxy statement-prospectus, including the risk factors listed below. Any of
these risks could materially and adversely affect the business, financial
condition and results of operations of Conexant, which in turn could materially
and adversely affect the price of Conexant common stock.
RISKS RELATED TO THE MERGER
YOU WILL NOT KNOW THE EXACT NUMBER OF SHARES OF CONEXANT COMMON STOCK YOU WILL
RECEIVE OR THEIR MARKET VALUE AT THE TIME YOU VOTE ON THE MERGER.
In the merger, Conexant will exchange an aggregate of up to 1,808,100
shares of its common stock for all of the Harris & Jeffries common and preferred
stock and all of the Harris & Jeffries options to acquire common stock
outstanding when the merger occurs. The final exchange ratio will not be
determined until the closing date of the merger. If Harris & Jeffries issues
additional options before the merger, you will receive fewer Conexant shares for
each share of Harris & Jeffries common stock and preferred stock that you own.
Harris & Jeffries has advised Conexant that it intends to issue options to
purchase up to an additional 1,066,797 shares of Harris & Jeffries common stock,
subject to the approval of the proposal to increase the authorized number of
shares of Harris & Jeffries common stock. In addition, the number of shares of
Conexant common stock you receive may be affected by the market price of
Conexant common stock. This is because the articles of organization of Harris &
Jeffries give holders of its preferred stock the right to receive a greater
share of the merger consideration than holders of common stock or options, in
the event that the average daily closing sale prices of Conexant common stock
for the five trading day period preceding the day before the day the merger
becomes effective is less than $37.13 per share (or $37.50 per share if items 2
and 3 are approved by the stockholders at the special meeting). The holders of
preferred stock will not have this right if item 5 is approved by the
stockholders at the special meeting. Moreover, the exchange ratio is not
affected by changes in the market price of Conexant common stock. As a result,
you will not know the value of the Conexant stock you will receive when you vote
on the merger.
CONEXANT MAY BE UNABLE TO INTEGRATE SUCCESSFULLY THE OPERATIONS OF HARRIS &
JEFFRIES.
The successful combination of Conexant and Harris & Jeffries will require
substantial effort from each company, including the coordination of sales,
marketing and research and development efforts. Conexant may encounter
difficulties in the transition process if Conexant fails to integrate the two
companies quickly and efficiently. These difficulties could include the
interruption of, or a loss of momentum in, Harris & Jeffries' activities,
problems associated with integration of management information and reporting
systems, and delays in implementation of consolidation plans. These difficulties
may be increased by the geographical separation of the two companies and their
employees. In the event that Conexant encounters any of these difficulties, or
if the attention of Conexant's management is diverted, Conexant's ability to
realize the anticipated benefits of the merger could be adversely affected.
There is intense competition for qualified personnel in the areas of Conexant's
activities and Conexant cannot assure you that it will be able to retain Harris
& Jeffries' key management, technical, sales and marketing personnel, or that
Conexant will realize the anticipated benefits of the merger. These factors
could have a material adverse effect on Conexant's business, financial condition
and results of operations and could adversely affect the ability of Harris &
Jeffries to achieve the revenue and operating margin goals required to receive
the 718,000 additional shares of Conexant common stock referred to as the
earn-out shares.
YOU MAY NOT RECEIVE A SUBSTANTIAL PORTION OF THE POTENTIAL PURCHASE PRICE FOR
HARRIS & JEFFRIES.
If Harris & Jeffries is unable to achieve certain revenue and operating
margin goals following the merger, stockholders and vested option holders of
Harris & Jeffries will not receive a portion of the consideration they otherwise
might receive, and that portion could be significant if none of the goals is
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<PAGE> 27
achieved. The right to receive approximately 718,000 shares of Conexant common
stock, referred to as the earn-out shares, or approximately 26% of the total
number of shares that could be issued in connection with the merger, is
conditioned on achieving these goals, within the time periods provided, in whole
or in part. Harris & Jeffries may not achieve some or any of these goals. In
addition, if Conexant is entitled to recover damages for indemnification claims
under the merger agreement, stockholders and option holders of Harris & Jeffries
will not receive some or all of the shares of Conexant common stock that have
been held back or placed in escrow to secure the payment of indemnification
claims. Approximately 200,900 shares of Conexant common stock will be held back
or placed in escrow as security for indemnification claims. The maximum
liability of stockholders for certain types of indemnity claims could exceed the
value of these shares, although the liability of each stockholder or option
holder will not exceed the value of all the shares of Conexant common stock
issued to that stockholder or option holder, whether as merger consideration,
escrow/holdback shares or earn-out shares, based on the value of those shares at
the time they are issued. For example, Conexant has the right to recover up to
the entire consideration actually paid to stockholders and option holders of
Harris & Jeffries if it can legally establish a loss in that amount arising from
the breach of certain representations and warranties made in the merger
agreement, such as the capitalization of Harris & Jeffries, a stockholders'
title to his or her shares of Harris & Jeffries stock and certain other matters.
CERTAIN DIRECTORS, OFFICERS AND STOCKHOLDERS OF HARRIS & JEFFRIES MAY HAVE
DIFFERENT INTERESTS FROM YOURS AS A HARRIS & JEFFRIES STOCKHOLDER.
Certain directors and officers of Harris & Jeffries may have interests in
the merger that are different from those stockholders who are not also directors
or officers. For example, Conexant has entered into two-year employment
agreements with Deepak Shahane, David Jeffries, Kevin Smith and Saul Agranoff.
These agreements provide compensation and other benefits not currently provided
to these individuals by Harris & Jeffries. As a result, these officers and
directors could be more likely to vote for the proposal to approve and adopt the
merger agreement and the merger than if they did not have these interests.
Deepak Shahane and David Jeffries have already agreed to vote in favor of the
merger.
In addition, certain stockholders have different rights and obligations
than other stockholders under the merger agreement. For example, the
indemnification obligations of the InSight Stockholders differ in certain
respects from those of other stockholders. These differences include limitations
on Conexant's ability to recover damages from the InSight Stockholders that are
more favorable to the InSight Stockholders than the limitations that apply to
other Harris & Jeffries stockholders. In addition, if item 5 is approved by the
stockholders at the special meeting, preferred stockholders will be entitled to
receive cash as additional merger consideration if the average daily closing
sales prices of Conexant common stock for the five trading day period preceding
the day before the day the merger becomes effective is less than $37.13 per
share (or $37.50 per share if items 2 and 3 are approved by the stockholders at
the special meeting). Holders of common stock and options do not have a similar
right.
RISKS RELATED TO CONEXANT'S BUSINESS
CONEXANT'S FUTURE SUCCESS DEPENDS LARGELY ON THE CONTINUED GROWTH OF ITS
EXPANSION PLATFORMS.
Conexant's recent revenue growth is principally a result of its plan, begun
in 1995, to diversify its business and expand into the following selected
related product platforms:
- Network Access;
- Wireless Communications;
- Digital Infotainment; and
- Personal Imaging.
These product platforms represented 64 percent of Conexant's total revenues
for the first nine months of fiscal 2000, compared to 54 percent for the first
nine months of fiscal 1999. Conexant believes that these platforms continue to
offer higher growth prospects than Conexant's dial-up modem business.
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<PAGE> 28
Conexant's future financial performance and overall success, particularly in the
long term, will depend largely on the rate of sales growth and margin
contribution of its expansion platforms and whether these platforms will
continue to increase their relative contribution to Conexant's financial
performance.
There are numerous risks inherent in Conexant's diversification and
expansion strategy, many of which are beyond its control. In certain product
lines within these expansion platforms, Conexant currently has minimal market
presence relative to other more established competitors. Moreover, continued
growth of these expansion platforms depends, in part, on the ability of
Conexant's customers to develop new and enhanced products and to successfully
introduce and market those products to end users. Conexant cannot assure you
that it will be able to sustain the recent growth of its expansion platforms or
that its diversification and expansion program will be successful. A failure of
this program would have a material adverse effect on Conexant's business,
financial condition and results of operations.
CONEXANT MUST INCUR SUBSTANTIAL RESEARCH AND DEVELOPMENT EXPENSES.
The semiconductor industry requires substantial investment in research and
development. In order to remain competitive, Conexant must continue to make
substantial investments in research and development to develop new and enhanced
products. Conexant cannot assure you that it will have sufficient resources to
develop new and enhanced technologies and competitive products. Conexant's
failure to continue to make sufficient investments in research and development
programs could have a material adverse effect on its business, financial
condition and results of operations.
CONEXANT'S SUCCESS IS DEPENDENT UPON ITS ABILITY TO TIMELY DEVELOP NEW PRODUCTS
AND REDUCE COSTS.
Conexant's operating results will depend largely on its ability to continue
to introduce new and enhanced semiconductor products on a timely basis.
Successful product development and introduction depends on numerous factors,
including, among others:
- Conexant's ability to anticipate customer and market requirements and
changes in technology and industry standards;
- Conexant's ability to accurately define new products;
- Conexant's ability to timely complete new products and introduce its
products to the market;
- Conexant's ability to differentiate its products from offerings of its
competitors; and
- market acceptance of Conexant's products.
Furthermore, Conexant is required to continually evaluate expenditures for
planned product development and to choose among alternative technologies based
upon its expectations of future market growth. Conexant cannot assure you that
it will be able to develop and introduce new or enhanced products in a timely
and cost-effective manner, that its products will satisfy customer requirements
or achieve market acceptance, or that it will be able to anticipate new industry
standards and technological changes. Conexant also cannot assure you that it
will be able to respond successfully to new product announcements and
introductions by competitors.
In addition, prices of established products may decline, sometimes
significantly, over time. Conexant believes that in order to remain competitive
it must continue to reduce the cost of producing and delivering existing
products at the same time that it develops and introduces new or enhanced
products. Conexant cannot assure you that it will be able to continue to reduce
the cost of its products to remain competitive.
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<PAGE> 29
CONEXANT MUST INCUR SIGNIFICANT CAPITAL EXPENDITURES FOR MANUFACTURING
TECHNOLOGY AND EQUIPMENT TO REMAIN COMPETITIVE.
The semiconductor industry is highly capital intensive. Semiconductor
manufacturing requires a constant upgrading of process technology to remain
competitive, as new and enhanced semiconductor processes are developed which
permit smaller, more efficient and more powerful semiconductor devices. Conexant
maintains its own manufacturing, assembly and test facilities which have
required and will continue to require significant investments in manufacturing
technology and equipment.
Conexant expects fiscal 2000 capital expenditures to be in excess of $300
million, compared to $214 million spent on capital expenditures during fiscal
1999. There can be no assurance that Conexant will have sufficient capital
resources to make necessary investments in manufacturing technology and
equipment.
CONEXANT FACES A RISK THAT CAPITAL NEEDED FOR ITS BUSINESS WILL NOT BE AVAILABLE
WHEN IT NEEDS IT.
Conexant believes that cash flows from operations, existing cash reserves,
and available borrowings under its $475 million revolving credit facility will
be sufficient to satisfy its future research and development, capital
expenditure, working capital and other financing requirements. However, Conexant
cannot assure you that this will be the case or that it will have access to
alternative sources of capital on favorable terms or at all.
In addition, Conexant has and will continue to review on an ongoing basis
strategic investments and acquisitions which will help it grow its business.
These investments and acquisitions may require additional capital resources.
Conexant cannot assure you that the capital required to fund these investments
and acquisitions will be available in the future.
CONEXANT'S OPERATING RESULTS MAY BE IMPACTED BY SUBSTANTIAL QUARTERLY AND ANNUAL
FLUCTUATIONS AND MARKET DOWNTURNS.
These fluctuations are due to a number of factors, many of which are beyond
Conexant's control. These factors include, among others:
- the effects of competitive pricing pressures;
- decreases in average selling prices of Conexant's products;
- production capacity levels and fluctuations in manufacturing yields;
- availability and cost of products from Conexant's suppliers;
- the gain or loss of significant customers;
- Conexant's ability to develop, introduce and market new products and
technologies on a timely basis;
- new product and technology introductions by competitors;
- changes in the mix of products produced and sold;
- market acceptance of Conexant's products and its customers' products;
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<PAGE> 30
- intellectual property disputes;
- seasonal customer demand;
- the timing of significant orders; and
- the timing and extent of product development costs.
General economic or other conditions causing a downturn in the market for
semiconductor products, affecting the timing of customer orders or causing order
cancellations or rescheduling of orders, could also adversely affect Conexant's
operating results. Moreover, Conexant's customers may change delivery schedules
or cancel or reduce orders without significant penalty and generally are not
subject to minimum purchase requirements.
The foregoing factors are difficult to forecast, and these, as well as
other factors, could materially adversely affect Conexant's quarterly or annual
operating results. If Conexant's operating results fail to meet the expectations
of analysts or investors, it could materially and adversely affect the price of
Conexant common stock.
CONEXANT'S OPERATING RESULTS MAY ALSO BE IMPACTED BY ACQUISITION-RELATED
AMORTIZATION OR OTHER CHARGES AGAINST EARNINGS.
For the first nine months of fiscal 2000 Conexant incurred a net loss of
$134 million, due to amortization expense and other charges resulting from its
recently-completed acquisitions. The nine-month fiscal 2000 net loss includes
charges totaling $196.4 million for the write-off of purchased in-process
research and development, and amortization expenses of $83.6 million for
acquisition-related intangible assets. In fiscal 1998, Conexant incurred a net
loss of $262 million due to restructuring charges of $147 million, inventory
write-offs of approximately $66 million, and a charge for intellectual property
matters of approximately $43 million. Conexant's operating results for fiscal
1999 were adversely affected by additional charges of $38 million related to the
1998 restructuring actions. Significant charges against earnings for purchased
in-process research and development are not unusual in connection with
acquisitions of technology companies. Conexant may incur further losses due to
these types of write-offs as a result of future business acquisitions or other
actions.
As a result of its recent acquisitions, Conexant expects to record
amortization expense related to goodwill and intangible assets in excess of $300
million annually for five years. Conexant's profitability may also be affected
by increased amortization expenses related to intangible assets, which often
result from acquisitions of technology companies, as Conexant makes additional
acquisitions.
CONEXANT FACES A RISK THAT IT WILL BE UNABLE TO INTEGRATE COMPANIES IT ACQUIRES.
Conexant has completed several acquisitions in the past year, including the
acquisitions of Applied Telecom, Inc., HotRail Inc., Istari Design, Inc., Maker
Communications, Inc., Microcosm Communications Limited, Philsar Semiconductor
Inc., Sierra Imaging Inc. and the wireless broadband business of Oak Technology,
Inc. In addition, Conexant recently announced that it has agreed to acquire
Novanet Semiconductor Ltd. On an ongoing basis, Conexant evaluates acquisitions
and may make additional acquisitions in the future. Integrating acquired
organizations and their products and services may be expensive, time-consuming
and a strain on Conexant's resources. Risks Conexant could face with respect to
acquisitions include:
- the difficulty of integrating acquired technology into its product
offerings;
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<PAGE> 31
- the failure successfully to integrate acquired technology, resulting
in the impairment of amounts currently capitalized as intangible
assets;
- the impairment of relationships with employees and customers;
- the difficulty of coordinating and integrating
geographically-dispersed operations;
- the difficulty of coordinating and integrating overall business
strategies and sales and marketing and research and development
efforts;
- the potential disruption of its ongoing business and distraction of
management;
- the maintenance of brand recognition of acquired businesses;
- the maintenance of corporate cultures, controls, procedures and
policies; and
- the potential unknown liabilities associated with acquired businesses.
Conexant's inability to address any of these risks successfully could harm its
business.
Conexant may have difficulty in integrating any future acquisitions with
its current organization, technology and product and services offerings, and any
acquired features, functions, products or services may not achieve market
acceptance.
CONEXANT'S CREDIT FACILITY MAY RESTRICT ITS OPERATING AND FINANCIAL FLEXIBILITY.
Conexant has a $475 million revolving credit facility which expires in
2003. This credit facility includes covenants that may restrict Conexant's
operating and financial flexibility in the future. The credit facility includes
restrictions on capital expenditures, indebtedness, acquisitions, mergers, asset
sales and liens on assets that apply to Conexant and its subsidiaries. Conexant
also must meet certain financial tests and maintain certain financial ratios.
Although Conexant believes that it will be able to comply with these
requirements, compliance with these requirements may restrict its operating and
financial flexibility. Conexant cannot assure you that it will in fact be able
to satisfy all of the requirements in the credit facility. If Conexant does not
satisfy the financial ratios or comply with the other covenants included in the
credit facility, the lenders under the credit facility could declare all amounts
owed to them due and payable and proceed against their collateral. Such a
foreclosure on the collateral could have a material adverse effect on Conexant's
business, financial condition and results of operations. The credit facility is
secured by a pledge of the stock of Conexant's significant subsidiaries (as that
term is defined in the credit facility), subject to certain exceptions for stock
of foreign significant subsidiaries, and by a pledge of certain intercompany
indebtedness owed to Conexant by its domestic significant subsidiaries. If there
is a downgrading of the ratings on Conexant's long-term, unsecured indebtedness
by Standard & Poor's Rating Services Group to B or less and a rating by Moody's
Investor Service of B2 or less (in the event of a rating by Moody's), Conexant
will be required to secure the credit facility by pledging substantially all of
its assets and the assets of its domestic subsidiaries and the stock of all of
its subsidiaries, subject to certain exceptions. Conexant's obligations under
the credit facility must be guaranteed by any domestic significant subsidiary.
CONEXANT ENGAGES IN LITIGATION TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS AND
TO DEFEND ITSELF AGAINST CLAIMS OF INFRINGEMENT BY OTHERS.
Conexant's business faces risks of intellectual property infringement and
litigation. The semiconductor industry is characterized by vigorous protection
and pursuit of intellectual property
20
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rights. In the past, Conexant has found it necessary to engage in litigation to
enforce its intellectual property rights, to protect its trade secrets or to
determine the validity and scope of proprietary rights of others, including its
customers. Conexant expects future litigation on similar grounds.
Conexant has received, and may continue to receive in the future, claims of
infringement of intellectual property rights of others. Conexant is a party to
certain pending proceedings involving such claims. Conexant cannot assure you
that:
- it will prevail in pending actions;
- other actions alleging infringement by Conexant of third-party patents
or invalidity of its patents will not be asserted or prosecuted
against Conexant; or
- any assertions of infringement or actions seeking to establish the
invalidity of Conexant's patents will not materially and adversely
affect its business, financial condition and results of operations.
Even if Conexant is successful in such matters, the attempted enforcement
of intellectual property rights by or against Conexant could result in
significant costs and diversion of its resources. It could also have a material
adverse effect on Conexant's business, financial condition and results of
operations. If claims or actions are asserted or commenced against Conexant, in
certain situations it may seek to obtain licenses under a third party's
intellectual property rights to avert or resolve a controversy. Conexant cannot
assure you that under such circumstances a license would be available on
commercially reasonable terms, if at all.
CONEXANT MAY NOT BE SUCCESSFUL IN PROTECTING ITS INTELLECTUAL PROPERTY RIGHTS.
Conexant relies primarily on patent, copyright, trademark and trade secret
laws, as well as nondisclosure and confidentiality agreements and other methods,
to protect its proprietary technologies and processes. In addition, it often
incorporates the intellectual property of its customers into its designs, and
has certain obligations with respect to the non-use and non-disclosure of their
intellectual property. Conexant cannot assure you that:
- the steps it takes to prevent misappropriation or infringement of its
intellectual property or the intellectual property of its customers
will be successful;
- any existing or future patents will not be challenged, invalidated or
circumvented; or
- any of the measures described above would provide meaningful
protection.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use Conexant's technology without authorization, develop
similar technology independently or design around Conexant's patents. If any of
Conexant's patents fails to protect Conexant's technology it would make it
easier for Conexant's competitors to offer similar products. In addition,
effective copyright, trademark and trade secret protection may be unavailable or
limited in certain countries.
CONEXANT'S INTELLECTUAL PROPERTY INDEMNIFICATION PRACTICE MAY ADVERSELY IMPACT
ITS BUSINESS.
Conexant has historically indemnified its customers for certain costs and
damages of patent infringement in circumstances where its product is the factor
creating the customer's infringement exposure. This practice generally excludes
coverage in circumstances where infringement arises out of the combination of
Conexant's products with products of others. This indemnification practice could
have a material adverse effect on Conexant's business, financial condition and
results of operations, particularly in situations where Conexant's products are
designed for use in devices manufactured by Conexant's customers that comply
with international standards. These international standards are often covered by
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patent rights held by Conexant's competitors or Conexant's customers. The
combined costs of obtaining licenses from all holders of patent rights essential
to such standards could be high and could have a material adverse effect on
Conexant's business, financial condition and results of operations.
CONEXANT OPERATES IN THE HIGHLY CYCLICAL SEMICONDUCTOR INDUSTRY.
The semiconductor industry is highly cyclical and is characterized by
constant and rapid technological change, rapid product obsolescence and price
erosion, evolving standards, short product life cycles and wide fluctuations in
product supply and demand.
The industry has experienced significant downturns, often in connection
with, or in anticipation of, maturing product cycles (of both semiconductor
companies' and their customers' products) and declines in general economic
conditions. These downturns have been characterized by diminished product
demand, production overcapacity, high inventory levels and accelerated erosion
of average selling prices.
Conexant has experienced these conditions in its business in the past and
may experience such downturns in the future. Any future downturns of this nature
could have a material adverse effect on Conexant's business, financial condition
and results of operations. From time to time the semiconductor industry also has
experienced periods of increased demand and production capacity constraints.
Conexant may experience substantial changes in future operating results due to
general semiconductor industry conditions, general economic conditions and other
factors.
CONEXANT IS SUBJECT TO INTENSE COMPETITION AND COULD LOSE BUSINESS TO ITS
COMPETITORS.
The semiconductor industry in general and the markets in which Conexant
competes in particular are intensely competitive. Conexant competes worldwide
with a number of United States and international semiconductor manufacturers
that are both larger and smaller than it in terms of resources and market share.
Conexant currently faces significant competition in its markets and expects that
intense price and product competition will continue. This competition has
resulted and is expected to continue to result in declining average selling
prices for Conexant's products. Conexant also anticipates that additional
competitors will enter its markets as a result of growth opportunities in
communications electronics, the trend toward global expansion by foreign and
domestic competitors, technological and public policy changes and relatively low
barriers to entry in certain markets of the industry.
Conexant currently enjoys substantial market share in its V.90 and
facsimile modem chipset product lines. However, as Conexant continues its
diversification strategy and develops its expansion platforms, it is and will be
competing in certain new markets in which it has lesser market shares and
existing competitors have dominant market positions. Moreover, as with many
companies in the semiconductor industry, customers for certain of Conexant's
products offer other products that compete with similar products offered by
Conexant.
Conexant believes that the principal competitive factors for integrated
circuit providers to its addressed markets are:
- product performance;
- level of integration;
- quality;
- compliance with industry standards;
- price;
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- time-to-market;
- system cost;
- design and engineering capabilities;
- new product innovation; and
- customer support.
The specific bases on which Conexant competes vary by product platform.
Many of Conexant's current and potential competitors have certain
advantages, including:
- longer operating histories and presence in key markets;
- greater name recognition;
- access to larger customer bases; and
- significantly greater financial, sales and marketing, manufacturing,
distribution, technical and other resources than Conexant has.
As a result, such competitors may be able to adapt more quickly to new or
emerging technologies and changes in customer requirements or may be able to
devote greater resources to the development, promotion and sale of their
products than Conexant.
Current and potential competitors also have established or may establish
financial or strategic relationships among themselves or with Conexant's
existing or potential customers, resellers or other third parties. These
relationships may affect Conexant's customers' purchasing decisions.
Accordingly, it is possible that new competitors or alliances among Conexant's
competitors could emerge and rapidly acquire significant market share. Conexant
cannot assure you that it will be able to compete successfully against current
and potential competitors. Conexant also cannot assure you that competition will
not have a material adverse effect on its business, financial condition and
results of operations.
Many of Conexant's competitors have combined with each other and
consolidated their businesses, including the consolidation of competitors with
Conexant's customers. This is attributable to a number of factors, including the
high-growth nature of the communications electronic industry and the
time-to-market pressures on suppliers to decrease the time required for product
conception, research and development, sampling and production launch before a
product reaches the market. This consolidation trend is expected to continue,
since investments, alliances and acquisitions may enable semiconductor
suppliers, including Conexant and its competitors, to augment technical
capabilities or to achieve faster time-to-market for their products than would
be possible solely through internal development.
Consolidations by industry participants, including in some cases,
acquisitions of certain of Conexant's customers by Conexant's competitors, are
creating entities with increased market share, customer base, technology and
marketing expertise in markets in which Conexant competes. These developments
may significantly and adversely affect Conexant's current markets, the markets
Conexant is seeking to serve and Conexant's ability to compete successfully in
those markets.
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CONEXANT MAY NOT BE ABLE TO KEEP ABREAST OF THE RAPID TECHNOLOGICAL CHANGES IN
ITS MARKETS.
The demand for Conexant's products can change quickly and in ways Conexant
may not anticipate because its markets generally exhibit the following
characteristics:
- rapid technological developments;
- evolving industry standards;
- changes in customer requirements;
- frequent new product introductions and enhancements; and
- short product life cycles with declining prices over the life cycle of
the product.
Conexant's products could become obsolete sooner than anticipated because
of a faster than anticipated change in one or more of the technologies related
to its products or in market demand for products based on a particular
technology, particularly due to the introduction of new technology that
represents a substantial advance over current technology. Currently accepted
industry standards are also subject to change, which may contribute to the
obsolescence of Conexant's products. If Conexant is unable to keep abreast of
these developments, such events could have a material adverse effect on
Conexant's business, financial condition and results of operations.
CONEXANT'S MANUFACTURING PROCESS IS EXTREMELY COMPLEX AND SPECIALIZED.
Conexant's manufacturing operations are complex and subject to disruption
due to causes beyond its control. The fabrication of integrated circuits is an
extremely complex and precise process consisting of hundreds of separate steps.
It requires production in a highly controlled, clean environment. Minute
impurities, errors in any step of the fabrication process, defects in the masks
used to print circuits on a wafer or a number of other factors can cause a
substantial percentage of wafers to be rejected or numerous die on each wafer
not to function.
Conexant's operating results are highly dependent upon its ability to
produce large volumes of integrated circuits at acceptable manufacturing yields.
Conexant's operations may be affected by lengthy or recurring disruptions of
operations at any of its production facilities or those of its subcontractors.
These disruptions may include labor strikes, work stoppages, fire, earthquake,
flooding or other natural disasters. These disruptions could cause significant
delays in shipments until Conexant could shift the products from an affected
facility or subcontractor to another facility or subcontractor.
In the event of these types of delays, Conexant cannot assure you that the
required alternate capacity, particularly wafer production capacity, would be
available on a timely basis or at all. Even if alternate wafer production
capacity is available, Conexant may not be able to obtain it on favorable terms,
which would result in a loss of customers. Any inability to obtain sufficient
manufacturing capacities to meet demand, either at Conexant's own facilities or
through foundry or similar arrangements with others, could have a material
adverse effect on Conexant's business, financial condition and results of
operations. Certain of Conexant's manufacturing facilities are located near
major earthquake fault lines, including Conexant's California and Mexico
facilities. Conexant maintains only minimal earthquake insurance coverage on
these facilities.
Due to the highly specialized nature of the gallium arsenide semiconductor
manufacturing process, in the event of a disruption at Conexant's Newbury Park,
California wafer fabrication facility, alternate gallium arsenide production
capacity would not be readily available from third party sources. Although
Conexant recently entered into a multi-year agreement with a foundry that
guarantees Conexant access to
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additional gallium arsenide wafer production capacity beginning in the fourth
quarter of calendar year 2000, a disruption of operations at Conexant's Newbury
Park wafer fabrication facility or the interruption in the supply of epitaxial
wafers used in Conexant's gallium arsenide process could have a material adverse
effect on Conexant's business, financial condition and results of operations,
particularly with respect to its Wireless Communications products.
Conexant's ability to sustain its revenue growth is also dependent on its
ability to secure adequate additional manufacturing capacity, including wafer
production capacity. Conexant has recently entered into agreements with outside
foundries to secure additional wafer manufacturing capacity, including
additional gallium arsenide wafer production capacity. In addition, Conexant
continues to explore wafer manufacturing alternatives, which may include
increased use of outside foundries, entering into new or expanded business
relationships with respect to wafer manufacturing or other actions related to
Conexant's wafer manufacturing facilities. Conexant cannot assure you that it
will be successful in securing adequate additional manufacturing capacity, and
Conexant's inability to do so could result in delays in customer shipments.
CONEXANT MAY NOT BE ABLE TO ACHIEVE MANUFACTURING YIELDS TO MAINTAIN ITS
PROFITABILITY.
Minor deviations in the manufacturing process can cause substantial
manufacturing yield loss, and in some cases, cause production to be suspended.
Manufacturing yields for new products initially tend to be lower as Conexant
completes product development and commences volume manufacturing, and will
typically increase as Conexant ramps to full production. Conexant's forward
product pricing includes this assumption of improving manufacturing yields and,
as a result, material variances between projected and actual manufacturing
yields have a direct effect on Conexant's gross margin and profitability. The
difficulty of forecasting manufacturing yields accurately and maintaining cost
competitiveness through improving manufacturing yields will continue to be
magnified by the ever increasing process complexity of manufacturing integrated
circuit products. Conexant's manufacturing operations also face pressures
arising from the compression of product life cycles which requires Conexant to
bring new products on line faster and for shorter periods while maintaining
acceptable manufacturing yields and quality without, in many cases, reaching the
longer-term, high volume manufacturing conducive to higher manufacturing yields
and declining costs.
CONEXANT IS DEPENDENT UPON THIRD PARTIES FOR THE SUPPLY OF RAW MATERIALS AND
COMPONENTS.
Conexant believes it has adequate sources for the supply of raw materials
and components for its manufacturing needs with suppliers located around the
world. Although it currently purchases wafers used in the production of its
complementary metal oxide semiconductor (CMOS) products from one major supplier,
such wafers are available from several other suppliers. Conexant is currently
dependent on two suppliers for epitaxial wafers used in the gallium arsenide
semiconductor manufacturing processes at its Newbury Park, California facility
and it is in the process of arranging another supplier for epitaxial wafers. The
number of qualified alternative suppliers for wafers is limited and the process
of qualifying a new wafer supplier could require a substantial leadtime.
Although Conexant historically has not experienced any significant difficulties
in obtaining an adequate supply of raw materials and components necessary for
its manufacturing operations, the loss of a significant supplier or the
inability of a supplier to meet performance and quality specifications or
delivery schedules could have a material adverse effect on its business,
financial condition and results of operations.
UNCERTAINTIES INVOLVING THE ORDERING AND SHIPMENT OF CONEXANT'S PRODUCTS COULD
ADVERSELY AFFECT ITS BUSINESS.
Conexant's sales are typically made pursuant to individual purchase orders
and Conexant generally does not have long-term supply arrangements with its
customers. Conexant's customers may cancel orders until 30 days prior to the
shipping date. In addition, Conexant sells a portion of its products through
distributors who have certain rights to return unsold products to Conexant.
Moreover, semiconductor
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companies, including Conexant, routinely manufacture or purchase inventory based
on estimates of customer demand for their products, which is difficult to
predict. The cancellation or deferral of product orders, the return of
previously sold products or overproduction due to the failure of anticipated
orders to materialize could result in Conexant holding excess or obsolete
inventory which could have a material adverse effect on its business, financial
condition and results of operations.
CONEXANT IS SUBJECT TO THE RISKS OF DOING BUSINESS INTERNATIONALLY.
For the nine months ended June 30, 2000, approximately 69 percent of
Conexant's total sales were to customers located outside the United States,
primarily in the Asia-Pacific and European countries. In addition, Conexant has
facilities and suppliers located outside the United States, including its
assembly and test facility in Mexicali, Mexico and third-party foundries located
in the Asia-Pacific region. Conexant's international sales and operations are
subject to a number of risks inherent in selling and operating abroad. These
include, but are not limited to, risks regarding:
- currency exchange rate fluctuations;
- local economic and political conditions;
- disruptions of capital and trading markets;
- restrictive governmental actions (such as restrictions on transfer of
funds and trade protection measures, including export duties and
quotas and customs duties and tariffs);
- changes in legal or regulatory requirements;
- import or export licensing requirements;
- limitations on the repatriation of funds;
- difficulty in obtaining distribution and support;
- nationalization;
- the laws and policies of the United States affecting trade, foreign
investment and loans;
- tax laws; and
- limitations on Conexant's ability under local laws to protect its
intellectual property.
Because most of Conexant's international sales, other than sales to Japan
(which are denominated principally in Japanese yen), are currently denominated
in U.S. dollars, Conexant's products could become less competitive in
international markets if the value of the U.S. dollar increases relative to
foreign currencies.
Moreover, Conexant may be competitively disadvantaged relative to its
competitors located outside the United States who may benefit from a devaluation
of their local currency. Conexant cannot assure you that the factors described
above will not have a material adverse effect on Conexant's ability to increase
or maintain its foreign sales or on its business, financial condition and
results of operations.
Conexant's past operating performance has been impacted by adverse economic
conditions in the Asia-Pacific region, which have increased the uncertainty with
respect to the long-term viability of certain
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of its customers and suppliers in the region. Sales to customers in Japan and
other countries in the Asia-Pacific region, principally Taiwan, South Korea and
Hong Kong, represented approximately 57 percent of total revenues in the first
nine months of fiscal 2000.
Conexant enters into foreign currency forward exchange contracts,
principally for the Japanese yen, to minimize risk of loss from currency
exchange rate fluctuations for foreign currency commitments entered into in the
ordinary course of business. Conexant has not experienced nor does it anticipate
any material adverse effect on its results of operations or financial condition
related to these foreign currency forward exchange contracts. Conexant has not
entered into foreign currency forward exchange contracts for other purposes and
its financial condition and results of operations could be affected (negatively
or positively) by currency fluctuations.
CONEXANT'S SUCCESS DEPENDS ON ITS ABILITY TO EFFECT SUITABLE INVESTMENTS,
ALLIANCES OR ACQUISITIONS.
Although Conexant invests significant resources in research and development
activities, the complexity and rapidity of technological changes make it
impractical for Conexant to pursue development of all technological solutions on
its own. As part of Conexant's goal to provide advanced semiconductor product
systems, it has and will continue to review on an ongoing basis investment,
alliance and acquisition prospects that would complement its existing product
offerings, augment its market coverage or enhance its technological
capabilities. However, Conexant cannot assure you that it will be able to
identify and consummate suitable investment, alliance or acquisition
transactions in the future.
Moreover, if Conexant consummates such transactions, they could result in:
- the diversion of management resources;
- dilutive issuances of equity securities;
- large one-time write-offs;
- the incurrence of debt and contingent liabilities;
- amortization expenses related to goodwill and other intangible assets;
and
- other acquisition related costs.
Any of these events could materially adversely affect Conexant's business,
financial condition and results of operations and the price of its common stock.
For example, as a result of fiscal 2000 acquisitions, Conexant has recorded
charges of $196.4 million for purchased in-process research and development and
it expects to record amortization expense related to goodwill and intangible
assets in excess of approximately $300 million annually for five years.
The ultimate success of any such investments, alliances or acquisitions in
achieving the purposes for which they are undertaken will depend on Conexant's
ability to integrate successfully any acquired business and to retain key
personnel, as well as a variety of other factors.
CONEXANT'S SUCCESS COULD BE NEGATIVELY AFFECTED IF KEY PERSONNEL LEAVE.
Conexant's future success depends largely upon the continued service of its
executive officers and other key management and technical personnel. Conexant's
success also depends on its ability to continue to attract, retain and motivate
qualified personnel. Conexant is dependent on key technical personnel. They
represent a significant asset, as the source of Conexant's technological and
product innovations. The competition for such personnel is intense in the
semiconductor industry. Conexant cannot assure you that
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it will be able to continue to attract and retain qualified management and other
personnel necessary for the design, development, manufacture and sale of its
products.
Conexant may have difficulty attracting and retaining key personnel during
periods of poor operating performance. The loss of the services of one or more
of its key employees or its inability to attract, retain and motivate qualified
personnel could have a material adverse effect on its business, financial
condition and results of operations. In particular, the loss of the services of
Dwight W. Decker, Conexant's Chairman and Chief Executive Officer, or certain
key design and technical personnel could materially and adversely affect
Conexant.
CONEXANT'S MANAGEMENT TEAM MAY BE SUBJECT TO A VARIETY OF DEMANDS FOR ITS
ATTENTION.
Conexant's management currently faces a variety of challenges. These
include implementing its ongoing diversification and expansion strategy and
continuing to expand the infrastructure and systems necessary for it to operate
as an independent public company and to integrate its recent acquisitions. While
Conexant believes that it has sufficient management resources to execute each of
these initiatives, it cannot assure you that it will have these resources or
that its initiatives will be successfully implemented. Failure to implement
these initiatives successfully could have a material adverse effect on
Conexant's business, financial condition and results of operations.
CONEXANT MAY BE LIABLE FOR PENALTIES UNDER ENVIRONMENTAL LAWS, RULES AND
REGULATIONS, WHICH COULD NEGATIVELY AFFECT ITS SUCCESS.
Conexant uses a variety of chemicals in its manufacturing operations and is
subject to a wide range of environmental protection regulations in the United
States, Mexico and Canada. While it has not experienced any material adverse
effect on its operations as a result of such regulations, it cannot assure you
that current or future regulations would not have a material adverse effect on
its business, financial condition and results of operations.
In the United States, environmental regulations often require parties to
fund remedial action regardless of fault. Consequently, it is often difficult to
estimate the future impact of environmental matters, including potential
liabilities. Conexant cannot assure you that the amount of expense and capital
expenditures that might be required to complete remedial actions and to continue
to comply with applicable environmental laws will not have a material adverse
effect on its business, financial condition and results of operations.
Conexant has been designated as a potentially responsible party at one
Superfund site located at a former silicon wafer manufacturing facility and
steel fabrication plant in Parker Ford, Pennsylvania formerly occupied by
Semiconductor Systems. The site was also formerly occupied by Recticon
Corporation and Allied Steel Products Corporation, each of whom has been named
as a potentially responsible party and each of whom is insolvent. Conexant has
accrued approximately $4 million at June 30, 2000 for the cost of groundwater
remediation, including installation of a public water supply line and
groundwater pump and treatment system, as well as routine groundwater sampling.
In addition, it is engaged in two other remediations of groundwater
contamination at its Newport Beach and Newbury Park, California facilities for
which it has accrued approximately $3 million for the costs of remediation at
June 30, 2000. Pursuant to an agreement with Rockwell, Conexant has assumed
liabilities in respect of environmental matters related to current and former
operations of Conexant.
CONEXANT HAS A LIMITED HISTORY AS AN INDEPENDENT COMPANY.
Conexant has a limited operating history as an independent company.
Accordingly, the financial information included or incorporated into this proxy
statement-prospectus for periods prior to January 1, 1999 may not necessarily
reflect the results of operations, financial position and cash flows Conexant
would have achieved if it had operated independently during the periods
presented. Conexant cannot
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assure you that it will return to profitability in the near future or that it
will be profitable on an ongoing basis as a stand-alone company. Prior to the
spin-off, Conexant relied on Rockwell for cash investments and various financial
and administrative services.
THE VALUE OF CONEXANT COMMON STOCK MAY BE ADVERSELY AFFECTED BY MARKET
VOLATILITY.
The trading price of Conexant common stock fluctuates significantly. Since
Conexant common stock began trading publicly, the reported sale price of
Conexant common stock on the Nasdaq National Market has been as high as $132-1/2
and as low as $6-27/32 per share. This price may be influenced by many factors,
including:
- Conexant's performance and prospects;
- the depth and liquidity of the market for Conexant common stock;
- investor perception of Conexant and the industry in which it operates;
- changes in earnings estimates or buy/sell recommendations by analysts;
- general financial and other market conditions; and
- domestic and international economic conditions.
In addition, public stock markets have experienced, and are currently
experiencing, extreme price and trading volume volatility, particularly in high
technology sectors of the market. This volatility has significantly affected the
market prices of securities of many technology companies for reasons frequently
unrelated to or disproportionately impacted by the operating performance of
these companies. These broad market fluctuations may adversely affect the market
price of Conexant common stock.
CERTAIN PROVISIONS IN CONEXANT'S ORGANIZATIONAL DOCUMENTS AND RIGHTS AGREEMENT
AND DELAWARE LAW MAY MAKE IT DIFFICULT FOR SOMEONE TO ACQUIRE CONTROL OF
CONEXANT.
Conexant has established certain anti-takeover measures that may affect
Conexant common stock and convertible notes. Conexant's restated certificate of
incorporation, its by-laws, its rights agreement with ChaseMellon Shareholder
Services, L.L.C., as rights agent, dated as of November 30, 1998, as amended,
and the Delaware General Corporation Law contain several provisions that would
make more difficult an acquisition of control of Conexant in a transaction not
approved by Conexant's board of directors. Conexant's restated certificate of
incorporation and by-laws include provisions such as:
- the ability of its board of directors to issue shares of Conexant
preferred stock in one or more series without further authorization of
its shareowners;
- a fair price provision, as described under "Description of Conexant
Capital Stock -- Certain Provisions in Conexant's Restated Certificate
of Incorporation and By-Laws";
- a prohibition on shareowner action by written consent, as described
under "Description of Conexant Capital Stock -- Certain Provisions in
Conexant's Restated Certificate of Incorporation and By-Laws";
- a requirement that shareowners provide advance notice of any
shareowner nominations of directors or any proposal of new business to
be considered at any meeting of shareowners;
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- a requirement that a supermajority vote be obtained to remove a
director for cause or to amend or repeal certain provisions of
Conexant's restated certificate of incorporation or by-laws;
- elimination of the right of shareowners to call a special meeting of
shareowners; and
- the division of its board of directors into three classes to be
elected on a staggered basis, one class each year.
Conexant also has a rights agreement which gives its shareowners certain
rights that would substantially increase the cost of acquiring Conexant in a
transaction not approved by Conexant's board of directors.
In addition to the rights agreement and the provisions in Conexant's
restated certificate of incorporation and by-laws, Section 203 of the Delaware
General Corporation Law provides that, subject to certain exceptions, a
corporation shall not engage in any business combination with any interested
shareowner during the three-year period following the time that such shareowner
becomes an interested shareowner. The restrictions of Section 203 of the
Delaware General Corporation Law, in certain circumstances, make it more
difficult for a person who would be an interested shareowner to effect various
business combinations with a corporation during this three-year period. The
provisions of Section 203 of the Delaware General Corporation Law provide that
the shareowner approval requirement may be avoided if a majority of the
directors then in office approved either the business combination or the
transaction that resulted in the shareowner becoming an interested shareowner.
CONEXANT MAY BE RESPONSIBLE FOR CERTAIN FEDERAL INCOME TAX LIABILITIES THAT
RELATE TO ITS SPIN-OFF FROM ROCKWELL.
In connection with Conexant's spin-off from Rockwell, the Internal Revenue
Service issued a tax ruling to Rockwell stating that the spin-off would qualify
as a tax-free reorganization within the meaning of Section 368(a)(1)(D) of the
Internal Revenue Code of 1986, as amended. While the tax ruling generally is
binding on the Internal Revenue Service, the continuing validity of the tax
ruling is subject to certain factual representations and assumptions. Conexant
is not aware of any facts or circumstances that would cause such representations
and assumptions to be untrue.
The Tax Allocation Agreement dated as of December 31, 1998 between Conexant
and Rockwell provides that Conexant will be responsible for any taxes imposed on
Rockwell, Conexant or Rockwell shareowners as a result of either:
- the failure of the spin-off from Rockwell to qualify as a tax-free
reorganization within the meaning of Section 368(a)(1)(D) of the
Internal Revenue Code or
- the subsequent disqualification of the spin-off from Rockwell as a
tax-free transaction to Rockwell under Section 361(c)(2) of the
Internal Revenue Code,
if the failure or disqualification is attributable to certain post-spin-off
actions by or in respect of Conexant (including its subsidiaries) or its
shareowners, such as its acquisition by a third party at a time and in a manner
that would cause such failure or disqualification.
The Tax Allocation Agreement also provides, among other things, that
neither Rockwell nor Conexant is to take any action inconsistent with, nor fail
to take any action required by, the request for the tax ruling or the tax ruling
unless:
- required to do so by law;
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- the other party has given its prior written consent; or
- in certain circumstances, a supplemental ruling permitting such action
is obtained.
Rockwell and Conexant have indemnified each other for any tax liability
resulting from each entity's failure to comply with these provisions.
In addition, Conexant effected certain tax-free intragroup spin-offs as a
result of Rockwell's spin-off of Meritor Automotive, Inc. (now ArvinMeritor,
Inc.) on September 30, 1997. The Tax Allocation Agreement provides that Conexant
will be responsible for any taxes imposed on Rockwell, Conexant or Rockwell
shareowners in respect of those intragroup spin-offs if such taxes are
attributable to certain actions taken after the spin-off from Rockwell by or in
respect of Conexant (including its subsidiaries) or its shareowners, such as its
acquisition by a third party at a time and in a manner that would cause the
taxes to be incurred.
If Conexant were required to pay any of the taxes described above, such
payment would have a material adverse effect on its financial position, results
of operations and cash flow.
RISKS RELATED TO HARRIS & JEFFRIES' BUSINESS
HARRIS & JEFFRIES' FUTURE SUCCESS DEPENDS UPON ITS CUSTOMERS' ACCEPTANCE OF ITS
PRODUCTS AS AN ALTERNATIVE TO TRADITIONAL SOLUTIONS.
Harris & Jeffries' future prospects depend on the widespread acceptance of
its software products as alternatives to proprietary development traditionally
employed by communications systems vendors. Harris & Jeffries' future prospects
depend upon acceptance by its customers of third party sourcing for inclusion in
communications and telecommunications products as an alternative to either
in-house development or purchase of operating systems that already possess the
functionality of Harris & Jeffries' products. Many of Harris & Jeffries' current
and potential customers have substantial technological capabilities and
financial resources which enable them to conduct their own development. These
customers may decide to develop or acquire products, components, or technologies
that are similar to, or are substitutes for, Harris & Jeffries' products. Harris
& Jeffries would be materially and adversely affected if:
- communications systems vendors develop or acquire the technology to
develop such components internally rather than purchase Harris &
Jeffries' products;
- operating systems vendors develop and offer products that possess the
functionality of Harris & Jeffries' products;
- Harris & Jeffries is otherwise unable to develop strong relationships
with communications systems vendors; or
- Harris & Jeffries is unable to convince communications systems vendors
of its commitment to maintain and produce software products its
customers want.
In addition, competitive pressures may lead to the introduction of
integrated hardware and software products that materially and adversely affect
the market for Harris & Jeffries' products.
HARRIS & JEFFRIES IS SUSCEPTIBLE TO COMPETITIVE PRESSURES IN THE MARKETPLACE.
Several of the entities which Harris & Jeffries regards as its largest and
most significant competitors have recently entered into merger and acquisition
agreements with larger, publicly traded corporations.
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Specifically, Virata Corp. has acquired Inverness Systems, Globespan has
acquired Ficon Technology, and Intel recently announced an intention to acquire
privately-held Trillium Digital Systems. Acquisition of these competitors
enhances the prospect that one or more manufacturers of network processors might
introduce tightly integrated hardware and software products that reduce the
market for the stand-alone software products provided by Harris & Jeffries.
In addition, due to the dynamic nature of the data communications and
telecommunications industry, many of Harris & Jeffries' existing and potential
customers are involved, or may become involved, in strategic relationships with
parties possessing technology that performs all or a portion of the functions
performed by Harris & Jeffries' products.
Harris & Jeffries' ability to compete successfully in the rapidly evolving
area of high-performance data communications and telecommunications solutions
depends on factors both within and outside Harris & Jeffries' control,
including:
- performance;
- price;
- features and functionality;
- adaptability of products to specific applications;
- support of product differentiation by Harris & Jeffries' customers;
- Harris & Jeffries' capacity to provide consulting services ancillary
to the sale of its products;
- length of development cycle;
- support for new communications standards and protocols;
- support for technology pieces that would typically co-exist with
current Harris & Jeffries' products;
- reliability;
- technical service and support; and
- protection of products by effective utilization of intellectual
property laws.
Harris & Jeffries' failure to compete successfully as to any of these or
other factors could materially and adversely affect Harris & Jeffries.
HARRIS & JEFFRIES MUST MAKE RECURRING EXPENDITURES ON RESEARCH AND DEVELOPMENT.
In view of the competitive nature of its business, and the rapid pace of
technological change, Harris & Jeffries must make continual expenditures on
ongoing product research and development. Harris & Jeffries' research and
development expenditures are substantial and consume a significant percentage of
its revenues. Although Harris & Jeffries may experience revenues below
anticipated levels, its need to continue its investment in new product
development will remain comparatively stable, if not increase. As a result,
Harris & Jeffries' operating results may be less resilient to material adverse
changes in sales and general economic conditions then other software companies.
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HARRIS & JEFFRIES' PROSPECTS FOR AN INITIAL PUBLIC OFFERING AND CONTINUED
INDEPENDENT OPERATION AS STRATEGIC ALTERNATIVES ARE UNCERTAIN.
Although Harris & Jeffries could pursue continued independent existence with
a view towards an initial public offering of its securities, this approach
carries risks.
Any planned initial public offering is subject to substantial execution risk.
Further, financial benefits to the Harris & Jeffries' stockholders might not
develop as management would hope for. A number of factors influence the success
of an initial public offering, both within and outside the control of
management, including:
- general market sentiment;
- general economic conditions;
- selection of underwriters;
- analysts forecasts for the data communications and telecommunications
industry;
- perception of market size;
- perception of an issuer's business model; and
- management's success in coordinating a company's efforts through the
offering process without permitting results of operations to be adversely
affected.
Harris & Jeffries' success as an independent entity is also subject to
substantial business risk. Revenues generated by Harris & Jeffries from the
licensing of its products are generally "non-recurring". Customers pay Harris &
Jeffries a one-time fixed fee to include software in their data communications
and telecommunications products. Harris & Jeffries does not receive recurring
revenues based upon either the dollar value or volume of sales by its customers
of their own products. Harris & Jeffries may not be able to continue its
historic growth, or maintain its existing operations, without changing its
business to generate recurring revenues. Although the management and board of
directors of Harris & Jeffries has previously considered this type of change, it
may not be possible to do this, or the change may not improve our financial
results.
HARRIS & JEFFRIES MAY NOT BE ABLE TO COMPETE EFFECTIVELY FOR ENGINEERING
PERSONNEL.
Harris & Jeffries competes with its customers as well as direct competitors
and others for highly skilled engineers. Harris & Jeffries' products are
designed for use by engineers and development teams in connection with a wide
variety of data communications and telecommunications products. As a result,
Harris & Jeffries requires engineers with a highly developed skill set. From
time to time, Harris & Jeffries has been unable to identify prospects for vacant
positions. Harris & Jeffries also finds that desirable job applicants may elect
to accept positions with other employers. Many of these employers have far
greater resources than Harris & Jeffries, and, unlike Harris & Jeffries, have
the ability to offer candidates incentive compensation in the form of options to
purchase registered securities. Difficulty in identifying and hiring appropriate
skilled engineering staff can have a material adverse effect on management's
ability to introduce new products as planned, or on a timeline on which Harris &
Jeffries can compete effectively. Although management is attempting to address
these risks through creation of a subsidiary with a principal place of business
in Hyderabad, India, there can be no assurance that this approach will be
successful.
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HARRIS & JEFFRIES EXPERIENCES FLUCTUATIONS IN ITS OPERATING RESULTS DUE TO A
NUMBER OF FREQUENTLY CHANGING BUSINESS CONDITIONS.
Harris & Jeffries has experienced fluctuations in its operating results in
the past and expects such fluctuations to occur in the future due to a variety
of factors. These factors include:
- changes in demand by the end user for Harris & Jeffries' customers'
products;
- new product introductions by Harris & Jeffries or its competitors leading
to price competition and a lengthening of sales cycles;
- the gain or loss of significant customers, including as a result of
industry consolidation;
- timing and amount of orders from Harris & Jeffries' customers;
- market acceptance of Harris & Jeffries' current and new products;
- variability of Harris & Jeffries' customers' product life cycles;
- erosion of average selling prices due to a number of factors, including
introduction of competitive products, rapid technological change,
price/performance enhancements and product obsolescence; and
- general economic conditions.
These and other factors could materially and adversely affect Harris & Jeffries.
You should be aware that Harris & Jeffries cannot accurately forecast all of the
above factors. Harris & Jeffries believes that period-to-period comparisons are
of limited value and should not be relied upon as indicative of future operating
results.
Harris & Jeffries' operating results in a future quarter or quarters may fall
below the expectations of analysts or investors.
HARRIS & JEFFRIES MAY NOT EXPERIENCE THE BENEFITS FROM ITS INDIAN SUBSIDIARY
THAT IT EXPECTS.
In March 2000, Harris & Jeffries established NetPlane Network Technologies
(India) Pvt. Ltd. in Hyderabad, India, to supplement its engineering
organization. The Hyderabad facility may not produce the desired engineering
results, may produce those results later than anticipated by management.
Coordinating with and overseeing a second engineering facility in a distant
location, and operating in a different time zone can present additional demands
upon Harris & Jeffries management. In addition, competitors may create similar
offshore subsidiaries to supplement their engineering resources. Accordingly,
Harris & Jeffries may not realize any or all of the operational and competitive
benefits that its management believes it will derive from this facility.
HARRIS & JEFFRIES HAS A LENGTHY SALES CYCLE WHICH MAY INCREASE ITS EXPOSURE TO
CUSTOMER CANCELLATIONS OR SIMILAR RISKS.
Harris & Jeffries' sales cycle typically involves an extended evaluation and
test period before a customer decides to include a Harris & Jeffries product in
a component of its own products. This lengthy sales cycle creates risks related
to customer decisions to cancel or change product plans, which could result in
the loss of anticipated sales. Harris & Jeffries incurs significant research and
development, selling and general and administrative expenses as part of this
process before it generates the related revenues from such customers.
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HARRIS & JEFFRIES' REVENUES COULD DECREASE IF THERE IS A SLOWDOWN IN THE GROWTH
IN DEMAND FOR DATA COMMUNICATIONS AND TELECOMMUNICATIONS SYSTEMS.
Harris & Jeffries derives all of its revenues from the sale of licenses to
use its products in data communications and telecommunications products and
applications, and from providing related warranty extension and support. These
markets for communications and network infrastructure products and technologies
are characterized by intense competition and rapid technological change.
Although these markets have grown rapidly in the last few years, they may not
continue to grow and a significant slowdown in these markets may occur.
In addition, a substantial majority of Harris & Jeffries' revenues has been,
and is expected to continue to be, derived from sales of licenses of its
asynchronous transfer mode and multi-protocol labeling system products. Harris &
Jeffries anticipates introduction of products directed at communications systems
that are based on other technologies. If these other technologies were to
quickly achieve widespread acceptance before Harris & Jeffries' new products
have achieved market acceptance, or if Harris & Jeffries' new products do not
achieve market acceptance, Harris & Jeffries will be materially and adversely
affected.
HARRIS & JEFFRIES' FAILURE TO INTRODUCE NEW PRODUCTS ON A TIMELY BASIS COULD
DIMINISH ITS ABILITY TO ATTRACT AND MAINTAIN CUSTOMERS.
The data communications and telecommunications systems industry is
characterized by rapidly changing technology, frequent product introductions and
evolving industry standards. Harris & Jeffries' products are based on these
continually evolving industry standards. New standards and protocols could
render Harris & Jeffries' existing products unmarketable or obsolete. Harris &
Jeffries may not be able to successfully design and manufacture new products
that comply with these standards and protocols. Specifically, Harris & Jeffries'
future performance depends on a number of factors, including its ability to:
- identify target markets and emerging technological trends in these
markets, including new standards and protocols;
- define new products accurately;
- develop and maintain competitive products by improving performance and
adding innovative features that differentiate Harris & Jeffries' products
from those of its competitors;
- bring products to market on a timely basis at competitive prices; and
- respond effectively to new technological changes or new product
announcements by others.
Harris & Jeffries cannot assure you that the design and introduction
schedules for any additions and enhancements to its existing and future products
will be met, that these products will achieve market acceptance or that Harris &
Jeffries will be able to sell these products at average selling prices that are
favorable to Harris & Jeffries. Historically, Harris & Jeffries has, from time
to time, encountered difficulties with certain product lines. Harris & Jeffries
may have similar difficulties in the future.
THE LOSS OF ANY OF HARRIS & JEFFRIES' KEY PERSONNEL OR THE FAILURE TO HIRE
ADDITIONAL PERSONNEL COULD IMPACT HARRIS & JEFFRIES' ABILITY TO MEET CUSTOMER
AND TECHNOLOGICAL DEMANDS.
Harris & Jeffries' success depends to a significant degree upon the continued
contributions of its key management, engineering, sales and marketing personnel,
many of whom would be difficult to replace. The loss of the services of any of
Harris & Jeffries' key personnel, the inability to attract or retain qualified
personnel in the future or delays in hiring required personnel, particularly
engineers and sales personnel,
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could materially and adversely affect Harris & Jeffries. In particular, the loss
of either of Harris & Jeffries' executive officers, Deepak Shahane, President
and Chief Executive Officer, or David S. Jeffries, Chief Financial Officer, or
either of Kevin Smith, Vice President, Customer Engineering, or Saul Agranoff,
Senior Principal Member of Technical Staff, could reduce its future success. In
addition, competition for highly skilled managerial, engineering, sales and
marketing personnel is intense and Harris & Jeffries may not be successful in
attracting and retaining such personnel.
HARRIS & JEFFRIES NEEDS TO PROTECT ITS INTELLECTUAL PROPERTY AND AVOID
INFRINGEMENT OF THE INTELLECTUAL PROPERTY OF OTHERS.
Harris & Jeffries' success depends in part on its ability to preserve the
intellectual property rights covering its products. In particular, the rapidly
evolving nature of the data communications and telecommunications industries
leads companies to seek and maintain patent protection of their technology. To
date, Harris & Jeffries has not sought domestic or international patent
protection, but has sought to conform its products to the industry standards
promulgated by a number of international bodies. It may be advantageous for
Harris & Jeffries to seek patents on later inventions. The process of seeking
patent protection can be time consuming and expensive. Harris & Jeffries cannot
ensure that:
- patents will issue from currently pending or future applications;
- its existing patents or any new patents will be sufficient in scope or
strength to provide meaningful protection or any commercial advantage to
Harris & Jeffries;
- foreign intellectual property laws will protect its intellectual property
rights; or
- others will not independently develop similar products, duplicate its
products or design around any patents issued to Harris & Jeffries.
Many of Harris & Jeffries' competitors have the financial and engineering
resources to pursue broad patent portfolios in spite of these obstacles.
Intellectual property rights are uncertain and involve complex legal and
factual questions. Harris & Jeffries may be unknowingly infringing on the
proprietary rights of others and may be liable for that infringement, which
could result in significant liability for Harris & Jeffries. In certain
instances Harris & Jeffries has been informed that it may infringe third party
intellectual property rights that would prevent its use and sale of its
products. If Harris & Jeffries does infringe the proprietary rights of others,
it could be forced to either seek a license to intellectual property rights of
others or alter its products so that they no longer infringe the proprietary
rights of others. Depending upon the nature of the infringement, a license could
be very expensive to obtain or may not be available at all. Similarly, changing
Harris & Jeffries' products or processes to avoid infringing the rights of
others may be costly or impractical. Avoiding allegations of infringement may be
difficult since Harris & Jeffries is unaware of the contents of pending patent
applications when it develops its products. In addition, certain parties may
attempt to secure patent coverage for protocols and technologies covered by
international standards, to which Harris & Jeffries must adhere in order to meet
the needs of its customers.
If Harris & Jeffries was to become involved in a dispute regarding
intellectual property, whether Harris & Jeffries' or that of another company, it
may have to participate in legal proceedings. These types of proceedings may be
costly and time consuming for Harris & Jeffries, even if it eventually prevails.
If Harris & Jeffries does not prevail, it might be forced to pay significant
damages, obtain a license or stop making a product.
Harris & Jeffries relies heavily on trade secrets, proprietary know-how and
confidentiality provisions in agreements with employees and consultants to
protect its intellectual property. Other parties may not
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comply with the terms of their agreements with Harris & Jeffries, and Harris &
Jeffries may not be able to adequately enforce its rights against these parties.
POTENTIAL LITIGATION WITH RESPECT TO INTELLECTUAL PROPERTY RIGHTS COULD HARM
HARRIS & JEFFRIES' BUSINESS.
Harris & Jeffries' business faces risks of intellectual property infringement
and litigation. The data communications and telecommunications industries are
characterized by vigorous protection and pursuit of intellectual property
rights. Harris & Jeffries has received, and may continue to receive in the
future, notices of possible infringement of intellectual property rights of
others.
Harris & Jeffries may not prevail in any actions alleging infringement by
Harris & Jeffries of third-party patents. If Harris & Jeffries is unsuccessful
in its defense, such actions could materially and adversely affect Harris &
Jeffries' business, financial condition and results of operations. Even if
Harris & Jeffries is successful in such matters, the attempted enforcement of
intellectual property rights by or against Harris & Jeffries could result in
significant costs and diversion of Harris & Jeffries' resources and could have a
material adverse effect on Harris & Jeffries' business, financial condition and
results of operations. If claims or actions are asserted or commenced against
Harris & Jeffries, Harris & Jeffries in certain situations may seek to obtain
licenses under a third party's intellectual property rights to avert or resolve
a controversy. There can be no assurance that under such circumstances a license
would be available on commercially reasonable terms, if at all.
Harris & Jeffries relies primarily on copyright, trademark and trade secret
laws, as well as nondisclosure and confidentiality agreements and other methods
to protect its proprietary technologies and processes. Historically, it has not
sought to avail itself of patent protection for its products. There can be no
assurance that the steps taken by Harris & Jeffries to prevent misappropriation
or infringement of the intellectual property of Harris & Jeffries or its
customers will be successful; that any future patents will not be challenged,
invalidated or circumvented; or that any of the protective measures described
above would provide meaningful protection to Harris & Jeffries. The absence of
any patents to provide protection to Harris & Jeffries' technology would make it
easier for Harris & Jeffries' competitors to offer similar products. Moreover,
despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use Harris & Jeffries' technology without authorization,
develop similar technology independently or design around Harris & Jeffries'
patents. Even if Harris & Jeffries identifies infringement of its intellectual
property rights, it may face practical constraints in enforcing those rights,
including that of the difficulty of quantifying damages. In addition, effective
copyright, trademark and trade secret protection may be unavailable or limited
in certain countries.
Harris & Jeffries has historically indemnified its customers for certain of
the costs and damages of patent infringement in circumstances where Harris &
Jeffries' product is the factor creating the customer's infringement exposure
(generally excluding coverage where infringement arises out of the combination
of Harris & Jeffries' products with products of others). This policy could have
a material adverse effect on the business, financial condition and results of
operations of Harris & Jeffries, particularly with respect to Harris & Jeffries'
products designed for use in devices manufactured by its customers that comply
with international standards. Such international standards are often covered by
patent rights held by competitors of Harris & Jeffries or its customers and the
combined costs of obtaining licenses from all holders of patent rights essential
to such standards could be high and could have a material adverse effect on
Harris & Jeffries' business, financial condition and results of operations.
HARRIS & JEFFRIES HAS A LIMITED HISTORY OF PROFITABILITY.
Although Harris & Jeffries' revenues have increased in recent years and
revenues for recent quarters have exceeded revenues for the same quarter for the
prior year, Harris & Jeffries achieved profitability for the first time in 1999.
In 1998, Harris & Jeffries incurred a net loss of $2.55 million for the year.
Harris & Jeffries intends to increase its operating expenses significantly in
2000, particularly in research and
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development and sales and marketing. Harris & Jeffries' operating results will
be adversely affected if its revenues do not increase significantly over the
same period.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this proxy statement-prospectus and
the documents incorporated by reference in this document, contain statements
relating to future results. These statements include certain projections and
business trends which are "forward looking" within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
made only as of the date of this proxy statement-prospectus. Conexant and Harris
& Jeffries do not undertake to update or revise the forward-looking statements,
whether as a result of new information, future events or otherwise.
Conexant's actual results may differ materially from projected results as a
result of certain risks and uncertainties. These risks and uncertainties
include, without limitation, those described under "Risk Factors" as well as
those set forth below and those detailed from time to time in Conexant's filings
with the SEC:
- global and market conditions, including, without limitation, the cyclical
nature of the semiconductor industry and the markets related to Conexant's
products and those of its customers;
- demand for and market acceptance of new and existing products;
- successful development of new products;
- timing of new product introductions;
- successful integration of Harris & Jeffries, as well as the successful
integration of Conexant's other recent acquisitions;
- availability and extent of use of manufacturing capacity;
- pricing pressures and other competitive factors;
- changes in product mix;
- fluctuations in manufacturing yields;
- product obsolescence;
- Conexant's ability to develop and implement new technologies and to obtain
protection of the related intellectual property;
- the successful implementation of Conexant's diversification strategy;
- Conexant's labor relations and those of its customers and suppliers;
- conditions to the consummation of the merger, which could affect the
timing of the merger;
- Conexant's estimates of the fair value of the assets and liabilities
acquired;
- changes in state or federal legislation or regulations;
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- uncertainties of litigation; and
- other risks and uncertainties.
Other factors and assumptions not identified above could also cause the
actual results to differ materially from those set forth in the forward-looking
statements. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those indicated in, contemplated by or implied by such
statements.
THE HARRIS & JEFFRIES SPECIAL MEETING
DATE, TIME AND PLACE
We are providing this proxy statement-prospectus to you in connection with
the solicitation of proxies by the Harris & Jeffries board of directors for use
at the special meeting to be held on Thursday, September 28, 2000, at 10:00 a.m.
local time at the Holiday Inn Boston-Dedham, 55 Ariadne Road, Dedham,
Massachusetts 02026, and at any adjournment or postponement of the meeting.
MATTERS TO BE CONSIDERED
At the special meeting, Harris & Jeffries will ask you to consider and vote
upon the following:
1. A proposal to approve and adopt the merger agreement and the merger.
This proxy statement-prospectus contains information on the merger
agreement and the merger.
2. A proposal to approve an amendment to the Harris & Jeffries articles of
organization to increase the number of shares of Harris & Jeffries common
stock authorized for issuance from 14,800,000 shares to 16,280,000 shares.
The increase in the number of authorized shares of Harris & Jeffries
common stock is to ensure that there is a sufficient number of shares of
Harris & Jeffries common stock authorized to cover (i) the conversion
rights of holders of Harris & Jeffries preferred stock, which is
convertible into Harris & Jeffries common stock at any time, and (ii) the
issuance to Harris & Jeffries employees (including employees of Harris &
Jeffries' subsidiary in India), prior to the closing of the merger, of
options to purchase an aggregate of 1,066,797 shares of Harris & Jeffries
common stock. These options are called the new options. The new options
will be 10% vested when issued, 15% will vest after one year and the
remaining 75% will vest in equal annual installments over the following
three years. One purpose of the new options is to give the Harris &
Jeffries employees who will be working during the earn-out period an
incentive to maximize the earn-out for themselves and for other
stockholders and option holders. The earn out is described in more detail
starting on page 46 of this proxy statement-prospectus.
Stockholders should note that the issuance of the new options will reduce
the number of shares of Conexant common stock that will be allocated to
current Harris & Jeffries stockholders and option holders as a result of
the merger. Specifically, of the 1,808,100 shares of Conexant common stock
that are to be allocated among Harris & Jeffries stockholders and option
holders following the closing of the merger, 118,481 shares (6.55%) will
be allocated to the holders of the new options. Holders of the new options
will be allocated the same percentage of any escrow/holdback shares that
are distributed to stockholders and option holders.
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3. A proposal to approve an increase in the number of shares of Harris &
Jeffries common stock for which options may be granted under the Harris &
Jeffries Stock Option Plan from 2,000,000 shares to 2,771,022 shares.
The number of shares of Harris & Jeffries common stock issuable under the
Harris & Jeffries Stock Option Plan must be increased by 771,022 shares in
order to cover the new options described above.
4. A proposal to ratify the following actions:
(a)amendments of the Harris & Jeffries Stock Option Plan on November 26,
1996, March 6, 1997, October 19, 1999 and July 19, 2000;
(b)the purchase of ninety-nine percent (99%) of the stock of NetPlane
Network Technologies (India) Private Limited, a subsidiary of Harris &
Jeffries, owned ninety-nine percent (99%) by Harris & Jeffries and one
percent (1%) by its wholly owned subsidiary, NetPlane Systems
International, LLC, a Delaware limited liability company, approved by
the Harris & Jeffries board of directors on May 5, 2000; a capital
contribution of 7,200,000 rupees ($161,218) made by Harris & Jeffries
to NetPlane Network Technologies (India) Private Limited, approved by
the Harris & Jeffries board of directors on May 5, 2000; and the
designation of NetPlane Systems International, LLC as Harris &
Jeffries' nominee to hold 7,252 shares of NetPlane Network Technologies
(India) Private Limited on behalf of Harris & Jeffries, approved by the
Harris & Jeffries board of directors on June 17, 2000;
(c)the increase in the number of authorized shares of common stock of
Harris & Jeffries from 6,250,000 shares to 6,900,000 shares, as
approved by the Harris & Jeffries board of directors on October 2,
1998; and
(d)the increase in the number of authorized shares of preferred stock of
Harris & Jeffries from 1,150,000 shares to 1,650,000 shares, as
approved by the Harris & Jeffries board of directors on October 2,
1998.
Approval of item (a) is being sought because of missing records of
stockholder and director votes approving such actions, and, with respect
to the July 19, 2000 amendment to the Harris & Jeffries Stock Option Plan,
to approve a change in eligibility requirements such that no further
grants may be made under the Harris & Jeffries Stock Option Plan after the
closing of the merger.
Approval of item (b) is required by the Harris & Jeffries restated
articles of organization.
Approval of items (c) and (d) are being sought because of missing records
of Harris & Jeffries stockholder votes approving such actions.
5. A proposal to approve an amendment to the Harris & Jeffries articles of
organization to eliminate a provision that gives holders of Harris &
Jeffries preferred stock the right to receive a greater share of the
merger consideration than holders of common stock, in the event that the
average daily closing sales prices of Conexant common stock for the five
trading day period preceding the day before the day the merger becomes
effective is less than $37.13 per share (or $37.50 per share if items 2
and 3 are approved by the stockholders at the special meeting).
The articles of organization of Harris & Jeffries currently give holders
of preferred stock a right to more of the consideration paid to
stockholders in a merger (and certain other transactions) if the aggregate
consideration to be received by the holders of preferred stock does not
otherwise exceed certain minimum amounts. This preferential right is
referred to as a "participation". The Harris & Jeffries articles of
organization provide that the participation is an amount equal to the sum
of $4.00 per share of preferred stock plus the amount payable to holders
of Harris & Jeffries common stock as if each share of preferred stock had
been converted into common stock. Once the value of the Conexant common
stock that holders of preferred stock receive as merger consideration
exceeds $14.00 per share of preferred stock, they will not be entitled to
any participation (other than to receive shares of Conexant common stock
issued as merger consideration based on the number of shares of Harris &
Jeffries common stock they would own on full conversion of their preferred
stock).
If item 5 is approved by the stockholders at the special meeting, the
Harris & Jeffries articles of organization would be amended, effective
immediately prior to the merger, to eliminate the $4.00 per share of
preferred stock portion of the participation described above. The
participation would, in effect, be limited to the amount payable to
holders of common stock as if each share of preferred stock had been
converted into common stock. As a result, the number of shares of Conexant
common stock available for exchange as merger consideration to holders of
Harris & Jeffries common stock and options would not be reduced as
described above if the average daily closing sales prices of Conexant
common stock for the five trading day period preceding the day before the
day the merger becomes effective is less than $37.13 per share (or $37.50
per share if items 2 and 3 are approved by the stockholders at the special
meeting). However, if item 5 is approved by the stockholders at the
special meeting, preferred stockholders will be entitled to receive cash
as additional merger consideration if the average daily closing sales
prices of Conexant common stock for the five trading day period preceding
the day before the day the merger becomes effective is less than $37.13
per share (or $37.50 per share if items 2 and 3 are approved by the
stockholders at the special meeting). Holders of common stock and options
do not have a similar right.
Each proposal will be voted on separately by the stockholders of Harris &
Jeffries, and no proposal is conditioned upon the approval of any other
proposal. However, Harris & Jeffries will not proceed with the option grants
that would be authorized if item 3 is approved unless the increase in the
authorized shares described in item 2 is approved.
RECOMMENDATION OF HARRIS & JEFFRIES BOARD OF DIRECTORS
The Harris & Jeffries board of directors has concluded that the merger
agreement and the merger are fair to, and in the best interests of, Harris &
Jeffries stockholders and unanimously recommends that the stockholders vote FOR
the proposal to approve and adopt the merger agreement and the merger and FOR
each of the other proposals to be voted on at the special meeting.
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RECORD DATE
The close of business on Monday, August 28, 2000 has been fixed as the record
date for determining the holders of Harris & Jeffries common stock and preferred
stock who are entitled to notice of and to vote at the special meeting. As of
the record date, there were 8,505,500 shares of Harris & Jeffries common stock
outstanding and 1,476,000 shares of preferred stock outstanding.
VOTING POWER; QUORUM
Holders of record of shares of Harris & Jeffries common stock on the record
date are entitled to one vote per share of Harris & Jeffries common stock held
on each matter submitted to a vote at the special meeting.
Holders of record of shares of Harris & Jeffries preferred stock on the
record date will have the right to vote (x) together with holders of Harris &
Jeffries common stock (as if the preferred stock had been converted into common
stock) on each matter that stockholders will act upon at the special meeting,
and (y) also as a separate class with respect to the approval and adoption of
the merger agreement and the merger and the proposal to amend the Harris &
Jeffries articles of organization referred to in item 5 above. Currently, each
share of Harris & Jeffries preferred stock may be converted into 2.7884 shares
of Harris & Jeffries common stock. If the proposals in items 2 and 3 are
approved by the stockholders at the special meeting, each share of Harris &
Jeffries preferred stock will be convertible into 3.02635 shares of Harris &
Jeffries common stock.
The presence in person or by proxy of the holders of shares representing a
majority of the voting power of Harris & Jeffries common stock and preferred
stock entitled to vote is necessary to constitute a quorum for the transaction
of business at the special meeting. Harris & Jeffries will count shares of its
capital stock represented in person or by proxy for the purpose of determining
whether a quorum is present at the special meeting. Harris & Jeffries will also
treat shares that abstain from voting as shares that are present and entitled to
vote at the special meeting for purposes of determining whether a quorum exists.
VOTE REQUIRED
The affirmative votes of holders of (i) at least two-thirds of the combined
voting power of the shares of Harris & Jeffries common stock and preferred stock
outstanding and entitled to vote, voting together as a class, and (ii) at least
two-thirds of the shares of Harris & Jeffries preferred stock outstanding and
entitled to vote, voting separately as a class, are required to approve and
adopt the merger agreement and the merger and the proposal to amend the Harris &
Jeffries articles of organization referred to in item 5 above. The affirmative
vote of at least a majority of the votes entitled to be cast by holders of all
shares of common stock and preferred stock outstanding and entitled to vote,
voting together as a class, is required to approve each of the other matters
which the Harris & Jeffries stockholders are being asked to vote on at the
special meeting.
Ethan F. Harris, Deepak Shahane, The Celia M. Jeffries Trust - 1999 (Celia M.
Jeffries, Trustee), The David S. Jeffries Trust - 1999 (David S. Jeffries,
Trustee), InSight Capital Partners II, L.P., InSight Capital Partners (Cayman)
II, L.P. and WI Software Investors LLC have agreed with Conexant that they will
vote all of their shares of common stock and preferred stock in favor of the
proposal to approve and adopt the merger agreement and the merger. If they do
vote in favor, the merger agreement and the merger will be approved, without
regard to the votes cast by any other stockholder. The voting agreements do not
relate to any other proposals to be voted upon at the special meeting of Harris
& Jeffries stockholders.
The directors and executive officers of Harris & Jeffries, together with
their affiliates, hold or control approximately 53.6% of the common stock and
50% of the preferred stock entitled to vote on the merger agreement and the
merger and the other matters being presented for approval at the special
meeting. Conexant and its directors, executive officers and affiliates do not
hold any shares of Harris & Jeffries common stock or preferred stock.
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<PAGE> 53
PROXIES
This proxy statement-prospectus is accompanied by a form of proxy to be used
at the special meeting. All shares of stock entitled to vote and represented at
the special meeting by properly executed proxies received before or at the
meeting, and not revoked, will be voted at the meeting according to the
instructions indicated on the proxies. If a proxy is properly executed but no
vote is specified, the proxy will be voted for the proposal to approve and adopt
the merger agreement and the merger and for each of the other proposals referred
to in items 2 through 5 of the matters to be considered at the special meeting.
If any other matters are properly presented for consideration at the special
meeting, the persons named in the enclosed form of proxy will have the
discretion to vote on those matters using their best judgment. Additional
matters which may come before the meeting include consideration of a motion to
adjourn the meeting to another time and/or place, which may be necessary for the
purpose of soliciting additional proxies from you.
REVOCABILITY OF PROXIES
Any proxy you give may be revoked at any time before it is voted at the
special meeting. You may revoke a proxy in one of the following three ways:
- you can send a signed written notice stating that you would like to revoke
your proxy.
- you can complete and submit a new proxy.
- you can attend the special meeting and vote in person. Simply attending
the special meeting, however, will not revoke your proxy; you must request
a ballot and vote at the special meeting.
To be effective, any written notice of revocation or any new proxy card must be
received by Harris & Jeffries, Inc., 888 Washington Street, Dedham,
Massachusetts 02026, Attention: David S. Jeffries, Corporate Clerk, prior to the
time of the special meeting.
SOLICITATION OF PROXIES; EXPENSES
Harris & Jeffries will pay the expenses of the solicitation of proxies for
the special meeting including the cost of printing and mailing this proxy
statement-prospectus. In addition to solicitation by use of the mails, proxies
may be solicited from Harris & Jeffries stockholders by directors, officers and
employees of Harris & Jeffries in person or by telephone, facsimile or other
means of communication. Such directors, officers and employees will not be
additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses in connection with such solicitation.
YOU SHOULD NOT SEND ANY STOCK CERTIFICATES WITH YOUR PROXY.
APPRAISAL RIGHTS
If the merger is completed and you object to the merger, you are entitled to
exercise appraisal rights under Massachusetts law. In order to exercise
appraisal rights, you must strictly adhere to the provisions of Massachusetts
law governing appraisal rights. The following is a summary of the relevant
provisions of Massachusetts law. The description below is only a summary and you
should refer to the relevant provisions of Massachusetts law, a copy of which is
attached to this proxy statement-prospectus as Appendix D.
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In order to exercise your appraisal rights, you must take the following
steps:
- send a written objection to the merger to Harris & Jeffries before the
special meeting stating your intention to demand payment for your shares of
capital stock if the merger is approved and the merger occurs;
- do not vote in favor of the merger; and
- send a written demand to Harris & Jeffries for payment for your shares within
20 days after you receive notice from Harris & Jeffries that the merger has
occurred. Harris & Jeffries will send the notice within ten days after the
merger is completed.
The written objection and written demand should be delivered to Harris &
Jeffries, Inc., 888 Washington Street, Dedham, Massachusetts 02026, Attention:
David S. Jeffries, Corporate Clerk. We recommend that you send the objection and
demand by registered or certified mail, return receipt requested.
Please note that, if you file a written objection with Harris & Jeffries
before the special meeting, you do not need to vote against the merger. However,
if you file a written objection with Harris & Jeffries before the special
meeting and then vote in favor of the merger, you will waive your right to
exercise appraisal rights.
If you have followed the procedures set forth above and the merger is
completed, Harris & Jeffries will contact you within ten days after the
effective time of the merger in order to determine the fair value of your
capital stock. The "fair value" of your capital stock will be determined as of
the day before the merger is approved by Harris & Jeffries stockholders and will
exclude any value arising from the expectation of the merger. If Harris &
Jeffries and you have not agreed as to the fair value of your stock within 30
days after you receive notice from Harris & Jeffries that the merger has
occurred, both you and Harris & Jeffries will have the right to have the court
determine the fair value by filing a bill in equity in the Superior Court of
Norfolk County, Massachusetts no later than four months after the expiration of
the negotiation period.
After filing the bill in equity, the court or a special master will hold a
hearing and enter a decree determining the fair value of your capital stock and
ordering Harris & Jeffries to make payment to you of that value. You will also
be paid interest from the date of the special meeting to the time that you
surrender your certificates representing your shares of capital stock to the
exchange agent. The determination of fair value made by the court or special
master will be binding on and enforceable by Harris & Jeffries stockholders who
have properly executed their appraisal rights.
The fair value of your capital stock could be worth more than, the same as or
less than the value of the Conexant common stock you would otherwise have
received by exchanging your shares of capital stock for shares of Conexant
common stock.
Your appraisal rights are your only remedy if you object to the merger,
unless the merger is determined to have been illegal or fraudulent.
If you exercise your appraisal rights, after the merger is completed you will
not have any rights as a stockholder of either Harris & Jeffries or Conexant,
including the right to receive notices of meetings, vote at meetings or receive
dividends, if any.
Conexant has the right to terminate the merger agreement if Harris & Jeffries
stockholders exercise appraisal rights for more than 1.0% of the total number of
shares of Harris & Jeffries common stock and preferred stock outstanding
immediately prior to the merger.
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THE MERGER
GENERAL
In the merger, all shares of Harris & Jeffries common stock and preferred
stock outstanding immediately prior to the merger will be exchanged for shares
of Conexant common stock, and any options for Harris & Jeffries common stock
issued under the Harris & Jeffries Stock Option Plan that are outstanding
immediately prior to the merger will become options for Conexant common stock.
The number of Conexant shares you will be entitled to receive as merger
consideration in exchange for your Harris & Jeffries stock or on exercise of
your Harris & Jeffries options will be calculated immediately before the
effective time of the merger. Your share of the merger consideration will vary
depending on a number of factors. The principal factors are:
- whether you hold Harris & Jeffries common stock, preferred stock or
options, and if you hold options, whether and to what extent you
exercise those options;
- whether the Harris & Jeffries stockholders approve the proposals in
items 2 and 3 to permit the grant of options for an additional
1,066,797 shares of Harris & Jeffries common stock immediately prior to
the merger; and
- whether the average closing sale price of Conexant common stock for the
five trading day period preceding the day before the day the merger
becomes effective is less than $37.13 per share (or $37.50 per share if
items 2 and 3 are approved by stockholders at the special meeting).
This will not be a factor if item 5 is approved by the stockholders at
the special meeting.
Merger Consideration for Preferred Stock. If you own Harris & Jeffries
preferred stock you will be entitled to receive shares of Conexant common stock
issued as merger consideration based on the number of shares of Harris &
Jeffries common stock you would own on full conversion of your preferred stock.
Currently, each share of Harris & Jeffries preferred stock may be converted into
2.7884 shares of Harris & Jeffries common stock. If the proposals in items 2 and
3 are approved by stockholders at the special meeting, each share of Harris &
Jeffries preferred stock will be convertible into 3.02635 shares of Harris &
Jeffries common stock.
The number of shares of Conexant common stock you receive for each share
of Harris & Jeffries common stock you would own on conversion will be computed
in the same manner as described below for common stock, unless the preferred
stock is entitled to a participation. If the preferred stock is entitled to a
participation, your share of the merger consideration will be increased for each
share of preferred stock you own. The Harris & Jeffries articles of organization
provide that the participation is an amount equal to the sum of $4.00 per share
of preferred stock plus the amount payable to holders of Harris & Jeffries
common stock as if each share of preferred stock had been converted into common
stock. Once the value of the Conexant common stock you receive as merger
consideration exceeds $14.00 per share of preferred stock, you will not be
entitled to any participation (other than to receive shares of Conexant common
stock issued as merger consideration based on the number of shares of Harris &
Jeffries common stock you would own on full conversion of your preferred stock).
The preferred stock will not be entitled to a $4.00 per share participation if
item 5 is approved by the stockholders at the special meeting.
If item 5 is approved by the stockholders at the special meeting, you will
be entitled to receive cash as additional merger consideration if the average
daily closing sales prices of Conexant common stock for the five trading day
period preceding the day before the day the merger becomes effective is less
than $37.13 per share (or $37.50 per share if items 2 and 3 are approved by the
stockholders at the special meeting). This cash amount, on a per share basis,
will be equal to the difference between the actual average daily closing sales
prices of Conexant common stock for the five trading day period preceding the
day before the day the merger becomes effective and $37.13 per share (or $37.50
per share if items 2 and 3 are approved by the stockholders at the special
meeting), up to a maximum amount. The maximum amount is the lesser of $4.00 per
share of Harris & Jeffries preferred stock and the amount that, when combined
with all other payments that might be treated as "boot" under the Internal
Revenue Code, could result in the merger becoming a taxable transaction.
Merger Consideration for Common Stock. If you own Harris & Jeffries common
stock you will be entitled to receive shares of Conexant common stock issued as
merger consideration based on the number of shares of Harris & Jeffries common
stock you own immediately prior to the merger. The number of Conexant shares you
are entitled to receive will be calculated immediately before the effective time
of the merger by multiplying the number of shares of common stock you hold
immediately prior to the merger by the applicable exchange ratio and then
rounding that product down to the nearest whole number of shares, subject to
reduction if the preferred stock is entitled to a participation. The preferred
stock will not be entitled to a $4.00 per share participation if item 5 is
approved by the stockholders at the special meeting.
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The applicable exchange ratio will depend on whether the Harris & Jeffries
stockholders approve at the special meeting the proposals in items 2 and 3
permit the grant of options for an additional 1,066,797 shares of Harris &
Jeffries common stock immediately prior to the merger. If the proposals are
approved and the options are granted, the exchange ratio will be approximately
0.11106; otherwise the exchange ratio will be approximately 0.12177. For
example, if you hold 100 shares of Harris & Jeffries common stock and the
exchange ratio is 0.12177, your merger consideration would be 12 shares of
Conexant common stock and a cash payment for the value of 0.177 of a whole
share.
If the preferred stock is entitled to a participation, each Harris &
Jeffries common stockholder's share of the merger consideration will be reduced.
The amount of the reduction will depend on the number of shares of Conexant
common stock required for the participation, based on the value of the Conexant
common stock at that time. The number of shares of Conexant common stock you
would forego as a result of the participation would be the product of the number
of shares of Conexant common stock required for the participation and your
relative percentage of the fully-diluted share number. The fully-diluted share
number is the total number of shares of Harris & Jeffries common stock that are
outstanding or would be outstanding upon conversion in full of all preferred
stock (after giving effect to the exercise of all outstanding warrants to
purchase preferred stock) and exercise in full of all outstanding options for
common stock, whether vested or unvested, at the time the merger becomes
effective. Each Harris & Jeffries common stockholder's share of the merger
consideration will not be reduced as a result of the participation if item 5 is
approved by the stockholders at the special meeting.
Merger Consideration for Common Stock Options. If you own outstanding
options for Harris & Jeffries common stock issued under the Harris & Jeffries
Stock Option Plan, each of your options will be converted into an option to
acquire the number of shares of Conexant common stock that you would have
received in the merger if you had exercised the option immediately prior to the
closing of the merger, and the exercise price will be adjusted appropriately.
The number of shares of Conexant common stock subject to the converted option
will be equal to the number of shares of Harris & Jeffries common stock subject
to the option immediately prior to the merger multiplied by the applicable
exchange ratio, rounded down to the nearest whole share, subject to reduction if
the preferred stock is entitled to a participation. The adjusted exercise price
will be equal to the exercise price per share of Harris & Jeffries common stock
subject to the option before the conversion divided by the applicable exchange
ratio, rounded up to the nearest whole cent. If the preferred stock is entitled
to a participation, the number of shares of Conexant common stock you would
receive under your converted option would be reduced in a manner similar to that
described above for shares of Harris & Jeffries common stock, but the adjustment
to the exercise price will not be effected. You will not be entitled to receive
any shares of Conexant common stock under your converted options, except to the
extent your options "vest" in accordance with the terms of the Harris & Jeffries
Stock Option Plan and you elect to exercise and pay the exercise price (as
adjusted by the merger agreement).
In addition to the merger consideration described above, additional shares
of Conexant common stock may be issued after the merger to holders of Harris &
Jeffries common stock, preferred stock and options as described below for shares
subject to holdback or escrow arrangements and shares subject to earn-out
arrangements.
SHARES SUBJECT TO INDEMNIFICATION HOLDBACK OR ESCROW ARRANGEMENTS
You may receive additional shares of Conexant common stock (or cash payments
if you hold preferred stock) shortly after September 30, 2001. At that time,
Conexant will issue up to approximately 138,654 (or 139,279, if the proposals
referred to in items 2 and 3 are approved) shares to persons who held Harris &
Jeffries common stock or options immediately prior to the merger. These shares
are called the holdback shares. The number of shares of Conexant common stock
actually issued at this time will be subject to reduction for the amount of any
damages Conexant is or may be entitled to recover as indemnification amounts
payable under the merger agreement, as described in this proxy
statement-prospectus. At the same time these holdback shares are issued,
Conexant will release up to approximately 62,246 (or 61,621 if the proposals
referred to in items 2 and 3 are approved) shares of Conexant common stock (or
any cash proceeds from the sale of these shares) previously deposited and held
in an escrow account to
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persons who held preferred stock of Harris & Jeffries immediately prior to the
merger, subject again to reduction for any indemnity claims under the merger
agreement that may be made against holders of preferred stock. These are called
escrow shares. You can compute the maximum number of shares of Conexant common
stock you will receive as holdback shares or escrow shares assuming no
indemnification amounts are payable. To do this, multiply the number of shares
of Harris & Jeffries common stock you hold (or if you hold preferred stock, the
number of shares of Harris & Jeffries common stock you would hold on conversion
of the preferred stock; or if you hold options, the number of shares of Harris &
Jeffries common stock you would hold on exercise of all your options, whether
vested or unvested) immediately prior to the merger by the applicable exchange
ratio. Then round that product down to the nearest whole number of shares.
Again, you would receive cash for any fractional share you might otherwise be
entitled to receive.
SHARES SUBJECT TO EARN-OUT ARRANGEMENTS
If you hold common or preferred stock of Harris & Jeffries, or options to
acquire Harris & Jeffries common stock that are vested immediately prior to the
merger, you may receive additional shares of Conexant common stock at quarterly
intervals after the merger. If Harris & Jeffries achieves certain revenue and
operating margin goals, Conexant will issue up to an additional 718,000 shares
of Conexant common stock. These shares are referred to as earn-out shares. For
purposes of these tests, the merger agreement provides that:
"Operating Margin" means an amount, expressed as a percentage, equal
to (x) the consolidated operating income (loss) of Harris & Jeffries
and its subsidiaries (determined prior to any allocation of
corporate overhead, sales, general or administrative charges of the
Conexant) before interest expense, taxes and any extraordinary or
non-recurring items, adjusted to eliminate the after-tax expense
associated with certain Employee Compensation Amounts (as defined in
the merger agreement), divided by (y) Revenues, in each case
determined in accordance with GAAP, consistently applied in
accordance with Harris & Jeffries' accounting policies and practices
prior to the merger.
"Revenues" means the consolidated revenues of Harris & Jeffries and
its subsidiaries as reported on its statement of operations,
prepared in accordance with GAAP consistently applied in accordance
with Harris & Jeffries' accounting policies and practices prior to
the merger.
The merger agreement provides for several possible payments of additional
shares.
First, if average operating margins of Harris & Jeffries for the four fiscal
quarters ended June 30, 2001 are greater than 25%, Conexant will issue an
additional 179,500 shares of Conexant common stock on August 31, 2001. This is
referred to in the merger agreement as the "Final Earn-Out Condition".
In addition, if certain revenue and operating margin goals are achieved
during the four fiscal quarters commencing June 30, 2000, additional shares of
Conexant common stock will be issued. The number of shares will vary from
quarter to quarter and will depend on whether Harris & Jeffries achieves the
"Interim Earn-Out Condition" or the "Partial Earn-Out Condition" for that
quarter. If neither the Interim Earn-Out Condition or the Partial Earn-Out
Condition is satisfied for any quarter, no additional shares will be issued in
respect of that quarter, without regard to the financial performance of Harris &
Jeffries in any subsequent fiscal quarter.
To satisfy the Interim Earn-Out Condition with respect to any fiscal quarter,
both (i) the revenues of Harris & Jeffries for that fiscal quarter must exceed
the amount of revenues set forth below opposite that fiscal quarter, and (ii)
the operating margins of Harris & Jeffries for that fiscal quarter must exceed
the operating margins set forth below opposite that fiscal quarter.
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<TABLE>
<CAPTION>
FISCAL QUARTER ENDED REVENUES OPERATING MARGINS
<S> <C> <C>
September 30, 2000 $4,000,000 15%
December 31, 2000 $5,000,000 20%
March 31, 2001 $4,800,000 25%
June 30, 2001 $5,300,000 25%
</TABLE>
Each Interim Earn-Out Condition will be measured separately for each fiscal
quarter. If the Interim Earn-Out Condition is not satisfied for any fiscal
quarter, there will be no earn-out payable in respect of that fiscal quarter,
without regard to any revenues or operating margins in any other fiscal quarter,
except and to the extent that the Partial Earn-Out Condition is satisfied in
respect of that fiscal quarter. If the Interim Earn-Out Condition is satisfied
with respect to any fiscal quarter set forth below, Conexant will issue on the
payment dates set forth below the number of shares of Conexant common stock set
forth below:
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED INTERIM EARN-OUT INTERIM EARN-OUT SHARE
PAYMENT DATE NUMBER
<S> <C> <C>
September 30, 2000 October 31, 2000 112,775
December 31, 2000 January 31, 2001 140,968
March 31, 2001 April 30, 2001 135,330
June 30, 2001 July 31, 2001 149,427
</TABLE>
To satisfy the Partial Earn-Out Condition with respect to any fiscal quarter,
both (i) the revenues of Harris & Jeffries for that fiscal quarter must exceed
the amount of revenues set forth below opposite that fiscal quarter but be less
than or equal to the revenues for that period set forth in the definition of
Interim Earn-Out Condition and (ii) the operating margins of Harris & Jeffries
for that fiscal quarter must exceed the amount of operating margins set forth
below opposite that fiscal quarter.
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED REVENUES OPERATING MARGINS
<S> <C> <C>
September 30, 2000 $3,000,000 15%
December 31, 2000 $3,750,000 20%
March 31, 2001 $3,600,000 25%
June 30, 2001 $3,975,000 25%
</TABLE>
Each Partial Earn-Out Condition will be measured separately for each fiscal
quarter. If the Partial Earn-Out Condition is not satisfied for any fiscal
quarter, there will be no earn-out shares payable in respect of that fiscal
quarter, without regard to any revenues or operating margins in any other fiscal
quarter. If the Partial Earn-Out Condition is satisfied for any fiscal quarter,
Conexant will issue on the payment dates referred to above in the Interim
Earn-Out Condition a number of shares of Conexant common stock equal to the
product of (x) the Partial Earn-Out Ratio for that fiscal quarter, and (y) the
Interim Earn-Out Share Number for that fiscal quarter (as shown in the prior
chart). For this purpose, the term "Partial Earn-Out Ratio" means, with respect
to any fiscal quarter of Harris & Jeffries for which the Partial Earn-Out
Condition but not the Interim Earn-Out Condition has been satisfied, the
fraction the numerator of which is the revenues of Harris & Jeffries for that
fiscal quarter and the denominator of which is the revenues for that fiscal
quarter required to satisfy the Interim Earn-Out Condition.
Conexant may not make certain changes in the business or operations of Harris
& Jeffries during the period that Harris & Jeffries is attempting to achieve the
operating margin and revenue goals outlined above. Pursuant to these
restrictions, Conexant may not:
- Cause the Harris & Jeffries business, as presently conducted, to cease
in whole or any material part.
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- Terminate the employment of any of the key employees referred to in the
merger agreement, except for cause.
- Take any action knowingly or deliberately designed or reasonably likely
to:
- cause the Harris & Jeffries business to be conducted other than on
an arm's length basis, and in the ordinary course of business,
consistent with past practice, 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 Conexant determines from time to time in
the ordinary course of business;
- cause any new employee or consultant (who is not employed, seconded
to or engaged by Harris & Jeffries or any of its subsidiaries at the
closing) to be employed, seconded to or engaged by Harris & Jeffries
or any of its subsidiaries;
- cause Harris & Jeffries to deviate substantially from Harris &
Jeffries' current business plan;
- materially adversely impact, individually or in the aggregate,
Harris & Jeffries' ability to meet any Final, Interim or Partial
Earn-Out Condition;
- cause any change in the location of Harris & Jeffries' principal office
in Dedham, Massachusetts, other than any change to a location selected
by management of Harris & Jeffries required as a result of the
termination of the existing lease for Harris & Jeffries' executive
office; or
- cause Deepak Shahane or David Jeffries to spend less than substantially
all of their working time on the management and operations of Harris &
Jeffries.
- Fail to provide sufficient working capital for the Harris & Jeffries
business.
- Sell Harris & Jeffries or any of its subsidiaries.
BACKGROUND OF THE MERGER
Conexant is regularly involved in the review of strategic alliances with and
acquisitions of private and public companies as part of its goal to provide
advanced semiconductor product systems for communications electronics. Conexant
and Harris & Jeffries have had a business relationship over the past several
years. In 1998, the companies entered into a business arrangement for the
creation of reference driver software which enabled the integration of
Conexant's asymmetric transport mode (ATM) segmentation and reassembly (SAR)
products with Harris & Jeffries' software products. Since 1998, Harris &
Jeffries has supplied this reference driver software to Conexant. In late 1998,
the two companies held discussions to consider further expanding the
relationship. These discussions did not advance beyond preliminary explorations
and there were no further material discussions regarding an expanded
relationship between the companies until 2000.
On March 30, 2000, Oleg Khaykin, Vice President, Strategy and Business
Development of Conexant, telephoned Deepak Shahane, President and Chief
Executive Officer of Harris & Jeffries, to discuss Conexant's relationship with
Harris & Jeffries as part of Conexant's regular review of strategic alliances.
Mr. Khaykin expressed Conexant's interest in a strategic relationship with
Harris & Jeffries and the potential integration of Harris & Jeffries'
multi-protocol label switching (MPLS) products with certain of Conexant's
Personal Computing platform products. In the telephone call, Mr. Shahane
suggested that he
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and Mr. Khaykin meet within the next few weeks at the offices of Harris &
Jeffries to explore further the strategic and technological fit between the two
companies.
On April 10, 2000, Mr. Khaykin and Matthew Rhodes, Senior Vice President and
General Manager, Personal Computing Division of Conexant, visited Harris &
Jeffries' Dedham offices and met with Mr. Shahane and David S. Jeffries, Chief
Financial Officer, and Albert Cooley, Director of Business Development, of
Harris & Jeffries. The parties executed a confidentiality agreement regarding
their discussions and the Harris & Jeffries executives presented the company's
business plan, historical performance, strategic initiatives and product
roadmaps. Mr. Shahane disclosed to the Conexant representatives that Harris &
Jeffries was in serious discussions with a third party concerning a potential
acquisition of Harris & Jeffries. The parties mutually agreed that they would
each have separate internal discussions regarding the possibility of a strategic
relationship before having further discussions between the two companies.
On April 11, 2000, Messrs. Shahane and Jeffries reported to the board of
directors of Harris & Jeffries on the April 10 meeting with Conexant. At that
meeting, the Harris & Jeffries board of directors authorized Messrs. Shahane and
Jeffries to engage in discussions concerning a potential merger or acquisition
with Conexant and requested that Harris & Jeffries expedite the discussions with
Conexant in view of the fact that discussions with another party regarding a
potential acquisition were ongoing.
On April 12, 2000, Mr. Rhodes telephoned Mr. Shahane and suggested that
Harris & Jeffries' software products, which provide network control and service
internetworking functions used to route large volumes of voice, video and data
traffic over the Internet infrastructure, would complement Conexant's Network
Access Division semiconductor system products for multi-service access,
broadband access and wide area network (WAN) transport equipment. Mr. Rhodes
conveyed Conexant's continued interest in Harris & Jeffries. Separately, Mr.
Khaykin telephoned Mr. Shahane to reiterate Mr. Rhodes' statements and to
suggest a meeting with Raouf Halim, Senior Vice President and General Manager,
Network Access Division of Conexant.
On April 17, 2000, Mr. Khaykin, Mr. Halim and Bill Giudice, Vice President of
Broadband Internetworking Systems, Network Access Division of Conexant, met with
Messrs. Shahane, Jeffries and Cooley in Boston, Massachusetts to discuss a
potential strategic alliance between Conexant and Harris & Jeffries, including a
potential acquisition of Harris & Jeffries by Conexant. The parties expressed
their mutual belief that there were strong synergies to be had between the
companies and that a combination of the two companies would be necessary to
obtain all the potential benefits. Mr. Halim suggested scheduling a preliminary
due diligence meeting to enable Conexant to get a better understanding of Harris
& Jeffries' technologies and products.
On April 19, 2000, engineering personnel from Conexant and Harris & Jeffries
met at Conexant's Westborough, Massachusetts facility to discuss in detail the
design and architecture of Harris & Jeffries' products. On April 21, 2000, Mr.
Khaykin confirmed to Mr. Shahane that the preliminary due diligence had gone
well and that Conexant was prepared to make an offer for Harris & Jeffries.
On May 11, 2000, Messrs. Khaykin and Halim met with Messrs. Shahane and
Cooley in Las Vegas, Nevada and discussed the financial terms contemplated by
Conexant for an acquisition of Harris & Jeffries. Both parties agreed to move
quickly to resolve all open matters.
On May 12, 2000, Messrs. Khaykin and Halim reported to the Conexant board of
directors on their discussions with Harris & Jeffries concerning a potential
acquisition of Harris & Jeffries. At that meeting, the Conexant board approved
continuation of the discussions with Harris & Jeffries and the submission of a
letter of intent to Harris & Jeffries outlining the terms of a potential
transaction and authorized Dwight W. Decker, Chairman and Chief Executive
Officer of Conexant, or his designees to negotiate and enter into an agreement
on behalf of Conexant providing for an acquisition of Harris & Jeffries.
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On May 12, 2000, Mr. Halim telephoned Mr. Shahane to inform him that the
Conexant board of directors had authorized Conexant to proceed with potential
acquisition of Harris & Jeffries. Mr. Shahane also received a brief phone call
from Mr. Khaykin informing him that a draft letter of intent was being prepared
and would be sent to him shortly. Mr. Shahane received a draft letter of intent
during the weekend of May 13, 2000.
Over the next few days, a number of conversations occurred between and among
Messrs. Shahane and Jeffries, the board of directors of Harris & Jeffries and
the managing partners at InSight Capital Partners (one of the principal
investors in Harris & Jeffries). Following several days of telephonic
discussions between Messrs. Khaykin and Shahane, on May 25, 2000 Conexant and
Harris & Jeffries signed a letter of intent dated May 23, 2000 outlining the
major terms of a potential acquisition transaction, including the aggregate
consideration to be paid, the form of the consideration and an earn-out
structure. In accordance with the provisions of the letter of intent, Harris &
Jeffries informed other potential acquirers that it was terminating discussions
with them.
Beginning June 1, 2000, Conexant and its legal and accounting advisors
conducted detailed business, legal, intellectual property and accounting due
diligence with respect to Harris & Jeffries. Over the course of the next several
weeks, Conexant and its representatives conducted further due diligence and the
parties and their respective legal advisors conducted negotiations relating to a
potential acquisition of Harris & Jeffries and the proposed terms of the merger
agreement, including the structure of a proposed merger.
On June 23, 2000, the parties executed an extension of the letter of intent.
Between June 19, 2000 and July 19, 2000, a number of conference calls and
meetings took place between representatives and principals of Harris & Jeffries
and Conexant to discuss and negotiate the remaining terms of the definitive
merger agreement for the acquisition of Harris & Jeffries and other ancillary
agreements.
On July 19, 2000, the board of directors of Harris & Jeffries met to review a
draft of the merger agreement and unanimously voted to approve and adopt the
merger agreement and the merger, and thereafter the merger agreement was
executed by the parties. In connection with the execution of the merger
agreement, certain stockholders of Harris & Jeffries agreed to vote their shares
in favor of the merger. In addition, certain executive officers of Harris &
Jeffries, including Messrs. Shahane and Jeffries, entered into employment and
non-competition agreements. After the closing of the Nasdaq National Market on
that day, Conexant issued a press release announcing the execution of the merger
agreement with Harris & Jeffries.
After July 19, 2000, the average daily closing sales prices of Conexant
common stock declined from levels in effect during the period the merger
agreement was negotiated and on the date the merger agreement was executed. On
some days these closing prices were below the price at which the preferred
stockholders of Harris & Jeffries would be entitled to a greater share of the
merger consideration as a result of the participation described above. From time
to time during this period, discussions occurred between Messrs. Shahane and
Jeffries, as representatives of Harris & Jeffries, and Mr. Khaykin and Ms. Jean
Hu, as representatives of Conexant, concerning various possible changes that
might be made in the merger agreement as a result of the potential for preferred
stockholders to be entitled to a participation. In addition, Messrs. Shahane and
Jeffries requested that Conexant consider a number of other changes in the
merger agreement, including reducing the number of shares subject to the
escrow/holdback arrangements. Mr. Khaykin and Ms. Hu also proposed certain
changes in the merger agreement, including changing the termination date for the
merger agreement from September 30, 2000 to November 30, 2000. A number of
conference calls took place between officers and representatives of Harris &
Jeffries and officers and representatives of Conexant to discuss and negotiate
the terms of a potential amendment of the merger agreement and other documents.
On August 28, 2000, the first amendment of the merger agreement was signed by
the parties to the merger agreement and consented to by certain stockholders of
Harris & Jeffries that had agreed to vote in favor of the merger on the terms
set forth in the merger agreement.
HARRIS & JEFFRIES' REASONS FOR THE MERGER
In reaching its decision to approve and adopt the merger agreement and the
merger, the Harris & Jeffries board of directors consulted with Harris &
Jeffries' management and its legal counsel. Harris & Jeffries did not employ the
services of any investment bankers or financial advisors in connection with the
merger. Harris & Jeffries' board of directors also independently considered the
proposed merger agreement and the transactions contemplated by the merger
agreement. Among the factors considered by the Harris & Jeffries board of
directors in its deliberations were the following:
TERMS OF THE TRANSACTION. In reaching its decision, the Harris & Jeffries
board of directors reviewed Harris & Jeffries' business, results of operations,
and near- and longer-term prospects as an independent entity, its business
model, and the financial aspects and timing of the merger as compared to the
uncertain benefits and timing of an initial public offering. Harris & Jeffries'
board of directors also considered Conexant's strategic position in the
industry, its management, its near- and longer-term prospects and the
anticipated value of the merger to Conexant. The Harris & Jeffries board of
directors viewed Conexant as having a track record that demonstrates a clear
ability to compete effectively in the semiconductor industry and the broader
data-communications and telecommunications industries. In analyzing the terms of
the proposed transaction with Conexant, the Harris & Jeffries board of directors
took into account the current and historical market prices of Conexant common
stock and the risks and possible rewards associated with the ownership of
Conexant common stock; the substantial number of shares of Conexant common stock
to
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be delivered to Harris & Jeffries stockholders in the merger, which reflects, in
the view of the Harris & Jeffries board of directors, a fair valuation of Harris
& Jeffries; the terms of the merger agreement, including representations and
warranties and corresponding limitations, conditions to closing and rights of
termination; the anticipated favorable impact of the merger on customers,
suppliers and employees of Harris & Jeffries and Conexant; the expected
qualification of the merger as a tax-free reorganization under Section 368(a) of
the Internal Revenue Code; and the likelihood that the merger would be
completed.
INDUSTRY TRENDS. The Harris & Jeffries board of directors was cognizant of
industry trends toward consolidation between providers of stand-alone software
and hardware manufacturers as evidenced by the acquisitions of Ficon Technology
by Globespan, Inverness Systems by Virata Corp., and the announced acquisition
of Trillium Digital Systems by Intel. The Harris & Jeffries board of directors
considered that one or more of Harris & Jeffries' competitors might enter into
arrangements with semiconductor integrated circuit (IC) manufacturers to produce
tightly integrated hardware and software solutions leading to reduction of the
markets for Harris & Jeffries' products. It also considered the advantages that
might be expected to accrue to the combined company in terms of greater size and
financial strength in competing in the marketplace. The Harris & Jeffries board
of directors recognized that the combination might broaden the customer base,
facilitate new product development, assist in geographic expansion and make
possible economies of scale that would enhance the ability of the combined
company to penetrate its market.
STRATEGIC ALTERNATIVES. The Harris & Jeffries board of directors'
deliberations included consideration of the likelihood of effecting alternative
transactions, management's prior discussions with other potential acquirers and
strategic investors, and the possibility of continuing as an independent company
with a view towards a later initial public offering. The Harris & Jeffries board
of directors also considered the financial terms of the transaction in view of
certain industry valuation metrics (including revenue, profitability and
engineering headcount) and comparable transactions. The Harris & Jeffries board
of directors took into account the views expressed by Harris & Jeffries
management that Conexant occupied a premier position in the industry as the
world's largest independent company focused exclusively on providing
semiconductor products for communications electronics, and that Conexant
appeared to be a good strategic fit. Specifically, the Harris & Jeffries board
of directors believed that Conexant would be a good strategic fit based on:
- similar market vision and product groups between Conexant and Harris &
Jeffries;
- technological developments made or planned by Conexant which are necessary
to the success of Harris & Jeffries' evolving products;
- initiatives and relationships between Conexant and major customers which
are complementary to Harris & Jeffries' technology;
- the complementary nature of other acquisitions completed by Conexant;
- influence of size in the industry and the large size of Conexant;
- financial resources of Conexant;
- increased liquidity available to Harris & Jeffries stockholders after the
proposed merger; and
- the anticipated value of the merger to Conexant.
The Harris & Jeffries board of directors also identified and considered a
number of potentially negative factors in its deliberations concerning the
merger, including:
- the risk that its operations might not be successfully integrated;
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- the risk that, despite its efforts after the merger, key personnel might
leave the combined company;
- the risk that some or all of the contingent consideration under the merger
agreement may not be received because some or all of the revenue and
operating margin goals are not achieved;
- the risk that customers might respond negatively to the merger;
- the difficulty of managing operations in the different geographic
locations in which Conexant and Harris & Jeffries operate and will
continue to operate;
- the risk associated with payment of merger consideration solely in stock
(other than any cash amount that preferred stockholders may be entitled to
receive as additional merger consideration under certain circumstances);
and
- the risk that the potential benefits of the merger might not be fully
realized.
The Harris & Jeffries board of directors believes that some of these risks
are unlikely to occur, that Harris & Jeffries can avoid or mitigate others, and
that overall, these risks are outweighed by the potential benefits of the
merger.
TAX TREATMENT OF THE TRANSACTION. The Harris & Jeffries board of directors
considered that the merger is expected to be generally tax-free for federal
income tax purposes to Harris & Jeffries stockholders receiving Conexant common
stock and to be accounted for under the purchase method of accounting for
business combinations.
ACCOUNTING TREATMENT
The merger will be accounted for as a "purchase" transaction for accounting
and financial reporting purposes, in accordance with generally accepted
accounting principles. Accordingly, a determination of the fair value of Harris
& Jeffries' assets and liabilities will be made in order to allocate the
purchase price to the assets acquired and the liabilities assumed.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated U.S. federal income
tax consequences of the merger to Harris & Jeffries stockholders who hold Harris
& Jeffries common stock or preferred stock as a capital asset. The summary is
based on the Internal Revenue Code, Treasury regulations issued under the Code,
and administrative rulings and court decisions in effect as of the date of this
proxy statement-prospectus, all of which are subject to change at any time,
possibly with retroactive effect.
This summary is not a complete description of all of the consequences of the
merger and, in particular, may not address U.S. federal income tax
considerations applicable to Harris & Jeffries stockholders subject to special
treatment under U.S. federal income tax law. Stockholders subject to special
treatment include, for example, foreign persons, financial institutions, dealers
in securities, traders in securities who elect to apply a mark-to-market method
of accounting, insurance companies, tax-exempt entities, holders who acquired
their shares pursuant to the exercise of an employee stock option or right or
otherwise as compensation, and holders who hold Harris & Jeffries common stock
or preferred stock as part of a "hedge", "straddle", "conversion", or
"constructive sale" transaction.
In addition, no information is provided in this document with respect to the
tax consequences of the merger under applicable foreign or state or local laws.
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HARRIS & JEFFRIES STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX
ADVISORS REGARDING THE TAX CONSEQUENCES OF THE MERGER TO THEM, INCLUDING THE
EFFECTS OF U.S. FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
Conexant has been advised by Chadbourne & Parke LLP, counsel to Conexant,
that assuming the merger is completed in accordance with the merger agreement,
the merger will qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code. For U.S. federal income tax purposes, therefore,
neither Harris & Jeffries nor Conexant will recognize any taxable gain or loss
as a result of the merger. As a result, the material U.S. federal income tax
consequences to you of the merger will be as follows:
- You will recognize no taxable gain or loss on the receipt of shares of
Conexant common stock (including the escrow shares, the holdback shares
and the earn-out shares) in exchange for your Harris & Jeffries common
stock or preferred stock in the merger, except with respect to: any
cash you receive instead of a fractional share of Conexant common
stock; if you are a Harris & Jeffries common stockholder and you
receive any holdback or earn-out shares more than one year after the
effective time of the merger, with respect to a portion of the holdback
shares and earn-out shares you receive more than six months after the
effective time; and if you are a Harris & Jeffries preferred
stockholder, perhaps some or all of any cash you receive. In addition,
if you are a Harris & Jeffries preferred stockholder and the escrow
shares are sold, you will recognize taxable gain or loss at the time of
such sale.
- Cash for Fractional Shares. Any cash payment you receive instead of a
fractional share of Conexant common stock will be treated as if the
fractional share had been issued in the merger and then redeemed by
Conexant. You will recognize taxable gain or loss with respect to such
payment measured by the difference, if any, between the amount of cash
you receive and your tax basis in that fractional share. This gain or
loss should be a long-term capital gain or loss if your holding period
for your Harris & Jeffries common stock or preferred stock is greater
than one year at the effective time.
- Harris & Jeffries Common Stockholders: Treatment of Holdback and
Earn-out Shares. If you receive any holdback or earn-out shares more
than one year after the effective time of the merger, you will be
treated as receiving imputed interest income and will recognize taxable
ordinary income as a result of your receipt of a portion of any
holdback or earn-out shares more than six months after the effective
time. The amount of taxable ordinary income you must recognize at the
time such holdback or earn-out shares are received will be equal to the
difference between the fair market value of the holdback or earn-out
shares you receive on the day you receive such shares and the present
value of such amount at the effective time. The present value of such
amount will be determined by using a discount rate equal to the
applicable Federal rate at the effective time, compounded semiannually.
You will not be treated as receiving taxable imputed interest income as
a result of your receipt of any earn-out shares within six months or
less after the effective time of the merger.
- Harris & Jeffries Preferred Stockholders: Treatment of Additional
Preferred Stock Consideration. If you receive additional preferred
stock consideration and your tax basis is less than the sum of the fair
market value of the Conexant common stock you receive (including any
fractional shares, escrow shares and earn-out shares you are treated as
receiving) plus the amount of additional preferred stock consideration
you receive, you will recognize taxable gain in an amount equal to the
lesser of (a) the amount of gain you realize and (b) the amount of
additional preferred stock consideration you receive. The amount of
gain you realize will generally be calculated as the amount by which
the sum of the fair market value of the Conexant common stock you
receive plus the amount of additional preferred stock consideration you
receive exceeds the tax basis of the Harris & Jeffries preferred stock
you surrender.
Any gain that you recognize should generally be capital gain, and
should be long-term capital gain if your holding period for the Harris
& Jeffries preferred stock you surrender is greater than one year at
the effective time.
You will not recognize any loss upon the receipt of Conexant common
stock and any additional preferred stock consideration.
- Harris & Jeffries Preferred Stockholders: Treatment of Escrow and
Earn-out Shares. You will be treated as receiving the escrow shares at
the effective time. To the extent that all or any portion of the escrow
shares are sold, you will recognize taxable gain or loss measured by
the difference, if any, between your allocable share of the cash
received by the escrow agent and your tax basis in your allocable
portion of the escrow shares sold. This gain or loss should be a
long-term capital gain or loss if your holding period for your Harris &
Jeffries preferred stock is greater than one year at the effective
time. To the extent that all or any portion of the escrow shares are
sold and the escrow agent distributes to you less than your allocable
share of such aggregate cash proceeds, you will recognize a capital
loss equal to the amount of such difference.
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If you receive the earn-out shares within one year or less from the
effective time, you will not be treated as receiving taxable imputed
interest income (under rules described above under Harris & Jeffries
Common Stockholders: Treatment of Holdback and Earn-out Shares) on your
receipt of such shares. Under the merger agreement, the earn-out shares
are to be distributed to Harris & Jeffries stockholders on or before
August 31, 2001.
- Tax Basis: Harris & Jeffries Common Stockholders. The aggregate tax
basis of the shares of Conexant common stock you receive in the merger
(including any fractional share you are treated as receiving) will be
the same as your aggregate tax basis in the shares exchanged for that
stock.
- Tax Basis: Harris & Jeffries Preferred Stockholders. The aggregate tax
basis of the shares of Conexant common stock you receive in the merger
(including any fractional shares, escrow and earn-out shares you are
treated as receiving) will equal your aggregate tax basis in the shares
of Harris & Jeffries preferred stock you surrender, decreased by the
amount of additional preferred stock consideration you receive, and
increased by the amount of gain you recognize on the exchange.
- Holding Period. The holding period of the Conexant common stock you
receive in the merger (including any fractional share you are treated
as receiving) will include your holding period for the shares of Harris
& Jeffries common stock or preferred stock you surrender in exchange
for that Conexant common stock.
- Appraisal Rights. If you exercise your appraisal rights and receive
solely cash in exchange for your Harris & Jeffries common stock or
preferred stock, you generally will recognize taxable capital gain or
loss measured by the difference between the amount of cash you receive
and your tax basis in the shares of Harris & Jeffries common stock or
preferred stock surrendered. However, if you also own Conexant common
stock or are treated as owning common stock, the payment may be treated
as a dividend to you.
Information Reporting and Backup Withholding. Payments you receive in respect
of your Harris & Jeffries common stock or preferred stock may be subject to
information reporting to the IRS and to a 31% backup withholding tax. Backup
withholding will not apply, however, to a payment if you complete and sign the
substitute Form W-9 that will be included as part of the transmittal letter
provided to you by the exchange agent, or you otherwise prove to Conexant and
the exchange agent that you are exempt from backup withholding. You will receive
a credit against your U.S. federal income tax liability for any amount withheld
under these rules.
REGULATORY APPROVALS
Except for compliance with federal and state securities laws, the merger is
not subject to federal or state regulatory requirements or approvals.
Merger documents must be filed on behalf of H&J Acquisition Sub and Harris &
Jeffries with the Secretary of State of the Commonwealth of Massachusetts and
the Secretary of State of the State of Delaware in order to effect the merger.
FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTIONS
This proxy statement-prospectus does not cover any resales of the Conexant
common stock you will receive in the merger, and no person is authorized to make
any use of this proxy statement-prospectus in connection with any such resale.
All shares of Conexant common stock you will receive in the merger will be
freely transferable, except that if you are deemed to be an "affiliate" of
Harris & Jeffries under the Securities Act of 1933 at the time of the special
stockholders meeting, you may resell those shares only in transactions permitted
by Rule 145 under the Securities Act or as otherwise permitted under the
Securities Act. Persons who may be affiliates of Harris & Jeffries for those
purposes generally include individuals or entities that control, are controlled
by, or are under common control with, Harris & Jeffries, and would not include
stockholders who are not officers, directors or principal stockholders of Harris
& Jeffries.
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NASDAQ NATIONAL MARKET TRADING
The shares of Conexant common stock that are to be issued in connection with
the merger will be authorized for listing on the Nasdaq National Market. If
Conexant and Harris & Jeffries complete the merger, stockholders will be able to
trade the shares of Conexant common stock they receive in the merger on the
Nasdaq National Market. Harris & Jeffries is a privately held company and is not
listed on any exchange, quoted on any trading market or subject to reporting
requirements under the Securities Exchange Act of 1934, as amended.
Consequently, Harris & Jeffries does not need to make any filings under the
Securities Exchange Act or any stock exchange with respect to the merger.
THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF THE MATERIAL TERMS OF THE MERGER AGREEMENT,
AFTER GIVING EFFECT TO THE FIRST AMENDMENT OF THE MERGER AGREEMENT. THE MERGER
AGREEMENT IS ATTACHED AS APPENDIX A-1 TO THIS PROXY STATEMENT-PROSPECTUS, AND
THE FIRST AMENDMENT IS ATTACHED AS APPENDIX A-2 TO THIS PROXY
STATEMENT-PROSPECTUS. THE MERGER AGREEMENT AND THE FIRST AMENDMENT ARE
INCORPORATED IN THIS PROXY STATEMENT-PROSPECTUS BY REFERENCE. YOU SHOULD READ
THE FULL TEXT OF THE MERGER AGREEMENT AND THE FIRST AMENDMENT BECAUSE THEY, AND
NOT THIS PROXY STATEMENT-PROSPECTUS, ARE THE LEGAL DOCUMENTS THAT GOVERN THE
MERGER.
THE MERGER
When the merger contemplated by the merger agreement occurs, H&J Acquisition
Sub will merge with and into Harries & Jeffries. As a result, H&J Acquisition
Sub will cease to exist as a separate corporate entity and Harris & Jeffries
will continue as the surviving corporation and will become a wholly-owned
subsidiary of Conexant.
The merger agreement provides that at the time merger documents are filed:
- Harris & Jeffries' articles of organization will be the articles of
organization of the surviving entity except that they will be amended,
as of the effective time of the merger, to change the name of the
surviving corporation to "NetPlane Systems, Inc."
- the by-laws of Harris & Jeffries, as in effect when the merger
documents are filed, will be the by-laws of the surviving corporation
as of the effective time of the merger.
- those persons who are the directors and officers of H&J Acquisition Sub
when the merger documents are filed will be the directors and officers
of the surviving corporation
CLOSING AND EFFECTIVE TIME OF THE MERGER
The closing of the merger will take place on the first business day on which
all closing conditions have been satisfied or waived, or at such other time as
Conexant, H&J Acquisition Sub and Harris & Jeffries agree in writing. The
closing is expected to take place promptly after the approval of the merger by
Harris & Jeffries stockholders.
The merger will be effective upon the filing of merger documents with the
Secretary of State of the Commonwealth of Massachusetts and the Secretary of
State of the State of Delaware, unless the merger documents specify a later
effective time, in which case the merger will be effective at the later time
specified.
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PROCEDURE TO EXCHANGE CERTIFICATES
After the merger becomes effective, Conexant will deposit with an exchange
agent shares of Conexant common stock to be exchanged for outstanding shares of
Harris & Jeffries stock and all funds necessary for the exchange agent to make
payments instead of fractional shares. The exchange agent will mail letters of
transmittal and instructions regarding the exchange process to each record
holder of shares of Harris & Jeffries stock promptly following the merger. Upon
surrender of Harris & Jeffries stock certificates, together with the letter of
transmittal completed and duly executed, each Harris & Jeffries stockholder will
receive a book-entry statement setting forth the number of shares of Conexant
common stock such stockholder received in the merger and held in uncertificated
form for his or her account. Once the holders of certificates previously
representing Harris & Jeffries stock surrender these certificates, they will
receive any dividends or other distributions on the Conexant common stock that
have a record date after the merger and a payment date before the holder
surrenders the Harris & Jeffries stock certificate. However, Conexant will not
pay any dividends until the holder of the Harris & Jeffries stock certificate
surrenders that certificate. The holder will also receive any dividends or other
distributions with a record date after the merger but before the surrender, and
a payment date after the surrender. In each case, taxes will be withheld as
required. No interest will be paid or accrued on unpaid dividends or
distributions, if any, which will be paid on surrender of Harris & Jeffries
stock certificates.
No certificates or scrip representing fractional shares of Conexant common
stock will be issued upon the surrender of Harris & Jeffries stock certificates.
Each holder of a Harris & Jeffries stock certificate at the time of merger, who
would otherwise be entitled to receive a fractional share of Conexant common
stock will receive cash. The amount of cash paid instead of fractional shares
will be the fraction of a share of Conexant common stock that would otherwise be
issued multiplied by the five-day average closing price per share of Conexant
common stock on the Nasdaq National Market based on the five full trading days
preceding the date prior to the closing of the merger. The exchange agent will
pay this amount without interest.
Any shares of Conexant common stock issued in the merger together with any
dividends or distributions or cash instead of fractional shares deposited by
Conexant with the exchange agent that remain undistributed to holders of Harris
& Jeffries stock certificates six months after the merger will be delivered to
Conexant. Any holders of Harris & Jeffries stock certificates who have not
complied with the exchange procedures before the six-month anniversary of the
merger may only look to Conexant for payment of Conexant common stock, cash
instead of fractional shares and any unpaid dividends and distributions on
Conexant common stock. None of Conexant, H&J Acquisition Sub, Harris & Jeffries
or the exchange agent will be liable to you for any amount properly delivered to
a public official under applicable abandoned property, escheat or similar law.
The exchange agent will deliver Conexant common stock, any cash instead of
fractional shares and any unpaid dividends or distributions with respect to
Conexant common stock in exchange for lost, stolen, or destroyed Harris &
Jeffries stock certificates if the record holder of such stock certificates
signs an affidavit of loss, theft or destruction. Conexant may also, in its
discretion, require the holder of a lost, stolen or destroyed certificate to
deliver a bond in reasonable sum as indemnity against any claim that might be
made against Conexant regarding the alleged lost, stolen or destroyed
certificate.
YOU SHOULD NOT SEND STOCK CERTIFICATES WITH YOUR PROXY AND SHOULD NOT
SURRENDER STOCK CERTIFICATES BEFORE THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE MERGER AND YOUR RECEIPT OF A LETTER OF TRANSMITTAL AND
INSTRUCTIONS REGARDING THE EXCHANGE PROCEDURES FROM THE EXCHANGE AGENT.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains essentially reciprocal representations and
warranties made by each of Conexant, H&J Acquisition Sub and Harris & Jeffries
with regard to the following matters:
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- corporate organization, good standing, qualification and other
corporate matters;
- capital structure;
- corporate power and authority to execute, deliver and perform their
obligations, and to complete the merger;
- required consents and approvals, and absence of violations of law;
- brokers' or finders fees; and
- the accuracy of the information contained in the registration statement
of which this proxy statement-prospectus forms a part.
Harris & Jeffries also made additional representations and warranties to
Conexant relating to the following matters:
- subsidiaries;
- books and records;
- financial statements;
- absence of certain changes;
- litigation;
- compliance with applicable laws and required licenses and permits;
- environmental matters;
- tax matters;
- employee benefit plans and labor matters;
- compensation arrangements;
- title to property and leases;
- intellectual property matters;
- material contracts;
- insurance;
- relationships with customers and suppliers;
- disclosure of material facts;
- interests in other entities;
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- product liability; and
- the Hart-Scott-Rodino Act of 1976, as amended.
Conexant and H&J Acquisition Sub also made additional representations and
warranties to Harris & Jeffries relating to Conexant's SEC reports and the
continuation of the Harris & Jeffries business following the merger.
COVENANTS
CONDUCT OF BUSINESS
Harris & Jeffries has agreed that, during the period from the date of the
merger agreement through the closing, Harris & Jeffries and each of its
subsidiaries will:
- carry on its business in the ordinary course consistent with past
practice;
- use its best efforts to preserve intact its present business
organization and keep available the services of its current officers
and employees;
- use its best efforts to preserve its relationships with customers,
suppliers and others having business dealings with it and to preserve
good will;
- confer with Conexant on a regular basis regarding material operational
matters; and
- report to Conexant as and when requested concerning the status of the
business, operations and finances of Harris & Jeffries and its
subsidiaries.
In addition, unless Conexant consents in writing or the merger agreement or
applicable law provides otherwise, Harris & Jeffries has agreed that, during the
period from the date of the merger agreement through the closing, it will not
and will not agree to:
- issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock or its voting securities or any securities
convertible into such shares, or any rights, warrants or options to
acquire any of its capital stock, voting securities or convertible
securities, except for the options to purchase an additional 1,066,797
shares of Harris & Jeffries common stock;
- declare, set aside or pay any dividend or make any other distribution
with respect to any of its shares of capital stock;
- redeem, purchase or otherwise acquire any of its shares of capital
stock or any other securities or any rights, warrants or options to
acquire any such shares or securities;
- split, combine or reclassify any of its shares of capital stock;
- issue, authorize the issuance of or grant any registration rights with
respect to, any shares of its capital stock or any other securities;
- amend its articles of organization or by-laws;
- alter through merger, liquidation, reorganization, restructuring or in
any other fashion its corporate structure or ownership;
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- acquire or agree to acquire (a) by merging or consolidating with, or
(b) by purchasing a substantial portion of the assets of or equity in,
or (c) by any other manner, any business or any corporation,
partnership, association or other entity that in the aggregate have a
value in excess of 0.5% of Harris & Jeffries' total assets;
- enter into any business other than its business as described in the
merger agreement;
- acquire or agree to acquire any assets that in the aggregate have a
value in excess of 0.5% of Harris & Jeffries' total assets;
- sell, transfer or lease any assets, except for the sale of inventory in
the ordinary course of business consistent with past practice;
- license, sell, transfer, pledge, modify, disclose, dispose of or permit
to lapse any intellectual property rights, except in the ordinary
course of business consistent with past practice;
- approve any annual operating budget for Harris & Jeffries or for any of
its subsidiaries;
- revalue any of its assets;
- make any change in accounting methods, policies, practices or
principles;
- suffer any damage, destruction or other loss, whether or not covered by
insurance in excess of $100,000;
- purchase any real property or enter into any lease;
- amend, renegotiate or terminate any contract except in the ordinary
course of business consistent with past practice;
- make any capital expenditure in excess of $50,000;
- enter into any purchase contracts in excess of its normal operating
inventories or at prices above customary prices or any sales contracts
in excess of $50,000 or at prices below customary prices;
- except in the ordinary course of business consistent with past
practice,
- incur any additional indebtedness in a single transaction or a group
of related transactions,
- enter into a guaranty,
- engage in any other financing arrangements having a value in excess
of 0.5% of Harris & Jeffries' total assets, or
- make any loans, advances or capital contributions to, or investments
in, any other entity;
- incur, assume, create or guarantee, directly or indirectly, any liability,
except for trade or business obligations in the ordinary course of
business consistent with past practice;
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- make any tax election, change any annual tax accounting period, amend any
tax return, settle or compromise any income tax liability, enter into any
closing agreement, settle any tax claim or assessment, surrender any right
to claim a tax refund or fail to make the payments or consent to any
extension or waiver of the limitations period applicable to any tax claim
or assessment;
- enter into any transaction with any affiliate of Harris & Jeffries, any of
its subsidiaries or its stockholders other than in the ordinary course of
business consistent with past practice;
- make any payment in excess of $10,000 to any Harris & Jeffries stockholder
or any affiliate of a stockholder;
- grant any officer or director any increase in, or voluntarily accelerate
the vesting of, compensation, severance or termination pay;
- waive, amend or allow to lapse any term or condition of any
confidentiality, "standstill", consulting, advisory or employment
agreement;
- enter into, terminate or modify in any material respect any employment,
severance, termination or consulting agreement with any employee, officer,
director or consultant;
- increase or establish any bonus, insurance, deferred compensation,
pension, retirement, savings, profit-sharing, stock option, stock purchase
or other employee benefit plan or agreement or arrangement, excluding
one-time cash bonus payments to certain employees in an aggregate amount
not to exceed $19,000 in the aggregate;
- suffer or receive threats of any labor strike, dispute, slowdown or work
stoppage;
- pursuant to bankruptcy law, (a) commence a voluntary case, (b) consent to
the entry of an order for relief against it in an involuntary case, (c)
consent to the appointment of a custodian of it or for all or
substantially all of its property or (d) make a general assignment for the
benefit of its creditors; or
settle any action pending on, or commenced after, the date of the merger
agreement.
Harris & Jeffries will promptly notify Conexant of any action described above
or any other material adverse change to Harris & Jeffries or its subsidiaries.
STOCKHOLDER MEETING
Harris & Jeffries has agreed to call a meeting of its stockholders for the
purposes of considering the approval and adoption of the merger agreement and
approval of the merger as promptly as practicable after this proxy
statement-prospectus is mailed to Harris & Jeffries stockholders. The board of
directors of Harris & Jeffries has unanimously agreed to recommend to its
stockholders that they approve and adopt the merger agreement and the merger;
provided, however, that the board of directors of Harris & Jeffries may
withdraw, modify or change its approval or recommendation where failure to do so
could result in breach of its fiduciary duties.
NOTICE OF CERTAIN EVENTS
Harris & Jeffries has agreed that, during the period from the date of the
merger agreement through the closing, it will promptly notify Conexant in
writing of any of the following:
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- a notice or other communication from a governmental entity or from a
third party alleging that its consent is required in connection with
the merger agreement or the merger;
- any action or investigation commenced or threatened against Harris &
Jeffries;
- any order or notification relating to any material or claimed violation
of law related to Harris & Jeffries;
- the occurrence or non-occurrence of any event that would cause any
representation or warranty made by Harris & Jeffries in the merger
agreement to be untrue or inaccurate in any material respect; or
- the failure of Harris & Jeffries to comply with or satisfy any
covenant, condition or agreement under the merger agreement.
AFFILIATES
Harris & Jeffries has agreed to cause all indebtedness owed to Harris &
Jeffries or any of its subsidiaries by a stockholder or any affiliate of a
stockholder or any of their officers, directors or employees to be paid in full
prior to closing.
ACQUISITION PROPOSALS
Harris & Jeffries has agreed to not, and has agreed to cause its officers,
directors, employees, agents, investment bankers, advisors and representatives
to not solicit, encourage, initiate, participate in or facilitate or consent to
any negotiations or discussions with respect to any acquisition proposal or
disclose to any person any information that will lead to, any acquisition
proposal.
An acquisition proposal is defined in the merger agreement as any offer,
indication or proposal relating to the acquisition of (or any equity interest
in) Harris & Jeffries or any of its subsidiaries, its business or any part
thereof.
Harris & Jeffries has agreed to notify Conexant immediately in the event
Harris & Jeffries receives any acquisition proposal or any inquiry that could
lead to any acquisition proposal.
EMPLOYEE BENEFIT MATTERS
Harris & Jeffries has agreed to amend the Harris & Jeffries Stock Option Plan
and to take all actions necessary to provide that the Harris & Jeffries 401(k)
Plan is terminated effective immediately prior to the closing.
FEES AND EXPENSES
Conexant and Harris & Jeffries have agreed that each party incurring costs
and expenses in connection with the merger agreement will pay for those costs
and expenses, subject to certain exceptions. Conexant has agreed to pay the fees
and out-of-pocket expenses of counsel, accountants, investment bankers and other
professional advisors engaged in connection with the merger by Harris & Jeffries
and the reasonable fees and expenses of one firm of counsel for the Harris &
Jeffries stockholders, provided such fees and
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expenses, in the aggregate, are not in excess of the lesser of (x) $2 million or
(y) the cash available to Harris & Jeffries on the closing date. Any excess
shall be paid promptly by the Harris & Jeffries stockholders.
OPPORTUNITY TO CURE
If Conexant discovers any circumstances that constitute a breach by Harris &
Jeffries of any of its representations and warranties contained in the merger
agreement or in any related agreement, Conexant has agreed to give Harris &
Jeffries prompt written notice of and a reasonable opportunity to cure the
breach.
CONSENTS AND APPROVALS
Conexant and Harris & Jeffries each has agreed to:
- cooperate with each other to make all filings required to be made in
connection with the merger; and
- obtain all consents, waivers, licenses, approvals, actions and orders
by governmental entities required to be obtained in connection with the
merger agreement and the merger.
CONDITIONS PRECEDENT TO THE MERGER
Conexant, H&J Acquisition Sub and Harris & Jeffries are required to complete
the merger only if, at or before the effective time, each of the following
conditions is satisfied or waived:
- Harris & Jeffries has obtained the approvals of the Harris & Jeffries
stockholders necessary to approve and adopt the merger agreement and
the merger.
- No stop order suspending the effectiveness of the Form S-4 of which
this proxy statement-prospectus is a part has been issued by the SEC.
All necessary "blue sky" authorizations have been received.
- There is no action, order, suit or proceeding by any governmental
entity that challenges or enjoins the merger.
- The Conexant common stock to be issued in the merger has been approved
for listing on the Nasdaq National Market.
ADDITIONAL CONDITIONS TO CONEXANT'S OBLIGATIONS
The obligations of Conexant and H&J Acquisition Sub to complete the merger
are also subject to the satisfaction or waiver by Conexant at or before the
effective time of the merger of the following additional conditions:
- The representations and warranties of Harris & Jeffries must be true
and correct in all respects as of the date of the merger agreement and
as of the closing date, except for any representation or warranty that
speaks as of an earlier date. Conexant must receive a certificate
signed on behalf of Harris & Jeffries to that effect.
- Harris & Jeffries must perform in all material respects all the
obligations it must perform under the merger agreement at or before the
closing date. Conexant must receive a certificate signed on behalf of
Harris & Jeffries to that effect.
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- Harris & Jeffries must obtain the consent or approval of each person
whose consent or approval is required under any material contract to
which Harris & Jeffries is a party.
- There must be no law, order or other action applicable to the merger
taken by a court or other governmental entity that would challenge or
enjoin the merger.
- There must be no event, change or development that is reasonably likely
to have a material adverse effect on Harris & Jeffries or on the
ability of Conexant or H&J Acquisition Sub to consummate the merger.
- Certain employees of Harris & Jeffries must enter into employment
agreements with Conexant and Harris & Jeffries.
- Certain employees of Harris & Jeffries must enter into non-competition
agreements with Conexant and Harris & Jeffries.
- Certain persons must enter into repurchase agreements with Harries &
Jeffries.
- The escrow agent and certain stockholders of Harris & Jeffries must
enter into an escrow agreement.
- All of the Harris & Jeffries warrants for preferred stock must have
been exercised.
- The board of directors of Harris & Jeffries must have (a) approved the
merger, (b) recommended acceptance of the merger to the Harris &
Jeffries stockholders and (c) amended the Harris & Jeffries by-laws to
facilitate the consummation of the merger.
- A certain Shareholder Agreement and a certain Registration Rights
Agreement, each dated August 25, 1997, must be terminated.
- Conexant must receive resignations, effective as of the effective time,
of each director of Harris & Jeffries and any of its subsidiaries as
specified by Conexant.
- Conexant must receive certified copies of resolutions of the board of
directors of Harris & Jeffries terminating the Harris & Jeffries 401(k)
Plan.
- The number of dissenting shares held by Harris & Jeffries stockholders
must not exceed 1.0% of the total number of shares of Harris & Jeffries
common stock and preferred stock issued and outstanding immediately
prior to the effective time.
ADDITIONAL CONDITIONS TO HARRIS & JEFFRIES' OBLIGATIONS
The obligation of Harris & Jeffries to complete the merger is also subject to
the satisfaction or waiver by Harris & Jeffries at or before the effective time
of the merger of the following additional conditions:
- The representations and warranties of Conexant and H&J Acquisition Sub
must be true and correct in all respects as of the date of the merger
agreement and as of the closing date as though made on and as of the
closing date, except to the extent any representation or warranty
speaks as of an earlier date. Harris & Jeffries must receive a
certificate signed on behalf of Conexant to that effect.
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- Conexant and H&J Acquisition Sub must perform in all material respects
all the obligations they are required to perform under the merger
agreement at or before the closing date. Harris & Jeffries must receive
a certificate signed on behalf of Conexant and H&J Acquisition Sub to
that effect.
- Conexant must obtain the consent or approval of each person whose
consent or approval is required under any material contract to which
Conexant or any of its subsidiaries is a party.
TERMINATION
CONDITIONS TO TERMINATION
The parties may agree at any time to terminate the merger agreement without
completing the merger, even if the stockholders of Harris & Jeffries have
approved and adopted it. Also, either Conexant or Harris & Jeffries can decide,
without the consent of the other, to terminate the merger agreement in a number
of other situations. These include a material breach by either Conexant or
Harris & Jeffries of the merger agreement that has not been waived or cured
within a reasonable period of time after written notice to the breaching party,
the failure to satisfy as of the closing date any of the conditions precedent to
the merger as specified by each of Conexant and Harris & Jeffries, and the
failure to complete the merger by November 30, 2000.
EFFECT OF TERMINATION
In the event of termination of the merger agreement by either Conexant or
Harris & Jeffries, the merger agreement will become void. There will be no
continuing obligations or liabilities on the part of Conexant or Harris &
Jeffries or their respective officers or directors under the merger agreement,
except for those covenants and obligations related to public announcements, the
confidentiality agreement, indemnification by Harris & Jeffries, expenses,
jurisdiction and service of process, governing law, counterparts and
termination. Another exception is that termination does not relieve the parties
from any liability for any material breach of any covenant or agreement
contained in the merger agreement.
In the event of termination of the merger agreement, each party will pay its
own costs and expenses. If the merger agreement is terminated as a result of a
breach, the breaching party will reimburse the non-breaching party for all
expenses incurred by the non-breaching party in connection with the merger
agreement and the merger.
AMENDMENT
Subject to the provisions of applicable law, at any time before the effective
time of the merger, the parties to the merger agreement may modify or amend the
merger agreement, by written agreement executed and delivered by their duly
authorized officers.
APPOINTMENT OF STOCKHOLDER REPRESENTATIVE
Under the merger agreement, Deven Parekh will act as the representative of
Harris & Jeffries stockholders. The stockholder representative will exercise all
of the rights and perform all of the obligations conferred on him under the
merger agreement. This includes making determinations with respect to the
earn-out shares payable by Conexant and indemnification claims. You will
specifically consent to being represented by the stockholder representative when
you deliver a letter of transmittal upon surrendering your Harris & Jeffries
stock certificates. Mr. Parekh is affiliated with InSight Capital Partners II,
L.P., and InSight Capital Partners (Cayman) II, L.P., which hold preferred
stock of Harris & Jeffries.
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INDEMNIFICATION OBLIGATIONS
GENERAL
Subject to limitations summarized below, you and the other Harris & Jeffries
stockholders will indemnify and hold harmless Conexant and its affiliates, for,
and will pay to Conexant and its affiliates the amount of, any damages directly
or indirectly arising out of or resulting from or in connection with:
- any breach of any representation or warranty made by Harris & Jeffries
in the merger agreement or in certain other transaction documents
delivered in accordance with the merger agreement; or
- any breach by Harris & Jeffries of any covenant or obligation of Harris
& Jeffries in the merger agreement or in certain other transaction
documents delivered by Harris & Jeffries in accordance with the merger
agreement.
Under the merger agreement, 200,900 shares of Conexant common stock will be
subject to holdback or escrow arrangements for purposes of satisfying
indemnification obligations owed to Conexant during the period from the
effective time of the merger until September 30, 2001.
Subject to limitations summarized below, Conexant will indemnify, hold
harmless and pay to former Harris & Jeffries stockholders the amount of any
damages arising, directly or indirectly, from or in connection with:
- any breach of any representation or warranty made by Conexant in the
merger agreement or in any other document delivered by Conexant in
accordance with the merger agreement; or
- any breach by Conexant of any covenant or obligation of Conexant in the
merger agreement.
LIMITATIONS ON INDEMNIFICATION
There are certain limitations on the monetary amounts that can be recovered
by Conexant under the indemnification provisions for breaches of representations
and warranties.
- The maximum liability for breaches of most representations and
warranties is the value of the escrow/holdback shares at any time plus
ten percent of the value of any earn-out shares issued, based on the
value of those shares at the time they are issued.
- The maximum liability for breaches of representations and warranties
relating to environmental, tax and intellectual property matters is
twenty percent of the value of all the shares of Conexant common stock
issued to the stockholders and option holders of Harris & Jeffries,
whether as merger consideration, escrow/holdback shares or earn-out
shares, based on the value of those shares at the time they are issued.
- The maximum liability for breaches of representations and warranties
relating to title to shares of Harris & Jeffries capital stock, the
capitalization of Harris & Jeffries, legal authority, title to Harris &
Jeffries assets (excluding intellectual property) and certain other
matters is the value of all the shares of Conexant common stock issued
to the stockholders and option holders of Harris & Jeffries, whether as
merger consideration, escrow/holdback shares or earn-out shares, based
on the value of those shares at the time they are issued.
There are a number of other limitations on indemnification claims under the
merger agreement for breaches of representations and warranties. These include:
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- time limitations for making claims;
- adjustments for insurance recoveries and tax benefits;
- a $1 million threshold that must be exceeded before any claim can be
made; and
- limitations on claims for consequential damages.
The InSight Stockholders have the benefit of other limitations on Conexant's
right to make claims for indemnification which other Harris & Jeffries
stockholders do not have.
Indemnification claims based on a failure to perform covenants or agreements
are not subject to any limitations on indemnification. The indemnification
provisions in the merger agreement are not the exclusive remedy for Conexant.
Conexant will have the right to recover damages from you in accordance with a
judgment from any court of competent jurisdiction.
OTHER INDEMNIFICATION PROVISIONS
The merger agreement includes procedures that must be followed in making or
defending against indemnification claims. Deven Parekh, as stockholder
representative, is authorized to take various actions on behalf of other former
stockholders of Harris & Jeffries in connection with indemnification claims.
ADDITIONAL AGREEMENTS
VOTING AGREEMENTS
As a condition and inducement to Conexant's entering into the merger
agreement, Conexant entered into voting agreements with the following seven
stockholders of Harris & Jeffries: Ethan F. Jeffries, Deepak Shahane, The Celia
M. Jeffries Trust - 1999, The David S. Jeffries Trust - 1999, InSight Capital
Partners II, L.P., InSight Capital Partners (Cayman) II, L.P. and WI Software
Investors LLC. David S. Jeffries, a director and an executive officer of Harris
& Jeffries, is trustee of The David S. Jeffries Trust - 1999, and Mr. Jeffries'
wife, Celia M. Jeffries, is trustee of The Celia M. Jeffries Trust - 1999.
This section summarizes the material terms of the voting agreements, a form
of which is attached to this proxy statement-prospectus as Appendix B and
incorporated in this proxy statement-prospectus by reference. You should read
the entire form of agreement for a more complete understanding of its terms.
Under the voting agreements, each of the seven signatory stockholders agreed,
among other things:
- to vote all of the shares of Harris & Jeffries over which the
stockholder has voting power in favor of the proposal to approve and
adopt the merger agreement and the merger and any other transaction
contemplated by the merger agreement; and
- to vote all of the shares of Harris & Jeffries over which the
stockholder has voting power against:
- any proposal that would constitute an acquisition proposal,
- any amendment to the organizational documents of Harris & Jeffries
other than as specifically contemplated by the merger agreement, or
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- any other amendment, proposal or transaction involving Harris &
Jeffries, which amendment or other proposal or transaction would in
any manner impede, frustrate, prevent or nullify the merger or which
is reasonably likely to result in any of the conditions to Harris &
Jeffries' obligations under the merger agreement not being
fulfilled; and
- to grant to Conexant an irrevocable proxy, or, if applicable, a power
of attorney, and to irrevocably appoint Conexant its attorney and proxy
to vote all of the shares of Harris & Jeffries over which the
stockholder has voting power with respect to approval of the merger
agreement and the merger at any meeting of stockholders of Harris &
Jeffries.
Massachusetts law requires that the merger agreement be approved by the
affirmative vote of two-thirds of the shares of each class of stock of Harris &
Jeffries. Together, the seven stockholders listed above beneficially own and
have voting control over approximately 69.9% of the shares of Harris & Jeffries
common stock and 100% of the shares of Harris & Jeffries preferred stock.
Therefore, their shares represent more than the number of votes necessary to
approve and adopt the merger agreement and the merger.
The voting agreements provide that they will terminate upon the earlier
of:
- the effective time of the merger; or
- the termination of the merger agreement.
Each of the Harris & Jeffries stockholders party to a voting agreement has
also agreed with respect to the shares of Harris & Jeffries common stock subject
to the voting agreement that the stockholder will not:
- deposit the shares into a voting trust or enter into a voting agreement
or arrangement with respect to the shares,
- encumber the shares or subject them to any lien, claim or security
interest, except as contemplated by the voting agreement,
- transfer or enter into a contract to transfer any of the shares without
Conexant's prior written consent,
- solicit, encourage, initiate, participate in or facilitate any
negotiations or discussions with respect to any acquisition proposal,
or
- provide any confidential information to any person or participate in
any negotiations or discussions with respect to any acquisition
proposal except in his or her capacity as officer or director.
In addition, each of the Harris & Jeffries stockholders party to a
voting agreement has agreed to:
- promptly deliver to Conexant upon request by Conexant an irrevocable
proxy for any additional shares of Harris & Jeffries common stock
acquired after signing the voting agreement, and
- notify Conexant immediately upon receipt of any inquiry, proposal or
offer with respect to any acquisition proposal or notice of any
discussions or negotiations regarding an acquisition
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proposal, indicating the name of the person making the acquisition
proposal and the material terms and conditions thereof.
LETTER OF TRANSMITTAL
You must use a specified letter of transmittal to receive the Conexant common
stock to be issued in connection with the merger.
In this letter of transmittal, you will make representations and warranties
as to certain matters, including your title to your Harris & Jeffries shares,
and your authority, capacity and legal right to participate in the transaction.
The letter of transmittal also includes:
- Your acknowledgment that you understand certain risks associated with
the transaction, including that you may not receive some or all of the
escrow/holdback shares, and that there are risks associated with an
investment in Conexant common stock.
- Your agreement to indemnify Conexant for any material violation of your
agreements in the letter of transmittal or any inaccuracy of the
representations and warranties you make in that letter or that Harris &
Jeffries makes in the merger agreement.
- Your appointment of Deven Parekh as stockholder representative for all
Harris & Jeffries stockholders for purposes of taking all necessary
action on behalf of all Harris & Jeffries stockholders in connection
with the earn-out and indemnification provisions in the merger
agreement.
ESCROW AGREEMENT
Under the terms of the escrow agreement, Conexant will deposit approximately
62,246 (or 61,621 if the proposals referred to in items 2 and 3 are approved)
shares of Conexant common stock in an escrow account to be held subject to the
terms of an escrow agreement among Conexant, The Chase Manhattan Bank (or
another financial institution agreed upon by the parties to the escrow
agreement) as escrow agent and the InSight Stockholders. These shares are
referred to as the escrow shares. The InSight Stockholders are entitled to, and
have informed Harris & Jeffries and Conexant that they may, have the escrow
agent sell some or all of the escrow shares within a short period of time after
the merger and reinvest the proceeds in cash-equivalent investments. These
investments, any income or gain on these investments and any escrow shares that
are not sold are referred to as the escrow fund. The escrow fund will be used to
satisfy any indemnification obligations owed to Conexant by the InSight
Stockholders. The escrow fund will be released to the InSight Stockholders on
September 30, 2001, except to the extent required to satisfy any indemnification
claims that have been resolved against the InSight Stockholders or that are
still pending on that date. The InSight Stockholders will not be entitled to
receive any holdback shares that other former stockholders and option holders of
Harris & Jeffries may receive on that date.
The escrow agreement includes provisions for reimbursement of indemnification
claims against the InSight Stockholders that are similar to the indemnification
provisions in the merger agreement for satisfaction of indemnification claims
against other former Harris & Jeffries stockholders and option holders by
reducing the number of holdback shares to be issued to those other former
stockholders and option holders.
INFORMATION ABOUT HARRIS & JEFFRIES
Organized as a Massachusetts corporation in 1990, Harris & Jeffries is
engaged in the business of developing communications systems source-code
products, which it licenses to manufacturers of data
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communications and telecommunications systems. Harris & Jeffries has become a
leading developer of integrated, portable, "carrier class" network control
software and subsystems, with extensive experience in frame relay, asynchronous
transfer mode (ATM), multiprotocol label switching (MPLS), and internet protocol
(IP) technologies, as well as emerging standards for the coming generation of
optical networks.
Harris & Jeffries has licensed its source-code products to more than 200
networking manufacturers, original equipment manufacturers and integrators
worldwide that are developing products for next-generation internet and other
data communications and telecommunications networks. Harris & Jeffries focuses
on the carrier-class capabilities that are required in the service provider
marketplace. Packaged as a leading-edge engineering toolkit, Harris & Jeffries'
software products incorporate high-performance features and an advanced
architecture, with the goal of enabling Harris & Jeffries' customers to
streamline their product development process.
Headquartered in Dedham, Massachusetts, Harris & Jeffries also maintains an
office in Hyderabad, India. Harris & Jeffries employs full-time and part-time
employees at both locations. In Dedham, Harris & Jeffries has often employed
contractors as well. In addition to operations in Dedham and Hyderabad, Harris &
Jeffries also maintains sales offices in Sunnyvale, California and Dallas,
Texas.
The following table provides a breakdown of the headcount in domestic and
foreign locations:
<TABLE>
<CAPTION>
--------------------------------------------------
LOCATION FULL-TIME PART-TIME TOTAL
--------------------------------------------------
<S> <C> <C> <C>
U.S. 53 4 57
--------------------------------------------------
Hyderabad, India 13 1 14
--------------------------------------------------
TOTAL 66 5 71
--------------------------------------------------
</TABLE>
Included in the above table are 43 engineers, 31 in the U.S. and 12 in India.
Harris & Jeffries' core technology competencies include communication systems
design and advanced packet technology development, and Harris & Jeffries
engineers are experienced in network management, communications devices/drivers,
real-time, embedded, and proprietary operating systems.
Harris & Jeffries' principal products include the following:
SOFT-ATM(R)
- The Soft-ATM(R) signalling software subsystem (SSS) and Soft-ATM(R)
integrated local management interface (ILMI) subsystems provide ATM
signalling and management capabilities.
- The Soft-ATM(R) private network-to-network interface (PNNI) subsystem
provides PNNI routing capabilities, and can be combined with the SSS to
create a comprehensive signalling solution that is capable of providing
optimized end-to-end path selection for user calls.
- The Soft-ATM(R) classical IP over ATM (IPoA) subsystem provides
manufacturers of routers, bridges, hubs, workstations, PCs, network
interface cards and other IP products with a fast, cost effective way to
access ATM networks and services.
HIGH PERFORMANCE FRAME RELAY(TM) (HPFR(TM))
- The HPFR(TM) core services (CS) products provide the implementation of
frame relay data transport and signalling functions for manufacturers of
frame relay products.
69
<PAGE> 81
- The HPFR(TM) ATM network interworking (ANI) and HPFR(TM) ATM service
interworking (ASI) products enable equipment manufacturers to interconnect
frame relay networks with ATM networks.
ULTRALINQ(TM)
- The Ultralinq(TM) connection management software (CMS) subsystem provides
manufacturers of ATM switching equipment with a comprehensive solution for
managing ATM connections.
- The Ultralinq(TM) message distribution service (MDS) enables system
designers and software architects who are dealing with systems that
incorporate multiple processors to insure reliable communication between
the software components.
- The Ultralinq(TM) redundancy management software (RMS) subsystem provides
software architects with a software synchronization mechanism that enables
the creation of high-availability, fault-tolerant systems.
LAYERED ENVIRONMENT FOR ACCELERATED PORTABILITY(TM) (LEAP(TM))
- LEAP architecture minimizes the integration effort required of customers
using multiple Harris & Jeffries subsystems by providing integration with
operating systems, platform services, and hardware drivers.
MPLS LABEL TRAFFIC CONTROL SYSTEM(TM) (LTCS(TM))
- LTCS enables manufacturers of ATM and frame relay switching equipment to
implement an MPLS system for label distribution, switching and management.
PROTOQUICK(TM) NARROWBAND AND BROADBAND SIGNALLING SYSTEM 7.
- Signalling system 7 (SS7) is an out-of-band signaling, messaging, and
switching protocol used in public service telephone networks worldwide.
The ProtoQuick(TM) SS7 products provide a comprehensive solution for
equipment manufacturers to improve product development times. Harris &
Jeffries also provides porting and integration services to deliver these
products pre-ported to customer specific environments. Harris & Jeffries
makes the ProtoQuick(TM) line of products available to its customers as a
reseller for Hughes Systems Software.
Harris & Jeffries recently organized NetPlane Network Technologies (India)
Private Limited, a wholly-owned subsidiary in Hyderabad, India. The Hyderabad
office marks Harris & Jeffries' first expansion into Asia and is primarily
intended to augment Harris & Jeffries' engineering resources for software
development. Harris & Jeffries management anticipates that the Indian
subsidiary, which presently employs 12 engineers, will employ 30 engineers by
the end of calendar year 2000.
Harris & Jeffries has distribution and product service arrangements with
local companies in the following cities: Ulm, Germany; Tokyo, Japan; Seoul,
South Korea; Birmingham, England; Beijing, China; and Taipei, Taiwan. Harris &
Jeffries' international connections are part of Harris & Jeffries' strategy to
be in a position to address increasing global opportunities with major
networking manufacturers.
Harris & Jeffries also works with suppliers of complementary technologies to
simplify and optimize product integration for common customers. Integration
alliances exist between Harris & Jeffries and suppliers of operating systems
(Caldera Systems, Enea OSE Systems, Sun Microsystems, Wind River Systems,
Microware Systems and Mentor Graphics Microtec Division) and semiconductor
companies
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<PAGE> 82
(Conexant, C-Port Corporation and Motorola), as well as suppliers of tools and
subsystems (Duet and Softcom Microsystems).
Harris & Jeffries has strong, reputable competitors which have demonstrated
their capacity to compete effectively in the markets for data communications and
telecommunications stand-alone software components in the past. Harris &
Jeffries needs to continue to refine and enhance its products to maintain its
leadership position is these marketplaces. Historically, these competitors have
included Data Connection Pvt. Ltd., a UK-based company, Inverness Systems,
Trillium Digital Systems and Ficon Technology, among others. Harris & Jeffries
believes that recent merger and acquisition activity amongst its competitors may
impact its business in the future. Recently, Globespan acquired Ficon
Technology, Virata Corp. acquired Inverness Systems, and Intel announced its
intention to acquire Trillium Digital Systems. These transactions make it more
difficult for the management of Harris & Jeffries to anticipate the competitive
position of its individual products and/or its product set in the future.
SELECTED FINANCIAL DATA OF HARRIS & JEFFRIES
The selected financial data of Harris & Jeffries set forth below as of
December 31, 1998 and 1999 and for each of the years ended December 31, 1997,
1998 and 1999 are derived from financial statements of Harris & Jeffries audited
by Ernst & Young LLP, independent auditors, which are included elsewhere in this
proxy statement-prospectus. The selected financial data as of June 30, 2000 and
for the three and six months ended June 30, 1999 and 2000 are derived from
Harris & Jeffries' unaudited financial statements and which include, in the
opinion of Harris & Jeffries, all adjustments (consisting only of normal
recurring adjustments) that are necessary for a fair presentation of its
financial position and the results of its operations for those periods.
Operating results for the three and six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2000. The data should be read in conjunction with the
financial statements and notes thereto of Harris & Jeffries attached as Appendix
E to this proxy statement-prospectus and with the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Harris & Jeffries" appearing elsewhere in this proxy statement-prospectus.
71
<PAGE> 83
<TABLE>
<CAPTION>
Three Months Six Months
Year Ended December 31, Ended June 30, Ended June 30,
------------------------------- ------------------- -------------------
1997 1998 1999 1999 2000 1999 2000
------- ------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licensing revenues $ 4,970 $ 5,187 $ 7,292 $ 1,336 $ 1,895 $ 2,479 $ 4,618
Postcontract customer support revenues 325 930 1,420 309 724 628 1,229
------- ------- ------- ------- ------- ------- -------
Total revenues 5,295 6,117 8,712 1,645 2,619 3,107 5,847
Operating expenses:
Marketing and selling 2,898 3,421 2,755 616 990 1,193 1,629
General and administrative 1,189 1,654 1,982 436 718 860 1,264
Research and development 2,476 3,543 3,305 774 1,051 1,499 2,033
------- ------- ------- ------- ------- ------- -------
Total operating expenses 6,563 8,618 8,042 1,827 2,759 3,552 4,926
------- ------- ------- ------- ------- ------- -------
Operating income (loss) (1,268) (2,501) 670 (182) (140) (445) 921
Other income (expense):
Interest expense (31) (53) (7) 0 0 (7) 0
Interest income 12 4 2 1 0 2 3
Merger-related and other expenses 0 0 0 0 (134) 0 (134)
------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes (1,287) (2,550) 665 (181) (274) (450) 790
Income tax benefit (provision) 132 0 0 0 (67) 0 (107)
------- ------- ------- ------- ------- ------- -------
Net income (loss) $(1,155) $(2,550) $ 665 $ (181) $ (341) $ (450) $ 683
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
---------------------------- -------------------
1997 1998 1999 1999 2000
------ ------- ------ ------- ------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 321 $ 93 $ 629 $ 10 $1,036
Working capital (deficit) 277 (516) 800 (312) 1,253
Total assets 2,635 2,361 3,699 2,234 4,477
Long-term debt, less current portion 32 80 42 61 26
Stockholders' equity 984 145 1,454 253 2,166
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF HARRIS & JEFFRIES
The following discussion should be read in conjunction with the
information contained in "Selected Financial Data of Harris & Jeffries"
presented elsewhere is this proxy statement-prospectus and the financial
statements and notes thereto of Harris & Jeffries attached as Appendix E to this
proxy statement-prospectus. Harris & Jeffries' future results could differ
significantly from those discussed below as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this proxy
statement-prospectus.
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<PAGE> 84
RESULTS OF OPERATIONS
The table below sets forth, for the periods indicated, the percentage of
the total revenue of certain items of Harris & Jeffries' Statement of
Operations.
<TABLE>
<CAPTION>
Three Months Six Months
Year Ended December 31, Ended June 30, Ended June 30,
------------------------------ ------------------ ------------------
1997 1998 1999 1999 2000 1999 2000
----- ----- ---- ----- ----- ----- -----
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Licensing revenues 94% 85% 84% 81% 72% 80% 79%
Postcontract customer support revenues 6% 15% 16% 19% 28% 20% 21%
----- ----- ---- ----- ----- ----- -----
Total revenues 100% 100% 100% 100% 100% 100% 100%
Operating expenses:
Marketing and selling 55% 56% 32% 37% 38% 38% 28%
General and administrative 22% 27% 23% 27% 27% 28% 21%
Research and development 47% 58% 38% 47% 40% 48% 35%
----- ----- ---- ----- ----- ----- -----
Total operating expenses 124% 141% 92% 111% 105% 114% 84%
----- ----- ---- ----- ----- ----- -----
Operating income (loss) (24%) (41%) 8% (11%) (5%) (14%) 16%
Other income (expense):
Interest expense (1%) (1%) 0% 0% 0% 0% 0%
Interest income 0% 0% 0% 0% 0% 0% 0%
Merger-related and other expenses 0% 0% 0% 0% (5%) 0% (2%)
----- ----- ---- ----- ----- ----- -----
Income (loss) before taxes (24%) (42%) 8% (11%) (10%) (14%) 14%
Income tax benefit (provision) 2% 0% 0% 0% (3%) 0% (2%)
----- ----- ---- ----- ----- ----- -----
Net income (loss) $ (22%) $ (42%) $ 8% $ (11%) $ (13%) $ (14%) $ 12%
===== ===== ==== ===== ===== ===== =====
</TABLE>
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 2000
TOTAL REVENUES: Total revenues for the three months ended June 30, 2000
grew to $2,618,581 from $1,645,270 for the same period in 1999. Total revenues
for the first six months of 2000 grew to $5,846,912, as compared with $3,106,906
for the same period in 1999. The increases of 59% for the quarter and 88% for
the six months were due to increased sales of the Soft-ATM(R) products to
existing and new customers, and to sales of the LTCS(TM) products, which were
first released in the second quarter of 1999.
SELLING AND MARKETING EXPENSES: Selling and marketing expenditures
increased 61% to $989,773 for the three months ending June 30, 2000 from
$616,232 for the same period of 1999 and increased 37% to $1,628,896 for the six
months ending June 30, 2000 from $1,192,628 for the same period of 1999. A
significant portion of the increase in 2000 was due to expenditures related to
the re-positioning and renaming of Harris & Jeffries as NetPlane Systems.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative
expenditures increased 65% to $718,137 for the three months ending June 30, 2000
from $436,476 for the same period of 1999
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<PAGE> 85
and increased 47% to $1,263,843 for the six months ending June 30, 2000 from
$859,828 for the same period of 1999. These increases in 2000 were due to
recruiting fees and expenses for staffing in all departments, including Human
Resources, Systems Administration and administrative staff, to support the
growth in the business and to increases in compensation and benefit costs to
remain competitive for employee retention and recruiting.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development expenditures
increased to $1,050,783 for the three months ending June 30, 2000 from $774,293
for the same period in 1999 and increased to $2,033,053 for the six months
ending June 30, 2000 from $1,499,326 for the same period in 1999. The increases
of 36% for the quarter and 36% for the six months were due to increases in
engineering staff for new and ongoing development and customer support, and to
increases in engineering compensation and benefits costs.
INTEREST INCOME (EXPENSE): The Company has not earned material amounts of
interest on its cash and cash equivalent assets, and, since the bank line of
credit was terminated in mid-1999, the Company currently has no material
interest expenses.
OTHER EXPENSE: Between April and June of 2000, the Company incurred legal
and other expenses of $134,300 directly related to the negotiation and
completion of the merger agreement with Conexant.
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
TOTAL REVENUES: Total revenues increased from $5,295,007 in 1997, to
$6,116,557 in 1998, and $8,711,809 in 1999. The revenue growth of 16% and 42%,
respectively, reflects the effects of a positive reception of the Company's
LTCS(TM) product line, a resurgence of interest in its older ATM product line as
more customers started development of carrier class equipment, and customers who
purchased products from multiple product lines in order to develop more complex
multi-protocol system products.
SELLING AND MARKETING EXPENSES: Selling and marketing expenses increased
from $2,897,899 in 1997 to $3,421,190 in 1998, declining to $2,754,434 in 1999.
The increase in 1998 was due to major branding and market research programs
carried out that year. In 1999 the average sales transaction size had increased
significantly over 1997 levels, due to the increase in multi-protocol projects.
This resulted in a more cost effective sales operation in 1999 as compared to
1997.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses
increased 40% from $1,188,938 in 1997 to $1,654,089 in 1998, and increased 20%
to $1,982,215 in 1999. These increases were due to company-wide recruiting
expenses, and the addition of human resources, systems administration, and other
administrative support staff during these periods to improve the company's
operational support.
RESEARCH AND DEVELOPMENT EXPENSES: Research and development spending
increased from $2,476,336 in 1997 to $3,542,522 in 1998, declining to $3,304,875
in 1999. The 43% increase from 1997 to 1998 was due to increased staffing in
Engineering for both ongoing and new development projects. In 1999, the
engineering staffing was allowed to decrease by 7% through attrition early in
the year as development projects for enhancements to the ATM product line were
completed, then held relatively constant through year end as we completed the
initial release and deployment of the LTCS(TM) product line and returned to
profitable operating results and cash flows.
INTEREST INCOME (EXPENSE): Harris & Jeffries had net interest expense on
its cash and a bank line of credit totaling $19,218 in 1997, growing to $49,305
in 1998, and declining to $5,031 in 1999. The bank line of credit, which was
terminated in 1999, was used most heavily in 1998 to fund short-term operational
cash-flow needs.
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<PAGE> 86
LIQUIDITY AND CAPITAL RESOURCES
From its inception in 1990 through August of 1997, Harris & Jeffries
financed operations and capital requirements from revenues, and the sale of its
hardware business for $1,250,000 in 1996. Additional financing was obtained
through the sale of $3,000,000 of its Series A Preferred Stock in August 1997,
the sale of $1,000,000 of Convertible Subordinated Notes and Warrants for
Preferred Stock in March 1998, the sale of $500,000 of Convertible Subordinated
Notes and Warrants for Preferred Stock in October 1998, the sale of $500,000 of
Convertible Subordinated Notes in April 1999, borrowings under a line of credit,
and capital equipment leases. The Convertible Subordinated Notes sold in March
and October of 1998 were converted to Series A Preferred Stock in December 1998,
and the April 1999 Convertible Subordinated Note was converted to Series A
Preferred Stock in September 1999. As of June 30, 2000, the Company had
$1,036,162 in cash and cash equivalents.
Net cash provided by (used in) operating activities for the years ended
December 31, 1997, 1998, and 1999, was ($1.188) million, ($1.770) million, and
$0.295 million, respectively. Since mid-1999, Harris & Jeffries has had net
positive cash flows from operations. Cash used in operating activities consisted
primarily of cash utilized to fund operating losses and for working capital.
Harris & Jeffries' operating activities provided cash in the amount of $757,783
for six month period ending June 30, 2000, compared with $686,154 in cash used
for the same period in 1999.
Harris & Jeffries maintained a revolving line of credit in the amount of
$600,000 in the years 1997 and 1998. The facility was terminated in mid-1999.
Harris & Jeffries leases certain capital equipment under an equipment
lease arrangement. Assets under capital leases on December 31 totaled $53,157,
$130,473 and $89,648 for the years ending 1997, 1998 and 1999, respectively.
Harris & Jeffries believes that its current cash and equivalents and cash
generated from operations will be sufficient to meet anticipated cash
requirements for working capital and capital expenditures for at least the next
12 months.
DISCLOSURE ABOUT MARKET RISK
Harris & Jeffries' exposure to market risk is confined to its cash and
cash equivalents. Harris & Jeffries places its investments in high-quality
financial instruments, primarily money market funds and investments with
maturities of less than three months, which it believes are subject to limited
credit risk. Harris & Jeffries currently does not hedge interest rate exposure.
Due to the short term nature of its investments, Harris & Jeffries does not
believe that it has any material exposure to interest rate risk arising from its
investments.
Harris & Jeffries operates on a worldwide basis through its network of
resellers. All prices are quoted in U.S dollars, which eliminates the impact of
exchange rate fluctuations.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Harris & Jeffries board of directors
with respect to the approval and adoption of the merger agreement and the
merger, you should be aware that certain officers, directors and stockholders of
Harris & Jeffries may have interests in the merger that are different from, or
in addition to, your interests. Other than the merger agreement and the
transactions contemplated thereby, the discussions summarized starting on
page 48, there are no past or present contracts, arrangements, understandings,
relationships or transactions between Harris & Jeffries and its affiliates and
Conexant and its affiliates.
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<PAGE> 87
As of the record date, directors and executive officers of Harris & Jeffries
owned (i) 2,691,650 shares or 21% of Harris & Jeffries stock for which they will
receive the same consideration in connection with the merger as other Harris &
Jeffries stockholders will receive and (ii) 512,000 unexercised options to
purchase Harris & Jeffries common stock which will be treated as described
below. Members of Harris & Jeffries management hold approximately 28% of the
outstanding options to purchase shares of Harris & Jeffries common stock.
EMPLOYMENT AGREEMENTS
Prior to the effective time of the merger Conexant and Harris & Jeffries will
enter into employment agreements with Deepak Shahane, David S. Jeffries, Kevin
Smith and Saul Agranoff. The base annual salaries of each of the four employees
will be as follows: $197,500 for Mr. Shahane; $185,000 for Mr. Jeffries;
$140,000 for Mr. Smith; and $146,537 for Mr. Agranoff. The employment agreements
will govern each employee's employment for two years following the merger, after
which each employee's employment will be at-will. Pursuant to the employment
agreements, each of the four employees will be paid a one-time retention bonus
within three weeks of the merger in the following amounts: $30,000 for Mr.
Shahane; $25,000 for Mr. Jeffries; $14,000 for Mr. Smith; and $22,000 for Mr.
Agranoff. However, if the employee's employment is terminated for cause or
without good reason at any time prior to the first anniversary of the merger, he
will return the retention bonus. Each of the employees also will be granted
options to purchase the following number of shares of Conexant common stock
following the merger: 50,000 for Mr. Shahane; 15,000 for Mr. Jeffries; 15,000
for Mr. Smith; and 12,000 for Mr. Agranoff.
In the event that any of Messrs. Shahane, Jeffries, Smith or Agranoff is
terminated other than for cause or they resign for good reason, he will receive
salary and benefits at his then current rate until the end of the two year
period under his employment agreement and full vesting of all of his outstanding
options. For purposes of the employment agreements the term "for cause" means
(1) the employee's material failure, refusal or neglect to perform and discharge
his duties and responsibilities as an employee of Harris & Jeffries following
notice and reasonable opportunity to cure such failure, refusal or neglect, (2)
material breach of the employee's fiduciary duties as an officer of Conexant, or
(3) conviction or plea of nolo contendere with respect to a non-vehicular
felony. For purposes of the employment agreements the term "good reason" means
that Conexant has (1) required the employee to have his principal place of
business at a location more than fifty miles from his location of work
immediately prior to the effective time of the merger, (2) significantly reduced
the level or nature of the employee's responsibilities or position, or (3)
reduced the base salary or materially reduced the overall level of benefits
available to the employee not in connection with an overall reduction of
benefits and salaries for executives of Conexant in general.
NON-COMPETITION AGREEMENTS
Prior to completion of the merger Messrs. Shahane, Jeffries, Smith and
Agranoff will also enter into non-competition agreements in favor of Conexant.
Under the non-competition agreements, Messrs. Shahane, Jeffries, Smith and
Agranoff will agree that, commencing at the effective time of the merger and for
a period of two years thereafter, they will not (a) anywhere in the world,
directly or indirectly, engage, without the express prior written consent of
Conexant, in any business or activity, whether as an employee, consultant,
partner, principal, agent, representative, equity holder or in any other
individual, corporate or representative capacity (without limitation by specific
enumeration of the foregoing), or render any services or provide any advice to
any business, activity or person conducting the business conducted by Harris &
Jeffries at the effective time of the merger or as contemplated to be conducted
by Harris & Jeffries as of the effective time of the merger or (b) directly or
indirectly, solicit or divert any business, clients, or customers away from
Harris & Jeffries or Conexant.
PURCHASE OPTION AGREEMENT
Messrs. Shahane, Smith and Agranoff and The David S. Jeffries Trust - 1999
(David S. Jeffries, Trustee) and The Celia M. Jeffries Trust - 1999 (Celia M.
Jeffries, Trustee) have entered into a purchase option agreement in favor of
Harris & Jeffries granting Harris & Jeffries the right to purchase, during the
period from September 30, 2000 until September 30, 2002, all or any portion of
the shares of capital stock of Harris & Jeffries held by each party to the
purchase option agreement, in the event that the party to the agreement (or in
the case of The David S. Jeffries Trust - 1999 and The Celia M. Jeffries Trust -
1999, David Jeffries) ceases to be an employee of Harris & Jeffries for certain
reasons specified in the purchase option agreement. The shares held by each
party that are subject to repurchase are as follows: 150,928 shares for Mr.
Shahane, which may be repurchased until September 30, 2002; 151,680 shares for
Mr. Agranoff, which may be repurchased until September 30, 2001, after which
only 75,840 shares may be repurchased until September 30, 2002; 160,000 shares
for Mr. Smith, which may be repurchased until September 30, 2001, after which
only 80,000 shares may be repurchased until September 30, 2002; and 284,800
shares for each of The David S. Jeffries Trust - 1999 and The Celia M. Jeffries
Trust - 1999; which may be repurchased until September 30, 2001. Harris &
Jeffries has the right to repurchase these shares at a price of $1.00 per Harris
& Jeffries share prior to the merger. After the merger, the Harris & Jeffries
repurchase right will apply to the applicable number of shares of Conexant
common stock for which these Harris & Jeffries shares may be exchanged, on the
same terms as other shares of Harris & Jeffries common stock are exchanged in
the merger.
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<PAGE> 88
OWNERSHIP OF HARRIS & JEFFRIES COMMON STOCK BY CERTAIN OWNERS AND
MANAGEMENT OF HARRIS & JEFFRIES
The following table sets forth certain information regarding beneficial
ownership of Harris & Jeffries common stock and preferred stock as of July 31,
2000 (except as otherwise noted) by the following persons and entities:
- each director of Harris & Jeffries;
- the chief executive officer and the four other most highly paid
executive officers of Harris & Jeffries;
- all directors and executive officers of Harris & Jeffries as a group;
and
- all persons known by Harris & Jeffries to be beneficial owners of more
than five percent of the outstanding shares of Harris & Jeffries
capital stock.
The table is based on information provided to Harris & Jeffries by Harris &
Jeffries' directors, executive officers and principal stockholders and by
information in the books and records of Harris & Jeffries. Unless otherwise
indicated in the footnotes below, each of the named persons has sole voting and
investment power with respect to shares shown as beneficially owned.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME OWNERSHIP (1) CLASS
---- ------------------------------------ ----------------------------
COMMON PREFERRED COMMON (7) PREFERRED
------ --------- ---------- ---------
<S> <C> <C> <C>
David S. Jeffries, Director
and Chief Financial Officer 1,780,000(2) 0 14% *
Deepak Shahane, Director and
Chief Executive Officer 646,650(3) 0 5% *
Dennis Kirshy, Director 400,000 0 3% *
John T. Losier, Director 0 0 * *
John Fryer, Marketing
Vice President 88,750(4) 0 * *
George Muckle, Sales
Vice President 55,500(5) 0 * *
Robert Pulley, Engineering
Director 39,000(6) 0 * *
InSight Capital Partners II,
L.P 0 664,200 14.7%(7) 45%
527 Madison Avenue
New York, New York 10022
InSight Capital Partners
(Cayman) II, L.P. 0 73,800 1.6%(7) 5%
527 Madison Avenue
New York, New York 10022
WI Software Investors LLC 0 738,000 16.3%(7) 50%
411 West Putnam Avenue
Greenwich, Connecticut 06830
Ethan F. Harris 2,460,000 0 19% *
56 Smoke Hill Ridge
Marshfield, Massachusetts 02050
</TABLE>
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<PAGE> 89
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT
BENEFICIAL OF
NAME OWNERSHIP (1) CLASS
---- ------------------------------------ ----------------------------
COMMON PREFERRED COMMON (7) PREFERRED
------ --------- ---------- ---------
<S> <C> <C> <C>
All Directors and Executive
Officers as a Group
(7 persons) 3,009,900 * 24% *
</TABLE>
-----------------
* Less than one percent
(1) Beneficial ownership is determined in accordance with rules of the SEC and
includes general voting power or investment power with respect to
securities. Shares of Harris & Jeffries common stock subject to options and
warrants currently exercisable or exercisable within sixty (60) days of July
31, 2000, are deemed outstanding for computing the percentage of the person
holding such options, but are not deemed outstanding for computing the
percentage of any other person. Except as otherwise specified below, the
persons named in the table above have sole voting and investment power with
respect to all shares of Harris & Jeffries common stock and preferred stock
shown as beneficially owned by them. Unless otherwise indicated, the address
of each of the beneficial owners identified is 888 Washington Street,
Dedham, Massachusetts 02026.
(2) Includes 890,000 shares of Harris & Jeffries common stock held by each of
The David S. Jeffries Trust - 1999 (David S. Jeffries, Trustee), and The
Celia M. Jeffries Trust - 1999 (Celia M. Jeffries, Trustee). Celia M.
Jeffries is Mr. Jeffries' wife. Included in these amounts are 569,600
shares of common stock which are subject to repurchase by Harris & Jeffries.
(3) Includes vested options to acquire 175,000 shares of common stock and
150,928 shares of common stock which are subject to repurchase by Harris &
Jeffries.
(4) Includes vested options to acquire 48,750 shares of common stock.
(5) Includes vested options to acquire 55,500 shares of common stock.
(6) Includes vested options to acquire 39,000 shares of common stock.
(7) Shares of preferred stock are convertible into shares of common stock, and
vote as if converted. The equivalent "as if converted to common" share
amounts related to the preferred stock have been included in computing the
percent of common class numbers in this table.
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<PAGE> 90
PRICE RANGE OF COMMON STOCK
Conexant common stock began trading on the Nasdaq National Market under the
symbol "CNXT" on January 4, 1999. The following table lists the high and low per
share sale prices for Conexant common stock as reported by the Nasdaq National
Market for the periods indicated. These per share sale prices reflect the
2-for-1 stock split effected in the form of a stock dividend on October 29,
1999.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal year ending September 30, 1999:
Second quarter.......................... $13 27/32 $ 6 27/32
Third quarter........................... $31 15/16 $13 3/16
Fourth quarter.......................... $41 17/32 $27 5/8
Fiscal year ending September 30, 2000:
First quarter........................... $76 3/16 $30 7/8
Second quarter.......................... $132 1/2 $53
Third quarter........................... $79 $31 1/4
Fourth quarter (through August 29, 2000) $57 1/16 $26 1/2
</TABLE>
On August 29, 2000 the last sale price of the Conexant common stock as
reported on the Nasdaq National Market was $[ ] per share. As of
July 28, 2000 there were approximately 51,000 holders of record of Conexant
common stock.
Since there has been no public market for Harris & Jeffries securities, there
is no information as to the market value of shares of Harris & Jeffries common
or preferred stock. As of July 31, 2000 there were 45 holders of record of
Harris & Jeffries common stock and 3 holders of record of Harris & Jeffries
preferred stock.
DIVIDEND POLICY
Neither Conexant nor Harris & Jeffries has ever paid or declared cash
dividends on the shares of its capital stock. Conexant does not anticipate
paying cash dividends on its common stock for the foreseeable future. In
addition, Conexant's existing bank credit facility limits its ability to declare
and pay dividends if there is or would be after giving effect to the dividend
payment any default or event of default under the bank credit facility.
DESCRIPTION OF CONEXANT CAPITAL STOCK
The following description of Conexant capital stock includes a summary of
certain provisions of Conexant's restated certificate of incorporation and
by-laws. This description is subject to the detailed provisions of, and is
qualified by reference to, Conexant's restated certificate of incorporation, as
amended, and Conexant's by-laws, copies of which have been filed as exhibits to
the registration statement of which this proxy statement-prospectus is a part.
Conexant is authorized to issue (1) 1,000,000,000 shares of common stock, of
which approximately 227,829,214 shares of common stock were outstanding as of
July 28, 2000 (2) 25,000,000 shares of preferred stock, without par value, of
which Conexant's board of directors has designated (a) 1,500,000 shares as
Series A Junior Participating Preferred Stock for issuance in connection with
the exercise of Conexant's preferred share purchase rights and (2) one share as
Series B Voting Preferred Stock issued in connection with the acquisition of
Philsar Semiconductor Inc. For a more detailed discussion of Conexant's
preferred share purchase rights and how they relate to Conexant's common stock,
see "--Conexant Rights Plan". The authorized shares of common stock and
preferred stock will be available for issuance without further action by
Conexant's shareowners, unless such action is required by applicable law or the
rules of any stock exchange or automated quotation system on which Conexant's
securities may be
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listed or traded. If the approval of Conexant's shareowners is not so required,
Conexant's board of directors may determine not to seek shareowner approval.
Certain of the provisions described under this section entitled "Description
of Conexant Capital Stock" could have the effect of discouraging transactions
that might lead to a change of control of Conexant.
Conexant's restated certificate of incorporation and by-laws:
- establish a classified board of directors, whereby Conexant's directors
are elected for staggered terms in office so that only one-third of its
directors stand for election in any one year;
- require shareowners to provide advance notice of any shareowner
nominations of directors or any proposal of new business to be
considered at any meeting of shareowners;
- require a supermajority vote to remove a director or to amend or repeal
certain provisions of Conexant's restated certificate of incorporation
or by-laws; and
- preclude shareowners from calling a special meeting of shareowners.
COMMON STOCK
Holders of common stock are entitled to such dividends as may be declared by
Conexant's board of directors out of funds legally available therefor. Dividends
may not be paid on common stock unless all accrued dividends on preferred stock,
if any, have been paid or set aside. In the event of liquidation, dissolution or
winding up of Conexant, the holders of common stock will be entitled to share
pro rata in the assets remaining after payment to creditors and after payment of
the liquidation preference plus any unpaid dividends to holders of any
outstanding preferred stock. See "Dividend Policy".
Each holder of common stock will be entitled to one vote for each such share
outstanding in such holder's name. No holder of common stock will be entitled to
cumulate votes in voting for directors. Conexant's certificate provides that,
unless otherwise determined by Conexant's board of directors, no holder of
common stock will have any right to purchase or subscribe for any stock of any
class which Conexant may issue or sell.
ChaseMellon Shareholder Services, L.L.C. is the transfer agent and registrar
for Conexant's common stock.
PREFERRED STOCK
Conexant's restated certificate of incorporation permits Conexant to issue up
to 25,000,000 shares of its preferred stock in one or more series and with
rights and preferences that may be fixed or designated by its board of directors
without any further action by Conexant shareowners. Conexant's board of
directors has designated (1) 1,500,000 shares of its preferred stock as Series A
Junior Participating Preferred Stock for issuance in connection with the
exercise of its preferred share purchase rights and (2) one share of its
preferred stock as Series B Voting Preferred Stock issued in connection with the
Philsar acquisition. The powers, preferences, rights and qualifications,
limitations and restrictions of the preferred stock of any other series will be
fixed by the certificate of designation relating to such series, which will
specify the terms of the preferred stock, including:
- the maximum number of shares in the series and the distinctive
designation;
- the terms on which dividends, if any, will be paid;
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- the terms on which the shares may be redeemed, if at all;
- the terms of any retirement or sinking fund for the purchase or
redemption of the shares of the series;
- the liquidation preference, if any;
- the terms and conditions, if any, on which the shares of the series
shall be convertible into, or exchangeable for, shares of any other
class or classes of capital stock;
- the restrictions on the issuance of shares of the same series or any
other class or series; and
- the voting rights, if any, of the shares of the series.
Although Conexant's board of directors has no intention at the present time
of doing so, it could issue a series of preferred stock that could, depending on
the terms of such series, impede the completion of a merger, tender offer or
other takeover attempt.
Series A Junior Participating Preferred Stock. For a description of the
Series A Junior Participating Preferred Stock, see "--Conexant Rights Plan".
Series B Voting Preferred Stock. Under the Voting and Exchange Trust
Agreement entered into in connection with the Philsar acquisition, Conexant
issued one share of Series B Voting Preferred Stock to CIBC Mellon Trust
Company, as trustee of the voting trust established thereunder, which is holding
the share in trust for the benefit of the holders of the exchangeable shares of
Philsar issued to Philsar's stockholders in connection with the acquisition. The
Series B preferred stock entitles the trustee to vote at meetings of the holders
of Conexant common stock. For each exchangeable share that is not held by
Conexant or one of its subsidiaries on the record date for any meeting of
holders of Conexant common stock, the trustee will have one vote for each such
exchangeable share at such meeting, which will be exercised only to the extent
that the trustee receives voting instructions from the registered holders of
exchangeable shares. The trustee is entitled to notice of any stockholder's
meeting in accordance with Conexant's by-laws.
The trustee, as the holder of the Series B preferred stock, is entitled to
receive such dividends and distributions in equal amounts per exchangeable
share, payable in cash or otherwise, as may be declared per share of Conexant's
common stock by Conexant's board of directors from time to time out of assets or
funds of Conexant legally available therefor to the holder of record as it
appears on the stock books on such record dates as are fixed by the board of
directors out of funds at the time legally available for the payment of
dividends. Such dividends will not be cumulative.
In the event of a liquidation, dissolution or winding up of Conexant, whether
voluntary or involuntary, the holder of Series B preferred stock is entitled to
receive out of the assets of Conexant, whether such assets are capital or
surplus of any nature, an amount equal to the sum of (1) the dividends declared
but not paid thereon to the date of the final distribution to such holder, and
(2) $100 per share and no more, before any payment shall be made or any assets
distributed to the holders of shares of Conexant common stock or any other class
or series of Conexant's capital stock ranking junior as to liquidation rights to
the Series B preferred stock.
The Series B preferred stock is not convertible into or exchangeable for any
other class or series of capital stock, or any other securities, of Conexant or
any other corporation.
The Series B preferred stock is not subject to redemption by Conexant until
such time as there are no exchangeable shares outstanding which are not owned by
Conexant or any of its direct or indirect
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subsidiaries. Thereafter, the share of Series B preferred stock may be redeemed
at any time by Conexant, out of funds legally available for a stock redemption,
for cash, at a price equal to the sum of $1.00 plus any declared and unpaid
dividends, upon giving 30 days' written notice to the holder of record of the
Series B preferred stock at the address of such holder set forth in the stock
books of Conexant. No sinking fund has been provided for the purchase or
redemption of Series B preferred stock.
At such time as (1) the Series B preferred stock is no longer entitled to
vote at a meeting of holders of Conexant common stock because there are no
exchangeable shares outstanding which are not owned by Conexant or any of its
direct or indirect subsidiaries, and (2) there is no share of stock, warrant,
option or other agreement, obligation or commitment of Philsar which by its
terms could require Philsar to issue any exchangeable shares to any person other
than Conexant or any of its direct or indirect subsidiaries, then the share of
Series B preferred stock will be retired and canceled promptly thereafter. Such
share will upon its cancellation, and upon the taking of any action required by
applicable law, become an authorized but unissued preferred share and may be
reissued as part of a new series of preferred shares to be created by resolution
or resolutions of Conexant's board of directors, subject to the conditions and
restrictions on issuance set forth in Conexant's certificate of incorporation.
The Series B preferred stock ranks pari passu with Conexant common stock as
to payment of dividends and prior to Conexant common stock and Conexant Series A
junior preferred stock as to distribution of assets upon liquidation to the
extent provided above.
CERTAIN PROVISIONS IN CONEXANT'S RESTATED CERTIFICATE OF INCORPORATION AND
BY-LAWS
Conexant's certificate and by-laws contain various provisions intended to (1)
promote the stability of Conexant's shareowner base and (2) render more
difficult certain unsolicited or hostile attempts to take Conexant over which
could disrupt Conexant, divert the attention of its directors, officers and
employees and adversely affect the independence and integrity of its business.
Pursuant to Conexant's certificate, the number of directors is fixed by
Conexant's board of directors. Other than directors elected by the holders of
any series of preferred stock or any other series or class of stock except
common stock, Conexant's directors are divided into three classes, each class to
consist as nearly as possible of one-third of the directors. Directors elected
by shareowners at an annual meeting of shareowners will be elected by a
plurality of all votes cast. Currently, the terms of office of the three classes
of directors expire, respectively, at Conexant's annual meetings in 2001, 2002
and 2003. The term of the successors of each such class of directors expires
three years from the year of election.
Conexant's restated certificate of incorporation contains a fair price
provision pursuant to which a Business Combination (as defined in Conexant's
restated certificate of incorporation) between Conexant or one of Conexant's
subsidiaries and an Interested Shareowner (as defined in Conexant's restated
certificate of incorporation) requires approval by the affirmative vote of the
holders of not less than 80 percent of the voting power of all of Conexant's
outstanding capital stock entitled to vote generally in the election of
directors, voting together as a single class, unless the Business Combination is
approved by at least two-thirds of the Continuing Directors (as defined in
Conexant's restated certificate of incorporation) or certain fair price criteria
and procedural requirements specified in the fair price provision are met. If
either the requisite approval of Conexant's board of directors or the fair price
criteria and procedural requirements were met, the Business Combination would be
subject to the voting requirements otherwise applicable under the Delaware
General Corporation Law, which for most types of Business Combinations currently
would be the affirmative vote of the holders of a majority of all of Conexant's
outstanding shares of stock entitled to vote thereon. Any amendment or repeal of
the fair price provision, or the adoption of provisions inconsistent therewith,
must be approved by the affirmative vote of the holders of not less than 80
percent of the voting power of all of Conexant's outstanding capital stock
entitled to vote generally in the election of directors, voting together as a
single class, unless such amendment, repeal or adoption were approved by at
least two-thirds of the Continuing Directors, in which case the provisions of
the Delaware General
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Corporation Law would require the affirmative vote of the holders of a majority
of the outstanding shares of Conexant's capital stock entitled to vote thereon.
Conexant's restated certificate of incorporation and by-laws provide that a
special meeting of shareowners may be called only by a resolution adopted by a
majority of the entire board of directors. Shareowners are not permitted to
call, or to require that the board of directors call, a special meeting of
shareowners. Moreover, the business permitted to be conducted at any special
meeting of shareowners is limited to the business brought before the meeting
pursuant to the notice of the meeting given by Conexant. In addition, Conexant's
certificate provides that any action taken by Conexant shareowners must be
effected at an annual or special meeting of shareowners and may not be taken by
written consent instead of a meeting. Conexant's by-laws establish an advance
notice procedure for shareowners to nominate candidates for election as
directors or to bring other business before meetings of Conexant shareowners.
Conexant's restated certificate of incorporation provides that the
affirmative vote of at least 80 percent of the voting power of all of its
outstanding capital stock entitled to vote generally in the election of
directors, voting together as a single class, would be required to:
- amend or repeal the provisions of Conexant's certificate with
respect to (a) the election of directors, (b) the right to call a
special shareowners' meeting or (c) the right to act by written
consent;
- adopt any provision inconsistent with such provisions; or
- amend or repeal the provisions of Conexant's restated certificate of
incorporation with respect to amendments to Conexant's restated
certificate of incorporation or by-laws.
In addition, Conexant's restated certificate of incorporation provides that
Conexant's board of directors may make, alter, amend and repeal Conexant's
by-laws and that the amendment or repeal by shareowners of any of Conexant's
by-laws would require the affirmative vote of at least 80 percent of the voting
power described above, voting together as a single class.
CONEXANT RIGHTS PLAN
Each outstanding share of Conexant common stock 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, at $300, subject to adjustment.
The description and terms of the preferred share purchase rights are set forth
in the rights agreement dated as of November 30, 1998, as amended as of December
9, 1999.
Until the earlier to occur of (1) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 20 percent or more of the
outstanding common stock or (2) 10 business days, or such later date as may be
determined by Conexant's board of directors prior to such time as any person or
group becomes an Acquiring Person, following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 20 percent or more of the outstanding common stock, preferred share
purchase rights will be attached to common stock and will be owned by the
registered owners of common stock.
The rights agreement provides that, until the preferred share purchase rights
are no longer attached to the common stock, or until the earlier redemption or
expiration of the preferred share purchase rights:
- the preferred share purchase rights will be transferred with and
only with common stock;
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- certificates representing common stock and statements in respect of
shares of common stock registered in book-entry or uncertificated
form will contain a notation incorporating the terms of the
preferred share purchase rights by reference; and
- the transfer of any shares of common stock will also constitute the
transfer of the associated preferred share purchase rights.
As soon as practicable following the date the preferred share purchase rights
are no longer attached to the common stock (the "Distribution Date"), separate
certificates evidencing preferred share purchase rights will be mailed to
holders of record of common stock as of the close of business on the date the
preferred share purchase rights are no longer attached to the common stock and
the separate certificates alone will evidence preferred share purchase rights.
In addition, the rights agreement provides that in connection with the
issuance or sale of Conexant common stock following the Distribution Date and
prior to the earlier of (1) the date the preferred share purchase rights are
redeemed and (2) the date the preferred share purchase rights expire, (a)
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 instead of the issuance thereof.
Preferred share purchase rights will not be exercisable until the
Distribution Date. Preferred share purchase rights will expire on December 31,
2008, unless this expiration date is extended or unless preferred share purchase
rights are earlier redeemed by Conexant, in each case, as described below.
The purchase price payable, and the number of shares of Series A junior
preferred stock or other securities or property issuable, upon exercise of the
preferred share purchase rights will be subject to adjustment from time to time
to prevent dilution upon the occurrence of the following events:
- in the event of a stock dividend on, or a subdivision, combination
or reclassification of, Series A junior preferred stock;
- upon the grant to holders of shares of Series A junior preferred
stock of certain rights or warrants to subscribe for or purchase
shares of Series A junior preferred stock at a price, or securities
convertible into shares of Series A junior preferred stock with a
conversion price, less than the then current market price of the
shares of Series A junior preferred stock; or
- upon the distribution to holders of shares of Series A junior
preferred stock of evidences of indebtedness or assets (excluding
regular periodic cash dividends or dividends payable in shares of
Series A junior preferred stock) or of subscription rights or
warrants (other than those referred to above).
The number of outstanding preferred share purchase rights and the number of
one two-hundredths of a share of Series A junior preferred stock issuable upon
exercise of each preferred share purchase right will also be subject to
adjustment in the event of a stock split of common
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stock or a stock dividend on common stock payable in common stock or
subdivisions, consolidations or combinations of common stock occurring, in any
such case, prior to the date the preferred share purchase rights are no longer
attached to the common stock.
Conexant cannot redeem shares of Series A junior preferred stock purchasable
upon exercise of preferred share purchase rights. Each share of Series A junior
preferred stock will be entitled to a minimum preferential quarterly dividend
payment of $1 per share but will be entitled to an aggregate dividend of 100
times the dividend declared per share of common stock whenever such dividend is
declared. In the event of liquidation, the holders of Series A junior preferred
stock will be entitled to a minimum preferential liquidation payment of $100 per
share but will be entitled to an aggregate payment of 100 times the payment made
per share of common stock. Each share of Series A junior preferred stock will
have 100 votes, voting together with common stock. In the event of any merger,
consolidation or other transaction in which shares of common stock are
exchanged, each share of Series A junior preferred stock will be entitled to
receive 100 times the amount received per share of common stock. These rights
will be protected by customary antidilution provisions.
Because of the nature of the Series A junior preferred stock's dividend,
liquidation and voting rights, the value of each one-hundredth interest in a
share of Series A junior preferred stock purchasable upon exercise of each
preferred share purchase right should approximate the value of one share of
common stock.
In the event that, at any time after a person has become an Acquiring Person,
Conexant is acquired in a merger or other business combination transaction or 50
percent or more of Conexant's consolidated assets or earning power is sold,
proper provision will be made so that each holder of a preferred share purchase
right will thereafter have the right to receive, upon the exercise thereof at
the then current exercise price of a preferred share purchase right, that number
of shares of common stock of the acquiring company which at the time of such
transaction will have a market value of two times the exercise price of a
preferred share purchase right. In the event that any person becomes an
Acquiring Person, proper provision shall be made so that each holder of a
preferred share purchase right, other than preferred share purchase rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise, instead of shares of Series
A junior preferred stock, that number of shares of common stock having a market
value of two times the exercise price of a preferred share purchase right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person, and prior to the acquisition by such person or
group of 50 percent or more of the outstanding shares of common stock,
Conexant's board of directors may exchange preferred share purchase rights
(other than preferred share purchase rights owned by such person or group, which
will have become void after such person became an Acquiring Person) for common
stock or Series A junior preferred stock, in whole or in part, at an exchange
ratio of one share of common stock, or two hundredths of a share of Series A
junior preferred stock (or of a share of another series of preferred stock
having equivalent rights, preferences and privileges), per preferred share
purchase right (subject to adjustment).
With certain exceptions, no adjustment in the purchase price will be required
until cumulative adjustments require an adjustment of at least one percent. No
fractional shares of Series A junior preferred stock will be issued, other than
fractions which are integral multiples of one two-hundredth of a share of Series
A junior preferred stock, which may, at Conexant's election, be evidenced by
depository receipts. Instead, an adjustment in cash will be made based on the
market price of Series A junior preferred stock on the last trading day prior to
the date of exercise.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20 percent or more of the
outstanding shares of common stock, Conexant's board of directors may redeem
preferred share purchase rights in whole, but not in part, at a price of $.01
per preferred share purchase right. The redemption of preferred share purchase
rights may be made effective at such time, on such basis and with such
conditions as Conexant's board of directors may determine, in its
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sole discretion. Immediately upon any redemption of preferred share purchase
rights, the right to exercise preferred share purchase rights will terminate and
the only right of the holders of preferred share purchase rights will be to
receive the redemption price.
The terms of preferred share purchase rights may be amended by Conexant's
board of directors without the consent of the holders of preferred share
purchase rights, including an amendment to decrease the threshold at which a
person becomes an Acquiring Person from 20 percent to not less than 10 percent,
except that from and after such time as any person becomes an Acquiring Person
no such amendment may adversely affect the interests of the holders of preferred
share purchase rights.
Until a preferred share purchase right is exercised, the holder thereof, as
such, will have no rights as a shareowner of Conexant, including, without
limitation, the right to vote or to receive dividends.
The foregoing summary of the material terms of preferred share purchase
rights is qualified by reference to the rights agreement, a copy of which is on
file with the SEC.
DESCRIPTION OF HARRIS & JEFFRIES CAPITAL STOCK
Harris & Jeffries is authorized to issue (1) 14,800,000 shares of common
stock, without par value, of which approximately 8,505,500 shares of common
stock were outstanding as of August 28, 2000 and (2) 1,650,000 shares of Series
A participating convertible preferred stock, without par value, of which
1,476,000 shares of preferred stock were outstanding as of August 28, 2000. If
the proposal referred to in item 2 of the notice of special meeting of
stockholders is approved by Harris & Jeffries stockholders, Harris & Jeffries
will be authorized to issue 16,280,000 shares of common stock.
COMMON STOCK
Holders of Harris & Jeffries common stock are entitled to such dividends as
may be declared by the Harris & Jeffries board of directors out of funds legally
available therefor and subject to any preferential dividend rights of any then
outstanding preferred stock. As dividends are declared, whether payable in cash,
in property or in securities of Harris & Jeffries, the holders of common stock
shall be entitled to share equally, share for share, in such dividends. Upon
dissolution, liquidation or winding up of Harris & Jeffries, holders of common
stock will be entitled to receive all distributable assets of Harris & Jeffries
available for distribution after payment of creditors and of any preferential
liquidation rights of any then outstanding preferred stock. See "Dividend
Policy".
Each holder of common stock will be entitled to one vote for each such share
outstanding in such holder's name.
PREFERRED STOCK
The powers, preferences and relative, participating, optional or other
special rights of the preferred stock include the following:
- Dividends. In the event a dividend is declared with respect to the
common stock, each share of preferred stock will be entitled to share
in dividends on a pro rata basis with each share of common stock as if
such share of preferred stock had been converted into common stock.
- Liquidation Rights. In the event of (1) any liquidation, dissolution or
winding up of Harris & Jeffries, (2) the merger or consolidation of
Harris & Jeffries and another corporation, as a result of which the
Harris & Jeffries stockholders hold, immediately prior to the merger or
consolidation, less than 50% of the outstanding capital stock of the
surviving or resulting
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corporation, (3) the sale of all or substantially all of the assets of
Harris & Jeffries or (4) the sale or exchange of over 50% of the
capital stock of Harris & Jeffries for cash or other assets or for
securities of another corporation, then the holders of each share of
preferred stock shall be entitled to be paid, before the common stock,
an amount equal to $4.00 per share, plus an amount equal to the amount
payable to holders of common stock as if each share of preferred stock
had been converted into common stock, up to a maximum of $14.00 per
share of preferred stock, at which point the holders of preferred stock
will simply share in any distribution of amounts payable to holders of
common stock upon automatic conversion. The preferred stock will not be
entitled to the $4.00 per share portion of the preference if item 5 is
approved by the stockholders at the special meeting.
- Conversion. Each share of preferred stock is convertible into, or
exchangeable for, common stock at the option of each holder of
preferred stock. Each share of preferred stock will automatically be
converted into common stock upon (1) the closing of an initial public
offering, (2) any liquidation, dissolution or winding up of Harris &
Jeffries, (3) the merger or consolidation of Harris & Jeffries and
another corporation, as a result of which the Harris & Jeffries
stockholders hold, immediately prior to the merger or consolidation,
less than 50% of the outstanding capital stock of the surviving or
resulting corporation, (4) the sale of all or substantially all of the
assets of Harris & Jeffries or (5) the sale or exchange of over 50% of
the capital stock of Harris & Jeffries for cash or other assets or for
securities of another corporation, where the holders of preferred stock
are paid more than $14.00 per share. Currently, the preferred stock
conversion ratio is 2.7884 shares of Harris & Jeffries common stock for
each share of Harris & Jeffries preferred stock. If the proposals in
items 2 and 3 are approved by the stockholders at the special meeting,
each share of Harris & Jeffries preferred stock will be convertible
into 3.02635 shares of Harris & Jeffries common stock.
- Stock Splits and Anti-Dilution. If Harris & Jeffries subdivides or
combines, or declares a stock dividend on, its outstanding shares of
common stock, the outstanding shares of preferred stock will be
proportionately subdivided or combined, or will receive a stock
dividend, on the same basis as the outstanding shares of common stock.
If required, the number of shares of common stock into which the
preferred stock is convertible will be appropriately adjusted.
- Voting Rights. The holders of preferred stock are entitled to vote on
all matters together with holders of common stock as if the preferred
stock had been converted into common stock, unless otherwise required
by law.
COMPARISON OF RIGHTS OF STOCKHOLDERS OF HARRIS & JEFFRIES AND CONEXANT
Upon completion of the merger, the stockholders of Harris & Jeffries will
become shareowners of Conexant. Harris & Jeffries is incorporated under the laws
of the Commonwealth of Massachusetts, and the rights of Harris & Jeffries
stockholders are currently governed by Chapter 156B of the Massachusetts General
Laws, which is referred to in this proxy statement-prospectus as the
Massachusetts Business Corporation Law. Conexant's restated certificate of
incorporation, by-laws and applicable provisions of the Delaware General
Corporation Law will govern your rights as a shareowner of Conexant. The
Conexant restated certificate of incorporation and by-laws differ in some
important respects from Harris & Jeffries' articles of organization and by-laws.
There are also differences between Massachusetts and Delaware law.
Set forth below is a summary describing material differences between the
rights of Conexant's shareowners and the rights of Harris & Jeffries'
stockholders.
While Conexant and Harris & Jeffries believe that this summary covers the
material differences between the two companies, this summary may not contain all
the information that is important to you. This summary is not intended to be a
complete discussion of the organizational documents of Conexant
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and Harris & Jeffries, and it is qualified in its entirety by reference to
applicable Delaware and Massachusetts law as well as to Conexant's and Harris &
Jeffries' respective organizational documents. You should carefully read this
summary and the documents that are referenced in this summary for a more
complete understanding of the differences between being a shareowner of Conexant
and a stockholder of Harris & Jeffries. Conexant's restated certificate of
incorporation by-laws are incorporated in this proxy statement-prospectus by
reference. Harris & Jeffries' amended and restated articles of organization and
by-laws will be sent to you upon request.
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<PAGE> 100
<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
----------------- --------
<S> <C> <C>
AUTHORIZED CAPITAL STOCK The total number of shares of The total number of shares of
authorized capital stock is authorized capital stock is
16,450,000 consisting of: 1,025,000,000 consisting of:
- 14,800,000 shares of - 1,000,000,000 shares of
common stock, no par value common stock, par value $1.00
per share, and per share, and
- 1,650,000 shares of - 25,000,000 shares of
Series A participating preferred stock, without par
preferred stock, no par value value.
per share.
The total number of authorized Of the 25,000,000 shares of
shares of common stock will preferred stock, 1,500,000 shares
be increased from 14,800,000 have been designated as Series A
to 16,280,000 if the proposal Junior Participating Preferred
referred to in item 2 is Stock. One share has been
approved by the stockholders designated as Series B Voting
at the special meeting. Preferred Stock.
BOARD OF DIRECTORS
SIZE OF THE BOARD OF DIRECTORS The by-laws provide for a total of The by-laws provide that subject to
five directors. the rights of the holders of any
series of preferred stock to elect
additional directors under specified
circumstances, the number of
directors shall be fixed exclusively
by a resolution adopted by a
majority of the board.
The current board consists of four The current board consists of five
directors. directors.
CLASSIFICATION OF THE BOARD OF DIRECTORS The board is divided into two The board is divided into three
classes: class A and class B. classes and the directors are
There is one class A director elected to three-year terms. There
elected by the holders of the are two class I, two class II and
majority of Series A participating one class III directors.
preferred stock and four class B
directors elected by the holders
of the Common Stock, one of whom
is subject to the approval of the
class A director. No director
need be a stockholder.
ELECTION OF DIRECTORS Directors are chosen by a Same.
plurality of the votes cast by the
stockholders at the annual
stockholders meeting where a
quorum is present.
RESIGNATION OF DIRECTORS Directors may resign at any time, Directors may resign at any time by
effective upon receipt unless giving written notice to the board of
</TABLE>
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<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
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<S> <C> <C>
otherwise specified, by giving directors, the president or the
written notice to the president, secretary.
the treasurer, the clerk or to a
meeting of the directors.
REMOVAL OF DIRECTORS The by-laws provide that a The certificate of incorporation
director or persons elected to provides that a director may be
fill vacancies in the board may be removed from office, but only for
removed with or without cause by cause, by the affirmative vote of
the majority of the outstanding 80% of the voting power of the then
capital stock entitled to vote outstanding capital stock entitled
generally in the election of to vote generally in the election of
directors, provided that the directors and subject to the rights
director elected by a particular of the holders of any series of
class of stockholders may be preferred stock.
removed only by the vote of the
holders of a majority of the
shares of such class. A director,
or person elected by directors to
fill vacancies in the board, may
be removed for cause by a majority
vote of the board of directors
then in office. Directors may be
removed for cause only after
reasonable notice and opportunity
to be heard before the body
proposing to remove them.
VACANCIES ON THE BOARD OF DIRECTORS Any vacancy including vacancies Vacancies in the number of
resulting from any increase in the directorships may be filled by a
authorized number of directors may majority vote of the remaining
be filled by the stockholders or, directors, though less than a quorum.
in the absence of stockholder
action, by the directors by vote
of a majority of the directors
then in office, provided, however,
that in the case of a class A
director, the vacancy shall be
filled by action of the holders of
Series A participating preferred
stock.
The directors have and may
exercise all their powers
notwithstanding the existence of
one or more vacancies in their
number.
QUORUM The by-laws provide that at any Same.
meeting of the directors a
majority of the directors then in
office will constitute a quorum.
VOTING REQUIREMENTS The by-laws provide that all The by-laws provide that all actions
actions of the board require the of the board require a vote by a
</TABLE>
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<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
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<S> <C> <C>
majority vote of class A and class majority of the members of the board
B directors voting together. In of directors voting together.
addition, the following actions
require the affirmative vote of a
majority of the class A directors:
- issuance of any equity
security
- material changes in
accounting methods or
policies or any change in
auditors
- the pledging of assets,
other than as collateral for
working capital in the normal
course of business
- material changes to the
articles of organization or
by-laws including changes to
authorize a new class of
securities.
SPECIAL MEETINGS OF THE BOARD OF Special meetings of the directors Special meetings of the board may be
DIRECTORS may be held at any time and at any held whenever called by the chairman
place designated in the call of of the board and shall be called by
the meeting, when called by a the chairman of the board or the
chief executive officer, the secretary at the written request of
president, the treasurer, or by three directors.
two or more directors on two days'
notice to each director.
STOCKHOLDERS MEETINGS
ANNUAL MEETINGS The annual meeting will be held on The annual meeting will be held on a
the first Monday of March in each date and at a time and place
calendar year, unless a different designated by the board.
time and place is specified by the
chief executive officer, the
president or the directors. The
hour and place shall be determined
by the directors or in the absence
of director action by the
president or chief executive
officer.
SPECIAL MEETINGS Special meetings may be called at Special meetings may be called at
any time by the president, the any time by the board, but only
chief executive officer, by the pursuant to a resolution adopted by
directors, or by written a majority of the whole board.
application of one or more Shareowners do not have the right to
stockholders who
</TABLE>
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<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
----------------- --------
<S> <C> <C>
hold at least ten call a special meeting.
percent in interest of the capital
stock entitled to vote.
ADVANCE NOTICE PROVISIONS Stockholders must receive notice Shareowners must receive notice of a
of a meeting (whether annual or meeting (whether annual or special)
special) at least seven days not less than ten days nor more than
before the date of the meeting. sixty days before the date of the
meeting.
Under Massachusetts law notice of
the time, place and purposes of a
special meeting to consider and
vote on a merger must be given to
each stockholder of record,
whether or not entitled to vote,
at least twenty days prior to the
date of the meeting.
QUORUM The holders of a majority of the The holders of a majority of the
issued and outstanding stock issued and outstanding stock
entitled to vote at the meeting; entitled to vote in person or
except that if two or more classes represented by proxy will constitute
or series of stock are entitled to a quorum.
vote as a separate classes or
series, then in the case of each
class or series a quorum shall
consist of a majority in interest
of all stock of that class or
series issued and outstanding
VOTING RIGHTS The by-laws provide that, subject The by-laws provide that, subject to
to the laws of Massachusetts and the laws of Delaware and the
the articles or organization, each certificate of incorporation, each
holder of common stock will be holder of common stock will be
entitled to one vote per share on entitled to one vote per share on
all matters to be voted on by the all matters to be voted on by the
stockholders. The corporation shareowners.
will not directly or indirectly
vote any share of its own stock.
The articles of organization The certificate of incorporation
provide that, subject to the provides that, subject to the
by-laws and the laws of by-laws and the laws of Delaware,
Massachusetts, each share of each share of Series A preferred
Series A participating preferred stock is entitled to 100 votes on
stock is entitled to vote on all all matters submitted to a
matters submitted to a stockholder shareowner vote. The holders of
vote on an as if converted basis. Series A preferred stock, the
Currently, that conversion ratio holders of any other preferred stock
is 2.7884 shares of Harris & designation and the holders of
Jeffries common stock for each common stock shall vote together as
share of Harris & Jeffries one class on all matters submitted
preferred stock. If the proposals to a shareowner vote.
in items 2 and 3 are approved by
the stockholders The Series B preferred stock entities
</TABLE>
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<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
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<S> <C> <C>
at the special meeting, each share the holder to vote at meetings
of Harris & Jeffries preferred of the holders of Conexant
stock will be convertible into common stock. For each Philsar
3.02635 shares of Harris & exchangeable share that is not held
Jeffries common stock. by Conexant or one of its
subsidiaries on the record date for
any meeting of holders of Conexant
The holders of Series A common stock, the holder of Series B
participating preferred stock, the preferred stock will have one vote
holders of any other preferred for each such exchangeable share at
stock designation and the holders such meeting, which will be
of common stock shall vote exercised only to the extent that
together as one class on all the trustee receives voting
matters submitted to a stockholder instructions from the registered
vote. holders of exchangeable shares.
In the event of a merger,
Massachusetts law provides that
two-thirds of the shares of each
class of stock of each
corporation, or, if the articles
of organization provide, a lesser
proportion but not less than a
majority of each class of stock of
each corporation, are necessary
for the approval a merger. If any
merger agreement would adversely
affect the rights of any class of
stock of either corporation, the
vote in the proportion provided
for in this section of the shares
of such class then outstanding,
voting separately, shall also be
necessary to authorize the merger.
All matters brought before the All matters will be decided by a
meeting of stockholders will be majority vote, a quorum being
decided by a majority vote, a present. However, matters regarding
quorum being present. a business combination involving a
transaction between Conexant and an
interested stockholder or an
affiliate or associate of an
interested stockholder require at
least an 80% affirmative vote,
unless the business combination is
approved by at least two-thirds of
the continuing directors or the
business combination meets certain
price and procedure requirements.
Matters regarding a business
combination with an interested
stockholder pursuant to Section 203
of the Delaware General Corporation
Law generally require at least a 66
2/3%
</TABLE>
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<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
----------------- --------
<S> <C> <C>
affirmative vote.
Votes can be cast in person or by Votes can be cast in person or by
proxy, but no proxy will be voted proxy, but no proxy will be voted on
on if dated more than six months or after three years from its date,
before the date of the meeting. unless the proxy provides for a
longer period.
RECORD DATE Under Massachusetts law regarding Conexant's by-laws provide that for
the record date for determining the purpose of determining the
stockholders rights, the directors shareowners entitled to notice of or
may fix in advance a time not more to vote at any meeting of
than sixty days before the date of shareowners or any adjournment
any meeting of the stockholders or thereof, the board may fix, in
the date for the payment of any advance, a record date, which must
dividend or the making of any not be more than sixty nor less than
distribution to stockholders or ten days before the date of such
the last day on which the consent meeting. If no record date is fixed
or dissent of stockholders may be the record date for determining
effectively expressed for any shareowners entitled to notice of or
purposes, unless a shorter period to vote at a meeting of shareowners
is provided in the articles of is the close of business on the day
organization or the by-laws, and next preceding the day on which
only stockholders of record on notice is given, or, if notice is
such record date shall have such waived, at the close of business on
right, notwithstanding any the day next preceding the day on
transfer of stock on the books of which the meeting is held. A
the corporation after the record determination of shareowners of
date; or without fixing such record entitled to notice of or to
record date the directors may for vote at a meeting of shareowners
any of such purposes close the applies to any adjournment of the
transfer books for all or any part meeting, but the board may fix a new
of such period. record date for the adjourned
meeting.
ACTION BY CONSENT OF STOCKHOLDERS Any action to be taken by the The certificate of incorporation
stockholders may be taken without provides that any action required or
a meeting, if all the stockholders permitted to be taken by
entitled to vote on the matter stockholders shall be taken only at
consent to the action by a writing an annual or special meeting and not
filed with the records of the by consent in writing.
meeting of stockholders.
INSPECTION RIGHTS Under Massachusetts law, a Delaware law entitles any
corporation's stockholders are stockholder of record of a
entitled to inspect and copy its corporation, in person or by agent,
charter, by-laws, records of upon written demand under oath
meeting of stockholders and stating the inspection's purpose, to
incorporators and stock and inspect during usual business hours,
transfer records. These documents for any proper purpose, the
must be kept either at the corporation's stock ledger, a list
corporation's principal office, of its stockholders and its other
the transfer agent's office or at books and records, and to make
the office of the corporation's copies or extracts therefrom. A
clerk or proper purpose
</TABLE>
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<PAGE> 106
<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
----------------- --------
<S> <C> <C>
resident agent. If access to these means a purpose reasonably related to
documents is refused, the the person's interest as a stockholder.
corporation will be liable to the
requesting stockholder for any The by-laws provide that the
actual damages which result from secretary will prepare and make a
the refusal. However, the complete list of the shareowners
corporation is not obligated to entitled to vote at a shareowners'
produce the documents if the meeting at least ten days before
inspection is being sought to such meeting. The shareowner list
secure a list of stockholders or will be open to the examination of
other information to be sold or shareowners for a period of at least
used for a purpose unrelated to ten days prior to the meeting for
the requesting person's interest purposes germane to the meeting as
as a stockholder. long as the examination is conducted.
- during ordinary business
hours and
- either at a place within
the city where the meeting is
to be held or at the place
where the meeting is held.
The shareowner list will be produced
and kept at the place of, and for
the duration of, the meeting, for
inspection by the shareowners
present at the meeting.
AMENDMENTS TO ORGANIZATIONAL DOCUMENTS
CERTIFICATE OF INCORPORATION Massachusetts law provides that The Delaware General Corporation Law
the articles of organization may generally requires a vote of the
be amended by a vote of two-thirds corporation's board of directors
of each class of stock outstanding followed by the affirmative vote of
and entitled to vote, or if the the holders of a majority of the
articles or organization so outstanding stock of each class
provide, by a vote of a lesser entitled to vote for any amendment
proportion but not less than a to the certificate of
majority of each class of stock incorporation. If an amendment
outstanding and entitled to vote, alters the powers, preferences or
except that such amendment must special rights of a particular class
have been eligible for inclusion or series of stock so as to affect
in, or any provision deleted could them adversely, that class or series
have been omitted from, the generally has the power to vote as a
original articles of organization. class notwithstanding the absence of
any specifically enumerated power in
Massachusetts law further states the certificate of incorporation.
that only a majority vote of
</TABLE>
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<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
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stockholders entitled to vote is Conexant's certificate of
required for a corporation to incorporation provides that
effect any of the following in its provisions of the certificate may be
articles: amended, altered or repealed by the
approval of a majority of the
- an increase or a outstanding voting stock, except
reduction of its capital that (a) the amendment or repeal of
stock of any class authorized articles seventh, tenth and twelfth
of the certificate require the
- a change of the par value affirmative vote of the at least 80%
of its authorized shares with of the voting power and (b) the
par value or any class thereof certificate may not be amended to
alter or change the power and rights
- a change of its of the Series A preferred stock
authorized shares with par without the affirmative vote of the
value or any class thereof holders of at least two-thirds of
into any number of shares the outstanding shares of Series A
without par value, or the preferred stock, voting together as
exchange thereof pro rata for a single class.
any number of shares without
par value
- change of its authorized
shares without par value or
any class thereof into a
greater or lesser number of
shares without par value, or
the exchange thereof pro rata
for a greater or lesser
number of shares without par
value
- a change of its
authorized shares with par
value or any class thereof
into a greater or lesser
number of shares with par
value, or the exchange
thereof pro rata for a
greater or lesser number of
shares with par value
- a change of its
authorized shares without par
value or any class thereof
into any number of shares
with par value, or the
exchange thereof pro rata for
any number of shares with par
value or a change of its
corporate name.
The articles of organization are
silent as to amendment.
BY-LAWS The by-laws may be altered, The board is expressly authorized to
amended or repealed by the make, alter, amend and repeal the
directors, except with respect to by-laws, subject to the power of the
</TABLE>
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<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
----------------- --------
<S> <C> <C>
Sections 9 and 10 or any other stockholders, who may also amend the
provision which by law, the by-laws by an affirmative note of at
articles of organization, or the least 80% of the outstanding voting
by-laws require action by the stock.
stockholders, in which case the
stockholders may amend such
by-laws. Notice of the substance
of the changes made by directors
is to be given to stockholders no
later than the time of giving the
notice of the next stockholders
meeting following the amendment or
repeal.
DIVIDENDS AND OTHER DISTRIBUTIONS The articles of organization The certificate of incorporation
provide that holders of common provides that full dividends will be
stock are entitled to receive paid to all outstanding preferred
dividends payable either in cash, stock for all past and current
in property or in shares of dividend periods before dividends
capital stock, as determined by are paid on the common stock.
the board of directors and subject Holders of common stock are entitled
to the powers and preferences of to receive dividends and
any preferred stock. distributions in equal amounts per
share, payable in cash or otherwise,
as may be declared by the board.
The articles of organization Holders of Series A preferred stock
provide that the holders of Series are entitled to receive quarterly
A preferred stock are entitled to dividends payable in cash on the
share in a dividend on a pro-rata second Monday of March, June,
basis with each share of common September and December in an amount
stock as if each share of Series A per share equal to the greater of
preferred had been converted to (a) $1 or (b) 100 times the
shares of common stock. aggregate per share amount of all
cash dividends or (c) 100 times the
aggregate per share amount of all
non-cash dividends or other
dividends other than dividends
payable in common stock. If
Conexant declares a dividend payable
on the common stock, then the amount
to which holders of shares of Series
A preferred stock were entitled to
receive immediately before such an
event shall be adjusted by
multiplying such amount by a
fraction, the numerator of which is
the number of shares of common stock
outstanding immediately after such
event and the denominator of which
is the number of shares of common
stock that were outstanding
immediately prior to
</TABLE>
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<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
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such event.
Upon liquidation, dissolution or
winding up of Conexant, no
distribution shall be made to
stockholders of common stock and
other shares of stock ranking junior
to the Series A preferred stock
until the Series A preferred
stockholders have received $100 per
share plus an amount equal to 100
times the aggregate amount to be
distributed per share to the holders
of common stock.
The holder of the Series B preferred
stock is entitled to receive such
dividends and distributions in equal
amounts per exchangeable share,
payable in cash or otherwise, as may
be declared per share of Conexant's
common stock by Conexant's board of
directors from time to time out of
assets or funds of Conexant legally
available therefor to the holder of
record as it appears on the stock
books on such record dates as are
fixed by the board of directors out
of funds at the time legally
available for the payment of
dividends. Such dividends will not
be cumulative.
In the event of a liquidation,
dissolution or winding up of
Conexant, whether voluntary or
involuntary, the holder of Series B
preferred stock is entitled to
receive out of the assets of
Conexant, whether such assets are
capital or surplus of any nature, an
amount equal to the sum of (1) the
dividends declared but not paid
thereon to the date of the final
distribution to such holder, and (2)
$100 per share, and no more, before
any payment shall be made or any
assets distributed to the holders of
shares of Conexant common stock or
any other class or series of
Conexant's capital stock ranking
junior as to liquidation rights to
the Series B preferred stock.
</TABLE>
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<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
----------------- --------
<S> <C> <C>
Under Massachusetts law, Delaware law permits a corporation
corporations generally are to declare and pay dividends out of
permitted to pay dividend as long surplus or, if there is no surplus,
as the action is not taken when out of the net profits for the
the corporation is insolvent, does fiscal year in which the dividend is
not render the corporation declared and/or for the preceding
insolvent and does not violate the fiscal year as long as the amount of
corporation's articles of capital of the corporation following
organization. the declaration and payment of the
dividend is not less than the
aggregate amount of the capital
represented by the issued and
outstanding stock of all classes
having a preference upon the
distribution of assets.
EXCULPATION AND INDEMNIFICATION
EXCULPATION Massachusetts law allows a Conexant's certificate of
corporation to include in its incorporation, in accordance with
articles of organization a Delaware law, provides that no
provision that limits or director will be personally liable
eliminates the personal liability to Conexant or its stockholders for
of directors to the corporation monetary damages for breach of his
and its stockholders for monetary or her fiduciary duty, except for
damages for breach of fiduciary liability: for a breach of duty of
duty as a director. Massachusetts loyalty to Conexant and its
law does not, however, permit a stockholders, for acts or omissions
corporation to limit or eliminate not in good faith or which involve
the personal liability of a intentional misconduct, or, for a
director for: knowing violation of law pursuant to
Section 174 of the Delaware General
- any breach of the Corporation Law, which governs the
director's duty of loyalty to liability of directors for unlawful
the corporation or its payment of dividends or unlawful
stockholders, stock purchases or redemptions, or
for transactions from which the
- any act of omissions not director derived improper personal
in good faith or which benefit.
involve intentional
misconduct or a knowing
violation of law,
- payment of dividends or
stock repurchase or
redemption, except a
distribution of stock of the
corporation, in violation of
the corporation's articles of
organization
- any loans to any officer
or director of the
corporation.
</TABLE>
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<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
----------------- --------
<S> <C> <C>
The Harris & Jeffries articles of
organization are silent as to
limitations on director's
liability.
INDEMNIFICATION The articles of organization Conexant will indemnify its
provide that Harris & Jeffries directors, officers, employees and
will indemnify its directors, agents against expenses, judgments,
officers, agents, and, to the fines and amounts paid in settlement.
extent authorized by directors,
employees against all liabilities,
expenses and attorneys' fees,
judgments, fines and amounts paid
in settlement.
Expenses, including attorneys' Expenses, including attorneys' fees,
fees, incurred in defending an incurred in defending an action will
action will be paid by the be paid by the corporation in
corporation in advance of the advance of the final disposition of
final disposition of such action, such action, promptly after the
suit or proceeding. corporation receives a request
therefor. The claimant must make an
undertaking to repay such amount if
it is ultimately determined that the
claimant is not entitled to be
indemnified by the corporation.
The right to indemnification Same.
continues to persons who have
ceased to be directors, officers,
employees or agents and inures to
the benefit of their heirs,
executors and administrators.
In connection with any compromise A majority of disinterested
or settlement it must first directors will determine if
approved by: indemnification is proper where the
claimant is a present or former
- a disinterested majority director or officer. If there are
of the directors then in no disinterested directors or if the
office, or disinterested directors choose, an
independent counsel or a majority of
- by the holders of a the shareowners will make such
majority of the outstanding determination. If the claimant
stock entitled to vote for seeking indemnification is not a
directors, voting as a single present or former director, then the
class, exclusive of any stock chief executive officer or other
owned by any interested officer designated by the board will
director or officer, upon determine if indemnification is
receipt of an undertaking by proper.
the person indemnified to
repay such amount if they
shall be adjudicated to be
not entitled to
indemnification.
An "interested" director is one
</TABLE>
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<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
----------------- --------
<S> <C> <C>
against whom the proceedings in
question or another proceeding on
the same or similar grounds is
then pending.
If a change of control has occurred,
the claimant may select independent
counsel or, in certain cases may
request that the board or a
designated officer determine if
indemnification is proper.
If no change of control has occurred
or if a change of control has
occurred and the claimant has
requested the board to determine
indemnification, then the claimant
shall be conclusively presumed to be
entitled to indemnification so long
as the claimant is not a present or
former director or officer, the
authorized officer has not made a
determination regarding the
indemnification within 60 days of
receipt of the claim by the
corporation and the claimant has not
misstated or omitted any material
facts in his claim. If the claimant
is a present or former director or
officer, then the claimant shall be
conclusively presumed to be entitled
to indemnification if 15 days
following the next board meeting the
board has not resolved to submit the
determination to independent counsel
or the stockholders and 60 days
following receipt by Conexant of the
claim the majority of disinterested
directors has not made a
determination. If such claim is
submitted to the stockholders for
determination and the stockholder
meeting does not take place, then
the claimant is presumed to be
entitled to indemnification.
Delaware law requires
indemnification when the individual
being indemnified has successfully
defended the action on the merits or
otherwise.
Massachusetts law permits Under Delaware law a corporation has
indemnification of directors, the power to indemnify any
</TABLE>
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<PAGE> 113
<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
----------------- --------
<S> <C> <C>
officers, employees and agents of person who was or is a party or is
a corporation to the extent threatened to be made a party to any
authorized in the corporation's threatened, pending or completed
articles of organization or its action, suit or proceeding, whether
by-laws or as set forth in a vote civil, criminal, administrative or
of stockholders, except that no investigative (other than an action
indemnification can be provided by or in the right of the
for any person for any matter as corporation) by reason of the fact
to which he or she shall have been that the person is or was a
adjudicated not to have acted in director, officer, employee or agent
good faith in the reasonable of the corporation, or is or was
belief that his or her action was serving at the request of the
in the best interests of the corporation as a director, officer,
corporation or, to the extent that employee or agent of another
such matter relates to service corporation, partnership, joint
with respect to any employee venture, trust or other enterprise,
benefit plan, in the best against expenses (including
interests of the participants or attorneys' fees), judgments, fines
beneficiaries of such benefit and amounts paid in settlement
plan. Indemnification permitted by actually and reasonably incurred by
statute does not limit any rights the person in connection with such
of indemnification existing action, suit or proceeding if the
independently of the statute. person acted in good faith and in a
manner the person reasonably
believed to be in or not opposed to
the best interests of the
corporation, and, with respect to
any criminal action or proceeding,
had no reasonable cause to believe
the person's conduct was unlawful.
However, no indemnification can be
made in respect of any claim, issue
or matter as to which such person
shall have been adjudged to be
liable to the corporation unless and
only to the extent that the Delaware
Court of Chancery or the court in
which such action or suit was
brought determines upon application
that, despite the adjudication of
liability but in view of all the
circumstances of the case, the
person is fairly and reasonably
entitled to indemnity for such
expenses which the Court of Chancery
or other court shall deem proper.
APPRAISAL RIGHTS OR DISSENTERS' RIGHTS Under Massachusetts law, a Under Delaware law, the rights of
stockholder may, before the taking dissenting stockholders to obtain
of the vote on a merger agreement, the fair value of their shares,
file with the company a written which are referred to as appraisal
objection to the proposed merger rights, may be available in
stating that the stockholder connection with a statutory merger
intends to demand payment for its or consolidation in certain specific
shares situations. Appraisal
</TABLE>
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<PAGE> 114
<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
----------------- --------
<S> <C> <C>
if the merger is consummated. rights are not available to a corporation's
If the shares are not voted in stockholders under Delaware law when
favor of the merger, the corporation is to be the
the stockholder may have the right surviving corporation and no vote of
to demand in writing from the its stockholders is required to
surviving corporation, within approve the merger.
twenty days after the date of
mailing to the stockholder of In addition, unless otherwise
notice in writing that the merger provided in the certificate of
has been consummated, payment for incorporation, no appraisal rights
its shares and an appraisal for are available under Delaware law to
the value thereof. holders of shares of any class of
stock which is either (a) listed on
a national securities exchange or
designated as a national market
system security on an interdealer
quotation system by the NASD or (b)
held of record by more than 2,000
stockholders, unless these
stockholders are required by the
terms of the merger to accept
anything other than:
- shares of stock of the
surviving corporation;
- shares of stock of another
corporation which, as of the
effective time of the merger or
consolidation, are of the kind
described in clauses (a) and
(b) above; of cash instead of
fractional shares of such
stocks; or
- any combination of the
above three bullets.
Appraisal rights are not available
under Delaware law in the event of
the sale of all or substantially all
of a corporation's assets or the
adoption of an amendment to its
certificate of incorporation, unless
such rights are granted in the
corporation's certificate of
incorporation.
The certificates of incorporation
does not grant these rights.
Conexant entered into a Rights
STOCKHOLDER RIGHTS PLAN None. Agreement, dated as of November 30,
1998, as amended,
</TABLE>
103
<PAGE> 115
<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
----------------- --------
<S> <C> <C>
pursuant to which
it has issued rights to purchase
preferred stock. See "Description
of Conexant Capital Stock" starting
on page 79.
OWNERSHIP LIMITATIONS Neither the articles of Same.
organization nor the by-laws
imposes limitations on the
ownership of capital stock.
BUSINESS COMBINATIONS WITH INTERESTED The Massachusetts Business The certificate of incorporation
STOCKHOLDERS Combination statute provides that, states that Conexant will be
if a person acquires 5% or more of governed by Section 203 of the
the outstanding voting stock of a Delaware General Corporation Law.
Massachusetts corporation without
the approval of its board of Under Delaware law a business
directors, that person will become combination involving a transaction
an "interested stockholder" and between Conexant and an interested
she may not engage in transactions stockholder or an affiliate of the
with the corporation for three interested stockholder requires the
years unless: affirmative vote of the holders of
at least 66 2/3% of the outstanding
- the board of directors shares of capital stock, which is
approves the acquisition of not owned by the interested
stock or the transaction stockholder.
prior to the time that the
person became an interested - In addition, a business
stockholder; combination is defined in the
certificate of incorporation to
- the interested include the following
stockholder acquires 90% of transactions between Conexant
the outstanding voting stock or any subsidiary and an
of the company, excluding affiliate, associate or
voting stock owned by interested stockholder: a
directors who are also merger or consolidation; a
officers and employee stock sale, lease, exchange,
plans, in one transaction; mortgage, pledge, transfer or
or, other disposition of any assets
or securities of Conexant, or
- the transaction is of a subsidiary having an
approved by the board and by aggregate fair market value of
two-thirds of the at least $25,000,000; the
outstanding voting stock not adoption of a plan or proposal
owned by the interested for the liquidation or
stockholder. dissolution of Conexant
proposed by an interested
This Massachusetts statute is stockholder or an affiliate or
inapplicable to this transaction, an associate of an interested
however, because Harris & Jeffries stockholder; a reclassification
has fewer that two hundred of securities, recapitalization
stockholders of record. of Conexant or any merger or
consolidation of Conexant with
its subsidiaries that has the
effect of increasing the
proportionate ownership
interest
</TABLE>
104
<PAGE> 116
<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
----------------- --------
<S> <C> <C>
of an interested stockholder or
an affiliate or an associate of
an interested stockholder; or any
agreement, contract, arrangement
or other understanding providing
for any one or more of the
actions specified above. A
business combination requires the
affirmative vote of the holders
of at least 80% of the
outstanding shares of the voting
stock. This 80% vote is not
applicable to business
combinations where such
combination is approved by at
least two thirds of the directors
who are not affiliates,
associates or representatives of
an interested stockholder nor
were members of the board prior
to the time the interested
stockholder became an interested
stockholder. This 80% vote is
also not applicable to business
combinations where the aggregate
amount of the consideration to be
received per share by holders of
common stock as a result of the
business combination is at least
equal to the highest of the
following: the highest share
price paid by the interested
stockholder within the two-year
period prior to the business
combination, the fair market
value per share of company common
stock on the date on which the
interested stockholder became an
interested stockholder, and the
fair market value per share of
company common stock on the date
on which the business combination
is publicly announced. And the
consideration to be received by
holders of a particular class or
series of outstanding stock shall
be in the form as paid by the
interested stockholder in
becoming an interested
stockholder, the interested
stockholder has not become the
</TABLE>
105
<PAGE> 117
<TABLE>
<CAPTION>
HARRIS & JEFFRIES CONEXANT
----------------- --------
<S> <C> <C>
beneficial owner of additional
shares except as part of the
transaction that resulted in
the interested stockholder
becoming an interested
stockholder. The interested
stockholder, after becoming an
interested stockholder, has not
received the benefit of any
loans, advances, guarantees,
pledges or other financial
assistance or any tax credit or
tax advantage from Conexant, a
proxy statement, describing the
business combination and
compliant with the securities
laws must be sent to all
stockholders, and the
interested stockholder shall
not have made any material
change in Conexant's capital
structure without approval of
at least two thirds of the
continuing directors.
</TABLE>
106
<PAGE> 118
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this proxy statement-prospectus by reference from the
Conexant Systems, Inc. Annual Report on Form 10-K for the year ended September
30, 1999 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference, and have been
so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of Maker Communications, Inc.
incorporated by reference in this proxy statement-prospectus have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are incorporated herein in reliance upon the
authority of said firm as experts in giving said reports.
The financial statements of Harris & Jeffries, Inc. at December 31, 1999 and
1998, and for each of the three years in the period ended December 31, 1999,
appearing in this prospectus and registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
proxy statement-prospectus will be passed upon for Conexant by Dennis E.
O'Reilly, Senior Vice President, General Counsel and Secretary of Conexant.
107
<PAGE> 119
HOW TO OBTAIN MORE INFORMATION
In accordance with the Exchange Act, Conexant files reports, proxy and
information statements and other information with the Securities and Exchange
Commission. You may read and copy these reports, proxy and information
statements and other information that Conexant files at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the public reference room by calling the SEC at
1-800-SEC-0330. The SEC also maintains an internet site that contains reports,
proxy and information statements and other information regarding registrants
(including Conexant) that file electronically with the SEC (http://www.sec.gov).
Conexant's internet site is http://www.conexant.com.
You also may inspect reports, proxy statements and other information about
Conexant at the offices of the Nasdaq Stock Market, Inc. National Market System,
1735 K Street, N.W., Washington, D.C. 20006-1500.
Conexant has filed a Registration Statement on Form S-4 to register with the
SEC the Conexant common stock to be issued to Harris & Jeffries stockholders in
the merger. This document is part of that registration statement and constitutes
a prospectus of Conexant in addition to being a proxy statement to the Harris &
Jeffries stockholders.
The SEC's rules allow Conexant to "incorporate by reference" into this
proxy statement-prospectus the information Conexant files with the SEC. This
means that Conexant can disclose important information to you by referring you
to those filings. This information Conexant incorporates by reference is
considered a part of this proxy statement-prospectus, and subsequent information
that Conexant files with the SEC will automatically update and supersede this
information. Any such information so modified or superseded will not constitute
a part of this proxy statement-prospectus, except as so modified or superseded.
Conexant incorporates by reference the following documents and any future
filings Conexant makes with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act until the offering of securities by this proxy
statement-prospectus is completed:
- Conexant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1999 (including the portions of Conexant's Proxy
Statement for its 2000 Annual Meeting of Shareowners that are
incorporated therein by reference);
- Conexant's Quarterly Report on Form 10-Q for the quarter ended December
31, 1999;
- Conexant's Quarterly Report on Form 10-Q for the quarter ended March
31, 2000;
- Conexant's Quarterly Report on Form 10-Q for the quarter ended June 30,
2000;
- Conexant's Current Report on Form 8-K dated January 4, 2000, as amended
by Conexant's Current Report on Form 8-K/A dated January 11, 2000;
- Conexant's Current Report on Form 8-K dated February 16, 2000;
- Conexant's Current Report on Form 8-K dated March 10, 2000;
- Conexant's Current Report on Form 8-K dated April 3, 2000;
- Conexant's Current Report on Form 8-K dated April 12, 2000;
108
<PAGE> 120
- Conexant's Current Report on Form 8-K dated May 17, 2000;
- Conexant's Current Report on Form 8-K dated May 23, 2000;
- Conexant's Current Report on Form 8-K dated May 30, 2000;
- Conexant's Current Report on Form 8-K dated June 13, 2000;
- Conexant's Current Report on Form 8-K dated June 27, 2000;
- Conexant's Current Report on Form 8-K dated June 29, 2000;
- Conexant's Current Report on Form 8-K dated July 19, 2000;
- Conexant's Current Report on Form 8-K dated August 8, 2000; and
- The descriptions of Conexant common stock and the preferred share
purchase rights contained on pages 78 and 85-87 in Conexant's
Registration Statement on Form 10, as amended (File Number 000-24923),
dated December 1, 1998, as amended by Part II, Item 2 of Conexant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1999.
All information contained in this proxy statement-prospectus relating to
Conexant has been supplied by Conexant, and all information relating to Harris &
Jeffries has been supplied by Harris & Jeffries.
If you are a stockholder, you can obtain any of the documents incorporated by
reference through Conexant or the SEC. Documents incorporated by reference are
available from Conexant without charge, excluding all exhibits. You may obtain
documents incorporated by reference in this proxy statement-prospectus by
requesting them by telephone or in writing from the following address:
Conexant Systems, Inc.
Attention: Investor Relations
4311 Jamboree Road
Newport Beach, California 92660-3095
Telephone: (949) 483-CNXT (2698)
Harris & Jeffries is a privately held company that is not subject to the
reporting requirements of the Exchange Act and therefore does not incorporate by
reference information in this proxy statement-prospectus, unless this
information appears in an appendix to this proxy statement-prospectus.
YOU SHOULD RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROXY STATEMENT-PROSPECTUS TO VOTE ON THE MERGER AGREEMENT AND MERGER AND
THE OTHER PROPOSALS TO BE VOTED ON AT THE SPECIAL MEETING. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE HEREOF. THIS PROXY STATEMENT-PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES,
OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION.
109
<PAGE> 121
Appendix A-1
================================================================================
AGREEMENT
AND PLAN OF MERGER
By and Among
CONEXANT SYSTEMS, INC.,
H&J ACQUISITION SUB, INC.
and
HARRIS & JEFFRIES, INC.
Dated as of July 19, 2000
================================================================================
<PAGE> 122
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I DEFINITIONS
Section 1.01 Defined Terms ................................................. A-1-1
ARTICLE II THE MERGER
Section 2.01 The Merger .................................................... A-1-21
Section 2.02 Closing ....................................................... A-1-22
Section 2.03 Filing of Articles of Merger .................................. A-1-22
Section 2.04 Certain Effects of the Merger ................................. A-1-23
Section 2.05 Effect on Company Securities .................................. A-1-23
Section 2.06 Exchange of Certificates ...................................... A-1-25
Section 2.07 Fractional Shares ............................................. A-1-27
Section 2.08 Payment of Sellers' Expenses .................................. A-1-28
Section 2.09 Earn-Out ...................................................... A-1-28
Section 2.10 Earn-Out Protections .......................................... A-1-30
Section 2.11 Payment of Indemnification Holdback ........................... A-1-31
Section 2.12 Payment of Escrow Shares ...................................... A-1-33
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.01 Organization and Good Standing ................................ A-1-34
Section 3.02 Capitalization ................................................ A-1-34
Section 3.03 Subsidiaries .................................................. A-1-35
Section 3.04 Due Authorization; Enforceability ............................. A-1-35
Section 3.05 No Violation .................................................. A-1-36
Section 3.06 Financial Statements .......................................... A-1-36
Section 3.07 Absence of Certain Changes .................................... A-1-37
Section 3.08 Litigation .................................................... A-1-38
Section 3.09 Compliance with Laws .......................................... A-1-38
Section 3.10 Environmental Matters ......................................... A-1-39
Section 3.11 Taxes ......................................................... A-1-39
Section 3.12 Employee Benefit and Labor Matters ............................ A-1-41
Section 3.13 Other Compensation Arrangements ............................... A-1-44
Section 3.14 Property ...................................................... A-1-44
Section 3.15 Intellectual Property Matters ................................. A-1-45
Section 3.16 Material Contracts ............................................ A-1-50
Section 3.17 Insurance ..................................................... A-1-53
Section 3.18 Customers and Suppliers ....................................... A-1-53
Section 3.19 Disclosure .................................................... A-1-54
</TABLE>
A-1-i
<PAGE> 123
<TABLE>
<S> <C>
Section 3.20 Transactions With Affiliates .................................. A-1-54
Section 3.21 Brokers or Finders ............................................ A-1-54
Section 3.22 Product Liability ............................................. A-1-54
Section 3.23 Company Information ........................................... A-1-55
Section 3.24 HSR Act ....................................................... A-1-55
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARENT AND SUB
Section 4.01 Organization and Good Standing ................................ A-1-55
Section 4.02 Due Authorization; Enforceability ............................. A-1-55
Section 4.03 No Violation .................................................. A-1-56
Section 4.04 Capitalization ................................................ A-1-56
Section 4.05 Parent SEC Reports ............................................ A-1-57
Section 4.06 Form S-4 ...................................................... A-1-58
Section 4.07 Brokers or Finders ............................................ A-1-58
Section 4.08 Continuity of Business ........................................ A-1-58
ARTICLE V COVENANTS OF THE COMPANY
Section 5.01 Access ........................................................ A-1-59
Section 5.02 Conduct of Business ........................................... A-1-59
Section 5.03 Consents and Approvals ........................................ A-1-61
Section 5.04 Stockholder Meeting ........................................... A-1-61
Section 5.05 Notice of Certain Events ...................................... A-1-61
Section 5.06 Payment of Indebtedness By Affiliates ......................... A-1-62
Section 5.07 No-Shop ....................................................... A-1-62
Section 5.08 Books and Records ............................................. A-1-63
Section 5.09 Amended Company Stock Option Plan ............................. A-1-63
Section 5.10 401(k) Plan Termination ....................................... A-1-63
ARTICLE VI COVENANTS OF THE PARENT
Section 6.01 Cooperation by the Parent ..................................... A-1-63
Section 6.02 Opportunity to Cure ........................................... A-1-63
Section 6.03 Registration Statement on Form S-8 ............................ A-1-63
ARTICLE VII MUTUAL COVENANTS
Section 7.01 Reasonable Efforts ............................................ A-1-63
Section 7.02 Further Assurances ............................................ A-1-64
Section 7.03 Representation and Warranties ................................. A-1-64
Section 7.04 Public Announcements .......................................... A-1-64
Section 7.05 Confidentiality Agreement ..................................... A-1-64
</TABLE>
A-1-ii
<PAGE> 124
<TABLE>
<S> <C>
Section 7.06 Preparation of Form S-4 and Proxy Statement ................... A-1-64
ARTICLE VIII CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
Section 8.01 Representation, Warranties and Covenants ...................... A-1-65
Section 8.02 Consents ...................................................... A-1-66
Section 8.03 No Litigation ................................................. A-1-66
Section 8.04 Stockholder Approval .......................................... A-1-66
Section 8.05 Effective Registration Statement .............................. A-1-66
Section 8.06 Listing of Conexant Common Stock .............................. A-1-66
ARTICLE IX CONDITIONS TO THE OBLIGATIONS OF THE PARENT AND SUB
Section 9.01 Representations, Warranties and Covenants ..................... A-1-67
Section 9.02 Consents ...................................................... A-1-67
Section 9.03 No Litigation ................................................. A-1-67
Section 9.04 No Prohibition ................................................ A-1-68
Section 9.05 No Material Adverse Effect .................................... A-1-68
Section 9.06 Employment Agreements ......................................... A-1-68
Section 9.07 Non-Competition Agreements .................................... A-1-68
Section 9.08 Books and Records ............................................. A-1-68
Section 9.09 Company Warrants .............................................. A-1-68
Section 9.10 Company Board Action .......................................... A-1-68
Section 9.11 Financing Documents ........................................... A-1-68
Section 9.12 Director Resignations ......................................... A-1-69
Section 9.13 Stockholder Approval .......................................... A-1-69
Section 9.14 Effective Registration Statement .............................. A-1-69
Section 9.15 Listing of Conexant Common Stock .............................. A-1-69
Section 9.16 Repurchase Agreements ......................................... A-1-69
Section 9.17 401(k) Plan Termination ....................................... A-1-69
Section 9.18 Escrow Agreement .............................................. A-1-69
ARTICLE X TERMINATION
Section 10.01 Termination Events ........................................... A-1-70
Section 10.02 Effect of Termination ........................................ A-1-70
ARTICLE XI SURVIVAL AND INDEMNIFICATION
Section 11.01 Survival ..................................................... A-1-71
Section 11.02 Indemnification by the Company ............................... A-1-71
Section 11.03 Indemnification by the Parent ................................ A-1-71
Section 11.04 Limitations on Liability ..................................... A-1-72
</TABLE>
A-1-iii
<PAGE> 125
<TABLE>
<S> <C>
Section 11.05 Procedure for Third Party Claims ............................. A-1-76
Section 11.06 Indemnification Procedures ................................... A-1-77
Section 11.07 Right to Indemnification Not Affected by Knowledge or Waiver . A-1-80
ARTICLE XII MISCELLANEOUS PROVISIONS
Section 12.01 Expenses ..................................................... A-1-80
Section 12.02 Notices ...................................................... A-1-80
Section 12.03 Jurisdiction; Service of Process ............................. A-1-82
Section 12.04 Governing Law ................................................ A-1-82
Section 12.05 Waiver ....................................................... A-1-82
Section 12.06 Entire Agreement and Modification ............................ A-1-82
Section 12.07 No Oral Modification ......................................... A-1-83
Section 12.08 Assignment, Successors and No Third-Party Beneficiaries ...... A-1-83
Section 12.09 Severability ................................................. A-1-83
Section 12.10 Exhibits and Schedules ....................................... A-1-83
Section 12.11 Specific Performance ......................................... A-1-83
Section 12.12 Counterparts ................................................. A-1-84
</TABLE>
A-1-iv
<PAGE> 126
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is made and entered into as of July
19, 2000, by and among Conexant Systems, Inc., a Delaware corporation (the
"Parent"), H&J Acquisition Sub, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Parent ("Sub") and Harris & Jeffries, Inc., a Massachusetts
corporation (the "Company").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties hereto desire that Sub merge with and into the
Company (the "Merger") in accordance with the Delaware General Corporation Law
(the "DGCL") and the Massachusetts Business Corporation Law (the "MBCL") and
upon the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms and subject to the
conditions hereinafter set forth, the parties hereto agree as follows:
Article I
DEFINITIONS
Section 1.01 Defined Terms. (a) For purposes of this Agreement, the
following terms shall have the following meanings:
"Acquisition Proposal" shall have the meaning set forth in Section
5.07(a).
"Action" means any legal, administrative, arbitral, mediation or other
alternative dispute resolution procedure or other action, proceeding, claim,
inquiry or investigation before any court, arbitrator or other Governmental
Entity.
"Affiliate" means (a) With respect to a particular individual: (i) each
member of such individual's Family (as defined below in this definition); (ii)
any Person that is directly or indirectly controlled (as defined below in this
definition) by such individual or one or more members of such individual's
Family; and (iii) any Person with respect to which such individual or one or
more members of such individual's Family currently serves or has previously
served as a director, officer, employee, partner, member, manager, executor, or
trustee (or in a similar capacity).
(b) With respect to a specified Person other than an individual: (i)
any Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is
A-1-1
<PAGE> 127
under common control with, the Person specified; (ii) each Person that serves as
a director, officer, employee, partner, member, manager, executor, or trustee of
such specified Person (or in a similar capacity); and (iii) any Affiliate of any
individual described in clause (ii).
For purposes of this definition, (a) "control" of a Person will mean
the possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by Contract or otherwise; and (b) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse and former spouses,
(iii) any other natural person who is a child, sibling or parent of the
individual or the individual's spouse, and (iv) any other natural person who
resides with such individual.
"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 Parent on or prior to the Holdback Release Date that remain
outstanding and unresolved on that date, as such amount may be reduced from time
to time after the Holdback Release Date to the extent that any such Indemnity
Claim Amount is resolved and no longer outstanding.
"Agreement" means this Agreement, as the same may be amended, modified
or supplemented from time to time in accordance with its terms.
"Articles of Merger" means the Articles of Merger in respect of the
Merger, substantially in the form annexed to this Agreement as Exhibit A,
appropriately completed in conformity with this Agreement.
"Audit Notice" shall have the meaning set forth in Section 2.09(c).
"Books and Records" means the books of account and other financial and
corporate records and files (including records and files stored on computer
disks or tapes or any other storage medium) of the Company or any of its
Subsidiaries or of the Stockholders and related to the Business, wherever
located, including minute books, stock record books, books of account, corporate
seals, written Contracts and other documents, instruments and papers.
"Business" means the business of developing communications system
software source code products and licensing such products to manufacturers of
data communications and telecommunications systems.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks located in California or Massachusetts are authorized
or required to be closed.
"Business Intellectual Property" means the Product Intellectual
Property and the Own Use Intellectual Property, individually and collectively.
A-1-2
<PAGE> 128
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"Claim" means a written notice, asserting a breach of representation or
warranty, covenant, agreement or other obligation contained in this Agreement or
in any Transaction Document.
"Closing" shall have the meaning set forth in Section 2.02.
"Closing Date" shall have the meaning set forth in Section 2.02.
"Closing Market Price" means the average of the daily closing sale
prices per share of Conexant 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 the
Parent and the Sellers' Representative) for the five consecutive full NASDAQ
trading days immediately preceding the first full NASDAQ trading day prior to
the Closing Date, any Earn-Out Payment Date or any Indemnification Release
Payment Date, as the context may require.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock, no par value, of the Company.
"Company" means Harris & Jeffries, Inc., a Massachusetts corporation.
"Company Option Plan" means the Company's Stock Option Plan, as amended
March 14, 2000.
"Company Options" means options, rights or warrants to purchase Common
Stock.
"Company Source Code" shall have the meaning set forth in Section
3.15(i).
"Company Warrants" means each Series A Preferred Stock Purchase Warrant
issued and outstanding.
"Conexant Options" means non-transferable options to purchase shares of
Conexant Stock under the Company Option Plan after giving effect to Section 2.05
of this Agreement.
"Conexant Stock" means Common Stock, par value $1 per share, of the
Parent (including the associated preferred share purchase rights).
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"Confidentiality Agreement" means the Standard Non-Disclosure Agreement
between the Parent and the Company dated April 10, 2000.
"Consents" means all consents, waivers, approvals, allowances,
authorizations, declarations, filings, recordings, registrations, validations or
exemptions and notifications.
"Contracts" means with respect to any Person, all agreements,
undertakings, contracts, obligations, understandings and commitments (whether
written or oral) (i) to which such Person is a party, (ii) under which such
Person has any rights, (iii) under which such Person has any Liability or (iv)
by which such Person, or any of the assets or properties owned or used by such
Person, is bound, including all 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, security agreements, financing leases, leases, comfort
letters, derivative agreements, 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.
"Conversion Ratio" shall have the meaning set forth in Section 2.05(d).
"Damages" means all losses, Liabilities, claims, damages, deficiencies,
obligations, fines, payments (including incidental and consequential damages),
expenses (including reasonable costs of investigation and defense and reasonable
fees and expenses of legal counsel, accountants and other professional
advisors), actions, causes of action, assessments, judgments, amounts paid in
settlement or diminutions in value, whether or not involving a Third Party
Claim.
"Designated Claims" means Claims for indemnification related to any
breach of representations and warranties made in (i) Sections 3.02, 3.04 and
3.14(a) (except in respect of title to Intellectual Property), and (ii) any
Letter of Transmittal.
"DGCL" shall have the meaning set forth in the Recitals.
"Dissenting Shares" shall have the meaning set forth in Section
2.05(f).
"Earn-Out Amount" shall have the meaning set forth in Section 2.09(a).
"Earn-Out Payment Date" means each Interim Earn-Out Payment Date and
the Final Earn-Out Payment Date, individually and collectively.
"Earn-Out Statement" shall have the meaning set forth in Section
2.09(c).
"Effective Time" shall have the meaning set forth in Section 2.03.
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"Employee Compensation Amounts" means (x) bonus payments, in an
aggregate amount not to exceed the sum of $620,000 plus an amount equal to the
actual quarterly bonus for employees for the two quarter period ended June 30,
2000, consistent with past practice, to be paid by the Company to certain of its
employees prior to the Closing and (y) any option-related deferred compensation
charges required to be accrued in accordance with GAAP for options granted or
exercised during the Company's fiscal year ended December 31, 2000.
"Employment Agreement" means an Employment Agreement, substantially in
the form annexed to this Agreement as Exhibit B (with such changes therein as
may be approved in writing by Parent and any Key Employee who is a party
thereto) between the Surviving Corporation and each of the Key Employees.
"Encumbrance" means any charge, claim, adverse claim, community
property interest, condition, equitable interest, easement, encumbrance, option,
lien, pledge, hypothecation, assignment, deposit arrangement, security interest
(preference, priority or other security agreement or preferential arrangement of
any kind), mortgage, deed of trust, retention of title agreement, right of first
refusal, right of first offer, preemptive right, or other restriction or
granting or any rights of any kind (including any restriction on, or right
granted with respect to, the use, voting, transfer, receipt of income or
exercise of any other attribute of ownership).
"Environmental Laws" means any and all applicable Laws and Permits
issued, promulgated or entered into by any Governmental Entity relating to the
environment, the protection or preservation of human health or safety, including
the health and safety of employees, the preservation or reclamation of natural
resources, or the management, release or threatened release of hazardous
materials.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means Chase Manhattan Bank N.A. or such other person as
the Parent and the InSight Shareholders may agree to appoint.
"Escrow Agreement" means the Escrow Agreement, dated as of the Closing
Date, among the Escrow Agent, the Parent and the InSight Stockholders.
"Escrow Amount" means the fair market value of all money, securities
and property from time to time held subject to the Escrow Agreement.
"Escrow Release Date" means September 30, 2001.
"Escrow Shares" means that number of fully paid, nonassessable shares
of Conexant Stock equal to the product of (x) 218,200 and (y) the InSight Share
Percentage.
"Exchange Act" means the Exchange Act of 1934, as amended.
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"Exchange Agent" means ChaseMellon Shareholder Services, L.L.C. or such
other bank or trust company as may be designated by the Parent and the Company
as exchange agent for purposes of this Agreement.
"Exchange Fund" shall have the meaning set forth in Section 2.06(a).
"Final Earn-Out Condition" means that average Operating Margins for the
four fiscal quarters of the Company ended June 30, 2001 are greater than 25%.
"Final Earn-Out Payment Date" means August 31, 2001.
"Final Earn-Out Share Number" means 179,500 (as such number may be
adjusted pursuant to Section 1.01(d)).
"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.
"Financial Statements" shall have the meaning set forth in Section
3.06(a).
"Form S-4" means the registration statement on Form S-4 filed with the
SEC by the Parent in connection with the issuance of Conexant Stock pursuant to
the Merger and this Agreement.
"Fully Diluted Share Number" means the sum of (a) the product of (i)
2.7884 and (ii) the number of shares of Preferred Stock issued and outstanding
on the Closing Date; (b) the number of shares of Common Stock issued and
outstanding on the Closing Date; and (c) the number of shares of Common Stock
issuable, with or without the passage of time or satisfaction of other
conditions, upon the exercise of all Company Options issued and outstanding on
the Closing Date immediately prior to the Merger, except that for purposes of
Section 2.09 and any computation of the Stockholder Ratio thereunder, there
shall be excluded from the Fully-Diluted Share Number the Unvested Share Number.
"GAAP" means generally accepted accounting principles of the United
States as in effect from time to time.
"Governmental Entity" means any of the following entities, to the
extent they have jurisdiction over the issue in question: (i) federal, state,
local, foreign or international government; (ii) court, arbitral or other
tribunal or governmental or quasi-governmental authority of any nature
(including any governmental agency, political subdivisions, instrumentalities,
branch, department, official, or entity); or (iii) body exercising, or entitled
to exercise, any
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administrative, executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature pertaining to government.
"Hazardous Materials" means those materials, substances or wastes that
are regulated by, or form the basis of liability under, any Environmental Law,
including PCBs, pollutants, solid wastes, explosive or regulated radioactive
materials or substances, wastes or chemicals, petroleum (including crude oil or
any fraction thereof) or petroleum distillates, asbestos or asbestos containing
materials, materials listed in 49 C.F.R. Section 172.101 and materials defined
as hazardous substances pursuant to Section 101(14) of CERCLA.
"Holdback" means that number of fully paid, nonassessable shares of
Conexant Stock equal to the excess of (x) 218,200 over (y) the Escrow Shares.
"Holdback Release Date" means September 30, 2001.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"Indemnification Release Amount" means the excess, if any, of (i) the
value in U.S. dollars of the Holdback (as such number may be adjusted pursuant
to Section 1.01(d)) determined based on the Closing Market Price for the
Indemnification Release Payment Date over (ii) the sum of (A) the aggregate
Indemnity Amount Payable as of the Holdback Release Date, plus (B) the Aggregate
Unresolved Indemnity Claim Amount as of the Holdback Release Date.
"Indemnification Release Payment Date" means any applicable date (not
earlier than ten days after the Holdback Release Date) on which any amount is
paid to any Stockholders or Option Holders pursuant to Section 2.11.
"Indemnitee" means any Person seeking indemnification under Article XI
of this Agreement.
"Indemnitor" means any Person from whom indemnification is sought under
Article XI of this Agreement.
"Indemnity Amount Payable" means any amount of an Indemnity Claim
Amount which has become an Indemnity Amount Payable in accordance with Section
11.06.
"Indemnity Claim" means any claim made for indemnification in
accordance with Section 11.06.
"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.
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"Independent Accountant" shall have the meaning set forth in Section
2.09(c).
"Insight Share Percentage" shall mean the amount, expressed as a
percentage, equal to the fraction (a) the numerator of which is the product of
(i) 2.7884 and (ii) the number of shares of Preferred Stock held by all Insight
Stockholders on the Closing Date (after giving effect to the exercise of the
Company Warrants held by such Insight Stockholders, as provided in Section
9.09), and (b) the denominator of which is the Fully Diluted Share Number.
"Insight Stockholders" shall mean Insight Capital Partners (Cayman) II
L.P., Insight Capital Partners II L.P. and WI Software Investors LLC,
individually and collectively.
"Insurance Policies" shall have the meaning set forth in Section 3.17.
"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 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.
"Interim Earn-Out Condition" means, with respect to any fiscal quarter
of the Company set forth below, that both (i) the Revenues of the Company for
such fiscal quarter exceed the amount of Revenues set forth below opposite such
fiscal quarter, and (ii) the
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Operating Margins of the Company for such fiscal quarter exceed the amount of
Operating Margins set forth below opposite such fiscal quarter.
<TABLE>
<CAPTION>
Company Fiscal Quarter Revenues Operating Margins
Ended
<S> <C> <C>
September 30, 2000 $4,000,000 15%
December 31, 2000 $5,000,000 20%
March 31, 2001 $4,800,000 25%
June 30, 2001 $5,300,000 25%
</TABLE>
Each Interim Earn-Out Condition will be measured separately for each fiscal
quarter, and if the Interim Earn-Out Condition is not satisfied for any fiscal
quarter, there will be no Earn-Out Amount payable in respect of that fiscal
quarter, without regard to any Revenues or Operating Margins in any other fiscal
quarter, except to the extent otherwise expressly provided herein if the Partial
Earn-Out Condition is satisfied in respect of that fiscal quarter.
"Interim Earn-Out Payment Date" means each of October 31, 2000, January
31, 2001, April 30, 2001 and July 31, 2001.
"Interim Earn-Out Share Number" means (i) with respect to the Company's
fiscal quarter ended September 30, 2000, 112,775, (ii) with respect to the
Company's fiscal quarter ended December 31, 2000, 140,968, (iii) with respect to
the Company's fiscal quarter ended March 31, 2001, 135,330, and (iv) with
respect to the Company's fiscal quarter ended June 30, 2001, 149,427.
"Investment" of a Person means (i) any loan, advance (other than
commission, travel and similar advances to officers and employees made in the
ordinary course of business), extension of credit (other than accounts
receivable arising in the ordinary course of business on terms customary in the
trade and loans to employees in the ordinary course of business) or contribution
of capital by such Person; (ii) equity securities owned by such Person; (iii)
any deposit accounts and certificates of deposit owned by such Person; and (iv)
structured notes, derivative financial instruments and other similar instruments
or contracts owned by such Person.
"IRS" means the United States Internal Revenue Service or any other
successor agency, and, to the extent relevant, the United States Department of
the Treasury.
"Key Employees" means each of Deepak Shahane, David Jeffries, Kevin
Smith and Saul Agranoff.
"Knowledge" means, with respect to the Company or any of its
Subsidiaries, the knowledge of Deepak Shahane or David Jeffries (i) if either of
them is actually aware of such fact or other matter or (ii) if either of them
could be expected to discover or otherwise become
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aware of such fact or other matter through the diligent exercise of their duties
as officers and directors of the Company and its Subsidiaries.
"Latest Balance Sheet" means the unaudited balance sheet of the Company
and any of its Subsidiaries at June 30, 2000, annexed to this Agreement as
Exhibit C.
"Laws" means all laws, principles of common law, statutes,
constitutions, treaties, rules, regulations, ordinances, codes, rulings, Orders
and determinations of all Governmental Entities.
"Leases" means all leases, subleases, right to occupy or use and other
arrangements with respect to real property, including, in each case, all
amendments, modifications and supplements thereto and waivers and Consents
thereunder.
"Letter of Transmittal" means a letter of transmittal, substantially in
the form annexed to this Agreement as Exhibit D (with such changes therein as
may be approved in writing by the Parent) from any Stockholder to the Exchange
Agent.
"Liability" means all debts, liabilities, obligations, Contracts and
commitments, whether known or unknown, asserted or unasserted, fixed, absolute
or contingent, matured or unmatured, accrued or unaccrued, liquidated or
unliquidated, due or to become due, whenever or however arising (including,
whether arising out of any Contract or tort based on negligence, strict
liability or otherwise).
"Material Adverse Effect" means, with respect to any Person (including
the Company and the Parent), a material adverse effect on the business,
operations, assets or condition (financial or otherwise) of such Person, taken
as a whole, or on the ability of such Person and its Subsidiaries to perform
that Person's obligations under this Agreement or to consummate the
Transactions, provided however, that a Material Adverse Effect shall not include
(a) with respect to any Person (including the Company and the Parent), any
adverse effect following the date of this Agreement on the business, operations,
assets or condition (financial or otherwise) of that Person resulting from the
announcement or pendency of the Merger or from any general downturn to the
market conditions of the business in which that Person operates; (b) with
respect to Conexant, any decrease in the trading price of the Conexant Stock
attributable primarily to fluctuations in stock prices or to a downturn in the
state of North American financial markets, either generally or specifically with
respect to publicly-traded technology companies; and (c) with respect to the
Company, the acquisition or formation of an India-based subsidiary in Hyderabad,
India.
"Material Contract" shall have the meaning set forth in Section
3.16(a).
"MBCL" shall have the meaning set forth in the Recitals.
"Merger" shall have the meaning set forth in the Recitals.
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"Merger Consideration" means 1,790,800 fully paid, nonassessable shares
of Conexant Stock (as such number may be adjusted pursuant to Section 1.01(d)).
"Merger Documents" shall have the meaning set forth in Section 2.03.
"New Certificate" shall have the meaning set forth in Section 2.06(b).
"Non-Competition Agreement" means a non-competition and non-disclosure
agreement, substantially in the form annexed to this Agreement as Exhibit E
(with such changes therein as may be approved in writing by Parent and any other
Person who is a party thereto) between the Surviving Corporation and each of the
Key Employees.
"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.
"Old Certificate" shall have the meaning set forth in Section 2.06(b).
"Operating Margin" shall mean an amount, expressed as a percentage,
equal to (x) the consolidated operating income (loss) of the Company and its
Subsidiaries (determined prior to any allocation of corporate overhead, sales,
general or administrative charges of the Parent) before interest expense, taxes
and any extraordinary or non-recurring items, adjusted to eliminate the
after-tax expense associated with Employee Compensation Amounts, divided by (y)
Revenues, in each case determined in accordance with GAAP, consistently applied
in accordance with the Company's accounting policies and practices prior to the
Closing.
"Option Holder" means a holder of Company Options set forth on Appendix
I attached hereto.
"Order" means any award, decision, stipulation, injunction, judgment,
order, ruling, subpoena, writ, decree or verdict entered, issued, made, or
rendered by any Governmental Entity.
"Own Use Intellectual Property" means all Intellectual Property which
the Company or any of its Subsidiaries owns, uses or has the right to use in the
conduct of its businesses, other than the Product Intellectual Property.
"Parent" shall have the meaning set forth in the Preamble.
"Parent Group" shall have the meaning set forth in Section 11.02.
"Parent Rights" and "Parent Rights Agreement" shall have the respective
meanings set forth in Section 4.04(a).
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"Parent SEC Reports" shall have the meaning set forth in Section 4.05.
"Partial Earn-Out Condition" means, with respect to any fiscal quarter
of the Company set forth below, that both (i) the Revenues of the Company for
such fiscal quarter exceed the amount of Revenues set forth below opposite such
fiscal quarter but are less than or equal to the Revenues for such period set
forth in the definition of Interim Earn-Out Condition and (ii) the Operating
Margins of the Company for such fiscal quarter exceed the amount of Operating
Margins set forth below opposite such fiscal quarter.
<TABLE>
<CAPTION>
Company Fiscal Quarter Revenues Operating Margins
Ended
<S> <C> <C>
September 30, 2000 $3,000,000 15%
December 31, 2000 $3,750,000 20%
March 31, 2001 $3,600,000 25%
June 30, 2001 $3,975,000 25%
</TABLE>
Each Partial Earn-Out Condition will be measured separately for each fiscal
quarter, and if the Partial Earn-Out Condition is not satisfied for any fiscal
quarter, there will be no Earn-Out Amount payable in respect of that fiscal
quarter, without regard to any Revenues or Operating Margins in any other fiscal
quarter.
"Partial Earn-Out Ratio" means, with respect to any fiscal quarter of
the Company for which the Partial Earn-Out Condition but not the Interim
Earn-Out Condition has been satisfied, the fraction the numerator of which is
the Revenues of the Company for such fiscal quarter and the denominator of which
is the Revenues for such fiscal quarter set forth in the definition of the term
Interim Earn-Out Condition.
"Partial Earn-Out Share Number" means, with respect to any fiscal
quarter of the Company for which the Partial Earn-Out Condition but not the
Interim Earn-Out Condition has been satisfied, the product of (x) the Partial
Earn-Out Ratio for that fiscal quarter, and (y) the Interim Earn-Out Share
Number for such fiscal quarter.
"Per Share Common Stock Consideration" shall have the meaning set forth
in Section 2.05(b)(i).
"Per Share Preferred Stock Consideration" shall have the meaning set
forth in Section 2.05(c)(i).
"Permit" means all licenses, permits, certificates, Consents, or other
authorizations, issued, granted, given or otherwise made available by or under
the authority of any Governmental Entity or pursuant to any Law.
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"Permitted Encumbrances" means Encumbrances for (a) Taxes not yet due
and payable or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been taken in accordance
with GAAP; (b) easements, rights of way, zoning and land use restrictions,
rights of lessors and other ordinary course restrictions affecting real
property; (c) liens of materialmen, mechanics, vendors, and other similar liens
arising by operation of Law in the ordinary course of business; in each case if
they do not, individually or in the aggregate, (i) have a material adverse
effect on the use of the property affected thereby, (ii) materially impair the
current business operations conducted on the affected property or (iii)
materially reduce the value of, or have a material adverse effect on the ability
to transfer, the affected property, and (d) all Encumbrances listed on Exhibit
F.
"Person" means any individual, sole proprietorship, firm, corporation
(including any non-profit corporation and public benefit corporation), general
or limited partnership, limited liability partnership, joint venture, limited
liability company, estate, trust, association, organization, labor union,
institution, entity or Governmental Entity, including any successor (by merger
or otherwise) of such entity.
"Plans" shall have the meaning set forth in Section 3.12(b).
"Preferred Stock" shall mean the Series A Participating Convertible
Preferred Stock, no par value per share, of the Company.
"Product Intellectual Property" means all Intellectual Property which
the Company or any of its Subsidiaries owns, uses or has the right to use, and
which is comprised in the Company's products.
"Proxy Statement" shall have the meaning set forth in Section 5.04(b).
"Release" has the meaning given to such term in Section 101(22) of
CERCLA.
"Registered Business Intellectual Property" shall have the meaning set
forth in Section 3.15(a)(i).
"Representative" means with respect to a particular Person, any
director, officer or employee of such Person and any agent, consultant, advisor,
legal counsel, accountant, financial advisor or other representative of such
Person engaged in connection with the Transaction.
"Repurchase Agreements" shall mean an agreement between the Company and
each of Deepak Shahane, Saul Agranoff, Kevin Smith, the Celia M. Jeffries Trust
- 1999, and the David S. Jeffries Trust - 1999, substantially in the form
annexed as Exhibit G (with such amendments as may be approved by the Company,
the Parent and any Person that is a party to any such agreement).
"Repurchase Schedule" shall mean the schedule annexed as Appendix II.
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<PAGE> 139
"Revenues" means the consolidated revenues of the Company and its
Subsidiaries as reported on its statement of operations, prepared in accordance
with GAAP consistently applied in accordance with the Company's accounting
policies and practices prior to the Closing.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller Group" shall have the meaning set forth in Section 11.03.
"Sellers' Expenses" means any and all fees and out-of-pocket costs and
expenses of counsel, accountants, investment bankers and other professional
advisors engaged in connection with the Transactions by the Company and the
reasonable fees and expenses of one firm of counsel for the Stockholders.
"Sellers' Representative" means Deven Parekh.
"Software Products" shall have the meaning set forth in Section
3.15(b).
"Special Basket Claim" means any Claim for indemnification related to
any breach of representations and warranties made in Sections 3.10, 3.11,
3.14(a) (solely in respect of title to Intellectual Property) and 3.15.
"Stockholder Ratio" means (a) with respect to any holder of Common
Stock, the fraction the numerator of which is the aggregate number of shares of
Common Stock held by such Stockholder immediately prior to the Closing and the
denominator of which is the Fully Diluted Share Number, (b) with respect to any
holder of Preferred Stock, the fraction the numerator of which is the product of
(i) 2.7884 and (ii) the aggregate number of shares of Preferred Stock held by
such Stockholder immediately prior to the Closing and the denominator of which
is the Fully Diluted Share Number; and (c) with respect to any Option Holder,
the fraction the numerator of which is the aggregate number of shares of Common
Stock for which the aggregate number of Company Options held by such Option
Holder (whether or not vested or subject to other contingencies) are exercisable
and the denominator of which is the Fully Diluted Share Number, except that (1)
for purposes of Section 2.09, there shall be excluded the Unvested Share Number,
and (2) for purposes of Section 2.11, there shall be excluded the amounts
referred to in clause (b) above.
"Stockholder/Option Holder Indemnity Amount" means, on any given
determination date, the aggregate Indemnity Amount Payable by the Stockholders
and Option Holders to Parent with respect to all indemnity claims accumulated
through the date of determination.
"Stockholders" means the stockholders of the Company set forth on
Appendix I hereto.
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"Stockholders Meeting" shall have the meaning set forth in Section
5.04(a).
"Sub" shall have the meaning set forth in the Recitals.
"Sub Common Stock" shall have the meaning set forth in Section 2.05(d).
"Subsidiary" means any corporation, limited liability company,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, a majority of the partnership
or other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more Subsidiaries of the Person
or a combination thereof. For purposes hereof, a Person or Persons shall be
deemed to have a majority ownership interest in a limited liability company,
partnership, association, or other business entity if such Person or Persons
shall be allocated a majority of limited liability company, partnership,
association or other business entity gains or losses or shall be or control any
managing member or general partner of such limited liability company,
partnership, association or other business entity.
"Surviving Corporation" shall have the meaning set forth in Section
2.01(a).
"Taxes" means all taxes, charges, duties, fees, levies or other
assessments, including, without limitation, income, excise, property, ad
valorem, sales, use, gross receipts, recording, insurance, value added, profits,
license, withholding, payroll, employment, net worth, intangibles, capital
gains, transfer, stamp, social security, environmental, occupation alternative
minimum, recapture and franchise taxes, imposed by any Governmental Entity, and
including any interest, penalties and additions attributable thereto.
"Technology Agreements" shall have the meaning set forth in Section
3.15(c).
"Third Party Claim" shall have the meaning set forth in Section
11.05(a).
"Transaction" shall have the meaning set forth in Section 2.02.
"Transaction Documents" means this Agreement, the Articles of Merger,
the Voting Agreements, the Letter of Transmittal, and any certificate or
schedule required to be delivered pursuant to this Agreement or any other
document referred to above.
"Unregistered Business Intellectual Property" shall have the meaning
set forth in Section 3.15(a)(ii).
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"Unvested Share Number" means that number of shares of Common Stock
subject to Company Options which, immediately prior to the Effective Time, could
not be acquired on exercise of such Company Options under Section 6.1 of the
Company Option Plan or any instrument evidencing such Company Options.
"Vested Option Holder" means any Option Holder except to the extent of
the Unvested Share Number of Company Options held by such Option Holder
immediately prior to the Effective Time.
"Voting Agreement" means a voting agreement, substantially in the form
annexed to this Agreement as Exhibit H (with such changes therein as may be
approved in writing by the Parent) between the Parent and any Stockholder.
(b) For the purposes of this Agreement, (i) words in the singular will
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 will, 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 will mean "including, without
limitation", unless otherwise specified, (iv) the word "or" will not be
exclusive, (v) the phrase "made available" will mean that the information
referred to has been made available if requested by the party to whom such
information is to be made available, and (vi) any reference to any Law referred
to in this Agreement will be deemed to include any successor Law and the rules
and regulations issued pursuant to such Law or successor Law and any amendments
or supplements to such Law or successor Law, (vii) any accounting term used in
this Agreement will have, unless otherwise specifically provided herein, the
meaning customarily given such term in accordance with GAAP, and all financial
computations hereunder will be computed, unless otherwise specifically provided
herein, in accordance with GAAP consistently applied, (viii) capitalized terms
used in the other Transaction Documents but not otherwise defined therein will
have the respective meanings assigned to such terms in this Agreement and (ix) a
"breach" of a representation, warranty, covenant, obligation or other provision
of this Agreement or any Transaction Document will be deemed to have occurred if
there is or has been (A) any inaccuracy in or breach of or any failure to
perform or comply with, such representation, warranty, covenant, obligation, or
other provision, or (B) any claim by any Person or other occurrence or
circumstance that is or was inconsistent with such representation, warranty,
covenant, obligation or other provision; and the term "breach" means any such
inaccuracy, failure, claim, occurrence or circumstance. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement and this
Agreement will not be construed for or against any party by reason of the
authorship or alleged authorship of any provision hereof or by reason of the
status of the respective parties.
(c) The article, section and paragraph captions herein and the table of
contents hereto are for convenience of reference only, do not constitute part of
this Agreement and will
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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
are to exhibits to this Agreement. Unless otherwise specified, all references
contained in this Agreement or in any Transaction Document to dollars or "$"
will mean United States Dollars.
(d) In the event of any split, combination or reclassification of any
Conexant Stock, or any issuance or the authorization of any issuance of any
other securities in exchange or substitution for shares of Conexant Stock at any
time during the period commencing on the date of this Agreement and ending (x)
at the Effective Time, for purposes of the definition of Merger Consideration,
(y) on any Earn-Out Payment Date, for purposes of the Final Earn-Out Share
Number, the Interim Earn-Out Share Number, or the Partial Earn-Out Share Number
and (z) any Indemnification Release Payment Date, for purposes of the
Indemnification Release Amount, then appropriate adjustments shall be made to
the number of shares of Conexant Stock referred to in the definitions of Merger
Consideration, the Final Earn-Out Share Number, the Interim Earn-Out Share
Number, or the Partial Earn-Out Share Number and Indemnification Release Amount
to reflect any such split, combination, reclassification or issuance and to
preserve the relative economic benefits provided in this Agreement as if such
split, combination, reclassification or issuance had not occurred.
Article II
The MERGER
Section 2.01 The Merger. On the basis of the representations,
warranties, covenants and agreements set forth in this Agreement and subject to
the satisfaction or waiver of the conditions set forth in this Agreement, at the
Effective Time and in accordance with the applicable provisions of the DGCL and
the MBCL:
(a) Sub shall be merged with and into the Company and the separate
corporate existence of Sub shall thereupon cease. The Company, as the surviving
corporation in the Merger (the Company as existing on and after the Effective
Time being hereinafter sometimes referred to as the "Surviving Corporation") and
a wholly-owned subsidiary of the Parent, shall continue its corporate existence
under the name NetPlane Systems, Inc., and shall continue to be governed by the
MBCL. The Merger shall have the effects set forth in Section 80 of the MBCL and
Section 259 of the DGCL.
(b) The Amended and Restated Articles of Organization of the Company,
as in effect immediately prior to the Effective Time, shall thereafter be the
Articles of Organization of the Surviving Corporation until duly amended or
repealed, except that the Articles of Organization shall be amended, effective
as of the Effective Time, to change the name of the Company from "Harris &
Jeffries, Inc." to "NetPlane Systems, Inc."
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(c) The By-laws of the Company, as in effect immediately prior to the
Effective Time, shall thereafter be the By-laws of the Surviving Corporation
until duly amended or repealed.
(d) At and after the Effective Time, the Surviving Corporation shall be
authorized to issue a total number of 14,800,000 shares of Common Stock and
1,650,000 shares of Preferred Stock, with the same preferences, voting powers,
qualifications, special or relative rights or privileges as to each class or
series as are set forth in the Amended and Restated Articles of Organization of
the Company, as amended, prior to the Effective Time, until duly amended or
repealed.
(e) The members of the Board of Directors of Sub immediately prior to
the Effective Time shall thereafter be the members of the Board of Directors of
the Surviving Corporation until the earlier of their resignation or removal or
until their respective successors are duly elected or appointed and qualified in
the manner provided in the Articles of Organization and By-laws of the Surviving
Corporation, or as otherwise provided by law.
(f) The officers of Sub immediately prior to the Effective Time shall
be the initial officers of the Surviving Corporation until the earlier of their
resignation or removal or until their successors are duly elected or appointed
and qualified.
(g) The purposes of the Company, as set forth in the Amended and
Restated Articles of Organization of the Company immediately prior to the
Effective Time, shall thereafter be the purposes of the Surviving Corporation,
until duly amended.
Section 2.02 Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement (the "Transaction") will take place at the
offices of Chadbourne & Parke LLP, 30 Rockefeller Plaza, New York, New York, at
10:00 a.m. Eastern time, on the Business Day on which all conditions set forth
in Articles VIII and IX hereof have been satisfied or waived, or such other
date, place or time agreed to in writing by the parties hereto (such date of the
Closing being hereinafter referred to as the "Closing Date").
Section 2.03 Filing of Articles of Merger. Subject to the provisions of
this Agreement, as soon as practicable on the Closing Date and upon satisfaction
or waiver of conditions stated in Article VIII and Article IX, the Parent, Sub
and the Company shall cause the Articles of Merger or other appropriate
documents (in any such case, the "Merger Documents"), duly executed in
accordance with the relevant provisions of the DGCL and the MBCL, to be filed
and recorded as required by the DGCL and the MBCL, respectively, and will take
any other and future actions in connection therewith as may be required by the
DGCL and the MBCL to make the Merger effective. The Merger shall become
effective when the Merger Documents are duly filed with the Secretary of the
State of Delaware and the Secretary of State of the Commonwealth of
Massachusetts. When used in this Agreement, the term "Effective Time" shall mean
the time and date at which the Merger becomes effective.
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Section 2.04 Certain Effects of the Merger. (a) At the Effective Time,
Sub shall be merged into the Company and the separate existence of Sub shall
cease. The Company, as the Surviving Corporation, shall thereupon and thereafter
possess all the rights, privileges, powers and franchises, of a public or of a
private nature, and be subject to all restrictions, disabilities and duties of
each of the Company and Sub and shall continue its corporate existence as a
Massachusetts corporation. If at any time the Parent or the Surviving
Corporation shall consider or be advised that any further assignment or
assurances in law or any things are necessary or desirable to vest in the
Surviving Corporation, according to the terms hereof, the title to any property
or rights of Sub or the Company, the last acting officers and directors of such
corporation, as the case may be, or the corresponding officers and directors of
the Surviving Corporation shall and will execute and make all such proper
assignments and assurances and do all things necessary or proper to vest title
in such property or rights in the Surviving Corporation, and otherwise to carry
out the purposes of this Agreement.
(b) The parties to this Agreement intend that the Merger shall
constitute a "reorganization" within the meaning of Section 368(a)(2)(E) of the
Code and that this Agreement shall constitute a "plan of reorganization" for the
purposes of Section 368(a)(2)(E) of the Code.
Section 2.05 Effect on Company Securities.
(a) Cancellation of Treasury Stock and Subsidiary Owned Common Stock.
At the Effective Time, by virtue of the Merger and without any action on the
part of the holders of capital stock of the Company or any shares of capital
stock of Sub, each share of Common Stock issued immediately prior to the
Effective Time and (i) held in the treasury of the Company or (ii) owned by any
direct or indirect Subsidiary of the Company shall cease to be outstanding,
shall be canceled and retired without any conversion thereof and without payment
of any consideration therefor and shall cease to exist.
(b) Conversion of Common Stock. (i) At the Effective Time, by virtue of
the Merger and without any action on the part of the holders of Common Stock of
the Company or any shares of capital stock of Sub, subject to Section 2.06, each
share of Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares of Common Stock being canceled pursuant to Section
2.05(a)), shall be converted into the right to receive for each share of Common
Stock, the Merger Consideration divided by the Fully Diluted Share Number (the
"Per Share Common Stock Consideration"), upon surrender of the certificate which
immediately prior to the Effective Time represented such share in accordance
with Section 2.06.
(ii) Each share of Common Stock so converted at the Effective Time
shall be canceled and retired and shall cease to exist, and each certificate
which theretofore represented shares so converted and canceled shall thereafter
cease to have any rights with respect to such shares except the right to receive
the Per Share Common Stock Consideration multiplied by the number of such shares
formerly represented by such certificate, without interest thereon and subject
to Section 2.05(e).
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(c) Conversion of Preferred Stock. (i) At the Effective Time, by virtue
of the Merger and without any action on the part of the holders of Preferred
Stock of the Company or any shares of capital stock of Sub, subject to Section
2.06, each share of Preferred Stock issued and outstanding immediately prior to
the Effective Time shall be converted into the right to receive for each share
of Preferred Stock the product of (a) 2.7884 and (b) the Merger Consideration,
divided by the Fully Diluted Share Number (the "Per Share Preferred Stock
Consideration"), upon surrender of the certificate which immediately prior to
the Effective Time represented such share in accordance with Section 2.06.
(ii) Each share of Preferred Stock so converted at the Effective Time
shall be canceled and retired and shall cease to exist, and each certificate
which theretofore represented shares so converted and canceled shall thereafter
cease to have any rights with respect to such shares except the right to receive
the Per Share Preferred Stock Consideration multiplied by the number of such
shares formerly represented by such certificate, without interest thereon and
subject to Section 2.05(e).
(d) Conversion of Company Options. At the Effective Time, by virtue of
the Merger and without any action on the part of the holders thereof, (i) each
Company Option issued and outstanding immediately prior to the Effective Time
shall be converted into and be deemed to be, without the need for amendment or
modification to any Contract under which such Company Options have been granted,
a Conexant Option to purchase that whole number of shares of Conexant Stock
issuable upon exercise of such Company Option (whether or not then vested)
immediately prior to the Effective Time, multiplied by the ratio (the
"Conversion Ratio") of (x) the Merger Consideration, divided by (y) the Fully
Diluted Share Number, rounded down to the nearest whole share. The per share
exercise price of each Conexant Option into which a Company Option has been
converted shall be equal to the quotient of the per share exercise price of the
Company Option immediately prior to the Effective Time, divided by the
Conversion Ratio, rounded up to the nearest whole cent. Notwithstanding the
foregoing, in no event will the per share exercise price of each Conexant Option
be less than $1.00. Until such time as a registration statement on Form S-8
under the Securities Act is declared effective, no Option Holder shall have a
right to exercise or transfer the Conexant Options.
(e) Sub Stock. At the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof, each share of Common
Stock, par value $.01 per share, of Sub ("Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into and
become one newly issued, fully paid and nonassessable share of common stock of
the Surviving Corporation.
(f) Dissenting Shares. At the Effective Time, any Common Stock or
Preferred Stock held by Stockholders, if any, who shall have demanded and
perfected their demand for the Company to purchase their Common Stock or
Preferred Stock and shall have voted against this Agreement and the Merger in
accordance with Section 156B of the MBCL ("Dissenting Shares") shall not be
converted into the right to receive the Merger Consideration
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pursuant to the Merger or the Earn-Out Payment pursuant to Section 2.09 or the
Indemnification Release Amount pursuant to Section 2.11, but instead shall be
entitled to only such rights as are provided in the MBCL, except that any
Dissenting Shares held by a Stockholder who shall, after proper exercise of
dissenter's rights, effectively withdraw its, his or her demand for purchase
thereof and payment therefor, or lose its, his or her right to such payment as
provided in Section 156B of the MBCL shall cease to be Dissenting Shares
hereunder and shall be deemed converted into and represent only the right to
receive the consideration such Stockholder otherwise would have been entitled to
receive as a result of the Merger as provided in this Agreement, without
interest thereon, upon surrender of each Old Certificate formerly representing
such Common Stock or Preferred Stock in accordance with this Agreement. The
Company shall give the Parent and Sub (i) prompt written notice of any written
demands for the purchase of shares of Common Stock or Preferred Stock pursuant
to Section 156B of the MBCL, any withdrawals of such demands and any other
instruments served pursuant to the MBCL received by the Company and (ii) the
opportunity to participate in and direct all negotiations and proceedings with
respect to any such demands. The Company shall not, without the prior written
consent of the Parent, make any payment with respect to, or settle, offer to
settle or otherwise negotiate, any such demands.
Section 2.06 Exchange of Certificates.
(a) Exchange Agent. Immediately following the Effective Time, the
Parent shall deposit with the Exchange Agent, for the benefit of the holders of
shares of Common Stock and Preferred Stock, for exchange in accordance with this
Article II, through the Exchange Agent, certificates representing the shares of
Conexant Stock issuable pursuant to Section 2.05 in exchange for outstanding
shares of Common Stock and Preferred Stock together with amounts sufficient in
the aggregate to provide all funds necessary for the Exchange Agent to make
payments in lieu of fractional shares pursuant to Section 2.07 and dividend
payments pursuant to Section 2.06(c) (such shares of Conexant Stock and funds,
together with any dividends or distributions with respect thereto with a record
date after the Effective Time, being hereinafter referred to as the "Exchange
Fund").
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record of a
certificate or certificates (the "Old Certificates") which immediately prior to
the Effective Time represented outstanding shares of Common Stock or Preferred
Stock, other than shares to be canceled or retired in accordance with Section
2.05, (i) a Letter of Transmittal and (ii) instructions for use in effecting the
surrender of the Old Certificates in exchange for certificates representing
shares of Conexant Stock ("New Certificates"). Upon surrender of an Old
Certificate for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by the Parent, together with such Letter of
Transmittal, appropriately completed and duly executed, and such other documents
as may reasonably be required by the Exchange Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Conexant Stock which such holder has
the right to receive pursuant to the provisions of
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this Article II, and the Old Certificate so surrendered shall forthwith be
canceled. In the event of a transfer of ownership of Common Stock or Preferred
Stock which is not registered in the transfer records of the Company, a
certificate representing the proper number of shares of Conexant Stock may be
issued to a Person other than the Person in whose name the Old Certificate so
surrendered is registered, if such Old Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the Person requesting such payment
shall pay any transfer, withholding or other Taxes required by reason of the
issuance of shares of Conexant Stock to a Person other than the registered
holder of such Old Certificate or establish to the satisfaction of the Parent
that any such Tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.06, each Old Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender a New Certificate representing the appropriate number of whole shares
of Conexant Stock, and cash in lieu of any fractional shares of Conexant Stock
and any dividends to the extent provided in Section 2.06(c) as contemplated by
this Section. No interest will be paid or will accrue on any cash payable in
lieu of any fractional shares of Conexant Stock or dividends or other
distributions with respect to Conexant Stock.
(c) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions with respect to Conexant Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Old Certificate
with respect to the shares of Conexant Stock represented thereby, and no cash
payment in lieu of fractional shares shall be paid to any such holder pursuant
to Section 2.07 until the surrender of such Old Certificate in accordance with
this Article II. Subject to the effect of applicable Laws, following surrender
of any such Old Certificate, there shall be paid to the holder of the New
Certificate representing whole shares of Conexant Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of any
cash payable in lieu of a fractional share of Conexant Stock to which such
holder is entitled pursuant to Section 2.07 and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Conexant Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such whole shares of
Conexant Stock.
(d) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of Old Certificates for six months after
the Effective Time shall be delivered to the Parent, upon demand, and any
holders of Old Certificates who have not theretofore complied with this Article
II shall thereafter look only to the Parent for payment of their claim for
Conexant Stock, any cash in lieu of fractional shares of Conexant Stock and any
dividends or distributions with respect to Conexant Stock.
(e) No Liability. None of the Parent, Sub, the Company or the Exchange
Agent shall be liable to any Person in respect of any shares of Conexant Stock
(or dividends or
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distributions with respect thereto) or cash from the Exchange Fund delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
(f) Investment of Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by the Parent, on a daily basis.
Any interest and other income resulting from such investments shall be paid to
the Parent.
(g) Lost Certificates. In the event that any Old Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the Person claiming such Old Certificate to be lost, stolen or destroyed and, if
required by the Parent, the posting by such Person of a bond in such reasonable
amount as the Parent may direct as indemnity against any claim that may be made
against it with respect to such Old Certificate, the Exchange Agent will issue
in exchange for such lost, stolen or destroyed Old Certificate the Conexant
Stock, and any cash in lieu of fractional shares and any unpaid dividends or
distributions with respect to Conexant Stock, to which they are entitled
pursuant hereto.
(h) No Further Ownership Rights in Stock. All consideration paid upon
the conversion of Common Stock and Preferred Stock and the surrender of Old
Certificates in accordance with the terms of this Article II shall be deemed to
have been paid in full satisfaction of all rights pertaining to the shares of
Common Stock and Preferred Stock theretofore represented by such Old
Certificates. At the Effective Time, the stock transfer books of the Company
shall be closed, and there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Common Stock
or Preferred Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Old Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article II.
Section 2.07 Fractional Shares. With respect to any payment by the
Parent to be made by delivery of Conexant Stock or Conexant Options pursuant to
this Article II, no fractional shares of Conexant Stock will be issued and no
Conexant Options exercisable for fractional shares of Conexant Stock will be
granted, and any holder of Common Stock, Preferred Stock or Company Options
entitled pursuant to this Agreement to receive a fraction of a share of Conexant
Stock or a Conexant Option exercisable for a fraction of a share of Conexant
Stock but for this Section 2.07 will be entitled only to receive a cash payment
in lieu thereof, without interest, in an amount, less the 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 in respect of the Closing Date, the
Earn-Out Payment Date or any Indemnification Release Date, as the case may be.
For purposes of paying such cash in lieu of fractional shares, with respect to
each Stockholder or Option Holder, all shares of Conexant Stock to be delivered
and Conexant Options to be granted pursuant this Agreement on any given payment
date will be aggregated, and no Stockholder or Option Holder will receive cash
in lieu of fractional shares in an amount equal to or greater than the value of
one full share of Conexant Stock on such payment date.
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Section 2.08 Payment of Sellers' Expenses. If the Merger occurs, the
Parent shall pay, or cause the Surviving Corporation to pay, at the Closing, to
the Sellers' Representative the Sellers' Expenses by wire transfer to the
account specified by the Sellers' Representative to the Parent in writing, and
the Sellers' Representative shall, promptly following receipt of such funds from
the Parent, pay in full Sellers' Expenses to the appropriate parties; provided,
however, that the Parent and the Surviving Corporation shall have no liability
or obligation to pay any Sellers' Expenses in excess of the lesser of (i)
$2,000,000 or (ii) cash available to the Company on the Closing Date, and any
such excess shall be paid promptly by the Stockholders.
Section 2.09 Earn-Out. (a) In addition to the Merger Consideration
payable pursuant to Section 2.05, as additional consideration, on the Earn-Out
Payment Date the Parent will issue to those Persons that, as of the Effective
Time, were Stockholders and Vested Option Holders (other than any such Person in
respect of its, his or her Dissenting Shares) an aggregate amount equal to the
following amount (the "Earn-Out Amount"):
(i) if the Final Earn-Out Condition is satisfied, that number of
duly authorized, validly issued, fully paid and nonassessable shares of
Conexant Stock equal to the Final Earn-Out Share Number; or
(ii) if any Interim Earn-Out Condition is satisfied, that number
of duly authorized, validly issued, fully paid and nonassessable shares
of Conexant Stock equal to the Interim Earn-Out Share Number for the
applicable fiscal quarter in which such Interim Earn-Out Condition is
satisfied; or
(iii) if any Partial Earn-Out Condition is satisfied, that number
of duly authorized, validly issued, fully paid and nonassessable shares
of Conexant Stock equal to the Partial Earn-Out Share Number for the
applicable fiscal quarter in which such Partial Earn-Out Condition is
satisfied.
(b) The Earn-Out Amount will be paid by the Parent on each Earn-Out
Payment Date by delivery to each Person that, as of the Effective Time, was a
Stockholder or Vested Option Holder (other than any such Person in respect of
its, his or her Dissenting Shares) of:
(i) a stock certificate duly registered in the name of each such
Stockholder and Vested Option Holder representing that number of whole
shares of Conexant Stock, subject to Section 2.07, equal to (A) in the
case of Section 2.09(a)(i), the product of (x) the Stockholder Ratio,
multiplied by (y) the Final Earn-Out Share Number, (B) in the case of
Section 2.09(a)(ii), the product of (x) the Stockholder Ratio,
multiplied by (y) the Interim Earn-Out Share Number, and (C) in the
case of Section 2.09(a)(iii), the product of (x) the Stockholder Ratio,
multiplied by (y) the Partial Earn-Out Share Number; and
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(ii) a check for an amount in dollars equal to the cash payments
in respect of fractional shares payable to such Stockholder or Vested
Option Holder pursuant to Section 2.07.
(c) The Parent will deliver to the Sellers' Representative a statement
prepared by the Parent setting out the amount of Revenues and Operating Margins
with appropriate supporting calculations and supporting documentation (the
"Earn-Out Statement"). Within 60 days after receipt of such Earn-Out Statement
from the Parent, the Sellers' Representative may exercise the right to audit the
Earn-Out Statement by so notifying the Parent in a written statement specifying
the amount of the additional payments to which the Sellers' Representative
believes the Stockholders are entitled and the nature and reasons for the
Sellers' Representative's disagreement with the Parent's determination (an
"Audit Notice"). If the Sellers' Representative does not exercise the audit
rights within such 60-day period, the Sellers' Representative shall be deemed to
have accepted the Revenues and Operating Margins amounts set forth therein as
final and binding. If the Sellers' Representative does issue an Audit Notice,
then during the 30-day period following the Parent's receipt of the Audit
Notice, the Parent and the Sellers' 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 Sellers'
Representative shall be given full access to the books and records relevant to
the Earn-Out Statement for the purposes of auditing the Earn-Out Statement. The
expenses of the Stockholders in connection with any such audit shall be paid by
the Stockholders unless (x) the Parent otherwise agrees or (y) the Parent and
the Stockholders resolve the disagreement with respect to the Earn-Out Statement
in a manner which would entitle the Stockholders to receive any Earn-Out Amount
that otherwise would have been entirely forfeited or to receive any Earn-Out
Amount that is (I) more than 1,000 shares of Conexant Stock greater than
originally set forth in the Earn-Out Statement, in which case the reasonable
expenses of the Stockholders and the Parent in connection with any such audit
shall be shared equally, or (II) more than 5,000 shares of Conexant Stock
greater than originally set forth in the Earn-Out Statement, in which case the
reasonable expenses of the Stockholders and the Parent in connection with such
audit shall be paid by the Parent. If the Sellers' Representative and the Parent
are unable to resolve any such disagreement within such 30-day period, the
matter shall be submitted to an independent accounting firm of national
reputation that has not performed any material services for the Parent or its
Subsidiaries or the Company during the five years preceding the date of this
Agreement or that is reasonably acceptable to the Sellers' Representative and
the Parent (the "Independent Accountant"). The Sellers' Representative and the
Parent shall use reasonable efforts to cause the Independent Accountant to
render its determination on the matter within 90 days of its submission by the
Sellers' Representative and the Parent. Such determination shall be, absent
manifest error, final, conclusive and binding upon the Parent and all
Stockholders. The fees and expenses for the Independent Accountant (A) shall be
paid by the Stockholders if the Independent Accountant determines either the
Earn-Out Condition or any Interim or Partial Earn-Out Condition, as the case may
be, was not satisfied, or (B) shall be paid by the Parent, if the
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Independent Accountant determines that the Earn-Out Condition or any Interim or
Partial Earn-Out Condition, as the case may be, was satisfied.
Section 2.10 Earn-Out Protections.
(a) To preserve the Business for the purposes of allowing the
Stockholders and Option Holders to receive the Earn-Out Amount contemplated by
Section 2.09, the Parent agrees that following the Closing, until the Final
Earn-Out Payment Date, except with the prior written consent of Sellers'
Representative (such consent not to be unreasonably withheld or delayed having
regard to the best interests of the Surviving Corporation as a going concern and
which consent will be deemed given unless the Parent receives a written
objection from Sellers' Representative within three Business Days of receipt of
such request for consent), the Parent 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 Key Employees, except
for cause as defined in the Employment Agreements for such Key
Employees;
(iii) 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, and in the ordinary course of business, consistent
with past practice, 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 the Parent determines from time to
time in the ordinary course of business;
(B) cause any new employee or consultant (who is not
employed, seconded to or engaged by the Company or any of its
Subsidiaries at the Closing) to be employed, seconded to or
engaged by the Surviving Corporation or any of its Subsidiaries;
or
(C) cause the Surviving Corporation to substantially deviate
from the Company's current business plan; or
(D) materially adversely impact individually or in the
aggregate, the Surviving Corporation's ability to meet any Final,
Interim or Partial Earn-Out Condition; or
(E) cause any change in the location of the Company's
principal office in Dedham, Massachusetts, other than any change
to a location selected by
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management of the Surviving Corporation required as a result of
the termination of the existing lease for the Company's executive
office; or
(F) cause Deepak Shahane or David Jeffries to spend less than
substantially all of their working time on the management and
operations of the Surviving Corporation; or
(iv) fail to provide sufficient working capital for the Business;
or
(v) sell the Surviving Corporation or any of its Subsidiaries or a
material part of the Business of the Surviving Corporation or any of
its Subsidiaries unless it has first paid the Earn-Out Amount under
Section 2.09 in full (as if all Final and Interim Earn-Out Conditions
had been satisfied); provided, however, that notwithstanding the
foregoing, the Parent may transfer the stock of the Surviving
Corporation in whole or in part, to any direct or indirect wholly-owned
Subsidiary of the Parent.
(b) If a Final Order is issued that establishes that the Parent has
materially breached any of the earn-out protections set forth in Section
2.10(a), the Parent shall pay the Earn-Out Amount as provided in Section 2.09(b)
(as if all Final and Interim Earn-Out Conditions had been satisfied) within 10
Business Days of receiving such Final Order.
Section 2.11 Payment of Indemnification Holdback.
(a) Indemnification Release Amount. In addition to the Merger
Consideration payable pursuant to Section 2.05 and the Earn-Out Amount payable
pursuant to Section 2.09, as additional consideration, within ten days after (x)
the Holdback Release Date and (y) any date after the Holdback Release Date when
a Resolved Claim Amount is determined to be payable as provided in Section
2.11(c), the Parent will pay to each Person that, as of the Effective Time, was
a Stockholder (other than any InSight Stockholder) or Option Holder (other than
any such Person in respect of its, his or her Dissenting Shares) (by delivery of
Conexant Stock, Conexant Options and money as provided in Section 2.11(b)) such
Stockholder's or Option Holder's pro rata portion of the Indemnification Release
Amount.
(b) Payment of Indemnification Release Amount. The Parent shall pay to
each Person that, as of the Effective Time, was a Stockholder (other than any
InSight Stockholder) or Option Holder (other than any such Person in respect of
its, his or her Dissenting Shares) the following:
(i) by delivery to each such Person that was a holder of Common
Stock a stock certificate duly registered in the name of such
Stockholder representing that number of shares of Conexant Stock,
subject to Section 2.07, equal to (A) the product of (1) the
Stockholder Ratio of such Stockholder and (2) the Indemnification
Release Amount, divided by (B) the Closing Market Price for the
Indemnification Release Date; and
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(ii) by delivery to each such Person that was an Option Holder of
Conexant Options duly registered in the name of such Option Holder
exercisable for that number of shares of Conexant Stock, subject to
Section 2.07, equal to (A) the product of (1) the Stockholder Ratio of
such Option Holder and (2) the Indemnification Release Amount, divided
by (B) the remainder of (x) the Indemnification Release Market Price,
minus (y) $1.00, and otherwise having exercise prices, vesting periods
and other terms comparable to the Company Options most recently issued
to such Option Holder prior to the Closing Date, adjusted in the case
of the exercise price in the manner set forth in Section 2.05; and
(iii) by delivery to each such Person that was a Stockholder or
Option Holder of Parent's check for an amount in dollars equal to the
aggregate amount of the cash payments in respect of fractional shares
payable to such Stockholder and Option Holder pursuant to Section 2.07;
provided, however, if Parent has made one or more Indemnity Claims, the payments
pursuant to this Section 2.11(b) shall not be made except to the extent that the
amounts specified in Sections 2.11(b)(i), 2.11(b)(ii) and/or 2.11(b)(iii) exceed
an amount equal to the sum of (i) the aggregate unpaid Indemnity Amount Payable
with respect to Indemnity Claims as of the Holdback Release Date, plus (ii) the
Aggregate Unresolved Indemnity Claim Amount as of the Holdback Release Date.
(c) Resolved Claim Amounts. Parent will be obligated to pay to each
Person that, as of the Effective Time, was a Stockholder (other than any InSight
Stockholder) or Option Holder (other than any such Person in respect of its, his
or her Dissenting Shares) (by delivery of Conexant Stock, Conexant Options and
money as provided in Section 2.11(d)), within 10 days after such amount is
determined in accordance with this Section 2.11(c), such Stockholder's or Option
Holder's pro rata portion of an Indemnity Claim Amount with respect to an
Indemnity Claim represented by any unresolved Notice of Claim given by Parent 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
Indemnity Claim has been resolved to the satisfaction of Parent in favor of the
Stockholders and Option Holders, or (ii) Parent receives a Final Order resolving
such Indemnity Claim Amount with respect to such Indemnity Claim in favor of the
Stockholders and Option Holders (in each case, a "Resolved Claim Amount"), but
only to the extent that such Resolved Claim Amount does not exceed the remainder
of (x) the product of (1) the Holdback and (2) the Closing Market Price on the
Closing Date, minus (y) the sum of (A) the Indemnification Release Amount paid
pursuant to Section 2.11(a) and all Resolved Claim Amounts with respect to
Indemnity Claims theretofore paid to the Stockholders and Option Holders
pursuant to this Section 2.11(c), plus (B) the Stockholder/Option Holder
Indemnity Amount as of such date of determination, plus (C) the Aggregate
Unresolved Indemnity Claim Amounts with respect to Indemnity Claims that remain
outstanding and unresolved on such date of determination.
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(d) Payment of Resolved Claim Amount. Each Resolved Claim Amount with
respect to a resolved Indemnity Claim payable pursuant to Section 2.11(c) will
be paid by Parent to each Person that, as of the Effective Time, was a
Stockholder (other than any InSight Stockholder) or Option Holder (other than
any such Person in respect of its, his or her Dissenting Shares) in accordance
with the following payment procedures:
(i) by delivery to each such Person that was a holder of Common
Stock a stock certificate duly registered in the name of such
Stockholder representing that number of shares of Conexant Stock,
subject to Section 2.07, equal to (A) the product of (1) the
Stockholder Ratio of such Stockholder and (2) the Resolved Claim
Amount, divided by (B) the Closing Market Price for the Indemnification
Release Date; and
(ii) by delivery to each such Person that was an Option Holder of
Conexant Options duly registered in the name of Such Option Holder
exercisable for that number of shares of Conexant Stock, subject to
Section 2.07, equal to (A) the product of (1) the Stockholder Ratio of
such Option Holder and (2) the Resolved Claim Amount, divided by (B)
the difference of (x) the Closing Market Price for the Indemnification
Release Date, minus (y) $1.00, and otherwise having exercise prices,
vesting periods and other terms comparable to the Company Options most
recently issued to such Option Holder prior to the Closing Date,
adjusted in the case of the exercise price in the manner set forth in
Section 2.05; and
(iii) by delivery to each such Person that was a Stockholder or
Option Holder of Parent's check for an amount in dollars equal to the
aggregate amount of the cash payments in respect of fractional shares
payable to such Stockholder and Option Holder pursuant to Section 2.07.
Section 2.12 Payment of Escrow Shares. In addition to the Merger
Consideration payable pursuant to Section 2.05, as additional consideration to
the InSight Stockholders, at the Closing, Parent shall issue and deliver to the
Escrow Agent the Escrow Shares. The Escrow Shares shall be held subject to the
terms of the Escrow Agreement, and may be sold, exchanged, released or otherwise
dealt with solely in accordance with the terms of the Escrow Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company hereby represents and warrants to the Parent and Sub as
follows:
Section 3.01 Organization and Good Standing. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of Massachusetts, and has full power and authority to conduct its business
in the manner in which it is presently being conducted. The Company and any of
its Subsidiaries are duly qualified or licensed to do business and in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except to the extent that failure to so qualify would not
reasonably be expected to have a Material Adverse Effect with respect to the
Company. Schedule 3.01 lists each jurisdiction in which the Company and any of
its Subsidiaries are qualified to do business. True and complete copies of the
Articles of Organization, By-laws, minute books and stock records of the Company
and any of its Subsidiaries and of any stock option agreements or grant letters
between the Company or any of its Subsidiaries and any employees of the Company
or any of its Subsidiaries have previously been delivered to the Parent.
Section 3.02 Capitalization. The authorized capital stock of the
Company consists of (a) 1,650,000 shares of Preferred Stock, of which (i)
1,476,000 shares of Preferred Stock are issued and outstanding prior to giving
effect to the exercise of Company Warrants contemplated by Section 9.09 and (ii)
no shares of Preferred Stock are held by the Company in its treasury and (b)
14,800,000 shares of Common Stock, of which (i) 8,505,500 shares of Common Stock
are issued and outstanding and (ii) no shares of Common Stock are held by the
Company in its treasury. No other shares of capital stock or other voting
securities of the Company are issued or outstanding. Each Stockholder owns the
number of shares of Preferred Stock and the number of shares of Common Stock set
forth beside its name on Appendix I. All of the shares of Common Stock and
Preferred Stock held by each Stockholder are owned of record and, to the
Knowledge of the Company, beneficially by such Stockholder, free and clear of
all Encumbrances. All of the outstanding shares of Preferred Stock and Common
Stock are duly authorized, validly issued, fully paid and non-assessable and
were not issued in violation of, and are not subject to, any preemptive rights.
There are no bonds, debentures, notes or other indebtedness of the Company or of
any of its Subsidiaries that are convertible into, or exchangeable or
exercisable for, capital stock of the Company or any Subsidiary or that have the
right to vote (or convertible into, or exchangeable or exercisable for,
securities having the right to vote) on any matters on which any stockholders of
the Company or of any of its Subsidiaries may vote. Schedule 3.02 sets forth a
list of Company Warrants outstanding on the date hereof and, with respect to
each such Company Warrant, the number of shares of Preferred Stock subject
thereto, the exercise price and the holder thereof. Schedule 3.02 sets forth a
list of all
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Company Options outstanding on the date hereof and, with respect to each such
Company Option, the exercise price thereof, the vesting schedule with respect
thereto, the number of shares of Common Stock subject thereto and the holder
thereof. All Company Options which are outstanding on the date hereof have been
duly authorized and validly issued under the Plan and applicable Laws. All of
the shares of Common Stock and Preferred Stock that may be issued upon exercise
of Company Options and Company Warrants will be, when issued, duly authorized
and validly issued, fully paid and nonassessable, and free and clear of any
Liens created by the Company with respect to the issuance and delivery thereof
and will not be issued in violation of, or subject to, any preemptive rights.
Except for (x) Company Options to purchase 1,675,000 shares of Common Stock and
(y) Company Warrants to purchase 174,000 shares of Preferred Stock, there are no
securities, options, warrants, calls, rights or other Contracts, including,
without limitation, stock appreciation rights, "phantom" stock or similar plans
or rights, obligating the Company or any of its Subsidiaries to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of
Preferred Stock or Common Stock or other securities or assets of the Company or
of any of its Subsidiaries or obligating the Company or any of its Subsidiaries
to issue, grant, extend or enter into any such security, option, warrant, call,
right or Contract, including any securities pursuant to which rights to acquire
capital stock become exercisable only after a change of control of the Company
or of any of its Subsidiaries or upon the acquisition of a specified amount of
the Preferred Stock, the Common Stock or voting power of the Company or of any
of its Subsidiaries. Except as disclosed in Schedule 3.02 or as contemplated by
this Agreement, there are no Contracts of the Company or of any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of Preferred
Stock or Common Stock.
Section 3.03 Subsidiaries. Schedule 3.03 sets forth for each of the
Company's Subsidiaries (i) its name and jurisdiction of organization, (ii) its
form of organization and (iii) the capital stock or membership interests held by
the Company, directly or indirectly, in such Subsidiary. Except as set forth on
Schedule 3.03, the Company is the sole beneficial and record owner of the
outstanding shares of capital stock or other interests in each of the Company's
Subsidiaries, free and clear of all Encumbrances. Except as set forth on
Schedule 3.03, the Company and its Subsidiaries do not have Investments in other
Persons except for cash and cash equivalents of the type reflected in the
Financial Statements. Neither the Company nor any of its Subsidiaries is a
participant in any joint venture, partnership or similar arrangement.
Section 3.04 Due Authorization; Enforceability. The Company has all
requisite corporate power and authority to execute, deliver and perform this
Agreement and the Transaction Documents and to consummate the Transaction. The
execution, delivery and performance of this Agreement and the Transaction
Documents and the consummation of the Transaction by the Company has been duly
authorized by all necessary or appropriate corporate or other action and no
other corporate or other proceedings are necessary to authorize this Agreement
or the Transaction Documents or to consummate the Transaction. This Agreement
and those Transaction Documents executed or delivered on or prior to the date of
this Agreement
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constitute, and the remaining Transaction Documents required to be executed
after the date of this Agreement will constitute when executed, the valid and
legally binding obligations of the Company (assuming that this Agreement and the
Transaction Documents constitute the valid and binding obligations of the Parent
and Sub), enforceable against the Company, in accordance with their terms except
as enforceability may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting the enforcement of
creditors' rights in general and (ii) general principles of equity.
Section 3.05 No Violation. Except for filings and Consents as may be
required under the DGCL and the MBCL and as set forth in Schedule 3.05, neither
the execution, delivery or performance of this Agreement by the Company, nor the
consummation by the Company of the Transaction, will, with or without the giving
of notice or lapse of time or both: (i) violate, conflict with or result in any
breach of any provision of the Articles of Organization or By-laws of the
Company or any of its Subsidiaries; (ii) require any Permit or Consent of any
Governmental Entity or violate, conflict with or constitute a default under any
of the terms or requirements of any Permit that is held by the Company or any of
its Subsidiaries; or (iii) result in a violation or breach of, or constitute a
default (or give rise to any rights of termination, amendment, cancellation or
acceleration) under, any of the terms, conditions or provisions of any Contract
to which the Company or any of its Subsidiaries is a party or by which any of
their assets or properties is bound; or (iv) violate, conflict with or result in
any breach of any Order or Law applicable to the Company or any of its
Subsidiaries except in the cases of subparagraphs (ii) and (iii), for such
violations, breaches and defaults which do not, individually or in the
aggregate, have a Material Adverse Effect.
Section 3.06 Financial Statements. (a) The Company has delivered to the
Parent true and correct copies of the Latest Balance Sheet, together with
statements of cash flows and operations for the period then ended (collectively,
the "Financial Statements").
(b) The Financial Statements were prepared from and in accordance with
the Books and Records of the Company and any of its Subsidiaries in accordance
with GAAP consistently applied (except for missing footnotes and non-material
year-end adjustments), are true and correct and fairly present the financial
condition, results of operations, changes in shareholder's equity and cash flow
of the Company as of and for the periods indicated or as of the respective dates
set forth therein.
(c) As of the date hereof, the Company and its Subsidiaries did not
have any Liabilities that were not adequately reflected or reserved for in the
Latest Balance Sheet except (i) as set forth in Schedule 3.06 (none of which
would have a Material Adverse Effect) or (ii) for current liabilities incurred
in the ordinary course of business consistent with past practice since the date
of the Latest Balance Sheet. Except as set forth in Schedule 3.06, the Company
has no Liabilities which are unrelated to the Business as currently conducted.
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Section 3.07 Absence of Certain Changes. Except as set forth in
Schedule 3.07 or as expressly permitted by this Agreement or the Transaction
Documents, since the date of the Latest Balance Sheet, the Company and its
Subsidiaries have been operated only in the ordinary course of business and have
not suffered any Material Adverse Effect, and no condition or event, change or
development has occurred which, individually or in the aggregate, may result in
such a Material Adverse Effect and the Company has not:
(i) (x) declared, set aside or paid any dividend or made any other
actual, constructive or deemed distribution with respect to any of its
shares of capital stock, or otherwise made any payments to any of the
stockholders in their capacity as such; (y) redeemed, purchased or
otherwise acquired any of its shares of capital stock or any other
securities or any rights, warrants or option to acquire any such shares
or other securities; (z) split, combined or reclassified any of its
shares of capital stock or issued or authorized the issuance of, or
granted any registration rights with respect to, any shares of its
capital stock or any other securities in respect of, in lieu of or in
substitution for any of its shares of capital stock;
(ii) amended its Articles of Organization or By-laws;
(iii) (w) granted to any officer or director any increase in
compensation, severance or termination pay or voluntarily accelerated
the vesting thereof, (x) entered into, terminated or modified in any
material respect any employment, severance, termination or consulting
agreement with any employee, officer, director or consultant, (y)
increased or established any bonus, insurance, deferred compensation,
pension, retirement, savings, profit-sharing, stock option (including
the granting of stock options, stock appreciation rights, performance
awards or restricted stock awards or the amendment of any existing
stock options, stock appreciation rights, performance awards or
restricted stock awards), stock purchase or other employee benefit plan
or agreement or arrangement (except for one-time cash bonus payments to
certain employees in an aggregate amount not to exceed $19,000 in the
aggregate), (z) suffered or received threats of any labor strike,
dispute, slowdown or work stoppage;
(iv) suffered any damage, destruction or other loss, whether or
not covered by insurance in excess of $100,000;
(v) made any payment in excess of $10,000 to any Stockholder or
any Affiliate of a Stockholder;
(vi) revalued any of its assets;
(vii) licensed, sold, transferred, pledged, modified, disclosed,
disposed of or permitted to lapse any Intellectual Property rights,
except in the ordinary course of business consistent with past
practice;
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(viii) incurred, assumed, created or guaranteed, directly or
indirectly, any Liability, except for trade or business obligations in
the ordinary course of business consistent with past practice;
(ix) sold, transferred or leased any assets, except for the sale
of inventory in the ordinary course of business consistent with past
practice;
(x) made any change in accounting methods, policies, practices or
principles;
(xi) amended, renegotiated or terminated (other than by completion
thereof) any Contract except in the ordinary course of business
consistent with past practice;
(xii) made any capital expenditure in excess of $50,000;
(xiii) entered into any (A) purchase Contracts in excess of its
normal operating inventories or at prices above customary prices or (B)
sales Contracts in excess of $50,000 or at prices below customary
prices; or
(xiv) agreed, whether in writing or otherwise, to take any action
of a type described in this Section 3.07.
Section 3.08 Litigation. Except as set forth in Schedule 3.08, (i)
there is no Order in effect to which the Company or any of its Subsidiaries or
any Affiliate or Representative thereof is a party and which relates to or
affects the Company or any of its Subsidiaries, the Business or the Transaction
and (ii) neither the Company nor any of its Subsidiaries nor any Affiliate or
Representative thereof is a party to, or engaged in, or to the Knowledge of the
Company and any of its Subsidiaries, threatened, with any Action which relates
to or affects the Company and any of its Subsidiaries, the Business or the
Transaction, and, to the Knowledge of the Company, no event has occurred or
condition exists which would form the basis of an Action described in this
Section 3.08. None of the Actions disclosed or required to be disclosed in
Schedule 3.08, if adversely determined will have a Material Adverse Effect. Each
item set forth in Schedule 3.08 includes a brief description of the matter in
controversy, the parties involved and the amount in dispute.
Section 3.09 Compliance with Laws. The Company and each of its
Subsidiaries is, and has been, in full compliance with all Laws and Orders
applicable to it or to the conduct or operation of the Business or the ownership
or use of any of its assets, except for such non-compliance as would not
reasonably be expected to have a Material Adverse Effect. To the Knowledge of
the Company, no investigation or review by any Governmental Entity with respect
to the Company or any of its Subsidiaries is pending or threatened, nor has any
Governmental Entity indicated an intention to conduct any such investigation or
review. Schedule 3.09 contains a complete and accurate list of all Permits that
are held by the Company and each of its Subsidiaries or that otherwise relate to
the Business or to any of the assets owned or used by the
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Company or any of its Subsidiaries. The Permits listed in Schedule 3.09
constitute all of the Permits necessary to permit the Company and each of its
Subsidiaries lawfully to conduct and operate the Business in the manner in which
it currently conducts and operates the Business and to permit the Company and
each of its Subsidiaries to own and use its assets in the manner in which it
currently owns and uses such assets. The Company and each of its Subsidiaries is
in full compliance with all of the terms and requirements of each Permit
identified or required to be identified in Schedule 3.09, except for such
non-compliance as would not have a Material Adverse Effect.
Section 3.10 Environmental Matters. Except as set forth in Schedule
3.10, no real property currently or previously owned or leased by the Company or
any of its Subsidiaries has been used at any time during such ownership or
leasing: (i) as a site for the storage or disposal of any Hazardous Material or
(ii) so as to cause a violation of or to give rise to a removal, restoration or
reimbursement Liability under any Environmental Law. Neither the Company nor any
of its Subsidiaries has any Liability under any applicable Environmental Law or
under any Contract related to or affecting the Business with respect to or as a
result of (A) the storage, handling or removal by or at the request of the
Company or any of its Subsidiaries or any predecessor of the Company or any of
its Subsidiaries of any Hazardous Material at or from such real property or the
premises demised under any such Contract or any such previously owned or leased
properties, (B) the disposition of such removed Hazardous Materials at any other
locations, (C) the Release or presence of Hazardous Materials at any location or
(D) the discontinuance, sale or transfer of operations of any business conducted
at such real property or any such previously owned or leased properties. The
Company and each of its Subsidiaries is, and at all times has been, in
compliance in all material respects with all applicable Environmental Laws,
including in connection with the acquisition, storage, handling, transportation,
processing, use, disposal or recycling of any goods or materials, whether as raw
materials, work-in-process, finished goods or otherwise.
Section 3.11 Taxes. (a) All federal, state, local and foreign tax
returns required to be filed by or on behalf of the Company or any of its
Subsidiaries or any consolidated, combined, affiliated or unitary group of which
the Company or any of its Subsidiaries is or has ever been a member have been
timely filed or requests for extensions have been timely filed and any such
extensions have been granted and have not expired. Each such tax return was
true, complete and correct. All Taxes with respect to taxable periods covered by
such tax returns and all other material Taxes for which the Company or any of
its Subsidiaries 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, in accordance with GAAP consistently applied.
(b) All Taxes due with respect to any completed and settled audit,
examination or deficiency litigation with any taxing authority for which the
Company or any of its Subsidiaries is or might otherwise be liable have been
paid in full. Except as set forth in Schedule 3.11, there is no audit,
examination, deficiency or refund Action pending with respect to any Taxes and
no taxing authority has given written notice of the commencement of any audit,
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examination or deficiency litigation with respect to any Taxes. No issue has
arisen in any examination of the Company or any of its Subsidiaries 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.
(c) No Encumbrances for Taxes exist with respect to any of the assets
of the Company or of any of its Subsidiaries, except for Taxes not yet due and
payable.
(d) There is no tax sharing agreement or similar arrangement that will
require any payment by the Company or by any of its Subsidiaries after the date
of this Agreement.
(e) Neither the Company nor any of its Subsidiaries has ever been a
member of a group filing consolidated federal income tax returns and neither the
Company nor any of its Subsidiaries has any liability for the Taxes of any
person (other than the Company or any of its Subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any corresponding provision of state, local or
foreign Tax law), as a transferee or successor, by contract, or otherwise.
(f) The Company and each of its Subsidiaries has timely withheld proper
and accurate amounts from its employees, customers, independent contractors,
shareholders and others from whom it is or was required to withhold Taxes in
compliance with all applicable laws and has timely paid all such withheld
amounts to the appropriate taxing authorities.
(g) There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any claim for, or the period for
the collection or assessment of, Taxes of the Company or of any of its
Subsidiaries due for any taxable period.
(h) None of the assets of the Company or any if its Subsidiaries (i) is
tax-exempt use property within the meaning of section 168(h) of the Code, (ii)
directly or indirectly secures any debt the interest on which is exempt under
section 103(a) of the Code or (iii) is property that is required to be treated
as being owned by any person (other than the Company or any of its Subsidiaries)
pursuant to the provisions of section 168(f)(8) of the Internal Revenue Code of
1954, as amended, and in effect immediately before the enactment of the Tax
Reform Act of 1986.
(i) Neither the Company nor any of its Subsidiaries will be required to
include in a taxable period ending after the Closing Date taxable income
attributable to income that economically accrued in a taxable period ending on
or before the Closing Date as a result of the installment method of accounting,
the completed contract method of accounting, any method of reporting revenue
from Contracts which are required to be reported on the percentage of completion
method (as defined in Section 460(b) of the Code) but that were reported using
another method of accounting, or any other method of accounting. Neither the
Company nor any of its Subsidiaries is required to include in income any
adjustment pursuant to Section 481(a) of the Code (or similar provisions of
other laws) in its current or in any future taxable period by
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reason of a change in accounting method; nor do the Company or any of its
Subsidiaries have any knowledge that the Internal Revenue Service (or other
taxing authority) has proposed or is considering proposing any such change in
accounting method; and neither the Company nor any of its Subsidiaries has an
application pending with any taxing authority requesting permission for any
change in accounting method.
(j) The Company and each of its Subsidiaries has disclosed on its
federal income tax returns all positions taken therein that could give rise to a
substantial understatement of federal income tax within the meaning of Section
6662 of the Code.
(k) Neither the Company nor any of its Subsidiaries is a partner or a
member of any partnership or joint venture, or any other entity classified as a
partnership for federal income tax purposes.
(l) Neither the Company nor any of its Subsidiaries is a party to any
Contract, plan, understanding or other arrangement which, individually or
collectively with respect to any person, could give rise to the payment of any
amount that would not be deductible by the Company or any of its Subsidiaries by
reason of Section 162(a)(1), 280G or 404 of the Code.
(m) No claim has been made by any taxing authority in a jurisdiction
where the Company or any of its Subsidiaries does not file tax returns that the
Company or any of its Subsidiaries is or may be subject to Tax in that
jurisdiction.
Section 3.12 Employee Benefit and Labor Matters. (a) Except as set
forth in Schedule 3.12(a), neither Company nor any of its Subsidiaries is a
party to any Contract regarding collective bargaining or other Contract with any
labor union or association representing any employee employed by the Company or
any of its Subsidiaries or otherwise engaged in the Business, nor does any labor
union or collective bargaining agent represent any employee employed by the
Company or by any of its Subsidiaries. To the Knowledge of the Company, no
Contract regarding collective bargaining has been requested by, or is under
discussion between management of the Company or any of its Subsidiaries (or any
management group or association of which the Company or any of its Subsidiaries
is a member or otherwise a participant) and any group of employees employed by
the Company or any of its Subsidiaries or otherwise engaged in the Business, nor
are there any representation proceedings or petitions seeking a representation
proceeding presently pending against the Company or any of its Subsidiaries with
the National Labor Relations Board or any other labor relations tribunal, nor
are there any other current activities known to the Company or any of its
Subsidiaries to organize any employees of the Company or any of its Subsidiaries
into a collective bargaining unit. There is no unfair labor practice charge or
complaint pending or, to the Knowledge of the Company, threatened. During the
past three years, there has been no labor strike, slow-down, work stoppage,
arbitration, grievance or other work-related dispute involving the Company or
any of its Subsidiaries or otherwise related to the Business, and no such
dispute is now pending or, to the Knowledge of the Company, threatened against
the Company or any of its Subsidiaries.
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(b) Schedule 3.12(b) sets forth a true, accurate and complete list of
each pension, retirement, savings, cash balance, money purchase, profit sharing,
deferred compensation, annuity, medical, vision, dental and other health plan,
cafeteria, short- and long-term disability, accident and life insurance plan,
bonus, stock option, stock appreciation, phantom stock, restricted stock, stock
purchase, incentive, severance, vacation and special compensation and other plan
and each other employee benefit plan, program, and Contract (whether written or
oral, direct or indirect, or whether subject to ERISA) which is related to the
Business and to which the Company or any of its Subsidiaries contributes or is
required to contribute, or which the Company or any of its Subsidiaries
sponsors, maintains or administers or which is otherwise applicable to employees
or categories of employees of the Company or of any of its Subsidiaries
(hereinafter referred to collectively as the "Plans"). Except as set forth on
Schedule 3.12(b), true, accurate and complete copies of the following documents
relating to such Plans have previously been delivered to the Parent: (A) all
Plans and related trust and insurance documents, and amendments thereto; (B) the
three most recent Forms 5500 with all required schedules and attachments; (C)
the latest IRS determination letter; (D) summary plan descriptions; (E) written
descriptions of all material non-written agreements relating to the Plans; and
(F) for each Plan subject to Section 3.2 of ERISA, the compliance test results
for the preceding three plan years. Each Plan has been maintained in accordance
with its terms and applicable law.
(c) Except as set forth in Schedule 3.12(c), none of the Plans is
subject to Title IV of ERISA or Section 412 of the Code and neither the Company
nor any of its Subsidiaries has maintained, contributed to, participated in or
incurred any liability to any plan subject to Title IV of ERISA or Section 412
of the Code in the last six years.
(d) Neither the Company nor any of its Subsidiaries has ever been
required to contribute to, or incurred any liability under, any "multiemployer
plan" (as defined in Section 4001(a)(3) of ERISA).
(e) No person or entity is or has ever been treated as a single
employer together with the Company or any of its Subsidiaries within the meaning
of Section 414(b), (c), (m) or (o) of the Code or Section 4001(b) of ERISA.
(f) Each Plan intended to be qualified under Section 401(a) of the Code
is so qualified and the trust under each such Plan is exempt from taxation under
Section 501 of the Code. The Company or its Subsidiaries has received from the
IRS a favorable determination letter with respect to the qualified status of
each Plan intended to be so qualified, which takes into account amendments for
which the remedial amendment period has expired and no thing has been done or
not done that could adversely affect the qualified status of any Plan intended
to be so qualified and the IRS has taken no action to revoke any such
determination letter.
(g) To the Knowledge of the Company after due inquiry, except as set
forth on Schedule 3.12(g), there are no actions, suits or claims pending (other
than routine claims for
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benefits) nor are there any actions, suits or claims (other than routine claims
for benefits) that could reasonably be expected to be asserted against any Plan
or against the fiduciaries of any Plan.
(h) No "prohibited transaction" within the meaning of Section 406 of
ERISA or Section 4975 of the Code has occurred with respect to any Plan subject
to the Code or ERISA, which is not otherwise exempt by statute, regulation or
administrative ruling or opinion. No civil or criminal action under Title I of
ERISA is pending or threatened against any fiduciary with respect to any Plan.
To the Knowledge of the Company, no Plan nor any fiduciary of a Plan has been
the direct or indirect subject of an audit, investigation or examination by any
governmental or quasi-governmental agency.
(i) Except as set forth on Schedule 3.12(i), each Plan that is an
employee welfare benefit plan within the meaning of Section 3(1) of ERISA may be
amended or terminated at any time without liability to the Company or any of its
Subsidiaries. Except as set forth on Schedule 3.12(i) or as required under
Section 4980B of the Code or Section 601 et. seq. of ERISA, neither the Company
nor any of its Subsidiaries has any obligation to provide post-retirement
welfare benefits to employees of the Company or any of its Subsidiaries. All
claims for benefits incurred by employees on or before the Closing Date are
fully covered by third-party insurance policies or programs, other than claims
for benefits where coverage has been denied for specific claims made by
employees under such insurance policies or programs.
(j) Schedule 3.12(j) sets forth a true, accurate and complete list of
each employment, consulting, termination, retention and severance Contract
(whether written or oral) between the Company or any of its Subsidiaries and its
employees and consultants. All such Contracts are valid and enforceable to the
full extent of applicable Law, and neither the Company nor any of its
Subsidiaries nor, to the Knowledge of the Company and any of its Subsidiaries,
any employee is in default in any material respect under any thereof. Except as
set forth in Schedule 3.12(j), neither the execution, delivery or performance of
this Agreement or the Transaction Documents nor the consummation of the
Transaction will result in any obligation to pay any employees of the Company or
of any of its Subsidiaries severance pay, or termination, retention or other
benefits.
(k) The Company and each of its Subsidiaries has previously provided to
the Parent a true, complete and correct list as of the date set forth therein of
each employee, independent contractor or leased employee of the Company or of
any of its Subsidiaries (including those who are actually employed or on layoff,
leave, or disability or other permitted absence from employment), together with
each such individual's (i) starting date of work and (ii) present hourly or, if
salaried, annual compensation rate. Neither the Company nor any of its
Subsidiaries is delinquent in payments to any of its employees or consultants
for any wages, salaries, commissions, bonuses or other direct compensation for
any services performed by them to the date hereof or amounts required to be
reimbursed to such employees or consultants. None of such persons has notified
the Company or any of its Subsidiaries, and the Company has no
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reason to believe, that any of such persons intends to terminate its employment
or other relationship with the Company or any of its Subsidiaries following the
consummation of the Transaction.
(l) To the extent applicable, the Company and each of its Subsidiaries
has complied with all requirements of the Worker Adjustment and Retraining
Notification Act of 1988 and has not incurred, nor is reasonably expected to
incur, any liability under such Act. The Company has never contracted with any
"leased employee" within the meaning of Section 414(n) of the Code. Each person
who performs services to the Company is and has been properly classified as a
"common law employee" for all purposes under the Law and the Plan.
(m) No charge against the Company or any of it Subsidiaries or any of
its employees is pending before the Equal Employment Opportunity Commission or
any other Governmental Entity responsible for the prevention of unlawful
employment. No claims relating to employment or loss of employment from the
Company or any of its Subsidiaries are pending in any Governmental Entity and,
to the best Knowledge of the Company and any of its Subsidiaries after due
inquiry, no such claims are threatened. No notice of intent of any Governmental
Entity responsible for the enforcement of labor or employment regulations to
conduct an investigation has been received, and no such investigation is in
progress. All employees presently employed by the Company and each of its
Subsidiaries are authorized for employment by the Company and each of its
Subsidiaries in accordance with the Immigration and Naturalization Act, as
amended and regulations promulgated thereunder. The Company and each of its
Subsidiaries has completed and retained in accordance with Immigration and
Naturalization Service regulations a Form I-9 for all employees hired on or
after November 7, 1986, except for those employees of Harris & Jeffries Network
Technologies (India) Private Limited who are employed and reside exclusively in
India.
Section 3.13 Other Compensation Arrangements. Except as set forth in
Schedule 3.13, neither the Company nor any of its Subsidiaries is a party to any
(i) consulting Contract (as recipient of services) currently in effect (x)
terminable on more than 30 calendar days notice or (y) involving the payment of
more than $25,000 per annum, (ii) Contract with any employee of the Company or
of any of its Subsidiaries (x) the benefits of which are contingent, or the
terms of which are materially altered, upon the occurrence of a transaction
involving the Company or any of its Subsidiaries of the nature contemplated by
this Agreement and the Transaction Documents or (y) providing any term of
employment or compensation guarantee or (iii) Contract or Plan, including any
stock option plan, stock appreciation right plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of the Transaction
or the value of any of the benefits of which will be calculated on the basis of
the Transaction.
Section 3.14 Property. (a) The Company and each of its Subsidiaries has
good and marketable title to all property, equipment and other assets owned by
it (whether personal, mixed, tangible or intangible), free and clear of any
Encumbrance, except for Permitted
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Encumbrances. Neither the Company nor any of its Subsidiaries owns any real
property. The Company and each of its Subsidiaries has valid and enforceable
leases for the premises and the equipment, furniture and fixtures purported to
be leased by it, free and clear of any Encumbrance, except for Permitted
Encumbrances.
(b) The Company and each of its Subsidiaries enjoys peaceful and
undisturbed possession of all property leased, subleased or occupied by the
Company and each of its Subsidiaries pursuant to a lease. There are no
restrictions imposed by any lease or other Contract or by Law which preclude or
restrict the ability to use the property leased, subleased or occupied by the
Company or any of its Subsidiaries pursuant to a lease for the purposes for
which they are currently being used. Neither the Company nor any of its
Subsidiaries is in default, and no notice of alleged default has been received
by the Company or any of its Subsidiaries, under any such lease or Contract and
no lessor is in default or alleged to be in default thereunder.
(c) The properties, assets and rights owned or leased by the Company or
any of its Subsidiaries constitute all properties (whether real or personal or
tangible or intangible), assets and rights necessary for the Company or any of
its Subsidiaries to conduct its business after the Closing Date as it is
presently conducted by the Company or any of its Subsidiaries and as it will be
conducted on the Closing Date, and no Stockholder or any Affiliate of any
Stockholder or of the Company or any of its Subsidiaries owns or leases any of
such properties, assets or rights.
(d) The facilities and equipment owned or leased by the Company or any
of its Subsidiaries are in good operating condition and repair and free from any
defects, reasonable wear and tear excepted, and is suitable for the uses for
which they are being used and are performing the functions for which they were
intended.
Section 3.15 Intellectual Property Matters. (a) Set forth in Schedule
3.15(a)(i) are all domestic and foreign (i) issued patents, pending patent
applications, approved patents and invention disclosures awaiting filing, (ii)
registered trademarks and service marks, pending trademark and service mark
applications, and (iii) registered copyrights, and pending copyright
applications together with the name of the owner of each thereof, the country
and the serial number, if applicable, that are owned (in whole or in part) by
the Company or any of its Subsidiaries (the "Registered Business Intellectual
Property"). Set forth in Schedule 3.15(a)(ii) are all domestic and foreign
unregistered trademarks and service marks that are presently being used, and
that have been used, by the Company, or any of its Subsidiaries, in the conduct
of its Business together with the name of the owner of each such trademark or
service mark and the jurisdictions in which the Company, or any of its
Subsidiaries, presently uses or has used such trademark or service mark.
(b) Set forth in Schedule 3.15(b) are all computer applications and
operating programs now or previously made available by the Company, or any of
its Subsidiaries, to its
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customers in the conduct of its Business, whether in source code, object code,
and/or executable code form, inclusive of all documentation provided therewith,
whether or not subject of registered copyright (the "Software Products").
(c) Set forth in Schedule 3.15(c) are all Contracts of the Company, or
of any of its Subsidiaries, relating to the Business Intellectual Property,
including the distribution or license of Business Intellectual Property (whether
as licensor or licensee). Also set forth in Schedule 3.15(c) are Contracts of
the Company, or of any of its Subsidiaries, with current or former employees,
consultants, contractors, or licensors, regarding the assignment, appropriation,
or license of any Business Intellectual Property as well as substantially all of
the Contracts of the Company, or of any of its Subsidiaries, with current or
former employees, consultants, contractors or licensors, or any other party or
Person regarding the nondisclosure of any Business Intellectual Property (the
"Technology Agreements").
(d) Except for those items identified in Schedule 3.15(d):
(i) the Company, or any of its Subsidiaries, owns all right, title
and interest in and to the Business Intellectual Property including,
but not limited to, the Software Products, listed, or required to be
listed, in Schedule 3.15(b), and has an absolute right to use all of
the Business Intellectual Property free and clear of any Encumbrances
and free from any requirement of any past, present or future payments
(other than maintenance and similar payments), charges or fees or
conditions, rights or restrictions (it being understood that it will
not be considered a breach of this representation and warranty if
either (A) the Company and its Subsidiaries do not have exclusive trade
secret rights to particular information that the Company and its
Subsidiaries protect as a trade secret because the same information has
been, or in the future is, developed independently by another Person
without access to or use of documents or materials belonging to the
Company or any of its Subsidiaries and with no direct or indirect
involvement or participation by any employee of the Company or any of
its Subsidiaries, or (B) the Company and its Subsidiaries do not have
exclusive trademark or similar rights to any registered or unregistered
trademark or service mark owned or used by the Company or any of its
Subsidiaries as a result of the use of the same or a similar mark by
another Person in a jurisdiction where the Company and its Subsidiaries
have not registered and do not use such trademark or service mark);
(ii) all Technology Agreements listed, or required to be listed,
in Schedule 3.15(c) were entered into by authorized representatives of
the Company or any of its Subsidiaries;
(iii) none of the Software Products, or any service rendered by
the Company or any of its Subsidiaries, or any product, process or
material developed, manufactured, produced, or used by the Company or
by any of its Subsidiaries, infringes upon, or to the
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Knowledge of the Company, is alleged to infringe upon, any Intellectual
Property or other rights owned or held by any other Person;
(iv) the Company and all of its Subsidiaries are free to use and
exploit, without the requirement of any additional royalties, fees, or
other payments not already paid, the Business Intellectual Property
including, but not limited to, the Software Products, as presently used
and as intended to be used;
(v) the rights of the Company, or any of its Subsidiaries, in and
to all Registered Business Intellectual Property are valid and
enforceable, and no Business Intellectual Property is subject to any
outstanding Encumbrance, judgment, ruling, order, writ, decree,
stipulation, injunction or determination by or with any Governmental
Authority, nor is there (or has there been) any pending or, to the
Knowledge of the Company, threatened, Action relating to any Business
Intellectual Property (including any interference, reissue,
reexamination or opposition proceeding or proceeding contesting the
rights of the Company, or of any of its Subsidiaries, to any Business
Intellectual Property or the ownership, use, enforceability or validity
of any Business Intellectual Property);
(vi) to the Knowledge of the Company, there is not nor has there
been any infringement or misappropriation of any Business Intellectual
Property by any party or Person;
(vii) there are no Technology Agreements between the Company, or
any of its Subsidiaries, and any other party or Person, that have been
terminated or expired prior to the date of this Agreement and under
which the Company or any of its Subsidiaries has granted rights or
licenses in any Business Intellectual Property or granted an option to
acquire any rights or licenses in any Business Intellectual Property,
which rights or licenses or option to acquire survived such termination
or expiration;
(viii) neither the Company nor any of its Subsidiaries has
covenanted or agreed with any Person not to sue or otherwise enforce
any legal rights with respect to any Business Intellectual Property;
(ix) all Registered Business Intellectual Property, Software
Products, and trade secrets (other than Registered Business
Intellectual Property, Software Products, and trade secrets subject to
license agreements in favor of the Company or of any of its
Subsidiaries set forth in Schedule 3.15(c)) were developed entirely by
employees of the Company or any of its Subsidiaries, or their
respective contractors under written agreement that includes an
assignment of all right, title and interest of all Intellectual
Property developed under the agreement to the Company or any of its
Subsidiaries, during the time they were employees of, or contractors
to, the Company or any of its Subsidiaries;
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(x) all of the Registered Business Intellectual Property, Software
Products, and all services rendered by the Company, or any of its
Subsidiaries, and all products, processes or materials developed,
manufactured, produced, or used, by the Company, or by any of its
Subsidiaries, are in compliance in all material respects with all
applicable Laws (including payment of filing, examination, and
maintenance fees and proofs of working or use);
(xi) all agreements between the Company or any of its Subsidiaries
and any third party or Person with respect to the Company's licensing,
distribution, or transfer of the Business Intellectual Property,
including, but not limited to, the Software Products, are on a
non-exclusive basis and no agreements are subject to clauses that
materially change the terms of such agreements as a result of the
Transactions;
(xii) neither the Company nor any of its Subsidiaries has sold,
assigned, licensed or otherwise transferred any Business Intellectual
Property developed or acquired by the Company, or any of its
Subsidiaries, except for end-user licenses to the Software Products
granted by the Company, or any of its Subsidiaries, in the ordinary
course of business unless otherwise set forth in Schedule 3.15(d)(xii);
and
(xiii) no Registered Business Intellectual Property has been
abandoned or has expired for non-payment of maintenance fees or failure
to respond to administrative deadlines.
(e) The Company and each of its Subsidiaries have taken sufficient and
reasonable steps (including measures to protect secrecy and confidentiality) to
protect the Company's and any of its Subsidiaries' right, title and interest in
and to all Business Intellectual Property. The Company and each of its
Subsidiaries have entered into valid and binding confidentiality agreements with
all employees, agents, consultants and other representatives of the Company, or
any of its Subsidiaries, who have, or have had, access to confidential or
proprietary information of the Company or any of its Subsidiaries, under which
such employees, agents, consultants and representatives are obligated not to use
for unauthorized purposes or disclose to any other Person such confidential or
proprietary information.
(f) All employees, agents, consultants, independent software
developers, and any other Persons that participated in the development of the
Software Products have duly executed and delivered agreements with the Company,
or any of its Subsidiaries, pertaining to the assignment, without additional
consideration, to the Company, or any of its Subsidiaries, of all software code,
documentation, inventions, discoveries and ideas, whether or not patented or
patentable, written, developed, conceived or reduced to practice during the
course of their employment or engagement by the Company or any of its
Subsidiaries.
(g) The documentation relating to trade secrets and confidential
business and technical information included in the Business Intellectual
Property including, but not limited to
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source code associated with the Software Products, is current, accurate, and
sufficient in detail and content to identify and explain such trade secrets and
confidential business and technical information and to allow its full and proper
use without reliance on the knowledge or memory of any Person.
(h) The Business Intellectual Property constitutes all Intellectual
Property rights necessary to conduct fully the Business as currently conducted,
as it will be conducted through the Closing Date, and as it is currently
anticipated to be conducted after the Closing Date.
(i) Except as set forth in Schedule 3.15(i)(i), none of the Company or
any of its Subsidiaries has disclosed or delivered to any Person, or permitted
the disclosure or delivery to any escrow agent or other Person, of any source
code, or any portion, aspect or segment of any source code, relating to any
Software Products (the "Company Source Code"). No event has occurred, and no
circumstance or condition exists, that (with or without notice or lapse of time)
will, or could reasonably be expected to, result in the disclosure or delivery
to any Person of any Company Source Code or the release from any escrow of any
other Business Intellectual Property. Schedule 3.15(i)(ii) identifies each
Contract pursuant to which the Company or any of its Subsidiaries has deposited
or is required to deposit with an escrow holder or any other Person any Company
Source Code, and further describes whether the execution of this Agreement or
the consummation of any of the Transactions could reasonably be expected to
result in the release or disclosure of any Company Source Code or the release
from any escrow of any other Business Intellectual Property.
(j) To the best of the Knowledge of the Company, except as set forth in
Schedule 3.15(j)(i), each computer, computer program and other item of software
(whether installed on a computer or on any other piece of equipment, including
firmware) that is owned or used by the Company or any of its Subsidiaries for
their internal business operations is Year 2000 Compliant. To the best of the
Knowledge of the Company, except as set forth in Schedule 3.15(j)(ii), each
computer program and other item of software that has been designed, developed,
sold, licensed or otherwise made available to any Person by the Company or any
of its Subsidiaries. To the best of the Knowledge of the Company, except as set
forth in Schedule 3.15(j)(iii), each of the Company and its Subsidiaries has
conducted sufficient Year 2000 compliance testing for each computer, computer
program and item of software referred to in the preceding two sentences to be
able to determine whether such computer, computer program and item of software
is Year 2000 Compliant. Each of the Company and its Subsidiaries has obtained
warranties or other written assurances from each of its suppliers or licensors
of any material Business Intellectual Property to the effect that the Business
Intellectual Property provided by such suppliers and licensors to the Company or
any of its Subsidiaries is Year 2000 Compliant. For purposes of this Section
3.15(j), a computer, computer program or other item of software shall be deemed
to be "Year 2000 Compliant" only if (i) the functions, calculations and other
computing processes of such computer, program or software perform in a
consistent and correct manner without interruption regardless of the date on
which such functions, calculations
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and processes are actually performed and regardless of the date input to the
applicable computer system (whether before, on or after January 1, 2000); (ii)
such computer, program or software accepts, calculates, compares, sorts,
extracts, sequences and otherwise processes date inputs and date values, and
returns and displays date values, in a consistent and correct manner regardless
of the dates used (whether before, on or after January 1, 2000); (iii) such
computer, program or software accepts and responds to year input in a manner
that resolves any ambiguities as to century in a defined, predetermined and
appropriate manner; (iv) such computer, program or software stores and displays
date information in ways that are unambiguous as to the determination of the
century; and (v) such computer, program or software determines leap years in
accordance with the following standard: (A) if dividing the year by 4 yields an
integer, it is a leap year, except for years ending in 00, but (B) a year ending
in 00 is a leap year if dividing it by 400 yields an integer.
(k) Except with respect to demonstration or trial copies, no product,
system, program or software module designed, developed, sold, licensed or
otherwise made available by the Company or any of its Subsidiaries to any Person
contains any "back door," "time bomb," "Trojan horse," "worm," "drop dead
device," "virus" or other software routines or hardware components designed to
permit unauthorized access or to disable or erase software, hardware or data
without the consent of the user.
Section 3.16 Material Contracts. (a) Schedule 3.16(a) identifies all of
the following types of agreements, understandings, Contracts, obligations or
promises (whether written or oral) to which the Company or any of its
Subsidiaries is a party or by which any of its properties or assets is bound:
(i) (A) for the employment or retention of any officer, employee
or consultant which provides for severance or other termination payment
to any such officer, employee or consultant if terminated (except as
imposed by Law), (B) with any labor union, including any employee
collective bargaining Contracts, or (C) evidencing or relating to
Plans;
(ii) pursuant to which the Company or any of its Subsidiaries is
the lessee of, or holds or uses, or is the lessor of, or makes
available for use, (A) any real property or (B) any machinery,
equipment, vehicle or other tangible personal property, which has an
aggregate annual future liability or receivable, as the case may be, in
excess of $25,000;
(iii) which are continuing for the purchase or sale by or from the
Company or any of its Subsidiaries of inventory, materials, equipment,
supplies or other goods or services (including any obligation to "take
or pay" for such purchases or sales) and involve payments by or to the
Company or by or to any of its Subsidiaries of $50,000 or more in any
fiscal quarter (and a brief summary of the terms of such Contracts are
set forth in Schedule 3.16(a));
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(iv) all contracts with customers and suppliers referred to in
Section 3.18;
(v) relating to indebtedness of the Company or any of its
Subsidiaries, including any note, bond, debenture, instrument or other
evidence of indebtedness under which the Company or any of its
Subsidiaries has borrowed any money from, or loaned any money to, any
Person;
(vi) providing for or containing any mortgage, pledge, security
agreement, deed of trust, financing lease or similar instrument
granting an Encumbrance upon any Real Property or personal property
owned or used by the Company or any of its Subsidiaries;
(vii) under which (A) any Person has directly or indirectly
guaranteed indebtedness or other Liabilities of the Company or any of
its Subsidiaries, (B) neither the Company nor any of its Subsidiaries
has directly or indirectly guaranteed indebtedness or other Liabilities
of any Person or (C) neither Company nor any of its Subsidiaries has
any obligations relating to the financial condition of any other Person
(including so-called "keepwell" agreements), in each case, other than
endorsements for the purpose of collection in the ordinary course of
business;
(viii) (A) for the management, operation or control by or of any
Person (or any division, material assets, operating unit or product
line thereof), (B) under which the Company or any of its Subsidiaries
has, directly or indirectly, made any advance, loan, extension of
credit or capital contribution to, or other investment in, any Person
or (C) which involves a sharing of profits, losses, costs or
Liabilities by the Company or by any of its Subsidiaries with any other
Person, including, stockholder, joint venture, strategic alliance,
joint marketing, research and development, and any other similar
Contracts;
(ix) providing for indemnification to or from any Person with
respect to Liabilities relating to any current or former business of
the Company or of any of its Subsidiaries or any predecessor Person;
(x) between or among any Stockholder, the Company or any of its
Subsidiaries and any of their respective Affiliates;
(xi) which limits or purports to limit the ability of the Company
or any of its Subsidiaries to compete in any line of business or with
any Person or in any geographic area;
(xii) containing confidentiality or non-disclosure obligations to
or from the Company or to or from any of its Subsidiaries;
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(xiii) for the purchase or sale (through the acquisition of
shares, assets or by merger, reorganization, or otherwise) of any
business, corporation, partnership, joint venture, association or other
business organization or any division, material assets, operating unit
or product line thereof;
(xiv) with any Governmental Entity;
(xv) containing any restrictions with respect to payment of
dividends or any other distributions in respect of the capital stock of
the Company or any of its Subsidiaries;
(xvi) which is otherwise material to the Business or the Company
or any of its Subsidiaries and is not described in any of the
categories specified in this Section.
Each item set forth or required to be set forth in Schedule 3.16 (a) is
referred to herein as a "Material Contract".
(b) Each Material Contract was entered into in the ordinary course of
business, is in full force and effect and is a legal, valid and binding
obligation to the Company and to any of its Subsidiaries which is a party
thereto (and to the Knowledge of the Company, each other party or parties
thereto), enforceable in accordance with its terms except as enforceability may
be limited by applicable (i) bankruptcy, insolvency, reorganization, moratorium
and similar laws of general applicability relating to or affecting creditors'
rights and (ii) Laws relating to the availability of specific performance,
injunctive relief or other equitable remedies. The Company and each of its
Subsidiaries has performed in all material respects the obligations required to
be performed by it to date and is not (with or without the lapse of time or the
giving of notice, or both) in breach or default or alleged to be in breach or
default in any material respect under any Material Contract and, to the
Knowledge of the Company, the other parties thereto have complied in all
material respects thereunder. To the Knowledge of the Company, no event has
occurred or circumstance exists that (with or without lapse of time or the
giving of notice) may contravene, conflict with or result in a violation or
breach of or give the Company or any of its Subsidiaries or 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. There are
no re-negotiations of, attempts or requests to re-negotiate or outstanding
rights to re-negotiate any Material Contract with any Person. The Company and
each of its Subsidiaries has previously delivered to the Parent, true and
complete copies of all written Material Contracts and reasonable written
summaries of all oral Material Contracts identifiable by the Company in the
exercise of reasonable diligence.
(c) Except as set forth in Schedule 3.16(c), (A) there are no change of
control or similar provisions or any obligations arising under any Material
Contract which are created, accelerated or triggered by the execution, delivery
or performance of this Agreement or the Transaction Documents or the
consummation of the Transaction and (B) the Transaction will not
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constitute a "change of control" under, require the Consent from or the giving
of notice to any Person, permit any Person to terminate or accelerate vesting,
grant any repayment or repurchase rights to any Person, or create any other
detriment under the terms, conditions or provisions of any Material Contract.
Section 3.17 Insurance. Schedule 3.17 sets forth a list of the
insurance policies and surety bonds which the Company or any of its Subsidiaries
maintains with respect to the Company or any of its Subsidiaries or their
assets, Liabilities, employees, officers, directors or representatives (the
"Insurance Policies"). Each of such Insurance Policies: (i) 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 Transactions; and (ii) insures the
Company or any of its Subsidiaries in reasonably sufficient amounts against
risks usually insured against by Persons operating similar businesses or
properties in the localities where such businesses or properties are located.
The Company and its Subsidiaries maintain insurance coverage in amounts and for
risks sufficient for compliance with all material requirements of Law and
Contracts of the Company and its Subsidiaries. The Company and each of its
Subsidiaries is current in all premiums or other payments due under each
Insurance Policy and, to the Knowledge of the Company and each of its
Subsidiaries, has otherwise performed in all material respects all of its
respective obligations thereunder. Neither the Company nor any of its
Subsidiaries has received any written notice that any Insurance Policy is not in
full force and effect, and neither the Company nor any of its Subsidiaries has
any 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 and each of its Subsidiaries has given timely notice to the
insurer under each Insurance Policy of all claims that may be insured thereby.
Section 3.18 Customers and Suppliers. (a) Schedule 3.18 sets forth a
list of the 10 most significant customers of the Company or to any of its
Subsidiaries in terms of revenues to the Company or to any of its Subsidiaries
during the twelve-month period ended December 31, 1999, showing the approximate
total revenues of the Company and each of its Subsidiaries from each customer
during the period then ended. Except to the extent set forth in Schedule 3.18,
neither the Company nor any of its Subsidiaries has received any notice or has
Knowledge that any such customer of the Company or of any of its Subsidiaries
has ceased, or will cease, to use the products, equipment, goods or services of
the Company or of any of its Subsidiaries, or has reduced or will reduce, the
use of such products, equipment, goods or services at any time.
(b) Schedule 3.18 sets forth a list of the 10 most significant
suppliers of services (including, without limitation, subcontractors), raw
materials, supplies, merchandise or other goods for the Company or for any of
its Subsidiaries in terms of purchases for the twelve-month period ended
December 31, 1999 by the Company or by any of its Subsidiaries, showing the
amount which the Company or any of its Subsidiaries paid to each such
significant supplier during such period. Except as disclosed in Schedule 3.18,
neither the Company nor any
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of its Subsidiaries has Knowledge that any such supplier will not sell raw
materials, supplies, merchandise and other goods to the Company or to any of its
Subsidiaries on the same terms and conditions to those used in its current sales
to the Company or to any of its Subsidiaries, subject only to general and
customary price increases.
Section 3.19 Disclosure. (a) No representation or warranty of the
Company in this Agreement and no statement attributable to the Company or any of
its Subsidiaries that is contained in any Transaction Document contains any
untrue statement or omits to state a material fact necessary to make the
statements made herein or therein, in light of the circumstances under which
they were made, not misleading. The financial projections provided to the
Parent, its Affiliates and Representatives, copies of which are annexed to this
Agreement as Exhibit I, have been reasonably prepared on bases reflecting the
best currently available estimates and judgment of the Company's management as
to the future operating and financial performances of the Company or any of its
Subsidiaries.
(b) No notice given pursuant to Section 5.05 will contain any untrue
statement or omit to state a material fact necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
Section 3.20 Transactions With Affiliates. Except as set forth in
Schedule 3.20 or as set forth in the notes to the Financial Statements, during
the past three years (other than with respect to shares of Common Stock), no
Stockholder and to the Knowledge of the Company, no Affiliate of any Stockholder
(other than the Company or any of its Subsidiaries) (x) has had any interest in
any property (whether real, personal, or mixed and whether tangible or
intangible), used in or pertaining to the Business or (y) has owned (of record
or as a beneficial owner) an equity interest or any other financial or profit
interest in a Person that has (i) had business dealings or a material financial
interest in any transaction with the Company or with any of its Subsidiaries
(other than business dealings or transactions conducted in the ordinary course
of business at substantially prevailing market prices and on substantially
prevailing market terms), or (ii) to the Knowledge of the Company, engaged in
competition with the Company or with any of its Subsidiaries with respect to any
line of the products or services of the Company or of any of its Subsidiaries in
any market presently served by the Company or by any of its Subsidiaries (except
for ownership of less than two percent of the outstanding capital stock of any
corporation that is publicly traded on any recognized exchange or in the
over-the-counter market).
Section 3.21 Brokers or Finders. The Company has not incurred any
Liability for brokerage or finders' fees or agents' commissions or other similar
payment in connection with the negotiation, preparation, delivery or execution
of this Agreement or the consummation of the Transaction, nor is there any
basis, to the Knowledge of the Company and, for any such fee, commission or
similar payment to be claimed by any Person.
Section 3.22 Product Liability. Neither the Company nor any of its
Subsidiaries has received written notice or otherwise has Knowledge of any
material hazard or defect, or
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alleged hazard or defect, in the manufacture, design, material or workmanship of
any product shipped or manufactured by (including any part or component), or
services provided by, the Company or by any of its Subsidiaries prior to the
Closing Date, except for any which have been cured in the ordinary course of
business without material expense or liability to the Company or to any of its
Subsidiaries or any material redesign of any product.
Section 3.23 Company Information. (a) None of the information supplied
or to be supplied by the Company for inclusion or incorporation by reference in
(i) the Form S-4 will, at the time the Form S-4 or any amendment or supplement
to the Form S-4 is filed with the SEC, or at the time the Form S-4 becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated.
(b) The Proxy Statement will not, on the date it is first mailed to the
Company's Stockholders or at the time of the Stockholders' Meeting, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances in which they are made, not misleading.
Section 3.24 HSR Act. The Company is the ultimate parent entity (as
defined in the HSR Act) of the Company and its Subsidiaries and all other
entities (as defined in the HSR Act) which the Company controls (as defined in
the HSR Act). The Company has total assets and net sales (each determined in
accordance with the HSR Act) of less than $10 million.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND SUB
The Parent and Sub hereby, jointly and severally, represent and warrant
to the Company as follows:
Section 4.01 Organization and Good Standing. Sub is a corporation, duly
incorporated, validly existing and in good standing under the laws of Delaware
and has all requisite corporate power and authority to conduct its business in
the manner in which it is presently being conducted. The Parent is a
corporation, duly incorporated, validly existing and in good standing under the
laws of Delaware and has all requisite corporate power and authority to conduct
its business in the manner in which it is presently being conducted.
Section 4.02 Due Authorization; Enforceability. The Parent and Sub have
all requisite corporate power and authority to execute, deliver and perform,
this Agreement and the Transaction Documents and to consummate the Transaction.
The execution, delivery and performance of this Agreement and the Transaction
Documents and the consummation of the Transaction by the Parent and Sub have
been duly authorized by the Board of Directors of the
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Parent and Sub and by the Parent as sole stockholder of Sub, and all necessary
or appropriate corporate action has been taken. No other corporate proceedings
are necessary to authorize this Agreement or the Transaction Documents or to
consummate the Transaction. This Agreement and those Transaction Documents
executed or delivered on or prior to the date of this Agreement constitute, and
prior to the Closing, the remaining Transaction Documents required to be
executed after the date of this Agreement will constitute when executed, the
valid and legally binding obligations of the Parent and Sub, as the case may be
(assuming that this Agreement and the Transaction Documents constitute the valid
and binding obligations of the Company), enforceable against the Parent and Sub,
as the case may be, in accordance with their terms except as enforceability may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium and similar
laws relating to or affecting the enforcement of creditors' rights in general
and (ii) general principles of equity.
Section 4.03 No Violation. Except for such filings and Consents as may
be required under the DGCL or the MBCL and as set forth in Schedule 4.03,
neither the execution, delivery or performance of this Agreement by the Parent
or Sub, nor the consummation of the Transaction will, with or without the giving
of notice or lapse of time or both (i) violate, conflict with or result in any
breach of any provision of the Certificate of Incorporation or By-laws of the
Parent or Sub; (ii) require any Permit or Consent of any Governmental Entity
(except where the failure to obtain such Permits or Consents would not have a
material adverse effect on the ability of the Parent or Sub to consummate the
Transaction); (iii) result in a violation or breach of, or constitute a default
(or give rise to any right of termination, amendment, cancellation or
acceleration) under any Contract to which the Parent or Sub is a party; (iv)
violate, conflict with or result in any breach of any Order or Law applicable to
the Parent or Sub, except, in the cases of subparagraphs (iii) and (iv) for such
violations, breaches and defaults which do not, individually or in the
aggregate, have a material adverse effect on the ability of the Parent or Sub to
consummate the Transaction.
Section 4.04 Capitalization. (a) The authorized capital stock of the
Parent consists of (x) 1,000,000,000 shares of Conexant Stock and (y) 25,000,000
shares of the Parent's preferred stock, of which two series have been
designated: (1) 1,500,000 shares of Series A Junior Participating Preferred
Stock for issuance in connection with the exercise of the Parent's preferred
share purchase rights and (2) one share of Series B Voting Preferred Stock. As
of June 30, 2000, the following shares of capital stock of the Parent are issued
and outstanding:
(i) Conexant Stock: 218,614,904 shares;
(ii) Series A Junior Participating Preferred Stock: none;
(iii) Series B Voting Preferred Stock: one share.
All issued and outstanding shares of the capital stock of the Parent
are duly authorized, validly issued, fully paid and nonassessable, and no class
of capital stock is entitled
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to preemptive rights. As of June 30, 2000, there are no outstanding options,
warrants or other rights to acquire capital stock from the Parent other than (A)
rights (the "Parent Rights") issued pursuant to the Rights Agreement, dated as
of November 30, 1998, between the Parent and ChaseMellon Shareholder Services,
L.L.C. (the "Parent Rights Agreement"), (B) options under the Parent's equity
incentive plans and warrants and options (other than employee stock options)
representing in the aggregate the right to purchase approximately 44,810,252
shares of Conexant Stock, (C) 15,152,697 shares of Conexant Stock issuable upon
conversion of the 4.25% Convertible Subordinated Notes due 2006, in aggregate
principal amount of $350,000,000, (D) 6,018,519 shares of Conexant Stock
issuable upon conversion of the 4.00% Convertible Subordinated Notes due 2007,
in aggregate principal amount of $650,000,000, and (E) approximately 2,463,916
shares of Conexant Stock that may be issued from time to time in exchange for
shares issued by Philsar Semiconductor Inc. The Parent has reserved for issuance
a sufficient number of shares under the Parent's equity incentive plans to cover
the aggregate number of shares that will be issuable upon the exercise of
Company Options that have been converted into options to acquire Conexant Stock.
(b) The authorized capital stock of Sub consists of 1,000 shares of Sub
Common Stock, of which 1,000 shares are issued and outstanding. No other shares
of capital stock or other voting securities of Sub were issued, reserved for
issuance or outstanding. All of the outstanding shares of Sub Common Stock are
duly authorized, validly issued, fully paid and non-assessable. There are no
bonds, debentures, notes or other indebtedness of Sub having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which any stockholders of Sub may vote.
Section 4.05 Parent SEC Reports. The Parent has filed all required
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC since January 1, 1999 (collectively, including all exhibits
thereto, the "Parent SEC Reports"). No subsidiary of the Parent is required to
file any form, report or other document with the SEC. None of the Parent SEC
Reports, as of their respective dates (and, if amended or superseded by a filing
prior to the date of this Agreement or of the Closing Date, then on the date of
such filing), contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Each of the financial statements (including the related notes)
included in the Parent SEC Reports presents fairly, in all material respects,
the consolidated financial position and consolidated results of operations and
cash flows of the Parent and its Subsidiaries as of the respective dates or for
the respective periods set forth therein, all in conformity with GAAP
consistently applied during the periods involved except as otherwise noted
therein, and subject, in the case of the unaudited interim financial statements,
to normal and recurring year-end adjustments that have not been and are not
expected to be material in amount. All of such Parent SEC Reports, as of their
respective dates (and as of the date of any amendment to the respective Parent
SEC Report), complied as to form in all material respects
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with the applicable requirements of the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder.
Section 4.06 Form S-4. None of the information supplied or to be
supplied by the Parent or Sub for inclusion or incorporation by reference in the
Form S-4 will, at the time any amendment or supplement to the Form S-4 is filed
with the SEC, or at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading. None of the information supplied or to be supplied by the Parent
or Sub for inclusion or incorporation by reference in the Proxy Statement will,
on the date it is first mailed to the Company's stockholders or at the time of
the Stockholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Notwithstanding the foregoing provisions of this
Section 4.06, no representation or warranty is made by the Parent or Sub with
respect to statements made or incorporated by reference in the Proxy Statement
or Form S-4 based on information supplied by the Company for inclusion or
incorporation by reference therein.
Section 4.07 Brokers or Finders. Neither the Parent nor Sub has
incurred any Liability for brokerage or finders' fees or agents' commissions or
other similar payment in connection with the negotiation, preparation, delivery
or execution of this Agreement or the consummation of the Transaction, nor is
there any basis, to the knowledge of the Parent or of Sub, for any such fee,
commission or similar payment to be claimed by any Person.
Section 4.08 Continuity of Business. The Parent has no plan or
intention to liquidate the Company, to merge the Company into another
corporation, to cease the Company's historic business or to cease to use a
significant portion of the Company's historic business assets in another
business.
ARTICLE V
COVENANTS OF THE COMPANY
Section 5.01 Access. The Company hereby agrees that from the date of
this Agreement until the Closing Date, they will (i) provide, or cause to be
provided, to the Parent, Sub and their respective Representatives, reasonable
access, during regular business hours, to the offices, properties, Books and
Records and Representatives of the Company and any of its Subsidiaries
(excluding source code for any Software Products), (ii) furnish to the Parent
and its Representatives, such financial and operating data as such persons
request, including auditors' workpapers, (iii) instruct the Stockholders' and
the Company's Representatives to cooperate with the Parent in its investigation
of the properties of the Company or any of its Subsidiaries and of the financial
and legal condition of the Company or any of its Subsidiaries and (iv) provide,
or
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cause to be provided, to the Parent, the Parent's lenders and their respective
Representatives, subject to the provisions of the Non-Disclosure Agreement,
reasonable access to the customers and suppliers of the Company or of any of its
Subsidiaries; provided, however, that (i) such access or investigation does not
interfere unreasonably with normal operations and (ii) no investigation pursuant
to this Section 5.01 will affect, or limit liability for, any representation or
warranty of the Company contained in this Agreement or in any Transaction
Document and the Parent will be deemed to have relied only upon the
representations and warranties contained in this Agreement notwithstanding any
contrary information that was provided by the Company or any of its Subsidiaries
or any of their respective Representatives or that the Parent discovered or
should have discovered in the course of its investigation.
Section 5.02 Conduct of Business. Except as otherwise agreed to in
writing by the Parent, or as otherwise expressly permitted by this Agreement,
from the date of this Agreement until the Closing, the Company will conduct the
Business only in the ordinary course of business consistent with past practice
and (i) use its best efforts to (A) preserve intact its current business
organizations, (B) keep available the services of its current officers and
employees, (C) preserve its relationships with customers, suppliers, licensers,
licensees, advertisers, distributors and others having business dealings with it
and (D) preserve goodwill; (ii) confer with the Parent and its Representative on
a regular basis concerning material operational matters; (iii) report to the
Parent as and when requested, concerning the status of the Business, operations
and finances of the Company or of any of its Subsidiaries. Without limiting the
generality of the foregoing, and except as (x) otherwise expressly provided in
this Agreement, (y) required by Law, or (z) set forth in Schedule 5.02, the
Company will not, without the written consent of the Parent:
(a) issue, deliver, sell, pledge, dispose of or otherwise subject
to any Encumbrance any shares of its capital stock, any other voting
securities or equity equivalent or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities or equity equivalent, except that
the Company may issue the Company Options described in Schedule
5.02(a);
(b) acquire or agree to acquire by merging or consolidating with,
or by purchasing a substantial portion of the assets of or equity in,
or by any other manner, any business or any corporation, partnership,
association or other Person or otherwise acquire or agree to acquire
any assets that in the aggregate have a value in excess of 0.5% of the
Company's total assets;
(c) except in the ordinary course of business consistent with past
practice, incur any additional indebtedness (including any indebtedness
evidenced by notes, debentures, bonds, Leases or other similar
instruments or secured by any Encumbrance on any property, conditional
sale obligations, obligations under any title retention agreement, and
obligations under letters of credit or similar credit transactions) in
a single transaction or a group of related transactions, enter into a
guaranty, or engage in any other
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financing arrangements having a value in excess of 0.5% of the
Company's total assets, or make any loans, advances or capital
contributions to, or investments in, any other Person;
(d) alter through merger, liquidation, reorganization,
restructuring or in any other fashion its corporate structure or
ownership;
(e) make any tax election, change any annual tax accounting
period, amend any tax return, settle or compromise any income tax
liability, enter into any closing agreement, settle any tax claim or
assessment, surrender any right to claim a tax refund or fail to make
the payments or consent to any extension or waiver of the limitations
period applicable to any tax claim or assessment;
(f) waive, amend or allow to lapse any term or condition of any
confidentiality, "standstill", consulting, advisory or Employment
Agreement;
(g) approve any annual operating budgets for the Company or for
any of its Subsidiaries;
(h) enter into any transaction with any Affiliate of the
Stockholders or of the Company or any of its Subsidiaries other than in
the ordinary course of business consistent with past practice;
(i) enter into any business other than the Business;
(j) pursuant to, or within the meaning of, any bankruptcy Law, (i)
commence a voluntary case, (ii) consent to the entry of an order for
relief against it in an involuntary case, (iii) consent to the
appointment of a custodian of it or for all or substantially all of its
property or (iv) make a general assignment for the benefit of its
creditors;
(k) purchase any real property or enter into any Lease;
(l) settle any Action pending on, or commenced after, the date of
this Agreement;
(m) otherwise take any of the actions enumerated in Section 3.07
of this Agreement; or
(n) take, or agree in writing or otherwise to take, any of the
foregoing actions.
Upon the Knowledge of the Company of any action described in this
Section 5.02, or any other material adverse change to the Company or its
Subsidiaries, the Company will promptly notify the Parent.
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Section 5.03 Consents and Approvals. Promptly after the date of this
Agreement, the Company and its Subsidiaries will (a) make all filings required
by Law to be made by them in connection with the Transaction, (b) cooperate with
the Parent with respect to all filings that the Parent elects to make or is
required by Law to make in connection with the Transaction and (c) obtain all
Consents and Orders of all Persons required to be obtained in connection with
the execution, delivery and performance of this Agreement and the consummation
of the Transaction, including all Consents set forth in Schedules 3.05 and 3.16.
Section 5.04 Stockholder Meeting. (a) The Company will take, in
accordance with its Articles of Organization and By-laws, all action necessary
to convene a meeting of holders of shares of Common Stock and Preferred Stock
(the "Stockholders Meeting"), to be held as promptly as practicable after the
Proxy Statement (as defined below) is first mailed to the Company's
stockholders, to consider and vote upon the approval of the Merger and this
Agreement. Once the Stockholders Meeting has been called, and the Company's
stockholders have been given notice thereof, the Company shall not postpone or
adjourn the Stockholders Meeting (other than for the absence of a quorum)
without the written consent of Parent. The Company's Board of Directors will
declare the Merger and this Agreement are advisable and recommend approval of
the Merger and this Agreement by the Company's stockholders, will not withdraw
or modify such recommendation and shall take all lawful action to solicit and
secure such approval; provided, however, that the Company's Board of Directors
may fail to make, or may withdraw or modify, such recommendation or
solicitation, but only to the extent that the Company's Board of Directors shall
have determined in good faith based upon the written opinion of outside counsel
that such action is required to prevent the Board of Directors from breaching is
fiduciary duties to the Company's stockholders under applicable Law.
(b) In connection with the Stockholders Meeting, the Company shall
prepare and deliver to the Parent, as promptly as reasonably practicable after
the date hereof, a draft of a proxy statement (the "Proxy Statement").
Thereafter, the Parent and the Company each shall use its reasonable best
efforts to cooperate fully to make such changes to the Proxy Statement as are
reasonably requested by the Parent or otherwise appropriate, file the Proxy
Statement with the SEC as soon as practicable and respond promptly to any SEC
comments. Upon filing the final, definitive Proxy Statement with the SEC, the
Company shall promptly mail such Proxy Statement to its stockholders.
Section 5.05 Notice of Certain Events. (a) From the date of this
Agreement until the Closing Date, the Company and each of its Subsidiaries will
promptly notify the Parent in writing of (i) any notice or other communication
from any Person alleging that the Consent of such Person is or may be required
in connection with the execution, delivery or performance of this Agreement or
the consummation of the Transaction; (ii) any notice or other communication from
any Government Entity in connection with the Transaction; (iii) any Actions or
investigations commenced or, to the Knowledge of the Company, threatened
against, relating to or involving or otherwise affecting the Company or any of
its Subsidiaries; (iv) any Order or notification relating to any material
violation or claimed violation of Law involving or otherwise
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affecting the Company or any of its Subsidiaries; (v) the existence or
non-existence or occurrence or non-occurrence of any event, condition or
circumstance the existence or non-existence or occurrence or non-occurrence of
which does or would cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at or prior to the
Closing Date; and (vi) any failure of the Company or of any of its Subsidiaries
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that no notice of the
facts, conditions or circumstances referred to therein delivered pursuant to
Sections 5.02 and 5.05 of this Agreement may be considered in determining the
fulfillment of the conditions set forth in Section 9.01 of this Agreement or be
effective to cure or correct any breach of a representation, warranty or
covenant which would have existed by reason of the Company's or any of its
Subsidiaries' not giving such notice and will not limit or otherwise affect the
remedies available to the Parent.
Section 5.06 Payment of Indebtedness By Affiliates. Except as otherwise
expressly provided in this Agreement, the Company will cause all indebtedness
owed to the Company or to any of its Subsidiaries by any Stockholder or any
Affiliate of a Stockholder or any of their respective officers, directors or
employees to be paid in full prior to Closing.
Section 5.07 No-Shop. (a) From the date of this Agreement until the
earlier of the Closing Date or the date of termination of this Agreement
pursuant to Section 10.01 hereof, neither the Company or any of its
Subsidiaries, nor any of their Representatives or Affiliates will, directly or
indirectly (i) solicit, initiate or encourage the submission of inquiries,
proposals or offers from any Person relating to the acquisition of (or any
equity interest in) the Company or any of its Subsidiaries or the Business or
any part thereof (an "Acquisition Proposal"), (ii) enter into, continue or
participate in any discussions or negotiations regarding any Acquisition
Proposal or (iii) furnish any information concerning the Company and its
Subsidiaries or their business, operations, condition (financial or otherwise)
or prospects, otherwise cooperate with, or assist or participate in, facilitate
or encourage, any effort or attempt by any Person to make an Acquisition
Proposal or to effect a transaction inconsistent with the Transaction. The
Company shall immediately advise the Parent orally and in writing of any request
for information with respect to any Acquisition Proposal, or any inquiry or
discussions with respect to or which could result in an Acquisition Proposal,
the material terms and conditions of such request, Acquisition Proposal or
inquiry, and the identity of the Person making the same.
(b) If the Board of Directors of the Company determines to withdraw or
modify its approval or recommendation of the Merger or this Agreement or shall
have failed to make such a favorable recommendation, in each case in accordance
with Section 5.04, the Company shall promptly notify the Parent of such
determination or failure. If instructed by the Parent in writing, the Board of
Directors shall submit for approval the Merger and this Agreement to a vote of
the stockholders at the Stockholders Meeting as required by Section 5.04
notwithstanding any such determination of the Board of Directors to withdraw or
modify its approval or recommendation of the Merger or this Agreement or any
such failure of the Board of Directors to make a favorable recommendation of the
Merger or this Agreement.
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Section 5.08 Books and Records. On the Closing Date, the Company shall
cause all Books and Records belonging or relating to the Company and each of its
Subsidiaries to be in the possession of the Company.
Section 5.09 Amended Company Stock Option Plan. The Board of Directors
will adopt and submit to the Company's stockholders at the Stockholders Meeting
an amended Company Stock Option Plan, substantially in the form annexed to this
Agreement as Exhibit J (with such changes therein as may be approved in writing
by the Parent).
Section 5.10 401(k) Plan Termination. The Company agrees to take, or
cause to be taken all actions necessary to provide that the Company's 401(k)
plan shall be terminated effective immediately prior to the Closing Date and to
effectuate such termination in accordance with ERISA, the Code and other
applicable laws.
ARTICLE VI
COVENANTS OF THE PARENT
Section 6.01 Cooperation by the Parent. Subject to the proviso
contained in Section 7.01, from the date of this Agreement until the Closing
Date, the Parent will cooperate with the Company and the Stockholders (i) to
secure all Consents from Persons identified in Schedules 3.05 and 3.16 and (ii)
with respect to all filings required to be made by the Company and the
Stockholders pursuant to Law in connection with the Transaction.
Section 6.02 Opportunity to Cure. If the Parent discovers circumstances
that constitute, or will constitute with the passage of time, a breach by the
Company of any representation or warranty contained herein or in any other
Transaction Document, the Parent shall give the Company prompt written notice
thereof and a reasonable opportunity to cure such breach.
Section 6.03 Registration Statement on Form S-8. As soon as practicable
after the Closing, and in any event within thirty (30) days following the
Closing, the Parent will file a registration statement on Form S-8 with the SEC
to register under the Securities Act the shares of Conexant Stock that will be
issuable upon the exercise of Company Options that have been converted into
options to acquire Conexant Stock.
Article VII
MUTUAL COVENANTS
Section 7.01 Reasonable Efforts. The Company and the Parent will use
their reasonable efforts to cause all conditions precedent to its obligations to
consummate the
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Transaction (upon the terms and conditions set forth in Articles VIII and IX, as
applicable to the Parent) to be satisfied. 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, divest or hold separate any
business or assets or limit or restrict any of its rights or ability to engage
in any business in connection with the consummation of the Transaction.
Section 7.02 Further Assurances. At any time, or from time to time
after the Closing, the Parent will, and the Parent will cause the Company to, at
the other's reasonable request, and at the requesting party's expense, execute
and deliver, such instruments of transfer, conveyance, assignment and
assumption, in addition to those delivered at the Closing and take such other
action as either of them may reasonably request in order to evidence the
consummation of the Transaction.
Section 7.03 Representation and Warranties. No party hereto will take
or omit to take any action, the effect of which could reasonably be expected to
cause any of its representations and warranties made herein to be inaccurate on
the Closing Date.
Section 7.04 Public Announcements. No press release or announcement
concerning the Transaction will be issued by any party without the prior consent
of the other parties, except as such release or announcement may be required by
Law, in which case the party required to make the release or announcement will,
to the extent practicable, allow the other party reasonable time to comment on
such release or announcement in advance of such issuance.
Section 7.05 Confidentiality Agreement. Until the Transaction is
consummated, or if the Transaction is not consummated, the parties will remain
obligated under the Confidentiality Agreement. If the Transaction is
consummated, then the Confidentiality Agreement will be deemed terminated at and
as of the Closing.
Section 7.06 Preparation of Form S-4 and Proxy Statement.
(a) As soon as practicable following the date of this Agreement, the
Company and the Parent shall prepare and file with the SEC the Proxy Statement
and the Parent shall prepare and file with the SEC the Form S-4, in which the
Proxy Statement shall be included as a prospectus. Each of the Company and
Parent shall use reasonable efforts to have the Form S-4 declared effective
under the Securities Act as promptly as practicable after such filing. The
Company shall use reasonable efforts to cause the Proxy Statement to be mailed
to the Company's stockholders as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. Parent shall also take any action
(other than qualifying to do business in any jurisdiction in which it is not now
so qualified) required to be taken under any applicable securities or "blue sky"
laws in connection with the issuance of Conexant Stock pursuant to the Merger,
and the Company shall furnish all information concerning the Company and the
holders of the Common Stock or Preferred Stock and rights to acquire Common
Stock pursuant to the Company Options as may be reasonably requested in
connection with any such action.
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(b) The Company shall use reasonable efforts to cause to be delivered
to the Parent a letter of Ernst & Young LLP, the Company's independent public
accountants, dated a date within two Business Days before the date on which the
Form S-4 shall become effective and addressed to the Parent, in form and
substance reasonably satisfactory to the Parent and customary in scope and
substance for letters delivered by independent public accountants in connection
with registration statements similar to the Form S-4.
(c) The Parent shall use reasonable efforts to cause to be delivered to
the Company a letter of each of Deloitte & Touche LLP and Arthur Andersen LLP,
the Parent's independent public accountants, dated a date within two business
days before the date on which the Form S-4 shall become effective and addressed
to the Company, in form and substance reasonably satisfactory to the Company and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
(d) The Parent shall use commercially reasonable efforts to list or
qualify the Conexant Stock subject to the Form S-4 or subject to the Conexant
Options on The NASDAQ Stock Market (or any other securities exchange or
interdealer quotation system on which Conexant Stock is listed or quoted for
trading on the Closing Date).
Article VIII
CONDITIONS TO THE OBLIGATIONS
OF THE COMPANY
The Company's obligations under this Agreement and the Transaction
Documents are subject to the satisfaction, at or prior to the Closing, of each
of the following conditions (any of which may be waived by the Company, in
writing, in whole or in part):
Section 8.01 Representation, Warranties and Covenants. (a) Each of the
representations and warranties made by the Parent and Sub in this Agreement and
the Transaction Documents (x) that are qualified as to materiality shall be true
and correct in all respects and (y) that are not so qualified shall be true and
correct in all material respects, in each case as of the date of this Agreement
and as of the Closing Date as though made on and as of the Closing Date (it
being understood that to the extent that such representations and warranties
were made expressly as of a specified date the same shall continue on the
Closing Date to be true and correct as of the specified date).
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(b) The Parent and Sub will have performed or complied in all material
respects with each of its covenants and agreements required to be performed or
complied with by it pursuant to this Agreement and the Transaction Documents on
or prior to the Closing.
(c) The Stockholders will have received a certificate, executed by an
officer of the Parent, dated as of the Closing Date, reasonably satisfactory to
the Stockholders and their counsel, certifying that the conditions set forth in
this Section 8.01 have been fulfilled.
Section 8.02 Consents. The Parent and Sub will have obtained each of
the Consents listed in Schedule 4.03, and such Consents will be in full force
and effect.
Section 8.03 No Litigation. No Action or Consent from any Governmental
Entity will have been threatened, instituted or pending which (i) challenges or
seeks to restrain or prohibit, or may have the effect of preventing,
substantially delaying or making illegal the consummation of the Transaction or
the performance of the Agreement or the Transaction Documents or seeks Damages
in connection therewith, or (ii) challenges or seeks to prohibit or limit the
ownership or operation of all or any portion of the Business or assets of the
Company or compels or seeks to compel the Company or its Affiliates to dispose
of or hold separate all or any portion of the Business or assets of the Company
or seeks to impose any material limitation on the ability of the Company to
conduct the Business or own such assets.
Section 8.04 Stockholder Approval. The Company shall have obtained all
approvals of holders of shares of capital stock of the Company necessary under
the MBCL to approve this Agreement and the Merger.
Section 8.05 Effective Registration Statement. The Form S-4 shall have
been declared effective by the SEC under the Securities Act, and no stop order
suspending the effectiveness of the Form S-4 shall have been issued by the SEC
and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Parent or the Company, threatened by the SEC, and all necessary
approvals under "blue sky" laws relating to the issuance or trading of the
Conexant Stock to be issued to the stockholders of the Company in connection
with the Merger shall have been received.
Section 8.06 Listing of Conexant Stock. The Conexant Stock to be issued
in connection with the Merger and pursuant to the Conexant Options shall have
been approved for listing on The NASDAQ National Market, Inc. subject only to
customary conditions.
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Article IX
CONDITIONS TO THE OBLIGATIONS OF THE PARENT AND SUB
The Parent's and Sub's obligations under this Agreement and the
Transaction Documents are subject to the satisfaction, at or prior to the
Closing, of each of the following conditions (any of which may be waived by the
Parent, in writing, in whole or in part):
Section 9.01 Representations, Warranties and Covenants.
(a) Each of the representations and warranties made by the Company in
this Agreement and the Transaction Documents (x) that are qualified as to
materiality shall be true and correct in all respects and (y) that are not so
qualified shall be true and correct in all material respects, in each case as of
the date of this Agreement and as of the Closing Date as though made on and as
of the Closing Date (it being understood that to the extent that such
representations and warranties were made expressly as of a specified date the
same shall continue on the Closing Date to be true and correct as of the
specified date), except as the covenant in Section 2.01(d) and the
representations and warranties in Section 3.02 concerning the authorized capital
stock of the Company and number shares of Common Stock subject to outstanding
Company Options may be affected by the increase in authorized capital stock and
issuance of Company Options permitted by Section 5.02.
(b) The Company and each Stockholder shall have performed or complied
in all material respects with each of its covenants and agreements required to
be performed or complied with by it on or prior to Closing pursuant to this
Agreement and the Transaction Documents on or prior to the Closing.
(c) The Parent will have received a certificate executed by the chief
executive officer and the chief financial officer of the Company, dated as of
the Closing Date, reasonably satisfactory to the Parent and its counsel,
certifying that the conditions set forth in this Section 9.01 have been
fulfilled.
Section 9.02 Consents. The Company will have been obtained in form and
substance reasonably satisfactory to the Parent and its counsel all Consents set
forth in Schedules 3.05 and 3.16, and such Consents will be in full force and
effect.
Section 9.03 No Litigation. No Action or Consent from any Governmental
Entity will have been threatened, instituted or pending which (i) challenges or
seeks to restrain or prohibit, or may have the effect of preventing,
substantially delaying or making illegal the consummation of the Transaction or
the performance of the Agreement or the Transaction Documents or seeks Damages
in connection therewith, (ii) challenges or seeks to prohibit or limit the
ownership or operation of all or any portion of the Business or assets of the
Company or the Common Stock or compels or seeks to compel the Parent or its
Affiliates to dispose of or
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hold separate all or any portion of the Business or assets of the Company or
seeks to impose any material limitation on the ability of the Parent to conduct
the Business or own such assets or (iii) has or has had a Material Adverse
Effect or a material adverse effect on the ability of the Parent or Sub to
consummate the Transactions.
Section 9.04 No Prohibition. On or after the date of this Agreement,
there will not exist or have been enacted, entered, enforced, promulgated or
deemed applicable to the Transaction, any Law, Order or any other action taken
by any court or other Governmental Entity that has resulted, or is reasonably
likely to result, directly or indirectly, in any of the consequences referred to
in Section 9.03.
Section 9.05 No Material Adverse Effect. There will not have occurred
(or is reasonably likely to occur) any event, change or development which has
had or is reasonably likely to have a Material Adverse Effect on the Company or
a material adverse effect on the ability of the Parent or Sub to consummate the
Transaction.
Section 9.06 Employment Agreements. Each of the Key Employees shall
have executed and delivered Employment Agreements.
Section 9.07 Non-Competition Agreements. Each of the Key Employees
shall have executed and delivered Non-Competition Agreements.
Section 9.08 Books and Records. The Company shall have delivered and
made available to the Parent the Books and Records of the Company in accordance
with Section 5.08 of this Agreement.
Section 9.09 Company Warrants. All of the Company Warrants shall have
been exercised and all amounts payable by the holders thereof on exercise shall
have been paid to the Company Warrants.
Section 9.10 Company Board Action. The Board of Directors of the
Company shall have, by formal action, (a) approved the Merger, (b) recommended
acceptance of the Merger to the Stockholders and made available to the
Stockholders the terms of the Merger, including any inducements to officers and
directors of the Company not made available to the Stockholders, pursuant to
Chapter 110C, 1 of the Massachusetts General Laws, and (c) amended the By-laws
of the Company (i) to facilitate the consummation of the Merger, including
elimination of any transfer restrictions on shares of Common Stock and Preferred
Stock, and (ii) to eliminate provisions relating to two classes of directors and
special director voting rights, in each case in a manner reasonably satisfactory
to the Parent.
Section 9.11 Financing Documents. The Shareholders Agreement and the
Registration Rights Agreement, each dated as of August 25, 1997, to which the
Company and
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certain Stockholders are parties, shall have been terminated and all obligations
of the Company thereunder are fully, unconditionally and irrevocably released.
Section 9.12 Director Resignations. The Company shall have received
duly signed resignations, effective immediately after the Effective Time, of all
directors of the Company and its Subsidiaries as shall be specified to the
Company by the Parent on or before the Closing Date.
Section 9.13 Stockholder Approval. The Company shall have obtained all
approvals of holders of shares of capital stock of the Company necessary to
approve this Agreement and all the Transactions contemplated hereby (including
the Merger). The number of Dissenting Shares shall not exceed 1.0% of the total
number of shares of Common Stock and Preferred Stock issued and outstanding
immediately prior to the Effective Time.
Section 9.14 Effective Registration Statement. The Form S-4 shall have
been declared effective by the SEC under the Securities Act, and no stop order
suspending the effectiveness of the Form S-4 shall have been issued by the SEC
and no proceedings for that purpose shall have been initiated or, to the
knowledge of the Parent or the Company, threatened by the SEC, and all necessary
approvals under "blue sky" laws relating to the issuance or trading of the
Conexant Stock to be issued to the stockholders of the Company in connection
with the Merger shall have been received.
Section 9.15 Listing of Conexant Stock. The Conexant Stock to be issued
in connection with the Merger and pursuant to the Conexant Options shall have
been approved for listing on The NASDAQ National Market, Inc. subject only to
customary conditions.
Section 9.16. Repurchase Agreements. Each of the Persons listed on the
Repurchase Schedule shall have executed and delivered Repurchase Agreements.
Section 9.17 401(k) Plan Termination. The Company shall have delivered
to the Parent certified copies of resolutions of the Board of Director of the
Company terminating the Company's 401(k) plan effective immediately prior to the
Closing Date.
Section 9.18 Escrow Agreement. The Escrow Agreement, in form and
substance reasonably satisfactory to Parent, shall have been executed and
delivered by the Escrow Agent and the InSight Stockholders.
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Article X
TERMINATION
Section 10.01 Termination Events. This Agreement may, by notice given
prior to or at the Closing, be terminated:
(a) by mutual written consent of the Company and the Parent;
(b) (i) by the Company, if any of the conditions contained in
Article VIII of this Agreement has not been satisfied as of the Closing
Date and the satisfaction of such a condition is or becomes impossible
(in either case, other than through the failure of the Company to
comply with its obligations under this Agreement) and the Company has
not waived such condition on or before such date or (ii) by the Parent
if any of the conditions contained in Article IX of this Agreement has
not been satisfied as of the Closing Date and the satisfaction of such
a condition is or becomes impossible (in either case, other than
through the failure of the Parent to comply with its obligations under
this Agreement) and the Parent has not waived such condition on or
before such date;
(c) by the Company or the Parent if the Closing has not
occurred (other than through the failure of any party seeking to
terminate this Agreement to fully comply with its obligations under
this Agreement) on or before September 30, 2000; or
(d) by either the Company or the Parent if a material breach
of this Agreement has been committed by the other party and such breach
has not been waived or cured within a reasonable period of time after
written notice of such breach to the breaching party.
Section 10.02 Effect of Termination. (a) Termination of this Agreement
pursuant to this Article X will terminate all obligations of the parties
hereunder except for those covenants and obligations contained in Sections 7.04,
7.05, 11.02(b), 12.01, 12.03, 12.04, 12.12 and this Section 10.02; provided,
however, that termination pursuant to clauses (b), (c) or (d) of Section 10.01
will not relieve the defaulting or breaching party for any liability to the
other party hereto.
(b) In the event of termination of this Agreement for any reason other
than breach thereof by a party, each party will bear all expenses incurred by it
in connection with this Agreement and the Transaction Documents. In the event of
termination of this Agreement by a party due to the material breach by the other
party, in addition to any other Liabilities pursuant to this Agreement and under
applicable Law, the party committing the breach will be liable to the other
party with respect to all expenses incurred by such other party in connection
with this Agreement and the Transaction Documents.
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ARTICLE XI
SURVIVAL AND INDEMNIFICATION
Section 11.01 Survival. All representations, warranties, covenants and
obligations in this Agreement or the Transaction Documents will survive the
Closing; provided, that no Claim for indemnification based on a breach of any
representation or warranty may be made after (1) the longest applicable statute
of limitations in respect of any Claims related to Sections 3.02, 3.04, 3.11 and
3.14(a) (except in respect of title to Intellectual Property, which shall be
governed by clause (2) hereof), (2) 600 days after the Closing Date in respect
of any Claims related to Sections 3.10, 3.14(a) (in respect of title to
Intellectual Property) and 3.15, (3) the Holdback Release Date in respect of any
Claims for breach of any other representation or warranty in this Agreement, and
(4) two years after the Indemnitee obtains actual knowledge of such breach in
respect of any Claims related to representations and warranties in any Letter of
Transmittal.
Section 11.02 Indemnification by the Company. Subject to Sections 11.01
and 11.04, prior to the Closing, the Company and, after the Closing, the
Stockholders, jointly and severally, shall protect, defend, indemnify and hold
harmless each of the Parent, Sub, the Surviving Corporation and their Affiliates
and Representatives (the "Parent Group"), from and against all Damages arising,
directly or indirectly, from or in connection with:
(a) any breach of any representation or warranty made in Article
III of this Agreement or in any other Transaction Document executed and
delivered by the Company; and
(b) any breach of any covenant, agreement or other obligation of
the Company contained in this Agreement or in any other Transaction
Document.
The remedies provided in this Section 11.02 will not be exclusive of or
limit any other remedies that may be available to the Parent Group, other than
Claims for breach of any representation or warranty, as to which the remedies in
this Section 11.02 will be the exclusive remedy available to the Parent Group.
Section 11.03 Indemnification by the Parent. Subject to Sections 11.01
and 11.04, after the Closing, the Parent hereby agrees to protect, defend,
indemnify and hold harmless each Stockholder and its Affiliates and their
Representatives and the Company and its Subsidiaries (the "Seller Group"), from
and against all Damages arising, directly or indirectly, from or in connection
with:
(a) any breach of any representation or warranty made in Article
IV of this Agreement or in any other Transaction Document executed and
delivered by the Parent or Sub; and
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(b) any breach of any covenant, agreement or other obligation of
the Parent or Sub contained in this Agreement or in any other
Transaction Document.
Section 11.04 Limitations on Liability.
(a) Certain Limitations. Notwithstanding any contrary provision in this
Article XI:
(i) Time Bar on Claims. No Indemnitee will be entitled to any recovery
from any Indemnitor unless a Notice of Claim has been given on or before the
expiration of time period for survival set forth in Section 11.01.
(ii) Insurance Recoveries. Damages to any party indemnified hereunder
will be decreased by insurance proceeds or payments from any other responsible
parties actually received by such party (after deducting costs and expenses
incurred in connection with recovery of such proceeds) and will be increased to
take account of any net tax cost incurred by the Indemnitee arising from the
receipt of indemnity payments hereunder (grossed up for such increase) and will
be decreased to take into account any net tax benefit realized by the Indemnitee
arising from the incurrence or payment of any such Damages.
(iii) Claim Threshold. An Indemnitee shall not be entitled to make any
Claim for indemnification under Section 11.02(a) or 11.03(a) until the aggregate
amount of all Claims for indemnification by such Indemnitee exceeds $1,000,000
(the "Claim Threshold"); provided, that after the Claim Threshold is exceeded,
the Indemnitee shall be entitled to recover the full amount of Damages and not
just the amount in excess of the Claim Threshold.
(iv) Tax Adjustment. Any indemnity payment made pursuant to this
Agreement will be treated as an adjustment to the Merger Consideration for tax
purposes unless a determination (as defined in Section 1313 of the Code) with
respect to the Indemnitee causes any such payment not to constitute an
adjustment to the Merger Consideration for Federal income tax purposes.
(v) Maximum Liability of Stockholders Other than InSight Stockholders.
The Parent and other members of the Parent Group shall not be entitled to
recover from any Stockholder that is not an InSight Stockholder for any
Indemnity Claim pursuant to Section 11.02(a) of this Agreement any monetary
amount in respect of Damages:
(A) except in the case of any Indemnity Amount Payable arising
from any Designated Claim or any Special Basket Claim, for any monetary
amount in excess of (1) the sum of (x) the value of the shares of
Conexant Stock subject to the Holdback, based on the Closing Market
Price at any time, plus (y) 10% of the value of all shares of Conexant
Stock actually delivered to such Stockholder as an Earn-Out Amount,
based on the Closing Market Price on each Earn-Out Payment
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Date on which any Earn-Out Amount is distributed, reduced by (2) the
aggregate amount of all other Indemnity Amounts Payable actually paid
by or on behalf of such Stockholder.
(B) in the case of any Indemnity Amount Payable arising from any
Designated Claim, for any monetary amount in excess of (1) the
aggregate amount of consideration actually paid to such Stockholder
hereunder, including the Merger Consideration, any Indemnification
Release Amount and any Earn-Out Amount reduced by (2) the aggregate
amount of all other Indemnity Amounts Payable actually paid by or on
behalf of such Stockholder.
(C) in the case of any Indemnity Amount Payable arising from any
Special Basket Claim for any monetary amount in excess of (1) 20% of
the aggregate amount of consideration actually paid to such Stockholder
hereunder, including the Merger Consideration, any Indemnification
Release Amount and any Earn-Out Amount, reduced by (2) the aggregate
amount of all other Indemnity Amounts Payable actually paid by or on
behalf of such Stockholders.
For purposes of this Section 11.04(a)(v), any reference to the consideration
actually paid to any Stockholder shall be the dollar amount equal to the sum of:
(i) the product of (x) the Merger Consideration and (y) the
Closing Market Price as of the Closing Date and (z) the Stockholder
Ratio of such Stockholder; plus
(ii) the sum, for each Earn-Out Payment Date, of the product of
(x) the Final Earn-Out Share Number, Interim Earn-Out Share Number or
Partial Earn-Out Share Number for that Earn-Out Payment Date and (y)
the Closing Market Price on each such Earn-Out Payment Date and (z) the
Stockholder Ratio of such Stockholder; plus
(iii) the sum, for each Indemnification Release Payment Date, of
the product of (x) the Indemnification Release Amount for such
Indemnification Release Payment Date and (y) the Closing Market Price
on each such Indemnification Release Payment Date and (z) the
Stockholder Ratio of such Stockholder.
(vi) Maximum Liability of InSight Stockholders. The Parent and other
members of the Parent Group shall not be entitled to recover from any InSight
Stockholder for any Indemnity Claim pursuant to Section 11.02(a) of this
Agreement any monetary amount in respect of Damages:
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(A) except in the case of any Indemnity Amount Payable arising
from any Designated Claim, for any monetary amount in excess of (1) the
sum of (x) the value of the property held subject to the Escrow
Agreement at any time, plus (y) 20% of the value of all shares of
Conexant Stock actually delivered to such Stockholder as an Earn-Out
Amount, based on the Closing Market Price on each Earn-Out Payment Date
on which any Earn-Out Amount is distributed, reduced by (2) the
aggregate amount of all other Indemnity Amounts Payable arising from
all other Indemnity Claims which are not Designated Claims actually
paid by or on behalf of such Stockholder.
(B) in the case of any Indemnity Amount Payable arising from any
Designated Claim, for any monetary amount in excess of (1) the
aggregate amount of consideration actually paid to such Stockholder
hereunder, including the Merger Consideration, any Indemnification
Release Amount and any Earn-Out Amount reduced by (2) the aggregate
amount of all other Indemnity Amounts Payable actually paid by or on
behalf of such Stockholder.
For purposes of this Section 11.04(a)(vi), any reference to the consideration
actually paid to any Stockholder shall be the dollar amount equal to the sum of:
(i) the product of (x) the Merger Consideration and (y) the
Closing Market Price as of the Closing Date and (z) the Stockholder
Ratio of such Stockholder; plus
(ii) the sum, for each Earn-Out Payment Date, of the product of
(x) the Final Earn-Out Share Number, Interim Earn-Out Share Number or
Partial Earn-Out Share Number for that Earn-Out Payment Date and (y)
the Closing Market Price on each such Earn-Out Payment Date and (z) the
Stockholder Ratio of such Stockholder; plus
(iii) the sum, for each Indemnification Release Payment Date, of
the product of (x) the Indemnification Release Amount for such
Indemnification Release Payment Date and (y) the Closing Market Price
on each such Indemnification Release Payment Date and (z) the
Stockholder Ratio of such Stockholder.
(vii) Other Limitations on Liability of Insight Stockholders. The
Parent and other members of the Parent Group shall not be entitled to recover
from any Insight Stockholder any monetary amount in respect of Damages:
(A) for any breach of the representations and warranties in
the third and fourth sentences of Section 3.02 of this Agreement
(relating to title to shares
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of Preferred Stock and Common Stock) of any person other than an
InSight Stockholder.
(B) except in the case of any Designated Claim related to a
breach by that or another Insight Stockholder of any representation or
warranty in its Letter of Transmittal, any amount for Indemnity Claims
pursuant to Section 11.02(a) of this Agreement in excess of the product
of (x) the Insight Share Percentage and (y) the Indemnity Amount
Payable; provided, however, that (1) nothing in this Section shall
require that the Parent or any other members of the Parent Group
recover or take action of any kind to recover any portion of such
Indemnity Amount Payable from any other Stockholder or the Company and
(2) no Insight Stockholder shall take any action to recover (by
contribution, cross claim or otherwise) from any other Stockholder or
the Company any portion of any amount paid by any Insight Stockholder
hereunder, until such time, if any, as the Parent and other members of
the Parent Group have received final payment, in money, of the full
amount of such Indemnity Amount Payable from other Stockholders or the
Company or shall have waived in writing their rights under this
Section.
(C) any amount for Indemnity Claims pursuant to Section
11.02(b) of this Agreement in the case of any Indemnity Amount Payable
arising from any breach of any covenant, agreement or other obligation
to be performed or paid after the Closing by the Company or any
Stockholder that is not an Insight Stockholder.
(viii) Limit on Consequential Damages. Neither any Stockholder nor
Parent shall have any obligation to indemnify any Indemnitee pursuant to this
Agreement against such Indemnitee's own consequential damages arising out of a
breach by any member of the Seller Group or by Buyer of its representations and
warranties in this Agreement. Nothing in this Section shall prevent any
Indemnitee from being indemnified for all components of Third Party Claims
against such Indemnitee, including consequential damages of such third parties.
(ix) Holdback and Escrow Exclusive Remedies. Except for Indemnity
Claims arising under (x) Section 11.02(a) in respect of any Designated Claim or
any Special Basket Claim, and (y) Section 11.02(b), the exclusive remedies of
the Parent against the Stockholders after the Closing for Indemnity Claims made
under this Agreement shall be to reduce the number of shares or not issue shares
of the Conexant Stock representing the Holdback as provided in Section 2.11
and/or (2) to set off against and reduce the number of shares or not issue
shares of Conexant Stock representing any Final, Interim or Partial Earn-Out
Share Number otherwise payable pursuant to Section 2.09 and/or (3) in the case
of any InSight Stockholder, to recover amounts held subject to the Escrow
Agreement. However, nothing in this Section shall limit any right or remedy the
Parent may have under applicable Law or otherwise in respect of any claim
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that might otherwise result in an Indemnity Claim under this Agreement, and all
such rights and remedies shall be cumulative.
Section 11.05 Procedure for Third Party Claims.
(a) Promptly after receipt by an Indemnitee of notice of the
commencement of any Action by a third party (a "Third Party Claim") with respect
to any matter for which indemnification is or may be owing pursuant to Section
11.02 or 11.03 hereof, the Indemnitee will give notice thereof to the
Indemnitor, provided, however, that the failure of the Indemnitee to notify the
Indemnitor will not relieve the Indemnitor of any of its obligations hereunder,
except to the extent that the Indemnitor demonstrates that the defense of such
Third Party Claim has been actually prejudiced by the Indemnitee's failure to
give such notice.
(b) If any Action referred to in Section 11.05(a) is brought against an
Indemnitee and it gives notice to the Indemnitor of the commencement of such
Action, the Indemnitor will, unless the subject of the Action relates to Taxes,
be entitled to participate in such Action, and (unless (x) the Indemnitor is
also a party to such Action and the Indemnitee determines in good faith that
joint representation would be inappropriate upon the advice of outside counsel,
that a conflict of interest exists between the Indemnitee and the Indemnitor
with respect to such Action, or (y) the Indemnitor fails to provide reasonable
assurance to the Indemnitee of its financial capacity to defend such Action and
provide indemnification with respect to such Action) may assume the defense of
such Action with counsel satisfactory to the Indemnitee and, after notice from
the Indemnitor to the Indemnitee of its election to assume the defense of such
Action, the Indemnitor will not, as long as it diligently conducts such defense,
be liable to the Indemnitee under this Section 11 for any fees of other counsel
with respect to the defense of such Action, in each case subsequently incurred
by the Indemnitee in connection with the defense of such Action.
(c) If the Indemnitor assumes the defense of an Action, (x) it will be
conclusively established for purposes of this Agreement that the claims made in
that Action are within the scope of and subject to indemnification; (y) no
compromise or settlement of such claims or Action may be effected by the
Indemnitor without the Indemnitee's consent unless (A) there is no finding or
admission of any violation of Law or any violation of the rights of any Person
and no effect on, or provide, grounds for the basis of, any other claims that
may be made against the Indemnitee, and (B) the sole relief provided is monetary
damages that are paid in full by the Indemnitor; and (z) the Indemnitee will
have no Liability with respect to any compromise or settlement of such claims or
Action effected without Indemnitee's consent. Notwithstanding the assumption by
the Indemnitor of the defense of any Claim or Action, the Indemnitee will be
permitted to join in such defense and to employ counsel at its own expense. If
notice pursuant to Section 11.05(a) is given to an Indemnitee of the
commencement of any Action and the Indemnitor does not, within ten days after
such Indemnitee's notice is given, give notice to the Indemnitee of its election
to assume the defense of such Action, the Indemnitor will be bound by
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any determination made in such Action or any compromise or settlement effected
by the Indemnitee.
(d) Notwithstanding the foregoing, if the Indemnitee determines in good
faith that there is a reasonable probability that an Action may adversely affect
it or its Affiliates other than as a result of monetary Damages for which it
would be entitled to indemnification under this Agreement, the Indemnitee may,
by notice to the Indemnitor, assume the exclusive right to defend, compromise or
settle such Action, but the Indemnitor will not be bound by any determination of
an Action so defended or any compromise or settlement effected without its
consent (which may not be unreasonably withheld).
(e) Indemnitor and Indemnitee agree to provide each other with
reasonable access during regular business hours to the properties, Books and
Records and Representatives of the other, as reasonably necessary in connection
with the preparation for an existing or anticipated Action involving a Third
Party Claim and its obligations with respect thereto pursuant to this Article
XI.
Section 11.06 Indemnification Procedures. The following procedures
shall apply to any claim for indemnification by the Parent Group or the Seller
Group:
(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:
(i) in the case of any Indemnity Claim by the Parent, to the
Sellers' Representative as set forth on the signature pages of this
Agreement (or such other address as the Sellers' Representative may
direct in a written notice to the Parent given in accordance with
Section 12.02). The Sellers' Representative shall be the Indemnifying
Party solely for purposes of the procedures in this Section, and no
liability in respect of any Indemnity Claim shall be contested,
settled, admitted, litigated or otherwise dealt with by or on behalf of
the Stockholders by any person other than the Sellers' Representative,
but any Indemnity Amount Payable hereunder shall be the joint and
several liability of the Stockholders (or, prior to the Closing, the
Company) as provided in the other Sections of this Agreement, and not
the exclusive liability of the Sellers' Representative.
(ii) in the case of any claim by any Stockholder or the Company
against the Parent, by the Sellers' Representative to the Parent at the
address and in the manner provided in Section 12.02. The Parent shall
be the Indemnifying Party for purposes of the procedures in this
Section and any Indemnity Amount Payable hereunder as to each claim by
any Stockholder.
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(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 30 days, after the Notice of Claim is given, as follows:
(i) in the case of any Indemnity Claim by the Parent, a
Dispute Notice may be given only by the Sellers' Representative,
and if given, shall be sent by the Sellers' Representative to the
Parent at the address and in the manner provided in Section 12.02.
(ii) in the case of any claim by any Stockholder or the
Company against the Parent, a Dispute Notice may be given by the
Parent, and if given, shall be sent by the Parent to the Sellers'
Representative at the address and in the manner provided in
Section 12.02.
(A) If no Dispute Notice is given within such 30 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 30 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.
(B) If a Dispute Notice is given within such 30 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 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 12.03 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
twelve 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, to seek to recover such
amount from
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the Indemnifying Party or to withhold such amount from any payment
otherwise required pursuant to Section 2.09 or Section 2.11.
(5) If the Indemnifying Party or the Indemnitee initiates
legal proceedings within the twelve month period specified in
Section 11.06(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 the Parent. Subject to the
limitations in Section 11.04, the Parent shall pay to each relevant Indemnitee
any Indemnity Amount Payable by the Parent, 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.
(d) Payments of Indemnity Amounts Payable by Stockholders. Subject to
the limitations in Section 11.04, the Stockholders shall pay to the Parent any
Indemnity Amount Payable by the Stockholders as follows:
(i) Prior to the Holdback Release Date, each Indemnifying Party
who is a Stockholder shall pay to the Parent 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
Stockholders which have not been paid, in each case, as of the date any
such payment is due, exceeds (x) in the case of any InSight
Stockholder, the value of the property held subject to the Escrow
Agreement or (y) in the case of any other Stockholder, the Holdback.
(ii) After the Holdback Release Date, each Indemnifying Party who
is a Stockholder shall pay to the Parent 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
Stockholders as a
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Resolved Claim Amount pursuant to Section 2.11(c) or, in the case of
any InSight Stockholder, the Escrow Agreement.
(e) Payments of Indemnity Amounts Payable by the Company. Subject
to the limitations in Section 11.04, the Company shall pay to each
relevant Indemnitee any Indemnity Amount Payable by the Company, 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.
Section 11.07 Right to Indemnification Not Affected by Knowledge or
Waiver. The right to indemnification, payment of Damages or other remedy based
upon breach of representations, warranties, covenants, agreements or obligations
will not be affected by any investigation conducted with respect to, or
knowledge acquired (or capable of being acquired) at any time, whether before or
after the execution and delivery of this Agreement or the Closing Date, with
respect to the accuracy or inaccuracy of or compliance with any such
representation, warranty, covenant, agreement or obligation.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01 Expenses. (a) Subject to the provisions of Sections 2.08,
10.02(b) and 12.01(b), each of the parties hereto will pay all costs and
expenses incurred by it or on its behalf in connection with this Agreement and
the Transaction, including fees and expenses of its own Representatives.
(b) If an Action is brought by a party to this Agreement for the
enforcement of this Agreement, or because of an alleged dispute, breach, default
or misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party will be entitled to recover legal fees and
costs incurred in that Action in addition to any other relief to which it may be
entitled.
Section 12.02 Notices. All notices, consents, waivers and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written or electronic
confirmation of receipt), (b) sent by telecopier (with written confirmation of
receipt), provided, that a copy is mailed by certified mail, return receipt
requested, or (c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), in each case to the
appropriate addresses and telecopier numbers set forth below (or to such other
addresses and telecopier numbers as a party may designate by notice to the other
parties):
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(a) If to the Company:
Harris & Jeffries, Inc.
888 Washington Street
Dedham, Massachusetts 02026
Attention: Mr. Deepak Shahane
Facsimile No.: (781) 329-4148
with a copy to:
Shapiro, Israel & Weiner P.C.
100 North Washington Street
Boston, Massachusetts 02114
Attention: Edward A. Shapiro, Esq.
Facsimile No.: (617) 742-2355
(b) If to the Parent or Sub:
Conexant Systems, Inc.
4311 Jamboree Road
Newport Beach, California 92660
Attention: Dennis E. O'Reilly, Esq.
Senior Vice President, General Counsel
and Secretary
Facsimile No.: (949) 483-6388
Re: Conexant/NetPlane Acquisition Agreement
with a copy to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, NY 10112
Attention: Peter R. Kolyer, Esq.
Facsimile No.: (212) 541-5369
Re: Conexant/NetPlane Acquisition Agreement
(c) If to the Sellers' Representative:
InSight Capital Partners II, L.P.
527 Madison Avenue, 10th Floor
New York, New York 10022
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Telephone: (212) 230-9200
Fax: (212) 230-9272
Attn: Jeffrey Horing
Section 12.03 Jurisdiction; Service of Process. Each of the parties
hereto hereby irrevocably and unconditionally consents to submit to the
exclusive jurisdiction of the (a) Court of Chancery in and for the State of
Delaware and the Superior Court in and for the State of Delaware and (b) the
United States District Court for the District of Delaware, for any actions,
suits or proceedings arising out of or relating to this Agreement, the
Transaction Documents and the Transaction (and agrees not to commence any
action, suit or proceeding relating thereto except in such courts), and further
agrees that service of any process, summons, notice or document by U.S.
registered mail to its respective address set forth in Section 12.02 will be
effective service of process for any action, suit or proceeding brought against
it in any such court. Each of the parties hereto hereby irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement, the Transaction Documents or the
Transaction in the courts of the State of Delaware or the United States of
America located in Delaware, and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient
forum.
Section 12.04 Governing Law. This Agreement will be construed in
accordance with and governed by the internal laws of the State of Delaware
applicable to agreements made and to be performed entirely within such State
without regard to conflicts of laws principles thereof.
Section 12.05 Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power or privilege under this Agreement or
the documents referred to in this Agreement will operate as a waiver of such
right, power or privilege, and no single or partial exercise of any such right,
power or privilege will preclude any other or further exercise of such right,
power or privilege or the exercise of any other right, power or privilege. To
the maximum extent permitted by Law, (a) no Claim or right arising out of this
Agreement or the Transaction Documents can be discharged by one party, in whole
or in part, by a waiver or renunciation of the Claim or right unless in writing
signed by the other party; (b) no waiver that may be given by a party will be
applicable except in the specific instance for which it is given and will not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure or noncompliance; and (c) no notice to or demand on one party will be
deemed to be a waiver of any obligation of such party or of the right of the
party giving such notice or demand to take further action without notice or
demand as provided in this Agreement or the Transaction Documents.
Section 12.06 Entire Agreement and Modification. This Agreement, the
Transaction Documents and the Confidentiality Agreement constitute a complete
and exclusive statement of the terms of the agreement between the parties with
respect to the subject matter
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contained herein and therein and supersede all prior agreements between the
parties (including the Letter of Intent between the Parent and the Company dated
May 23, 2000).
Section 12.07 No Oral Modification. This Agreement may not be amended
except by a written agreement executed by the party to be charged with the
amendment. Any attempted amendment in violation of this Section 12.07 will be
void ab initio.
Section 12.08 Assignments, Successors and No Third-Party Beneficiaries.
No party may assign any of its rights under this Agreement or any Transaction
Document without the prior written consent of the other parties to this
Agreement; provided, however, that the Parent may assign this Agreement to an
Affiliate of the Parent without the prior written consent of any other party and
provided further, that no assignment will limit or affect the assignor's
obligations hereunder. Subject to the preceding sentence, this Agreement and the
Transaction Documents will apply to, be binding in all respects upon, and inure
to the benefit of the successors and permitted assigns of the parties. Nothing
expressed or referred to in this Agreement or the Transaction Documents will be
construed to give any Person other than the parties to this Agreement any legal
or equitable right, remedy or claim under or with respect to this Agreement or
the Transaction Documents or any provision of this Agreement or the Transaction
Documents, except that members of the Parent Group and the Seller Group will be
entitled to the rights set forth in Article XI hereof. Subject to the preceding
sentence, this Agreement and the Transaction Documents and all of its provisions
and conditions are for the sole and exclusive benefit of the parties to this
Agreement and their successors and assigns.
Section 12.09 Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
Section 12.10 Exhibits and Schedules. 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 Agreement, unless an
explicit cross-reference thereto appears in such other section or schedule.
Section 12.11 Specific Performance. In the event of any actual or
threatened default in, or breach of, any of the terms, conditions and provisions
of this Agreement, 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 this Agreement, 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
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specific performance that a remedy at Law would be adequate is waived. The
parties further agree that any requirement under any Law to post security as a
prerequisite to obtaining equitable relief is hereby waived.
Section 12.12 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which will be deemed to be
an original copy of this Agreement and all of which together will be deemed to
constitute one and the same agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties as of the date first written
above.
CONEXANT SYSTEMS, INC.
By: /s/ Raouf Y. Halim
----------------------------
Name: Raouf Y. Halim
Title: Senior Vice President and
General Manager, Network
Access Division
H&J ACQUISITION SUB, INC.
By: /s/ Raouf Y. Halim
----------------------------
Name: Raouf Y. Halim
Title: Vice President
HARRIS & JEFFRIES, INC.
By: /s/ Deepak Shahane
----------------------------
Name: Deepak Shahane
Title: President and Chief
Executive Officer
By: /s/ David S. Jeffries
----------------------------
Name: David S. Jeffries
Title: Treasurer
[CORPORATE SEAL]
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Appendix A-2
<PAGE> 208
FIRST AMENDMENT
OF
AGREEMENT AND PLAN OF MERGER
This Agreement is made and entered into as of August 28, 2000, by and
among Conexant Systems, Inc., a Delaware corporation (the "Parent"), H&J
Acquisition Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of
the Parent (the "Sub") and Harris & Jeffries, Inc., a Massachusetts corporation
(the "Company").
W I T N E S S E T H:
WHEREAS, the Parent, Sub and Company entered into an Agreement and Plan
of Merger dated as of July 19, 2000 (the "Merger Agreement").
WHEREAS, the Parent, Sub and Company desire to amend the Merger
Agreement as provided in this Agreement.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon the terms and subject to the
conditions hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 Defined Terms. For purposes of this Agreement, terms
defined in the preamble and recitals shall have the meanings set forth therein,
and capitalized terms used but not otherwise defined in this Agreement shall
have the meanings set forth in the Merger Agreement, after giving effect to any
amendment thereof set forth in this Agreement.
Section 1.02 Rules of Interpretation. The rules of interpretation and
other provisions in Section 1.01 of the Merger Agreement shall apply to this
Agreement, after giving effect to any amendment thereof set forth in this
Agreement.
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ARTICLE II
AMENDMENTS
Section 2.01 Definitions. Section 1.01(a) of the Merger Agreement is
amended by (x) adding in the appropriate alphabetical order the defined terms
set forth below which are not in the Merger Agreement prior to giving effect to
this Agreement, and (y) replacing with the defined terms set forth below any
similar terms in the Merger Agreement prior to giving effect to this Agreement.
"Actual Preferred Share Amount" means, with respect to each Preferred
Stockholder, the product of (1) the Closing Market Price for the Closing Date
and (2) the Relevant Share Number.
"Additional Consideration Condition" means that each of the following
conditions exists:
(1) the Charter Amendment is in full force and effect immediately
prior to the Effective Time in accordance with the MBCL; and
(2) the Target Preferred Share Amount exceeds the Actual Preferred
Share Amount.
"Additional Preferred Stock Consideration" means an amount, payable in
United States dollars, equal to the amount by which (x) the sum of the Target
Preferred Share Amounts for all Preferred Stockholders exceeds (y) the sum of
the Actual Preferred Share Amounts for all Preferred Stockholders, except that
the Additional Preferred Stock Consideration shall in no event exceed the
Maximum Amount.
"Charter Amendment" means the amendment of Article IV, Part A, of the
Restated Articles of Organization of the Company in the form annexed as Exhibit
A of this Agreement.
"Escrow Shares" means that number of fully paid, nonassessable shares
of Conexant Stock equal to the product of (x) 200,900 and (y) the Insight Share
Percentage.
"Fully Diluted Share Number" means the sum of (a) the product of (i)
the Preferred Stock Conversion Number and (ii) the number of shares of Preferred
Stock issued and outstanding on the Closing Date immediately prior to the
Merger; (b) the number of shares of Common Stock issued and outstanding on the
Closing Date immediately prior to the Merger; and (c) the number of shares of
Common Stock issuable, with or without the passage of time or satisfaction of
other conditions, upon the exercise of all Company Options issued and
outstanding on the Closing Date immediately prior to the Merger, except that for
purposes of Section 2.09 and any computation of the
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Stockholder Ratio thereunder, there shall be excluded from the Fully-Diluted
Share Number the Unvested Share Number.
"Holdback" means that number of fully paid, nonassessable shares of
Conexant Stock equal to the excess of (x) 200,900 over (y) the Escrow Shares.
"Insight Share Percentage" means the amount, expressed as a percentage,
equal to the fraction (a) the numerator of which is the product of (i) the
Preferred Stock Conversion Number and (ii) the number of shares of Preferred
Stock held by all Insight Stockholders on the Closing Date (after giving effect
to the exercise of the Company Warrants held by such Insight Stockholders, as
provided in Section 9.09), and (b) the denominator of which is the Fully Diluted
Share Number.
"Maximum Amount" means an amount equal to the lesser of (x) the product
of (1) $4.00 per share of Preferred Stock and (2) the total number of shares of
Preferred Stock issued and outstanding immediately prior to the Effective Time,
after giving effect to the exercise of the Company Warrants as provided in
Section 9.09 and (y) the excess of:
(1) the product of (x) 0.199 and (y) the product of (A) the Closing
Market Price for the Closing Date and (B) that number of shares
of Conexant Stock that is equal to the aggregate Merger
Consideration exchanged for shares of Common Stock and Preferred
Stock under this Agreement; over
(2) the sum of all amounts of money and the fair market value of all
property distributed in respect of shareholders of the Company or
exchanged for Common Stock or Preferred Stock in connection with
the Merger or this Agreement that (A) represent fees and
disbursements of counsel for shareholders of the Company and
payments in respect of Dissenting Shares, and (B) would be
characterized as "boot" under Section 356 of the Code.
"Merger Consideration" means 1,808,100 fully paid, nonassessable shares
of Conexant Stock (as such number may be adjusted pursuant to Section 1.01(d)
and (e)).
"Option Conversion Ratio" means:
(1) except as provided in clause (2) below when the Preferred Stock
Participation Trigger Event has occurred, the Merger Consideration,
divided by the Fully Diluted Share Number; or
(2) if but only if the Preferred Stock Participation Trigger Event has
occurred, the excess, if any, of:
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(a) the Merger Consideration, divided by the Fully Diluted Share
Number; over
(b) the Preferred Stock Participation, divided by the Fully Diluted
Share Number.
"Per Share Additional Preferred Stock Consideration" means the
Additional Preferred Stock Consideration divided by the total number of shares
of Preferred Stock issued and outstanding immediately prior to the Effective
Time, after giving effect to the exercise of the Company Warrants as provided in
Section 9.09.
"Per Share Common Stock Consideration" means that number of fully paid
non-assessable shares of Conexant Stock equal to:
(1) except as provided in clause (2) below when the Preferred Stock
Participation Trigger Event has occurred, the Merger Consideration,
divided by the Fully Diluted Share Number; or
(2) if but only if the Preferred Stock Participation Trigger Event has
occurred, the excess, if any, of:
(a) the Merger Consideration, divided by the Fully Diluted Share
Number; over
(b) the Preferred Stock Participation, divided by the Fully Diluted
Share Number.
"Per Share Preferred Stock Consideration" means that number of fully
paid non-assessable shares of Conexant Stock equal to:
(1) except as provided in clause (2) below when the Preferred Stock
Participation Trigger Event has occurred, the product of (x) the
Preferred Stock Conversion Number and (y) the Merger Consideration,
divided by the Fully Diluted Share Number; or
(2) if but only if the Preferred Stock Participation Trigger Event has
occurred, the sum of:
(a) the product of (x) the Preferred Stock Conversion Number and (y)
the Per Share Common Stock Consideration; plus
(b) the Preferred Stock Participation divided by the total number of
shares of Preferred Stock issued and outstanding immediately
prior to the
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Effective Time, after giving effect to the exercise of the
Company Warrants as provided in Section 9.09.
"Per Share Preferred Stock Participation Amount" means the lesser of
(1) $4.00 per share of Preferred Stock and (2) excess, if any, of (x) $14.00 per
share of Preferred Stock, over (y) the fraction the numerator of which is the
product of (A) the Per Share Preferred Stock Consideration (computed as if
clause (1) of the definition of that term were applicable) and (B) the Closing
Market Price for the Closing Date, and the denominator of which is 0.9, except
that if the Per Share Preferred Stock Consideration (computed as if clause (1)
of the definition of that term were applicable) equals or exceeds $14.00 per
share of Preferred Stock, the Per Share Preferred Stock Participation Amount
shall be $0.
"Preferred Stockholder" means any person that holds Preferred Stock
immediately prior to the Effective Time.
"Preferred Stock Conversion Number" means (1) except as otherwise
provided in clause (2) of this definition, 2.7884 and (2) if Company Options for
an additional 1,066,797 shares of Common Stock of the Company are granted as
contemplated by Schedule 5.02, 3.02635.
"Preferred Stock Participation" means that number of fully paid
non-assessable shares of Conexant Stock as shall have a value (based on the
Closing Market Price for the Closing Date) equal to the product of (x) the Per
Share Preferred Stock Participation Amount and (y) the total number of shares of
Preferred Stock issued and outstanding immediately prior to the Effective Time,
after giving effect to the exercise of the Company Warrants as provided in
Section 9.09.
"Preferred Stock Participation Trigger Event" means that immediately
prior to the Effective Time both:
(1) the Closing Market Price for the Closing Date is less than (a)
except as otherwise provided in clause (b) of this definition,
$37.13 per share of Conexant Stock and (b) if Company Options for
an additional 1,066,797 shares of Common Stock of the Company are
granted as contemplated by Schedule 5.02, $37.50 per share of
Conexant Stock; and
(2) the Additional Consideration Condition does not exist.
"Relevant Share Number" shall mean, with respect to each Preferred
Stockholder, the sum of (x) the number of shares of Conexant Stock which that
Preferred Stockholder would receive as Merger Consideration and (y) the number
of shares of Conexant Stock which are that Preferred Stockholder's interest in
the Escrow Shares, in
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each case determined (1) after giving effect to the Charter Amendment and (2) on
the basis that each share of Preferred Stock is convertible into Common Stock
under a conversion ratio that is (A) 2.7884 shares of Common Stock for each
share of Preferred Stock if no new Company Options are granted after the date of
this Agreement and prior to the Effective Time, and (B) not greater that 3.02635
shares of Common Stock for each share of Preferred Stock if new Company Options
are granted after the date of this Agreement and prior to the Effective Time.
"Stockholder Ratio" means (a) with respect to any holder of Common
Stock, the fraction the numerator of which is the aggregate number of shares of
Common Stock held by such Stockholder immediately prior to the Closing and the
denominator of which is the Fully Diluted Share Number, (b) with respect to any
holder of Preferred Stock, the fraction the numerator of which is the product of
(i) the Preferred Stock Conversion Number and (ii) the aggregate number of
shares of Preferred Stock held by such Stockholder immediately prior to the
Closing and the denominator of which is the Fully Diluted Share Number; and (c)
with respect to any Option Holder, the fraction the numerator of which is the
aggregate number of shares of Common Stock for which the aggregate number of
Company Options held by such Option Holder (whether or not vested or subject to
other contingencies) are exercisable and the denominator of which is the Fully
Diluted Share Number, except that (1) for purposes of Section 2.09, there shall
be excluded the Unvested Share Number, and (2) for purposes of Section 2.11,
there shall be excluded the amounts referred to in clause (b) above.
"Target Preferred Share Amount" shall mean, in respect of each
Preferred Stockholder, the product of (1) the Relevant Share Number and (2)
either (a) $37.13, except as otherwise provided in clause (b) of this
definition, or (b) $37.50, if Company Options for an additional 1,066,797 shares
of Common Stock of the Company are granted as contemplated by Schedule 5.02.
Section 2.02 References to the Merger Agreement. Any reference in the
Merger Agreement, any Transaction Document, any Schedule or Exhibit to the
Merger Agreement and any certificate or other instrument to be delivered
pursuant to any of the foregoing to "this Agreement" or "the Merger Agreement"
or words of similar import shall mean the Merger Agreement after giving effect
to this Agreement for all purposes after the effective date of this Agreement.
Section 2.03 Certain Adjustments. Section 1.01 of the Merger Agreement
is amended by adding at the end thereof a new paragraph (e) which reads in its
entirety as follows:
(e) The number of shares of Conexant Stock that is Merger
Consideration shall be reduced as follows:
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(i) If any Company Warrant is exercised other than by the payment
in full to the Company of an amount of money equal to the exercise
price for the number of shares of Preferred Stock subject to such
exercise ("Cash-less Exercise"), the Merger Consideration shall be
reduced by that number of fully paid non-assessable shares of Conexant
Stock equal to the fraction the numerator of which is the aggregate
exercise price (as stated in the Company Warrants and as adjusted in
accordance with the terms of the Company Warrants) for all shares of
Preferred Stock that are issued by the Company pursuant to such
Cash-less Exercise, and the denominator of which is the Closing Market
Price for the Closing Date.
(ii) If there are any Dissenting Shares, the Merger Consideration
shall be reduced by that number of fully paid non-assessable shares of
Conexant Stock equal to the Per Share Common Stock Consideration that
otherwise would be delivered in respect of each such Dissenting Share.
Section 2.04 Effect on Company Securities. (a) Section 2.05(a) of the
Merger Agreement is amended to read in its entirety as follows:
(a) Cancellation of Treasury Stock and Subsidiary Owned Common
Stock. At the Effective Time, by virtue of the Merger and without any
action on the part of the holders of capital stock of the Company or
any shares of capital stock of Sub, each share of Common Stock or
Preferred Stock issued and outstanding immediately prior to the
Effective Time and (i) held in the treasury of the Company or (ii)
owned by any direct or indirect Subsidiary of the Company shall cease
to be outstanding, shall be canceled and retired without any
conversion thereof and without payment of any consideration therefor
and shall cease to exist.
(b) Section 2.05(b)(i) of the Merger Agreement is amended to read in
its entirety as follows:
(b) Conversion of Common Stock. (i) At the Effective Time, by
virtue of the Merger and without any action on the part of the holders
of Common Stock of the Company or any shares of capital stock of Sub,
subject to Section 2.06, each share of Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares
of Common Stock being canceled pursuant to Section 2.05(a)), shall be
converted into the right to receive for each share of Common Stock the
Per Share Common Stock Consideration, upon surrender of the
certificate
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which immediately prior to the Effective Time represented such share
in accordance with Section 2.06.
(c) Section 2.05(c)(i) of the Merger Agreement is amended to read in
its entirety as follows:
(c) Conversion of Preferred Stock. (i) At the Effective Time, by
virtue of the Merger and without any action on the part of the holders
of Preferred Stock of the Company or any shares of capital stock of
Sub, subject to Section 2.06, each share of Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than shares
of Preferred Stock being canceled pursuant to Section 2.05(a)) shall
be converted into the right to receive for each share of Preferred
Stock (x) the Per Share Preferred Stock Consideration, plus (y) if
(but only if) the Additional Consideration Condition exists, the Per
Share Additional Preferred Stock Consideration, upon surrender of the
certificate which immediately prior to the Effective Time represented
such share in accordance with Section 2.06.
(d) Section 2.05(d) of the Merger Agreement is amended to read in its
entirety as follows:
(d) Conversion of Company Options. At the Effective Time, by
virtue of the Merger and without any action on the part of the holders
thereof, each Company Option issued and outstanding immediately prior
to the Effective Time shall be converted into and be deemed to be,
without the need for amendment or modification to any Contract under
which such Company Options have been granted, a Conexant Option to
purchase that whole number of shares of Conexant Stock issuable upon
exercise of such Company Option (whether or not then vested)
immediately prior to the Effective Time, multiplied by the Conversion
Ratio, rounded down to the nearest whole share. The per share exercise
price of each Conexant Option into which a Company Option has been
converted shall be equal to the quotient of the per share exercise
price of the Company Option immediately prior to the Effective Time,
divided by the Conversion Ratio, rounded up to the nearest whole cent.
Notwithstanding the foregoing, in no event will the per share exercise
price of each Conexant Option be less than $1.00. Until such time as a
registration statement on Form S-8 or Form S-4 under the Securities
Act is declared effective, no Option Holder shall have a right to
exercise or transfer the Conexant Options.
Section 2.05 Exchange Procedures. Section 2.06 of the Merger Agreement
is amended to read in its entirety as follows:
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Section 2.06 Exchange of Certificates.
(a) Exchange Agent. Immediately following the Effective Time, the
Parent shall deposit with the Exchange Agent, for the benefit of the
holders of shares of Common Stock and Preferred Stock, for exchange in
accordance with this Article II, through the Exchange Agent,
certificates representing the shares of Conexant Stock issuable
pursuant to Section 2.05 in exchange for outstanding shares of Common
Stock and Preferred Stock together with amounts sufficient in the
aggregate to provide all funds necessary for the Exchange Agent to
make payments of Additional Preferred Stock Consideration pursuant to
Section 2.05(c)(i), payments in lieu of fractional shares pursuant to
Section 2.07 and dividend payments pursuant to Section 2.06(c) (such
shares of Conexant Stock and funds, together with any dividends or
distributions with respect thereto with a record date after the
Effective Time, being hereinafter referred to as the "Exchange Fund").
(b) Exchange Procedures. As soon as reasonably practicable after
the Effective Time, the Exchange Agent shall mail to each holder of
record of a certificate or certificates (the "Old Certificates") which
immediately prior to the Effective Time represented outstanding shares
of Common Stock or Preferred Stock, other than shares to be canceled
or retired in accordance with Section 2.05, (i) a Letter of
Transmittal and (ii) instructions for use in effecting the surrender
of the Old Certificates in exchange for certificates representing
shares of Conexant Stock ("New Certificates"). Upon surrender of an
Old Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by the Parent, together with
such Letter of Transmittal, appropriately completed and duly executed,
and such other documents as may reasonably be required by the Exchange
Agent, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole
shares of Conexant Stock and a cash amount for any payment of
Additional Preferred Stock Consideration, which such holder has the
right to receive pursuant to the provisions of this Article II, and
the Old Certificate so surrendered shall forthwith be canceled. The
Parent shall instruct the Exchange Agent to deliver New Certificates
(and any cash payment which a holder of an Old Certificate may be
entitled to receive hereunder) as soon as reasonably practicable, and
in any event within 5 Business Days, after the Exchange Agent receives
an Old Certificate, together with such Letter of Transmittal,
appropriately completed and duly executed, and such other documents as
may reasonably be required by the Exchange Agent. In the event of a
transfer of ownership of Common Stock or Preferred Stock which is not
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registered in the transfer records of the Company, a certificate
representing the proper number of shares of Conexant Stock may be
issued, and a payment for any Additional Preferred Stock Consideration
made, to a Person other than the Person in whose name the Old
Certificate so surrendered is registered, if such Old Certificate
shall be properly endorsed or otherwise be in proper form for transfer
and the Person requesting such payment shall pay any transfer,
withholding or other Taxes required by reason of the issuance of
shares of Conexant Stock, or the making of any payment of Additional
Preferred Stock Consideration, to a Person other than the registered
holder of such Old Certificate or establish to the satisfaction of the
Parent that any such Tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.06, each Old Certificate
shall be deemed at any time after the Effective Time to represent only
the right to receive upon such surrender a New Certificate
representing the appropriate number of whole shares of Conexant Stock,
a cash amount for any payment of Additional Preferred Stock
Consideration to the extent provided in Section 2.06(c)(i), and cash
in lieu of any fractional shares of Conexant Stock and any dividends
to the extent provided in Section 2.06(c) as contemplated by this
Section. No interest will be paid or will accrue on any cash payable
as Additional Preferred Stock Consideration or in lieu of any
fractional shares of Conexant Stock or as dividends or other
distributions with respect to Conexant Stock.
(c) Distributions With Respect to Unexchanged Shares. No
dividends or other distributions with respect to Conexant Stock with a
record date after the Effective Time shall be paid to the holder of
any unsurrendered Old Certificate with respect to the shares of
Conexant Stock represented thereby, and no cash payment as Additional
Preferred Stock Consideration or in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.07 until the surrender
of such Old Certificate in accordance with this Article II. Subject to
the effect of applicable Laws, following surrender of any such Old
Certificate, there shall be paid to the holder of the New Certificate
representing whole shares of Conexant Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the
amount of any cash payable as Additional Preferred Stock Consideration
Stock to which such holder is entitled pursuant to Section 2,05(c)(i)
or in lieu of a fractional share of Conexant Stock to which such
holder is entitled pursuant to Section 2.07 and the amount of
dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of
Conexant Stock, and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the
Effective Time but prior to such
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surrender and a payment date subsequent to such surrender payable with
respect to such whole shares of Conexant Stock.
(d) Termination of Exchange Fund. Any portion of the Exchange
Fund that remains undistributed to the holders of Old Certificates for
six months after the Effective Time shall be delivered to the Parent,
upon demand, and any holders of Old Certificates who have not
theretofore complied with this Article II shall thereafter look only
to the Parent for payment of their claim for Conexant Stock, any cash
payment as Additional Preferred Stock Consideration or in lieu of
fractional shares of Conexant Stock and any dividends or distributions
with respect to Conexant Stock.
(e) No Liability. None of the Parent, Sub, the Company or the
Exchange Agent shall be liable to any Person in respect of any shares
of Conexant Stock (or dividends or distributions with respect thereto)
or cash from the Exchange Fund delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
(f) Investment of Exchange Fund. The Exchange Agent shall invest
any cash included in the Exchange Fund, as directed by the Parent, on
a daily basis. Any interest and other income resulting from such
investments shall be paid to the Parent.
(g) Lost Certificates. In the event that any Old Certificate
shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the Person claiming such Old Certificate to
be lost, stolen or destroyed and, if required by the Parent, the
posting by such Person of a bond in such reasonable amount as the
Parent may direct as indemnity against any claim that may be made
against it with respect to such Old Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Old
Certificate the Conexant Stock, and any cash payable as Additional
Preferred Stock Consideration Stock or in lieu of fractional shares
and any unpaid dividends or distributions with respect to Conexant
Stock, to which they are entitled pursuant hereto.
(h) No Further Ownership Rights in Stock. All consideration paid
upon the conversion of Common Stock and Preferred Stock and the
surrender of Old Certificates in accordance with the terms of this
Article II shall be deemed to have been paid in full satisfaction of
all rights pertaining to the shares of Common Stock and Preferred
Stock theretofore represented by such Old Certificates. At the
Effective Time, the stock transfer books of the Company shall be
closed, and there shall be no
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further registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Common Stock or Preferred Stock
that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Old Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Article II.
Section 2.06 Employee Benefit and Labor Matters. Section 3.12(m) of the
Merger Agreement is amended to read in its entirety as follows:
(m) No charge against the Company or any of it Subsidiaries or
any of its employees is pending before the Equal Employment
Opportunity Commission or any other Governmental Entity responsible
for the prevention of unlawful employment. No claims relating to
employment or loss of employment from the Company or any of its
Subsidiaries are pending in any Governmental Entity and, to the best
Knowledge of the Company and any of its Subsidiaries after due
inquiry, no such claims are threatened. No notice of intent of any
Governmental Entity responsible for the enforcement of labor or
employment regulations to conduct an investigation has been received,
and no such investigation is in progress. All employees presently
employed by the Company and each of its Subsidiaries are authorized
for employment by the Company and each of its Subsidiaries in
accordance with the Immigration and Naturalization Act, as amended and
regulations promulgated thereunder. The Company and each of its
Subsidiaries has completed and retained in accordance with Immigration
and Naturalization Service regulations a Form I-9 for all employees
hired on or after November 7, 1986, except for those employees of
NetPlane Network Technologies (India) Private Limited who are employed
and reside exclusively in India.
Section 2.07 Stockholder Meeting. Section 5.04(a) of the Merger
Agreement is amended by deleting the first sentence thereof and replacing that
sentence with the following sentence:
The Company will take, in accordance with its Articles of
Organization and By-laws, all action necessary to convene a meeting of
holders of shares of Common Stock and Preferred Stock (the
"Stockholders Meeting"), to be held as promptly as practicable after
the Proxy Statement (as defined below) is first mailed to the
Company's stockholders, to consider and vote upon the approval and
adoption of this Agreement, the Merger and the Charter Amendment.
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Section 2.08 Registration Statement on Form S-8. Section 6.03 of the
Merger Agreement is amended to read in its entirety as follows:
Intentionally omitted.
Section 2.09 Comfort Letters. (a) Section 7.06(b) of the Merger
Agreement is amended to read in its entirety as follows:
(b) Intentionally omitted.
(b) Section 7.06(c) of the Merger Agreement is amended to read in its
entirety as follows:
(c) Intentionally omitted.
Section 2.10 Company Warrants. Section 9.09 of the Merger Agreement is
amended to read in its entirety as follows:
Section 9.09 Company. All of the Company Warrants shall have been
exercised and all amounts payable by the holders thereof on exercise
shall have been paid to the Company in accordance with the terms of
the Company Warrants.
Section 2.11 Termination Date. Section 10.01(c) of the Merger Agreement
is amended to read in its entirety as follows:
(c) by the Company or the Parent if the Closing has not occurred
(other than through the failure of any party seeking to terminate this
Agreement to fully comply with its obligations under this Agreement)
on or before November 30, 2000; or
Section 2.12 Replacement Appendix and Schedules. Appendix I and
Schedule 5.02 of the Merger Agreement are replaced by the Appendix I and
Schedule 5.02 annexed to this Agreement, effective as of the date of this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each of the parties to this Agreement, severally, makes to each of the
other parties to this Agreement the representations and warranties set forth
below, and agrees
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that such representations and warranties shall be treated for all purposes as if
they were made in and are a part of the Merger Agreement.
Section 3.01 Due Authorization. Such person has all requisite
corporate, partnership, trust, limited liability company or other power and
authority, or legal right and capacity, to execute, deliver and perform this
Agreement. The execution, delivery and performance of this Agreement by the such
person has been duly authorized by all necessary or appropriate corporate,
partnership, trust, limited liability company or other action and no other
corporate, partnership, trust, limited liability company or other proceedings
are necessary to authorize this Agreement.
Section 3.02 Binding Agreement. This Agreement constitutes the valid
and legally binding obligation of such person and is enforceable against such
person in accordance with its terms, except as enforceability may be limited by
(i) bankruptcy, insolvency, reorganization, moratorium and similar laws relating
to or affecting the enforcement of creditors' rights in general and (ii) general
principles of equity.
ARTICLE IV
MISCELLANEOUS
Section 4.01 Governing Law. This Agreement will be construed in
accordance with and governed by the internal laws of the State of Delaware
applicable to agreements made and to be performed entirely within such State
without regard to conflicts of laws principles thereof.
Section 4.02 Waiver. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Neither the failure nor any delay
by any party in exercising any right, power or privilege under this Agreement or
the documents referred to in this Agreement will operate as a waiver of such
right, power or privilege, and no single or partial exercise of any such right,
power or privilege will preclude any other or further exercise of such right,
power or privilege or the exercise of any other right, power or privilege. To
the maximum extent permitted by Law, (a) no Claim or right arising out of this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the Claim or right unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given and will not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure or noncompliance; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement.
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Section 4.03 Entire Agreement and Modification. This Agreement, the
Merger Agreement, the Transaction Documents and the Confidentiality Agreement
constitute a complete and exclusive statement of the terms of the agreement
between the parties with respect to the subject matter contained herein and
therein and supersede all prior agreements between the parties (including the
Letter of Intent between the Parent and the Company dated May 23, 2000). Except
as expressly modified by this Agreement, all of the terms and conditions of the
Merger Agreement shall remain unaltered and in full force and effect.
Section 4.04 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which will be deemed to be
an original copy of this Agreement and all of which together will be deemed to
constitute one and the same agreement.
Section 4.05 Effective Date. This Agreement shall become effective on
the date when it has been signed by all of the parties hereto, including the
parties to the Voting Agreements and other Transaction Documents referred to
below, and until this Agreement becomes effective, the Merger Agreement shall
continue unchanged and in full force and effect.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties as of the date first written
above.
CONEXANT SYSTEMS, INC.
By: /s/ Raouf Y. Halim
Name: Raouf Y. Halim
Title: Senior Vice President and General
Manager, Network Access Division
H&J ACQUISITION SUB, INC.
By: /s/ Raouf Y. Halim
Name: Raouf Y. Halim
Title: Vice President
HARRIS & JEFFRIES, INC.
By: /s/ Deepak Shahane
Name: Deepak Shahane
Title: President and Chief Executive Officer
By: /s/ David S. Jeffries
Name: David S. Jeffries
Title: Treasurer
[CORPORATE SEAL]
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Each of the undersigned persons are signing counterparts of this
Agreement to confirm that the liabilities, obligations, covenants, agreements,
and undertakings of the undersigned in, and any proxy given or other instrument
delivered by the undersigned pursuant to, the Voting Agreements and each other
Transaction Document previously executed by each of the undersigned will in no
way be affected by this Agreement and shall continue in full force and effect,
except that any reference therein to the Merger Agreement shall, from and after
the effective date of this Agreement, be deemed a reference to the Merger
Agreement as amended by this Agreement.
INSIGHT CAPITAL PARTNERS (CAYMAN) II L.P. BY INSIGHT
VENTURE ASSOCIATES II, LLC, ITS GENERAL PARTNER
By: /s/ Jeff Horing
Name: Jeff Horing
Title: Managing Member
INSIGHT CAPITAL PARTNERS II L.P. BY INSIGHT VENTURE
ASSOCIATES II LLC, ITS GENERAL PARTNER
By: /s/ Jeff Horing
Name: Jeff Horing
Title: Managing Member
WI SOFTWARE INVESTORS, LLC
By: /s/ Robert Holtz
Name: Robert Holtz
Title: Vice President
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THE CELIA M. JEFFRIES TRUST-1999
By: /s/ Celia M. Jeffries
Name: Celia M. Jeffries
Title: Trustee
THE DAVID S. JEFFRIES TRUST-1999
By: /s/ David S. Jeffries
Name: David S. Jeffries
Title: Trustee
By: /s/ Ethan F. Harris
Name: Ethan F. Harris
By: /s/ Deepak Shahane
Name: Deepak Shahane
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EXHIBIT A
HARRIS & JEFFRIES, INCORPORATED
RESTATED ARTICLES OF ORGANIZATION
PART A
SERIES A PARTICIPATING CONVERTIBLE PREFERRED STOCK
Section 1. Dividends. In the event a dividend is declared with respect
to the Common Stock, each share of Series A Preferred Stock shall be entitled to
share in dividends on a pro rata basis with each share of Common Stock as
described in Part B, Section 1 hereof as if each share of Series A Preferred
Stock had been converted to Common Stock at the applicable Conversion Ratio, as
hereinafter provided.
Section 2. Liquidation Rights.
(a) Treatment at Liquidation or Upon Merger, Sale of Substantially All
Assets, or Sale of Stock. In the event of any (i) liquidation, dissolution or
winding-up of the affairs of the Corporation, or (ii) the merger or
consolidation of the Corporation into or with any other corporation, or other
person or the merger or consolidation of another person with and into the
Corporation, as a result of which the stockholders of the Corporation
immediately prior to the merger or consolidation hold, immediately after the
merger or consolidation, less than 50% of the outstanding capital stock of the
surviving or resulting corporation, (iii) the sale of all or substantially all
of the assets of the Corporation, or (iv) the sale or exchange of over 50% of
the capital stock of the Corporation for cash or other assets or for securities
of another corporation (a "Liquidating Event"), the Series A Preferred Stock
shall be entitled to be paid, prior to any other class of capital stock of the
Corporation (other than Common Stock) and (x) out of the assets of the
Corporation available for distribution to holders of the Corporation's capital
stock of all classes, or (y) out of the consideration paid in such transaction
(whether to the Corporation or its shareholders), as the case may be, an amount
equal to the amount payable to holders of Common Stock as if each share of
Series A Preferred Stock had been converted to Common Stock at the applicable
Conversion Ratio, as hereinafter provided (the "Participation").
If the available assets of the Corporation, or consideration paid, as
the case may be, shall be insufficient to permit the payment in full to the
holders of the Series A Preferred Stock of all amounts distributable to them
under this Section 2(a), then the
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entire assets of the Corporation, or shares available for such distribution
shall be distributed ratably among the holders of the Series A Preferred Stock
in proportion to the full preferential amount each such holder is otherwise
entitled to receive. For all purposes of this Part A, any payments made to
holders of the Series A Preferred Stock pursuant to the Participation in a
Liquidating Event(s) shall be cumulative.
(b) Distributions other than Cash. Whenever the distribution provided
for in this Section 2 shall be payable in property other than cash, the value of
such distribution shall be the fair market value of such property as determined
in good faith by the Board of Directors of the Corporation.
Section 3. Stock Splits and Anti-dilution. If the Corporation shall in
any manner subdivide or combine the outstanding shares of Common Stock, or
declare a stock dividend thereon, the outstanding shares of the Series A
Preferred Stock shall be proportionately subdivided or combined on the same
basis as the outstanding shares of the class of Common Stock that have been
subdivided or combined, and, if required, the number of shares of Common Stock
that the Series A Preferred Stock is convertible to shall be appropriately
adjusted.
Section 4. Conversion.
(a) Optional Conversion. Each share of Series A Preferred Stock shall
at the option of the holder of each such share be convertible into Common Stock
upon written notice to the Corporation at the applicable Conversion Ratio, as
hereinafter provided.
(b) Automatic Conversion. Each share of Series A Preferred Stock shall
automatically be converted into Common Stock at the applicable conversion ratio,
as hereinafter provided (i) upon the closing of an Initial Public Offering, as
defined below (in the event of which offering, the person(s) entitled to receive
the Common Stock issuable upon such conversion of the Series A Preferred Stock
shall not be deemed to have converted that Series A Preferred Stock until the
closing of such offering), or (ii) upon the occurrence of a Liquidating
Event(s).
As used herein, the term "Initial Public Offering" shall mean, in
relation to the Corporation, the first underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of shares of Common Stock of the
Corporation yielding net proceeds to the Company in excess of $20,000,000.
(c) No Impairment. The Corporation shall not, by amendment of its
Articles of Organization or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed
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hereunder by the Corporation but shall at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series A Preferred Stock against
impairment.
(d) Common Stock Reserved. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall be sufficient to effect the conversion of the Series A
Preferred Stock.
(e) Certain Taxes. The Corporation shall pay any issue or transfer
taxes payable in connection with the conversation of the Series A Preferred
Stock, provided, however, that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer to a name other than that of
the registered holder of the Series A Preferred Stock.
(f) Closing of Books. The Corporation shall at no time close its
transfer books against the transfer of any Series A Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Series A Preferred Stock in any manner which interferes with the timely
conversation or transfer of such Series A Preferred Stock or Common Stock.
(g) Conversion Ratio. Unless and until adjusted as otherwise provided
in this Section 4, the Conversion Ratio for all purposes of this Part A shall be
2.7884 shares of Common Stock for each share of Series A Preferred Stock, except
that if options to acquire Common Stock of the Company are issued pursuant to
the Company's stock option plan for employees after the effective date of this
amendment of the Articles of Organization, and the maximum amount of Common
Stock of the Company that may be issued under such options does not exceed
2,771,022 shares, the Conversion Ratio for all purposes of this Part A shall be
lesser of (i) 3.02635 shares of Common Stock for each share of Series A
Preferred Stock or (ii) that number of shares of Common for each share of Series
A Preferred Stock that would be established pursuant to Section 3.
Section 5. Voting Rights. The holder of shares of Series A Preferred
Stock shall be entitled to vote on all matters together with holders of the
Common Stock as if the Series A Preferred Stock had been converted into Common
Stock, unless otherwise required by law.
Section 6. Restrictions on Transfer. The shares of Series A Preferred
Stock shall not at any time, even after conversion to Common Stock, be subject
to any restriction on transfer contained in the Corporation's Bylaws, including,
but not limited to, the restrictions contained in Section 17 of the
Corporation's Bylaws.
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Section 7. Residual Rights. All rights accruing to the outstanding
shares of the Corporation not expressly provided for to the contrary herein
shall be vested in the Common Stock.
A-2-22
<PAGE> 230
Appendix B
VOTING AGREEMENT
VOTING AGREEMENT (the "Agreement") dated as of July 19, 2000, between
the undersigned stockholder (the "Stockholder") of Harris & Jeffries, Inc., a
Massachusetts corporation (the "Company"), and Conexant Systems, Inc., a
Delaware corporation (the "Parent").
WHEREAS, in connection with the execution and delivery of this
Agreement, the Company and the Parent will enter into an Agreement and Plan of
Merger dated as of July 19, 2000 (the "Merger Agreement") by and among the
Parent, the Company and H&J Acquisition Sub, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Parent ("Sub"), providing for the merger of Sub
with and into the Company (the "Merger") pursuant to the terms and conditions
thereof; and
WHEREAS, as an inducement and a condition to the Parent entering into
the Merger Agreement, pursuant to which the Stockholder will receive the
consideration provided for in the Merger Agreement in exchange for each share of
Series A Participating Convertible Preferred Stock, no par value, of the Company
(the "Preferred Stock") and each share of Common Stock, no par value, of the
Company (the "Common Stock") owned by such Stockholder, such Stockholder has
agreed to enter into this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt,
sufficiency and adequacy of which is hereby acknowledged, the parties hereto
agree as follows:
1. Representations of the Stockholder. The Stockholder represents that
such Stockholder:
(a) is the beneficial owner of that number of shares of Preferred
Stock and Common Stock set forth opposite such Stockholder's name on
Exhibit A (such Stockholder's "Shares");
(b) except as may be denoted in Exhibit A, does not beneficially
own (as such term is defined in the Securities Exchange Act of 1934, as
amended) or own of record any shares of Preferred Stock or Common Stock
other than such Stockholder's Shares, but excluding any shares of
Preferred Stock or Common Stock which such Stockholder has the right to
obtain upon the exercise of options or warrants outstanding on the date
hereof; and
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(c) has the right, power and authority to execute and deliver this
Agreement and to perform such Stockholder's obligations under this
Agreement, and this Agreement has been duly executed and delivered by
such Stockholder and constitutes a valid and legally binding agreement
of such Stockholder, enforceable in accordance with its terms; and such
execution, delivery and performance by such Stockholder of this
Agreement will not (i) conflict with, require a consent, waiver or
approval under, or result in a breach of or default under, any of the
terms of any contract, commitment or other obligation (written or oral)
to which such Stockholder is a party or by which such Stockholder is
bound; (ii) violate any order, writ, injunction, decree or statute, or
any rule or regulation, applicable to such Stockholder or any of the
properties or assets of such Stockholder; or (iii) result in the
creation of, or impose any obligation on such Stockholder to create,
any Lien (as defined in the Merger Agreement), charge or other
encumbrance of any nature whatsoever upon the Shares, other than in
favor of the Parent.
The representations and warranties contained herein shall be made as of the date
hereof and as of each date from the date hereof through and including the
Termination Date (as defined below).
2. Agreement To Vote Shares. The Stockholder agrees to vote or cause to
be voted (in person or by proxy), prior to the Termination Date, such
Stockholder's Shares and any New Shares (as defined below), and shall cause any
holder of record of such Stockholder's Shares or New Shares to vote or cause to
be voted (in person or by proxy), prior to the Termination Date, at any annual,
special or other meeting of the stockholders of the Company at which any such
matters are considered and at any adjournment or adjournments thereof, or
pursuant to any consent in lieu of such meeting or otherwise: (a) in favor of
the adoption and approval of the Merger Agreement and the Merger (and each other
action and transaction contemplated by the Merger Agreement or by this
Agreement), (b) against any Acquisition Proposal (as defined in the Merger
Agreement) other than the Merger (or any other Acquisition Proposal of the
Parent) and (c) against any proposed action or transaction that would prevent or
intentionally delay consummation of the Merger (or other Acquisition Proposal of
the Parent) or is otherwise inconsistent therewith. Any such vote shall be cast,
or consent shall be given, in accordance with such procedures relating thereto
as shall ensure that it is duly counted for purposes of determining that a
quorum is present and for purposes of recording the results of such vote or
consent.
3. Grant of Irrevocable Proxy. In the event that the Stockholder fails
to comply with the provisions of Section 2 hereof, such Stockholder hereby
irrevocably
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grants to and appoints the Parent (or any officer of the Parent designated by
the Parent), such Stockholder's proxy and attorney-in-fact (with full power of
substitution), for and in the name, place and stead of such Stockholder, to vote
or cause to be voted (in person or by proxy), prior to the Termination Date, all
of such Stockholder's Shares or New Shares, at any annual, special or other
meeting of the stockholders of the Company at which any such matters are
considered and at any adjournment or adjournments thereof, or pursuant to any
consent in lieu of such meeting or otherwise: (a) in favor of the adoption and
approval of the Merger Agreement and the Merger (and each other action and
transaction contemplated by the Merger Agreement or by this Agreement), (b)
against any Acquisition Proposal (as defined in the Merger Agreement) other than
the Merger (or any other Acquisition Proposal of the Parent) and (c) against any
proposed action or transaction that would prevent or intentionally delay
consummation of the Merger (or other Acquisition Proposal of the Parent) or is
otherwise inconsistent therewith. The Stockholder hereby affirms that the
irrevocable proxy set forth in this Section 3 will be valid through and
including the Termination Date and is given to secure the performance of the
obligations of such Stockholder under this Agreement. The Stockholder hereby
further affirms that the proxy hereby granted shall, through and including the
Termination Date, be irrevocable and shall be deemed coupled with an interest,
in accordance with the provisions of Section 41 of the Massachusetts Business
Corporation Law.
The Stockholder hereby revokes any and all previous proxies granted with respect
to such Stockholder's Shares or New Shares.
The Stockholder understands and acknowledges that the Parent and Sub are
entering into the Merger Agreement in reliance upon such Stockholder's execution
and delivery of this Agreement. The Stockholder hereby affirms that the
irrevocable proxy set forth in this Section 3 is given in connection with the
execution of the Merger Agreement, and that such irrevocable proxy is given to
secure the performance of the duties of such Stockholder under this Agreement.
The Stockholder shall also use such Stockholder's best efforts to take, or cause
to be taken, all action, and do, or cause to be done, all things necessary or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement or the Merger Agreement.
The Stockholder agrees that promptly after any request therefor by the Parent,
the Stockholder will execute and deliver to the Parent an irrevocable proxy
substantially in the form attached hereto as Exhibit B with respect to such
Stockholder's Shares and New Shares.
4. No Voting Trusts. After the date hereof, the Stockholder agrees that
such Stockholder will not, nor will such Stockholder permit any entity under
such
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Stockholder's control to, deposit any Shares in a voting trust or subject any
Shares to any Lien or agreement, arrangement or understanding with respect to
the voting of such Shares other than agreements entered into with the Parent.
5. Additional Shares. The Stockholder agrees that in the event (a) of
any stock dividend, stock split, recapitalization, reclassification, combination
or exchange of shares of stock of the Company on, of or affecting the Shares of
such Stockholder, (b) such Stockholder purchases or otherwise acquires
beneficial ownership of any shares of Preferred Stock or Common Stock after the
execution of this Agreement (including by exercise of options or warrants), or
(c) such Stockholder acquires the right to vote or share in the voting of any
shares of Preferred Stock or Common Stock other than the Shares (collectively,
"New Shares"), all such New Shares shall be subject to the terms of this
Agreement and shall constitute Shares to the same extent as if they were owned
by such Stockholder on the date hereof.
6. No Encumbrances. (a) Except as expressly contemplated by this
Agreement, the Stockholder's Shares and the certificates representing such
Shares are now, and at all times during the term hereof will be, held by such
Stockholder, or by a nominee or custodian for the benefit of such Stockholder,
free and clear of all liens, claims, security interests, proxies, voting trusts
or agreements, understandings or arrangements or any other encumbrances
whatsoever (other than to the extent set forth on Schedule I of this Agreement),
except for any such encumbrances or proxies arising hereunder.
(b) Except as may otherwise be agreed by the Parent in writing and as
contemplated by those agreements or understandings set forth on Schedule II
hereto, the Stockholder shall not (i) transfer (which term shall include,
without limitation, any sale, gift, pledge or other disposition), or consent to
any transfer of, any or all of such Stockholder's Shares, or any interest
therein or (ii) enter into any contract, option or other agreement or
understanding with respect to any such transfer or any or all of such
Stockholder's Shares, or any interest therein.
7. Acquisition Proposals. The Stockholder agrees that such Stockholder
(i) shall not, directly or indirectly, solicit, encourage, initiate, participate
in or otherwise facilitate or consent to any negotiations, or consent to any
negotiations, inquiries or discussions, with respect to any Acquisition Proposal
and (ii) has terminated any discussions or negotiations with, and the provision
of information or data to, any Person (other than the Parent) respecting an
Acquisition Proposal. The Stockholder further agrees that such Stockholder shall
not, directly or indirectly, provide any confidential information or data to any
Person (as defined in the Merger Agreement)
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relating to or in contemplation of an Acquisition Proposal or engage in any
negotiations or discussions relating to or in contemplation of an Acquisition
Proposal. Such Stockholder will notify the Parent immediately if any inquiries,
proposals or offers respecting an Acquisition Proposal are received by, any such
information or data is requested from, or any such discussions or negotiations
are sought to be initiated or continued with, such Stockholder indicating, in
connection with such notice, the name of such Person and the material terms and
conditions of any proposals or offers, and shall keep the Parent apprised with
respect to the status and terms thereof.
8. Waiver of Appraisal Rights. The Stockholder agrees not to exercise
and hereby waives any appraisal or dissenters' rights under Section 85 of the
Massachusetts Business Corporation Law and, therefore, will not demand payment
for any of such Stockholder's Shares or New Shares other than the consideration
set forth in the Merger Agreement.
9. Reliance By the Parent. The Stockholder understands and acknowledges
that the Parent is entering into the Merger Agreement in reliance upon such
Stockholder's execution and delivery of this Agreement.
10. Specific Performance. Each party hereto severally acknowledges that
irreparable damage would occur to the other party if one party hereto fails to
comply with any of the obligations imposed by this Agreement, that every such
obligation is material and that, in the event of any such failure, the other
party will not have an adequate remedy at law or damages. Accordingly, each
party hereto severally agrees that injunctive relief or other equitable remedy,
in addition to remedies at law or damages, is the appropriate remedy for any
such failure and will not oppose the granting of such relief on the basis that
the other party has an adequate remedy at law. Each party hereto severally
agrees that it will not seek, and agrees to waive any requirement for, the
securing or posting of a bond in connection with the other party's seeking or
obtaining such equitable relief.
11. Successors and Assigns. This Agreement shall be binding upon, inure
to the benefit of and be enforceable against each party hereto and such party's
respective heirs, successors and assigns. The Agreement shall not be assigned by
operation of law or otherwise without the prior written consent of each party
hereto other than any assignment in whole or in part by the Parent.
12. Entire Agreement. This Agreement supersedes all prior agreements,
both written and oral, among the parties hereto with respect to the subject
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matter hereof and, together with the Merger Agreement, contains the entire
agreement between the parties with respect to the subject matter hereof.
13. Miscellaneous.
(a) Expenses. Each of the parties hereto shall bear and pay all
costs and expenses incurred by it or on its behalf in connection with
the negotiation of this Agreement, including fees and expenses of its
own financial consultants, investment bankers, accountants and counsel.
(b) Amendment. This Agreement may not be amended, altered
supplemented or modified, and no provisions hereof may be modified or
waived, except upon the execution and delivery of a written agreement
executed by each of the parties hereto. No waiver of any provisions
hereof by any party shall be deemed a waiver of any other provisions
hereof by such party, nor shall any such waiver be deemed a continuing
waiver of any provision hereof by such party.
(c) Governing Law. This Agreement shall be deemed a contract made
under, and for all purposes shall be construed in accordance with, the
internal laws of the Commonwealth of Massachusetts (without giving
effect to the provisions thereof relating to conflicts of law).
(d) Severability. If any provision of this Agreement or the
application of such provision to any person or circumstances shall be
held invalid or unenforceable by a court of competent jurisdiction, the
remainder of the provision held invalid or unenforceable and the
application of such provision to persons or circumstances, other than
the party as to which it is held invalid, shall not be affected. If any
provision of this Agreement is so broad as to be unenforceable, the
provision shall be interpreted to be only so broad as is enforceable.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all
of which together shall constitute one and the same instrument.
(f) Termination. This Agreement shall terminate upon the earliest
to occur of (A) the Effective Time (as defined in the Merger
Agreement), (B) the termination of the Merger Agreement in accordance
with Section 10.01 thereof and (C) the written agreement of the parties
hereto to terminate this Agreement. The date and time at which this
Agreement is terminated in accordance with this Section 13(f) is
referred to herein as the "Termination Date".
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(g) Headings. All Section headings herein are for convenience of
reference only and are not part of this Agreement and no construction
or reference shall be derived therefrom.
(h) Notices. All notices, requests, claims, demands and other
communications under this Agreement must be in writing and shall be
deemed given if delivered personally, sent by facsimile transmission
(providing transmitter's confirmation), or sent by overnight courier
(providing proof of delivery) to the parties at the following addresses
(or at such other address for a party as shall be specified by like
notice):
(i) if to the Parent, to:
Conexant Systems, Inc.
4311 Jamboree Road
Newport Beach, California 92660
Attention: Dennis E. O'Reilly, Esq.
Senior Vice President
General Counsel and Secretary
Facsimile No.: (949) 483-6388
with a copy to:
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Peter R. Kolyer, Esq.
Facsimile No.: (212) 541-5369
(ii) if to the Stockholder, to such Stockholder
c/o
Attention:
Facsimile No.:
with a copy to:
Shapiro, Israel & Weiner, P.C.
100 North Washington Street
Boston, Massachusetts 02214
Attention: Edward A. Shapiro, Esq.
Facsimile No.: (617) 742-2355
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
CONEXANT SYSTEMS, INC.
By:_________________________________
Name: Raouf Y. Halim
Title: Senior Vice President and
General Manager, Network
Access Division
Confirmed and accepted as of the date first written above:
By:_________________________________
Name:
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EXHIBIT A
STOCKHOLDERS
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF
NAME PREFERRED STOCK COMMON STOCK
---- --------------- ------------
<S> <C> <C>
InSight Capital Partners II, L.P. 742,500* 0
InSight Capital Partners (Cayman)
II, L.P. 82,500* 0
WI Software Investors LLC 825,000* 0
Ethan F. Harris 0 2,460,000
The David S. Jeffries Trust - 1999 0 890,000
The Celia M. Jeffries Trust - 1999 0 890,000
Deepak Shahane 0 471,650
</TABLE>
* Includes shares of Preferred Stock issuable pursuant to warrants.
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EXHIBIT B
FORM OF PROXY
The undersigned stockholder, for consideration received, hereby
appoints
and each of them as my proxies, with full power of substitution in each of them,
to vote or cause to be voted (in person or by proxy), prior to the Termination
Date (as defined in that certain Voting Agreement dated as of July 19, 2000 (the
"Voting Agreement") between the undersigned and Conexant Systems, Inc., a
Delaware corporation (the "Parent")), on behalf of the undersigned all votes
entitled to be voted by the holder of each share of Series A Participating
Convertible Preferred Stock, no par value, of Harris & Jeffries, Inc., a
Massachusetts corporation (the "Company"), and each share of Common Stock, no
par value, of the Company owned by the undersigned at any annual, special or
other meeting of the stockholders of the Company, or at any adjournment or
adjournments thereof, or pursuant to any consent in lieu of such meeting or
otherwise, to be held for the consideration of the Merger under the Agreement
and Plan of Merger dated as of July 19, 2000 (the "Merger Agreement") by and
among the Parent, the Company and H&J Acquisition Sub, Inc., a Delaware
corporation and a wholly-owned subsidiary of the Parent, and at any adjournment
or adjournments thereof or any other meeting for consideration of any
Acquisition Proposal (as defined in the Merger Agreement) or affecting the
Merger (as defined in the Merger Agreement) or any Acquisition Proposal, or to
execute any written consent of stockholders with respect to any of the
foregoing: (a) in favor of the adoption and approval of the Merger Agreement and
the Merger (and each other action and transaction contemplated by the Merger
Agreement or by the Voting Agreement), (b) against any Acquisition Proposal (as
defined in the Merger Agreement) other than the Merger (or any other Acquisition
Proposal of the Parent), (c) against any proposed action or transaction that
would prevent or intentionally delay consummation of the Merger (or other
Acquisition Proposal of the Parent) or is otherwise inconsistent therewith and
(d) on other matters as directed by the Voting Agreement. This proxy is coupled
with an interest and is irrevocable through and including the Termination Date
(as defined in the Voting Agreement), shall be irrevocable and shall be deemed
coupled with an interest, in accordance with the provisions of Section 41 of the
Massachusetts Business Corporation Law.
Dated: July , 2000 By:_________________________________
Name:
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Appendix C
LETTER OF TRANSMITTAL
TO ACCOMPANY CERTIFICATES REPRESENTING
PREFERRED SHARES OR COMMON SHARES OF
Harris & Jeffries, Inc.
PLEASE READ CAREFULLY THE INSTRUCTIONS ATTACHED
TO THIS LETTER OF TRANSMITTAL
To: [Chase Mellon Shareholder Services, LLC]
Ladies and Gentlemen:
The undersigned is hereby tendering to you the securities identified in
Box A of this letter (the "H&J Securities") in exchange for shares of Common
Stock, par value $1 per share, of Conexant Systems, Inc., a Delaware corporation
("Conexant") (the "Conexant Shares"), in accordance with the terms of the
Agreement and Plan of Merger dated as of July 19, 2000 by and among Conexant,
Harris & Jeffries, Inc., a Massachusetts corporation ("H&J"), and H&J
Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of
Conexant (the "Acquisition Sub"), which provides for the acquisition of H&J by
Conexant through the merger (the "Merger") of the Acquisition Sub with and into
H&J (the "Merger Agreement"). In this letter, the term "undersigned" means the
person signing this letter, or if more than one person signs this letter, each
of those persons. In this letter, capitalized terms not otherwise defined in
this letter are intended to have the meanings set forth in the Merger Agreement.
The undersigned represents, warrants, acknowledges and agrees that:
1. The H&J Securities are to be exchanged for Conexant Shares subject
to the terms and conditions set forth in the Merger Agreement.
2. The undersigned has the legal capacity and full power and authority
to execute, deliver and perform this letter and to sell, assign and transfer the
H&J Securities. This letter is a binding obligation of the undersigned,
enforceable in accordance with its terms against the undersigned.
3. The undersigned is the record and beneficial owner of the H&J
Securities. The H&J Securities constitute the entire interest in capital stock
of H&J held by the
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undersigned, except for any Company Options that may have been issued to the
undersigned directly by H&J. The undersigned has not transferred any interest in
the H&J Securities to any other person, or created or incurred any security
interest, charge, lien, adverse claim, pledge, hypothecation, transfer
restriction or other encumbrance of any kind affecting the H&J Securities
("Lien"), except for any transfer restrictions under the Shareholder Agreement
dated as of August 25, 1997 among H&J and certain of its Shareholders.
4. Upon delivery of this letter and H&J Securities to the Exchange
Agent, Conexant will have good and marketable title to the H&J Securities, free
and clear of any Lien.
5. The number of Conexant Shares issued in exchange for H&J Securities:
(a) will be established in accordance with the terms of the Merger
Agreement;
(b) will not be the same as the number of shares of H&J Securities
surrendered with this letter; and
(c) will be subject to reduction:
(i) 10% of the Conexant Shares that the undersigned is
entitled to receive will not be immediately (and may never be)
issued to the undersigned, but will instead be subject to a
holdback as provided in the Merger Agreement (the "Holdback
Shares");
(ii) the Holdback Shares will be held until the Holdback
Release Date as collateral security for, and used to satisfy, any
indemnity claims that may be made by Conexant under the Merger
Agreement; and
(iii) the undersigned may not receive some or all of the
Holdback Shares if indemnity claims are made by Conexant, without
regard to the fact that those claims are not based on
representations or warranties made directly by the undersigned and
without regard to any fault, knowledge, notice, opportunity to
correct, cure or defend, or any other action of or by the
undersigned.
6. The undersigned (i) has received and read and is familiar with the
Proxy Statement, the Form S-4 and the Merger Agreement, and (ii) has obtained
all other
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information considered necessary or appropriate to evaluate the merits and risks
of the Merger and the undersigned's investment in Conexant Shares.
7. Except for the H&J Board of Directors which has recommended that H&J
shareholders approve the transactions contemplated by the Merger Agreement, no
person acting on behalf or H&J or Conexant has made any representation, warranty
or recommendation of any kind concerning (i) the merits or risks of an
investment in the Conexant Shares, (ii) the tax consequences of the exchange of
H&J Securities for Conexant Shares or (iii) the Merger generally.
8. There is a substantial degree of risk associated with an investment
in the Conexant Shares.
9. While the Conexant Shares to be issued in exchange for H&J
Securities will generally be freely tradable under the Securities Act, they are
still subject to certain restrictions under applicable laws, including trading
on the basis of material non-public information and certain other restrictions
on resales by affiliates of H&J and Conexant under Rule 144.
10. The undersigned (i) acknowledges that the undersigned's return of
this letter to receive Conexant Shares will be contrary to, and deemed a
forfeiture of, any "dissenter's rights" the undersigned may have with respect to
the Merger and (ii) hereby elects to waive any and all such rights.
11. Any exchange of H&J Securities for Conexant Shares is subject to
deductions in respect of (i) any withholding tax or other withholding
liabilities that may be applicable and (ii) any amounts that may be owed by the
undersigned to H&J (e.g., pursuant to a shareholder or employee loan). The
undersigned is not subject to backup withholding.
12. The undersigned will indemnify Conexant, each of its directors,
officers, shareholders, partners, employees and agents and each person who
controls Conexant within the meaning of Section 15 of the Securities Act, and
each other such shareholder of Conexant, each of its officers, directors,
partners, employees and agents and each person controlling such shareholder
within the meaning of Section 15 of the Securities Act, against all claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation (including reasonable
attorneys' fees), arising out of or based on:
(a) any failure by the undersigned to comply in all material
respects with each of covenants, agreements, understandings or
undertakings made by the undersigned in this letter;
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(b) any inaccuracy of any representation or warranty made by the
undersigned in this letter; and
(c) subject to the limitations set forth in the Merger Agreement,
any inaccuracy of any representation or warranty made in Article III of
the Merger Agreement or in any other Transaction Document executed and
delivered by H&J or the undersigned.
The undersigned will comply with the indemnification provisions in the Merger
Agreement, including the procedures in Article XI, in connection with any
indemnity claim made by or against the undersigned.
13. Delivery of certificates representing H&J Securities will be
effected, and risk of loss and title thereto will pass, only upon actual
delivery of such certificates to the Exchange Agent.
14. The undersigned appoints as Sellers' Representative for the
purposes of taking certain actions on behalf of all holders of Holdback Shares
as provided in Exhibit A of this letter until the Holdback Release Date.
15. Submission of certificate(s) representing H&J Securities in
exchange for Conexant Shares is subject to the terms, conditions and limitations
set forth in the Instructions attached to this letter.
16. Unless otherwise specified in BOX B or BOX C below, the undersigned
requests that the undersigned's Conexant Shares to be issued in exchange for H&J
Securities be issued in the name(s) and mailed to the address set forth below in
BOX A.
17. Any Holdback Shares released from the holdback as provided in the
Merger Agreement will be issued and mailed to the name and address indicated on
this letter, as completed and returned by the undersigned, unless the Exchange
Agent is provided with replacement written instructions from the undersigned
prior to the release of such shares. Replacement instructions will otherwise be
subject to the same terms and conditions as set forth in this letter.
18. The undersigned, upon request, will execute and deliver any
additional documents reasonably necessary to complete the transactions
contemplated by this letter, including the surrender of share certificates.
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===============================================================================
BOX A: DESCRIPTION OF CERTIFICATES FORMERLY REPRESENTING PREFERRED
SHARES AND COMMON SHARES OF HARRIS & JEFFRIES, INC.
See Instruction 1.
===============================================================================
Name(s) (exactly as it appears on your certificate(s), if applicable), Address
and Taxpayer Identification or Social Security Number
of Registered Holder(s)* Certificate(s) Surrendered
------------------------------------------ ------------------------------------
Certificate Number of
Number(s) Shares
------------------------------------------ ----------------- ------------------
------------------------------------------ ----------------- ------------------
------------------------------------------ ----------------- ------------------
------------------------------------------ ----------------- ------------------
Taxpayer Identification or
Social Security Number: Total Shares:
===============================================================================
* If shares are held jointly, list first and circle the name of the
person whose taxpayer identification number or social security number you enter
on the Substitute Form W-9 included herewith.
|_| Please check this box if your certificate(s) has(ve) been lost or
misplaced or you cannot locate it (them). With respect to any such
certificate(s), please contact H&J.
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================================== ======================================
BOX B: BOX C:
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
Fill in ONLY if Conexant Shares Fill in ONLY if delivery of Conexant
to be issued in exchange for H&J Shares to be issued in exchange for
Securities are to be issued in a H&J Securities are to be made to an
name other than the name(s) address other than that shown above in
appearing in BOX A. BOX A or, if BOX B is completed, other
See Instructions 2 and 3. than that shown therein.
See Instructions 2 and 3.
Name Name
---------------------------- ---------------------------------
(Please Print First, Middle (Please Print First, Middle
& Last Name) & Last Name)
Address Address
------------------------- ------------------------------
(Number and Street) (Number and Street)
--------------------------- --------------------------------
(City, State and Zip Code) (City, State and Zip Code)
---------------------------------
(Taxpayer Identification or
Social Security Number)
================================== ======================================
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IMPORTANT TAX INFORMATION
PLEASE PROVIDE YOUR SOCIAL SECURITY OR OTHER TAXPAYER IDENTIFICATION
NUMBER ("TIN") ON THIS SUBSTITUTE FORM W-9 AND CERTIFY THEREIN THAT YOU ARE NOT
SUBJECT TO BACKUP WITHHOLDING. FAILURE TO COMPLETE AND RETURN THIS FORM MAY
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY CASH PAYMENTS MADE TO YOU.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
BOX D (See Instruction 7)
<S> <C>
---------------------------------- ------------------------------------- -------------------------------------
SUBSTITUTE PART I--PLEASE PROVIDE YOUR TIN IN -----------------------------
Form W-9 THE BOX AT RIGHT AND CERTIFY BY Social Security Number
Department of the Treasury SIGNING AND DATING BELOW. See
Internal Revenue Service Instruction 7. OR
Payer's Request for Taxpayer
Identification or Social -----------------------------
Security Number (TIN) Taxpayer Identification Number
------------------------------------- -------------------------------------
PART II--Awaiting TIN |_| For Payees exempt
from backup withholding, complete as directed
in Instruction 7.
---------------------------------------------------------------------------
CERTIFICATION. Under penalties of perjury, I certify that:
(1) The number shown on this form is my
correct Taxpayer Identification Number
(or I am waiting for a number to be
issued to me), and
(2) I am not subject to backup withholding
either because I have not been notified
by the Internal Revenue Service ("IRS")
that I am subject to backup withholding
as a result of a failure to report all
interest or dividends, or the IRS has
notified me that I am no longer subject
to backup withholding.
CERTIFICATION INSTRUCTIONS. You must cross
out item (2) above if you have been notified
by the IRS that you are subject to backup
withholding because of under-reporting
interest or dividends on your tax return.
However, if after being notified by the IRS
that you were subject to backup withholding
you received another notification from the
IRS that you are no longer subject to backup
withholding, do not cross out item (2).
SIGNATURE: DATE:
---------------------------------- -------------------------
---------------------------------- ---------------------------------------------------------------------------
</TABLE>
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YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART II OF
THE FOREGOING SUBSTITUTE FORM W-9
================================================================================
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification or
Social Security Number has not been issued to me, and either (a) I have mailed
or delivered an application to receive a Taxpayer Identification or Social
Security Number to the appropriate Internal Revenue Service Center or Social
Security Administration Office or (b) I intend to mail or deliver an application
in the near future. I understand that, notwithstanding that I have checked the
box in Part II above (and have completed this certificate of Awaiting Taxpayer
Identification or Social Security Number), 31% of all reportable payments made
to me will be withheld until I provide a properly certified Taxpayer
Identification or Social Security Number to H&J.
--------------------------------------------------- ------------------------
Signature Date
================================================================================
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DELIVERY OF LETTER OF TRANSMITTAL AND ATTACHMENTS
-------------------------------------------------
Holders of H&J Securities should send this Letter of Transmittal and
related attachments directly to H&J. Deliveries to H&J should be made as
follows:
By Hand, Mail or Overnight Courier:
[Exchange Agent
Name and Address to be supplied.]
Attention:
For information, please call [ ] at [ ].
SIGNATURE AND ATTACHMENTS
-------------------------
COMPLETED LETTERS OF TRANSMITTAL FOR THE HOLDERS OF CERTIFICATES FORMERLY
REPRESENTING H&J SECURITIES MUST INCLUDE THE FOLLOWING:
(i) Appropriate INFORMATION set forth in the foregoing Letter of
Transmittal;
(ii) A completed and executed Substitute FORM W-9 (included herewith);
(ii) The undersigned's SHARE CERTIFICATE(S) representing H&J Securities;
and
(iii) The SIGNATURE of the undersigned below, together with a date.
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THIS LETTER OF TRANSMITTAL IS HEREBY EXECUTED AS FOLLOWS:
================================================================================
SIGN HERE (See Instruction 5)
--------------------------------------------------------------------------------
(Signature of Shareholder(s))
Dated
-------------------------
(Must be signed by the registered holder(s) exactly as name(s) appear(s) on
stock certificate(s) representing H&J Securities, or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by attorneys-in-fact, executors, administrators, trustees,
guardians, agents, officers of corporations or others acting in a fiduciary or
representative capacity, please provide the following information. See
Instruction 5.)
Name(s)
-----------------------------------------------------------------------
------------------------------------------------------------------------
(Please Print)
Capacity (full title)
-----------------------------------------------------------
Address
-------------------------------------------------------------------------
(Number and Street)
--------------------------------------------------------------------------------
(City, State & Zip Code)
Area Code and Telephone Number
--------------------------------------------------
Tax Identification or
Social Security Number
----------------------------------------------------------
GUARANTEE OF SIGNATURE(S) (If required--See
Instruction 3)
Name of Firm
--------------------------------------------------------------------
Authorized Signature
-----------------------------------------------------------
Dated
------------------
================================================================================
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INSTRUCTIONS TO LETTER OF TRANSMITTAL
1. General. The Letter of Transmittal accompanying these Instructions,
properly filled in and duly executed by or on behalf of the registered holder(s)
of the surrendered certificate(s), must accompany certificate(s) representing
H&J Securities. Note: surrendered certificate(s) should not be endorsed, except
as otherwise instructed pursuant to Instruction 3 below.
The method of delivery of share certificates is at the option and risk
of the holder. Delivery will be deemed effective only when actually received by
the Exchange Agent. If the certificate(s) or documents are sent by mail, it is
suggested that you use insured and registered mail with return receipt requested
for your protection.
Insert in BOX A of the Letter of Transmittal the certificate number(s)
that you are surrendering with the Letter of Transmittal and the number of
shares formerly represented by such certificate(s). If the space provided is
insufficient, attach a separate sheet listing this information.
2. Payment in Same Name. Certificate for Conexant Shares will be issued
and delivered to the registered holder(s) of H&J Securities prior to the
exchange unless the special registration or delivery instructions (BOX B or C)
are completed. For a correction of a name, or for a change in name which does
not involve a change in ownership, proceed as follows: for a change in
name-by-marriage, etc., the surrendered certificates should be endorsed, e.g.,
"Mary Doe, now by Marriage Mary Jones," with the endorsement signature
guaranteed as described below in Instruction 3. For a correction in name, the
surrendered certificates should be endorsed, e.g., "James E. Brown, incorrectly
inscribed as J.E. Brown," with the endorsement signature guaranteed as described
below in Instruction 3.
3. Payment in Other Name. If certificates for Conexant Shares are to be
issued to a person other than the registered holder(s) of H&J Securities, or
delivered to an address other than the address of the registered holder(s) as
noted, please complete the special registration or delivery instructions (BOX B
or C) AND HAVE YOUR SIGNATURE PROPERLY SIGNATURE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (e.g., banks, stockbrokers, savings and loan associations
and credit unions with membership in an approved signature guarantee medallion
program).
In the event that any transfer or other taxes become payable by reason
of the issuance of Conexant Shares in any name other than that of the registered
holder(s) of H&J Securities, satisfactory evidence that such taxes have been
paid, or satisfactory
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<PAGE> 251
evidence of an exemption therefrom, must accompany the completed Letter of
Transmittal. Evidence may also be required regarding the satisfaction of
applicable state and federal securities laws and contractual restrictions
bearing on transfers of H&J Securities.
4. Lost or Destroyed Stock Certificates. If your certificate(s)
representing H&J Securities have been either lost or destroyed, please contact
H&J.
5. Signatures. The signature (or signatures, in the case of
certificate(s) owned by two or more joint holders) on the Letter of Transmittal
should correspond exactly with the name(s) as written on the face of the
certificate(s) transmitted unless the shares described in the Letter of
Transmittal have been assigned by the registered holder(s), in which event the
Letter of Transmittal should be signed in exactly the same form as the name(s)
of the last transferee indicated on the transfers attached to or enclosed with
the certificate(s). In case of joint ownership, all joint owners must sign.
Letters of Transmittal signed by trustees, executors, administrators, guardians,
officers of corporations, attorneys-in-fact or others acting in a fiduciary
capacity must be accompanied by evidence satisfactory to the Exchange Agent as
to the signer's authority to act.
6. Irregularities. H&J and the Exchange Agent will not be under any
duty to give notification of defects in surrender of H&J Securities to holders.
H&J and the Exchange Agent will not incur any liability for failure to give such
notification. H&J and the Exchange Agent will have the absolute right to reject
any or all surrenders of H&J Securities not in proper form or to waive any
irregularity. H&J and the Exchange Agent may treat and receive any such
defective or irregular surrender of H&J Securities as if no such defect or
irregularity had been present; however, the surrender of H&J Securities will be
deemed not to have been made until all such defects or irregularities have been
cured or waived in writing.
7. Federal Income Tax Withholding. Under Federal income tax law, H&J is
required to file a report with the IRS disclosing any payments of cash being
made to each holder of H&J Securities prior to the Merger. In order to avoid
"backup withholding" of Federal income tax on any cash received upon the
surrender of H&J Securities, a holder thereof must, unless an exemption applies,
provide H&J with his or her correct Taxpayer Identification Number (TIN) on
Substitute Form W-9, which is part of the Letter of Transmittal (BOX D), and
certify, under penalties of perjury, that such number is correct and that such
holder is not otherwise subject to backup withholding. If the correct TIN and
certifications are not provided, a penalty may be imposed by the IRS and
payments made upon the surrender of any certificate(s) may be subject to backup
withholding of 31%. In addition, if a holder makes a false statement that
results in no imposition of
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backup withholding, and there was no reasonable basis for making such a
statement, a further penalty may also be imposed by the IRS.
Backup withholding is not an additional Federal income tax. Rather, the
Federal income tax liability of a person subject to backup withholding will be
reduced by the amount of such tax withheld. If backup withholding results in an
overpayment of income taxes, a refund may be obtained from the IRS.
The TIN that must be provided on the Substitute Form W-9 (BOX D) is
that of the registered holder(s) of the H&J Securities who will receive payment.
The TIN for an individual is his or her social security number. The box in Part
II of the Substitute Form W-9 (BOX D) may be checked if the person surrendering
the certificate(s) has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part II has been
checked, the person surrendering the certificate(s) must also complete the
Certificate of Awaiting Taxpayer Identification Number below the Substitute Form
W-9 in order to avoid backup withholding. Notwithstanding that the box in Part
II is checked (and the Certificate of Awaiting Taxpayer Identification Number is
completed), H&J will withhold 31% on all cash payments with respect to
surrendered certificate(s) made prior to the time H&J is provided with a
properly certified TIN.
Exempt persons (including, among others, corporations) are not subject
to backup withholding. A foreign individual may qualify as an exempt person by
submitting Form W-8 or a Substitute Form W-8, signed under penalties of perjury,
certifying to such person's exempt status. Such a form can be obtained from H&J.
You should consult with your tax advisor as to your qualification for an
exemption from backup withholding and the procedure for obtaining such an
exemption.
The signature and date provided on the Substitute Form W-9 will serve
to certify that the TIN and withholding information provided in the Letter of
Transmittal are true, correct and complete. Please consult with your tax advisor
for further guidance in completing the Substitute Form W-9.
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EXHIBIT A
Sellers' Representative
The undersigned hereby irrevocably makes, constitutes, and appoints
[Deepak Shahane] as the representative, agent and true and lawful attorney in
fact of and for each of the Sellers in connection with the Transaction Documents
and the Transaction ("Sellers' Representative"). The undersigned hereby
authorizes and empowers Sellers' Representative to make or give any approval,
waiver, request, consent, instruction or other communication on behalf of the
undersigned as the undersigned could do for itself, including with respect to
the amendment of any provision of any Transaction Document (or any schedule
thereto). The undersigned authorizes and empowers Sellers' Representative to
receive all demands, notices or other communications directed to the undersigned
under any Transaction Document. The undersigned authorizes and empowers Sellers'
Representative to take any action (or to determine to refrain from taking any
action) with respect thereto as Sellers' Representative may deem appropriate as
effectively as if the undersigned could act for itself (including, without
limitation, the settlement or compromise of any dispute or controversy), which
action will be binding on the undersigned and (ii) execute and deliver all
instruments and documents of every kind incident to the foregoing with the same
effect as if the undersigned had executed and delivered such instruments and
documents personally. Accordingly, any demands, notices or other communications
directed to the undersigned hereunder shall be deemed effective if given to
Sellers' Representative. The undersigned agrees to be bound by all actions and
failures to act of Sellers' Representative in accordance with the provisions of
any Transaction Document, including in connection with any settlement or
compromise entered into by Sellers' Representative on behalf of the undersigned.
Upon the death, resignation or incapacity of Sellers' Representative,
or at any other time, a successor may be appointed by Stockholders holding (or
who held prior to the Closing) a majority of the shares of Common Stock, 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
Sellers' Representative is provided to the Parent. If a successor Sellers'
Representative is not appointed within 30 days after the death, resignation or
incapacity of Sellers' Representative or because notice of the selection of a
successor Sellers' Representative has not been provided to the Parent, each of
the Stockholders and the Parent will have a right to petition any court of
competent jurisdiction for the appointment of a successor Sellers'
Representative.
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<PAGE> 254
Appendix D
SECTIONS 85 THROUGH 98 OF THE
MASSACHUSETTS BUSINESS CORPORATION LAW
SEC. 85. DISSENTING STOCKHOLDER; RIGHT TO DEMAND PAYMENT FOR STOCK;
EXCEPTION
A stockholder in any corporation organized under the laws of
Massachusetts which shall have duly voted to consolidate or merge with another
corporation or corporations under the provisions of sections seventy-eight or
seventy-nine who objects to such consolidation or merger may demand payment for
his stock from the resulting or surviving corporation and an appraisal in
accordance with the provisions of sections eighty-six to ninety-eight,
inclusive, and such stockholder and the resulting or surviving corporation shall
have the rights and duties and follow the procedure set forth in those sections.
This section shall not apply to the holders of any shares of stock of a
constituent corporation surviving a merger if, as permitted by subsection (c) of
section seventy-eight, the merger did not require for its approval a vote of the
stockholders of the surviving corporation.
SEC. 86. SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES
If a corporation proposes to take a corporate action as to which any
section of this chapter provides that a stockholder who objects to such action
shall have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eighty-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
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<PAGE> 255
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
SEC. 87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF
MEETING; FORM
The notice of the meeting of stockholders at which the approval of such
proposed action is to be considered shall contain a statement of the rights of
objecting stockholders. The giving of such notice shall not be deemed to create
any rights in any stockholder receiving the same to demand payment for his
stock, and the directors may authorize the inclusion in any such notice of a
statement of opinion by the management as to the existence or non-existence of
the right of the stockholders to demand payment for their stock on account of
the proposed corporate action. The notice may be in such form as the directors
or officers calling the meeting deem advisable, but the following form of
notice shall be sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting
and effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not
voted in favor of such action has or may have the right to demand in writing
from the corporation (or, in the case of a consolidation or merger,the name of
the resulting or surviving corporation shall be inserted), within twenty days
after the date of mailing to him of notice in writing that the corporate action
has become effective, payment for his shares and an appraisal of the value
thereof. Such corporation and any such stockholder shall in such cases have the
rights and duties and shall follow the procedure set forth in sections 88 to
98, inclusive, of chapter 156B of the General Laws of Massachusetts."
SEC. 88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not noted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in the
records of the corporation.
SEC. 89. DEMAND FOR PAYMENT; TIME FOR PAYMENT
If within twenty days after the date of mailing of a notice under
subsection (e) of section eighty-two, subsection (f) of section eighty-three, or
section eighty-eight any stockholder to whom the corporation was required to
give such notice shall demand
D-2
<PAGE> 256
in writing from the corporation taking such action, or in the case of a
consolidation or merger from the resulting or surviving corporation, payment for
his stock, the corporation upon which such demand is made shall pay to him the
fair value of his stock within thirty days after the expiration of the period
during which such demand may be made.
SEC. 90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE
If during the period of thirty days provided for in section eighty-nine
the corporation upon which such demand is made and any such objecting
stockholder fail to agree as to the value of such stock, such corporation or any
such stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholder by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholders held stock had or has its
principal office in the commonwealth.
SEC. 91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE
If the bill is filed by the corporation, it shall name as parties
respondent all stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof. If the
bill is filed by a stockholder, he shall bring the bill in his own behalf and in
behalf of all other stockholders who have demanded payment for their shares and
with whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill.
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The corporation shall give notice in such form and returnable on such date as
the court shall order to each stockholder party to the bill by registered or
certified mail, addressed to the last known address of such stockholder as shown
in the records of the corporation, and the court may order such additional
notice by publication or otherwise as it deems advisable. Each stockholder who
makes demand as provided in section eighty-nine shall be deemed to have
consented to the provisions of this section relating to notice, and the giving
of notice by the corporation to any such stockholder in compliance with the
order of the court shall be a sufficient service of process on him. Failure to
give notice to any stockholder making demand shall not invalidate the
proceedings as to other stockholders to whom notice was properly given, and the
court may at any time before the entry of a final decree make supplementary
orders of notice.
SEC. 92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE
After hearing the court shall enter a decree determining the fair value
of the stock of those stockholders who have become entitled to the valuation of
and payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or if uncertificated
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and shall
be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
SEC. 93. REFERENCE TO SPECIAL MASTER
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<PAGE> 258
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
SEC. 94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill, and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
SEC. 95. COSTS; INTEREST
The costs of the bill, including the reasonable compensation and
expenses of any master appointed by the court, but exclusive of fees of counsel
or of experts retained by any party, shall be determined by the court and taxed
upon the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
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SEC. 96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT
Any stockholder who has demanded payment for his stock as provided in
this chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in
section ninety;
(2) A bill, if filed, shall be dismissed as to such
stockholder; or
(3) Such stockholder shall with the written approval of the
corporation, or in the case of a consolidation or merger, the resulting
or surviving corporation, delivery to it a written withdrawal of his
objections to and an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
SEC. 97. STATUS OF SHARES PAID FOR
The shares of the corporation paid for by the corporation pursuant to
the provisions of this chapter shall have the status of treasury stock or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been
D-6
<PAGE> 260
converted had he not objected to such consolidation or merger shall have the
status of treasury stock or securities.
SEC. 98. EXCLUSIVE REMEDY; EXCEPTION
The enforcement by a stockholder of his right to receive payment for
his shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
D-7
<PAGE> 261
Appendix E
HARRIS & JEFFRIES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................... E-2
Balance Sheets........................................... E-3
Statements of Operations................................. E-5
Statements of Changes in Stockholders' Equity............. E-6
Statements of Cash Flows................................. E-7
Notes to Financial Statements............................ E-9
</TABLE>
E-1
<PAGE> 262
Report of Independent Auditors
The Board of Directors and Stockholders
Harris & Jeffries, Inc.
We have audited the accompanying balance sheets of Harris & Jeffries, Inc. as of
December 31, 1998 and 1999, and the related statements of operations, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Harris & Jeffries, Inc. at
December 31, 1998 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States.
Ernst & Young LLP
Boston, Massachusetts
April 24, 2000,
except for Note 8,
as to which the date is July 19, 2000
E-2
<PAGE> 263
Harris & Jeffries, Inc.
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------
1998 1999 2000
---- ---- ----
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 93,318 $ 629,048 $ 1,036,162
Accounts receivable, net of allowance for doubtful
accounts of $68,550 for 1998 and $24,300 for 1999 and 2000 1,398,742 2,298,947 2,249,570
Prepaid expenses and other assets 128,017 74,439 252,096
----------- ----------- -----------
Total current assets 1,620,077 3,002,434 3,537,828
Property and equipment, net 740,525 696,743 938,834
----------- ----------- -----------
Total assets $ 2,360,602 $ 3,699,177 $ 4,476,662
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 639,946 $ 497,663 $ 479,832
Accrued expenses 346,574 577,550 564,222
Deferred revenue 770,533 1,079,933 1,213,846
Customer deposits 328,000 0 0
Current portion of capital lease obligations 50,967 47,709 26,746
----------- ----------- -----------
Total current liabilities 2,136,020 2,202,855 2,284,646
Capital lease obligations, less current portion 79,506 41,939 25,607
Stockholders' equity:
Convertible preferred stock, Series A, no par value; 1,650,000 shares
authorized, 1,294,500 shares for 1998 and 1,476,000 for 1999 and 2000
issued and outstanding (liquidation preference of $4,531,379 for 1998
and $5,031,379 for 1999 and 2000) 4,531,379 5,031,379 5,031,379
Common stock, no par value; 14,800,000 shares
authorized; 8,883,500 shares for 1998, 8,964,626
for 1999 and 8,978,562 for 2000 issued
637,407 675,333 689,269
Accumulated deficit (3,686,100) (3,020,846) (2,337,926)
Deferred compensation (337,610) (231,483) (216,313)
----------- ----------- -----------
1,145,076 2,454,383 3,166,409
Less cost of treasury stock (500,000 common shares)
(1,000,000) (1,000,000) (1,000,000)
----------- ----------- -----------
Total stockholders' equity 145,076 1,454,383 2,166,409
----------- ----------- -----------
Total liabilities and stockholders' equity $ 2,360,602 $ 3,699,177 $ 4,476,662
=========== =========== ===========
</TABLE>
E-3
<PAGE> 264
See accompanying notes
E-4
<PAGE> 265
Harris & Jeffries, Inc.
Statements of Operations
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------- --------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Licensing revenues $ 4,970,347 $ 5,187,056 $ 7,292,213 $ 2,478,980 $ 4,618,139
Postcontract customer support
revenues 324,660 929,501 1,419,596 627,926 1,228,773
----------- ----------- ----------- ----------- -----------
5,295,007 6,116,557 8,711,809 3,106,906 5,846,912
Operating expenses:
Marketing and selling 2,897,899 3,421,190 2,754,434 1,192,628 1,628,896
General and administrative 1,188,938 1,654,089 1,982,215 859,828 1,263,843
Research and development 2,476,336 3,542,522 3,304,875 1,499,326 2,033,053
----------- ----------- ----------- ----------- -----------
6,563,173 8,617,801 8,041,524 3,551,782 4,925,792
----------- ----------- ----------- ----------- -----------
Operating income (loss) (1,268,166) (2,501,244) 670,285 (444,876) 921,120
Other income (expense):
Interest expense (31,083) (53,397) (7,313) (6,800)
Interest income 11,865 4,092 2,282 2,100 2,800
Merger-related and other
expenses (134,300)
----------- ----------- ----------- ----------- -----------
Income (loss) before taxes (1,287,384) (2,550,549) 665,254 (449,576) 789,620
Income tax benefit (provision) 132,000 (106,700)
----------- ----------- ----------- ----------- -----------
Net income (loss) $(1,155,384) $(2,550,549) $ 665,254 $ (449,576) $ 682,920
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
E-5
<PAGE> 266
Harris & Jeffries, Inc.
Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ACCUMULATED
------------------ ------------------
SHARES AMOUNT SHARES AMOUNT DEFICIT
------ ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996, as restated 8,790,830 $3,516 $144,410
Issuance of common stock 33,336 16,668
Deferred compensation 468,275
Issuance of preferred stock, net of expenses 750,000 $3,000,000 (124,577)
Repurchase of common stock
Amortization of deferred compensation
Net loss (1,155,384)
--------- ---------- --------- -------- -----------
Balance at December 31, 1997 750,000 3,000,000 8,824,166 488,459 (1,135,551)
Issuance of common stock and warrants 33,334 50,000
Exercise of stock options 26,000 2,600
Deferred compensation 96,348
Exchange of notes payable for preferred stock 544,500 1,531,379
Amortization of deferred compensation
Net loss (2,550,549)
--------- ---------- --------- -------- -----------
Balance at December 31, 1998 1,294,500 4,531,379 8,883,500 637,407 (3,686,100)
Exercise of stock options 51,126 12,926
Exchange of notes payable for preferred stock 181,500 500,000
Amortization of deferred compensation
Common shares issued for bonuses 30,000 25,000
Net income 665,254
--------- ---------- --------- -------- -----------
Balance at December 31, 1999 1,476,000 5,031,379 8,964,626 675,333 (3,020,846)
Exercise of stock options (unaudited) 8,936 8,936
Amortization of deferred compensation (unaudited)
Common shares issued for bonuses (unaudited) 5,000 5,000
Net income (unaudited) 682,920
--------- ---------- --------- -------- -----------
Balance at June 30, 2000 (unaudited) 1,476,000 $5,031,379 8,978,562 $689,269 $(2,337,926)
========= ========== ========= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
DEFERRED TREASURY STOCK STOCKHOLDERS'
-------------------
COMPENSATION SHARES AMOUNT EQUITY
------------ ------ ------ ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996, as restated $147,926
Issuance of common stock 16,668
Deferred compensation $(468,275)
Issuance of preferred stock, net of expenses 2,875,423
Repurchase of common stock 500,000 $(1,000,000) (1,000,000)
Amortization of deferred compensation 99,148 99,148
Net loss (1,155,384)
--------- -------- ----------- ----------
Balance at December 31, 1997 (369,127) 500,000 (1,000,000) 983,781
Issuance of common stock and warrants 50,000
Exercise of stock options 2,600
Deferred compensation (96,348) -
Exchange of notes payable for preferred stock 1,531,379
Amortization of deferred compensation 127,865 127,865
Net loss (2,550,549)
--------- -------- ----------- ----------
Balance at December 31, 1998 (337,610) 500,000 (1,000,000) 145,076
Exercise of stock options 12,926
Exchange of notes payable for preferred stock 500,000
Amortization of deferred compensation 106,127 106,127
Common shares issued for bonuses 25,000
Net income 665,254
--------- -------- ----------- ----------
Balance at December 31, 1999 (231,483) 500,000 (1,000,000) 1,454,383
Exercise of stock options (unaudited) 8,936
Amortization of deferred compensation (unaudited) 15,170 15,170
Common shares issued for bonuses (unaudited) 5,000
Net income (unaudited) 682,920
--------- -------- ----------- ----------
Balance at June 30, 2000 (unaudited) $(216,313) 500,000 $(1,000,000) $2,166,409
========= ======== =========== ==========
</TABLE>
See accompanying notes.
E-6
<PAGE> 267
Harris & Jeffries, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30,
---------------------- --------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(1,155,384) $(2,550,549) $665,254 $(499,576) $682,920
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 151,594 248,393 274,747 116,194 142,570
Amortization of deferred
compensation expense 99,148 127,865 106,127 56,975 15,170
Common stock issued for
bonuses 25,000 5,000
Compensation expense 66,668
Provision for uncollectible
accounts receivable 68,750 (33,375)
Deferred income tax benefit (23,000)
Gain on sale of fixed assets (3,934)
Changes in operating assets and
liabilities:
Accounts receivable (982,650) (308,626) (866,830) (36,670) 49,377
Tax refund receivable (169,488) 0 0
Prepaid expenses and other
assets 23,011 110,479 53,578 36,257 (177,657)
Accounts payable 357,250 45,866 (142,283) (41,354) (17,831)
Accrued expenses 66,527 (7,005) 230,976 22,971 (13,328)
Deferred revenue 263,418 285,276 309,400 160,218 133,913
Customer deposits 115,000 213,000 (328,000) (328,000)
----------- ----------- -------- --------- --------
Net cash provided by (used in) operating
activities (1,187,906) (1,770,485) 294,594 (512,985) 820,134
INVESTING ACTIVITIES
Proceeds on sale of fixed assets 12,340
Purchases of property and equipment (536,415) (94,841) (230,965) (66,313) (384,661)
Repayment of notes receivable 484,409
----------- ----------- -------- --------- --------
Net cash used in investing activities (52,006) (82,501) (230,965) (66,313) (384,661)
</TABLE>
E-7
<PAGE> 268
Harris & Jeffries, Inc.
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31 JUNE 30,
---------------------- --------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from bank line of credit 520,000
Repayments of bank line of credit (880,000)
Proceeds from issuance of preferred
stock, net of expenses 2,875,423
Proceeds from issuance of
convertible subordinated
notes, net of issuance costs 1,609,005 500,000 500,000
Proceeds from sales of common
stock and exercise of stock
options 52,600 12,926 800 8,936
Principal payments on capital lease
obligations (15,254) (36,250) (40,825) (4,338) (37,295)
Repurchase of common stock (1,000,000)
Advance from shareholder 75,000
Repayment to shareholder (75,000)
-------- ------- -------- ------- ----------
Net cash provided by (used in)
financing activities 1,500,169 1,625,355 472,101 496,462 (28,359)
-------- ------- -------- ------- ----------
Net increase (decrease) in cash and cash
equivalents 260,257 (227,631) 535,730 (82,836) 407,114
Cash and cash equivalents at beginning
of year 60,692 320,949 93,318 93,318 629,048
-------- ------- -------- ------- ----------
Cash and cash equivalents at end of
year $320,949 $93,318 $629,048 $10,482 $1,036,162
======== ======= ======== ======= ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid $33,910 $53,397 $7,313
Taxes paid 151,799
NONCASH TRANSACTIONS:
INVESTING:
Property acquired under capital
leases $65,627 $113,566 $0
FINANCING:
Conversion of notes payable for
preferred stock $1,531,379 $500,000
</TABLE>
See accompanying notes.
E-8
<PAGE> 269
Harris & Jeffries, Inc.
Notes to Financial Statements
1. COMPANY BACKGROUND
Harris & Jeffries, Inc. provides high quality state-of-the-art source code
designs for networking manufacturers, OEMs and integrators worldwide.
The opening retained earnings at January 1, 1997 was reduced by $210,127,
principally to record deferred revenue associated with warranty extensions as
required by Statement of Position 91-1, "Software Revenue Recognition" (SOP
91-1).
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH EQUIVALENTS
Cash equivalents include funds held in investments with original maturities of
three months or less when purchased.
FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash and cash equivalents with institutions that have
strong credit ratings. The Company has developed guidelines relative to
investment risk and liquidity.
The Company generally does not require collateral for accounts receivable. In
1997, 1998 and 1999, revenues from foreign customers totaled 20%, 30% and 16%,
respectively. At December 31, 1998 and December 31, 1999, 36% and 42% of total
receivables were with foreign customers, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated using the
straight-line method over estimated useful lives of three to five years.
Property and equipment under capital leases are amortized using the
straight-line method over the lease term, typically five years. Leasehold
E-9
<PAGE> 270
Harris & Jeffries, Inc.
Notes to Financial Statements (continued)
improvements are amortized over the shorter of the remaining lease term or the
life of the improvement. Amortization expense is included with depreciation
expense.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED SOFTWARE
Certain software development costs are capitalized when incurred under Statement
of Financial Accounting Standards No. 86. Capitalization of software development
costs begins upon the establishment of technological feasibility. The
establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs require considerable
judgment by management with respect to certain external factors, including, but
not limited to, technological feasibility, anticipated future gross revenues,
estimated economic life, and changes in software and hardware technologies. The
Company has not capitalized any software development cost since technological
feasibility was not established until shortly before the date of the product's
general release.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
RECOGNITION OF REVENUE
Effective January 1, 1998, the Company adopted and began to recognize revenue in
accordance with Statement of Position 97-2, "Software Revenue Recognition" (SOP
97-2) issued by the American Institute of Certified Public Accountants.
Specifically, revenue from software licenses generally is recognized upon
shipment of the product. The Company has no significant vendor obligations. In
the case of warranty extensions, revenue is recognized ratably over the contract
period. Deferred revenue represents payments from customers, primarily for
warranty extensions, which has not been recognized as revenue. Customer deposits
represent advances from customers related to pending product sales.
As indicated in Note 1, prior to the adoption of SOP 97-2, the Company accounted
for revenue pursuant to SOP 91-1. Prior years were not restated upon adoption of
SOP 97-2.
STOCK-BASED COMPENSATION
The Company accounts for its stock-based compensation arrangements under the
provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees (APB
25)," rather than the alternative fair value accounting method provided under
Statement of Financial Accounting
E-10
<PAGE> 271
Harris & Jeffries, Inc.
Notes to Financial Statements (continued)
Standards No. 123, "Accounting for Stock-Based Compensation (SFAS 123)." Under
APB 25, when the exercise price of options granted to employees and nonemployee
directors under such plans is less than the fair value of the underlying stock
on the date of grant, deferred compensation is recorded and is amortized over
the vesting period of the option (generally four years).
E-11
<PAGE> 272
Harris & Jeffries, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred income tax assets and liabilities are determined based on differences
between the financial reporting and income tax basis of assets and liabilities
as well as net operating loss carryforwards and are measured using the enacted
tax rates and laws that are expected to be in effect when the differences
reverse. Deferred tax assets may be reduced by a valuation allowance to reflect
the uncertainty associated with their ultimate realization.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
---- ----
<S> <C> <C>
Equipment $ 1,091,712 $ 1,142,921
Furniture and fixtures 162,030 195,710
Software tools 62,108 32,620
Leasehold improvements 43,566 43,566
--------- ---------
1,359,916 1,414,817
Less accumulated depreciation and amortization (619,391) (718,074)
--------- ---------
$ 740,525 $ 696,743
=========== ===========
</TABLE>
4. LEASES
The Company leases certain equipment under capital lease arrangements, which
expire at various times through 2003. Assets under capital leases totaled
$179,192 at December 31, 1998 and December 31, 1999, respectively. Accumulated
amortization relating to assets under capital leases was $31,045 and $49,892 at
December 31, 1998 and 1999, respectively.
Additionally, the Company leases office space in Massachusetts and California
under operating lease arrangements, which expire in May 2000 and November 2000,
respectively, and are renewable upon expiration of the lease terms.
E-12
<PAGE> 273
Harris & Jeffries, Inc.
Notes to Financial Statements (continued)
4. LEASES (CONTINUED)
Future minimum commitments under leases with noncancelable terms of one or more
years are as follows at December 31, 1999:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
2000 $50,738 $168,778
2001 27,429
2002 14,460
2003 1,205
------ --------
Total minimum lease payments 93,832 $168,778
========
Less amounts representing interest (4,184)
Present value minimum lease payments 89,648
Less amounts due within one year (47,709)
------
Long-term portion of capital lease obligations $41,939
=======
</TABLE>
Rent expense totaled $150,468, $181,043 and $203,339 for the years ended
December 31, 1997, 1998 and 1999, respectively.
5. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan that covers substantially all
employees of the Company. The Company may make discretionary contributions to
the plan. Employees may voluntarily contribute up to 15% of their compensation
as allowable under section 401(k) of the Internal Revenue Code (ERISA). The
Company made discretionary contributions of $96,844, $128,110 and $130,431 to
the plan for the years ended December 31, 1997, 1998 and 1999, respectively.
E-13
<PAGE> 274
Harris & Jeffries, Inc.
Notes to Financial Statements (continued)
6. NOTES PAYABLE AND STOCKHOLDERS' EQUITY
PREFERRED STOCK
In August 1997, the Company issued 750,000 shares of Series A Convertible
Preferred Stock at a price of $4 per share and received $3 million in gross
proceeds. After deducting offering costs, net proceeds totaled $2,875,423. The
holders of Preferred Stock are entitled to a participation of $4 per share and
participate in all common stock distributions (up to $14 per share in the
aggregate). Each share of Series A Preferred Stock is, at the option of the
holder, convertible into 2.7884 shares of common stock; or automatically
converts upon an IPO yielding net proceeds to the Company in excess of $20
million; or upon the occurrence of a liquidating event after the Series A
Preferred Stock is paid a participation which, in the aggregate, exceeds $14 per
share. The holders of Series A Preferred Stock have the same voting rights as
holders of common stock.
In 1998 and 1999, the Company issued debt that was convertible into preferred
stock; the preferred stock is convertible into common stock. The Company
converted such debt in the respective years of issuance. In addition, the 1998
debt had 174,000 warrants for the purchase of preferred stock, which were
assigned a fair value and accounted for as a reduction in the carrying amount of
the convertible debt.
COMMON STOCK
In connection with the August 1997 Preferred Stock offering, the Company
repurchased 500,000 shares of its common stock from various stockholders for an
aggregate price of $1,000,000.
In February 2000, the Company increased the number of authorized common shares
from 7,400,000 to 14,800,000 in conjunction with a two-for-one stock split.
Common share amounts have been retroactively restated to give effect to the
stock split for all periods presented.
1996 STOCK OPTION PLAN
The 1996 Stock Option Plan (the 1996 Plan) authorizes the grant of incentive
stock options and nonqualified stock options to employees and nonqualified stock
options to consultants. A total of 2,000,000 shares have been reserved for
issuance under the Plan.
The exercise price of incentive stock options granted under the Plan may not be
less than 100% of the fair market value of the common stock as of the grant
date, as determined by the Board of Directors. Options issued under the Plan
generally have a four-year vesting period, unless
E-14
<PAGE> 275
Harris & Jeffries, Inc.
Notes to Financial Statements (continued)
otherwise determined by the Board of Directors. The term of stock options
granted under the Plan may not exceed ten years.
E-15
<PAGE> 276
Harris & Jeffries, Inc.
Notes to Financial Statements (continued)
6. NOTES PAYABLE AND STOCKHOLDERS' EQUITY (CONTINUED)
The following table presents the activity of the Plan:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
------- --------------
<S> <C> <C>
Outstanding at January 1, 1997 200,000 $0.10
Granted 356,000 0.10
Canceled (163,750) 0.10
----------
Outstanding at December 31, 1997 392,250 0.10
Granted 208,000 1.00
Exercised (26,000) 0.25
Canceled (102,000) 0.19
----------
Outstanding at December 31, 1998 472,250 0.87
Granted 1,041,500 1.00
Exercised (51,126) 0.26
Canceled (128,374) 0.54
----------
Outstanding at December 31, 1999 1,334,250 0.84
==========
Options exercisable at December 31, 1999 408,128 $0.63
========== =========
</TABLE>
The following table presents certain information about options outstanding as
of December 31, 1999:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS
EXERCISE PRICE NUMBER OF OPTIONS EXERCISABLE
-------------- ----------------- ------------------
<S> <C> <C>
$0.10 241,000 166,124
$1.00 1,093,250 242,004
--------- -------
1,334,250 408,128
========= =======
</TABLE>
The weighted average remaining contractual life of options
outstanding at December 31, 1999 approximates nine years.
The Company has granted 10,000 options, which are contingent upon achievement of
specified objectives. The Company accounts for these option grants in the
earlier of the period the contingent event becomes probable or has occurred. The
weighted average remaining contractual life of options outstanding at December
31, 1999 approximates nine years.
The Company has adopted the disclosure-only provisions of SFAS 123. If the
compensation costs for the option plan had been determined based on the fair
value at the grant date, consistent with the provisions of FAS 123, the
pro-forma net income (loss) for 1998 and 1999 would not have differed materially
from reported amounts.
E-16
<PAGE> 277
Harris & Jeffries, Inc.
Notes to Financial Statements (continued)
6. STOCKHOLDERS' EQUITY (CONTINUED)
The fair value of options and warrants issued at the date of grant were
estimated using the minimum value method with the following weighted average
assumptions:
<TABLE>
<CAPTION>
OPTIONS GRANTED
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Expected life (years) 5 5 5
Interest rate 6.20% 4.42% 5.33%
</TABLE>
The weighted average fair value of options granted during 1997, 1998 and 1999,
were $1.30, $.20 and $.20, respectively. The Company has never declared nor paid
dividends on any of its capital stock and does not expect to do so in the
foreseeable future.
COMMON STOCK RESERVED FOR FUTURE ISSUANCES
The Company has reserved common stock for future issuances as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1999
-----------
<S> <C>
Conversion of Preferred Stock, including warrants 4,290,000
Authorized shares for the 1996 Stock Option Plan 1,922,874
Stock Bonus Plan 122,500
-----------
6,335,374
===========
</TABLE>
7. INCOME TAXES
At December 31, 1999, the Company had federal net operating loss and federal and
Massachusetts tax credit carryforwards of approximately $2,604,000 and $898,000,
respectively for financial reporting and federal income tax purposes that expire
at various times through 2019. Utilization of these carryforwards may be subject
to annual limitations based on the provisions of the Internal Revenue Code
relating to changes in the ownership of a company. The Company's deferred tax
asset at December 31, 1998 and 1999 of approximately $1,769,000 and $1,744,000,
respectively, consisted primarily of net operating loss carryforwards and was
fully offset by a valuation allowance due to the uncertainty surrounding the
realizability of the asset.
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7. INCOME TAXES (CONTINUED)
The income tax benefit for the year ended December 31, 1997 consists of the
following:
<TABLE>
<CAPTION>
<S> <C>
Current:
Federal $(113,000)
State 4,000
----------
(109,000)
Deferred Federal (23,000)
----------
$(132,000)
==========
</TABLE>
At December 31, 1997, the provision for income taxes differed from the amount
computed by applying the U.S. federal statutory rate due primarily to
depreciation.
8. SUBSEQUENT EVENT
On July 19, 2000, the Company entered into a merger agreement with Conexant
Systems, Inc. and H&J Acquisition Sub, Inc., a wholly-owned subsidiary of
Conexant, providing for the acquisition of all the outstanding shares, options,
and other equity securities of the Company.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
-------------------------------------
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Delaware General Corporation Law permits Delaware corporations to
eliminate or limit the monetary liability of directors for breach of their
fiduciary duty of care, subject to certain limitations. Conexant's restated
certificate of incorporation provides that Conexant's directors are not liable
to Conexant or its shareowners for monetary damages for breach of fiduciary duty
as a director, except for liability (1) for any breach of the director's duty of
loyalty to Conexant or its shareowners, (2) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, (3)
for willful or negligent violation of the laws governing the payment of
dividends or the purchase or redemption of stock or (4) for any transaction from
which a director derived an improper personal benefit.
The Delaware General Corporation Law provides for indemnification of
directors, officers, employees and agents subject to certain limitations.
Conexant's by-laws and the appendix thereto provide for the indemnification of
its directors, officers, employees and agents to the extent permitted by
Delaware law. Conexant's directors and officers are insured against certain
liabilities for actions taken in such capacities, including liabilities under
the Securities Act.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
* 3.a Restated Certificate of Incorporation, as amended, of Conexant,
filed as Exhibit 3.1 to Conexant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000, is incorporated herein by
reference.
* 3.b Amended By-Laws of Conexant, filed as Exhibit 4.2 to Conexant's
Registration Statement on Form S-8 (Registration No. 333-68755),
are incorporated herein by reference.
* 4.a Specimen certificate for Common Stock, par value $1 per share,
filed as Exhibit 4.3 to Conexant's Registration Statement on Form
10 (File No. 000-24923), is incorporated herein by reference.
* 4.b.1 Rights Agreement, dated as of November 30, 1998, by and between
Conexant and ChaseMellon Shareholder Services, L.L.C. as rights
agent, filed as Exhibit 4.4 to Conexant's Registration Statement
on Form S-8 (Registration No. 333-68755), is incorporated herein
by reference.
* 4.b.2 First Amendment to Rights Agreement, dated as of December 9,
1999, filed as Exhibit 4.1 to Conexant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1999, is incorporated
herein by reference.
* 5 Opinion of Dennis E. O'Reilly, Esq., Senior Vice President,
General Counsel and Secretary of Conexant.
23.a Consent of Deloitte & Touche LLP, independent auditors.
23.b Consent of Arthur Andersen LLP, independent public accountants.
23.c Consent of Ernst & Young LLP, independent auditors.
*23.d Consent of Dennis E. O'Reilly, Esq., contained in his opinion
filed as Exhibit 5 to this Registration Statement.
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<PAGE> 280
23.e Consent of Chadbourne & Parke LLP.
*24 Power of Attorney authorizing certain persons to sign this
Registration Statement on behalf of certain directors and
officers of Conexant.
*99.a Agreement and Plan of Merger, dated as of July 19, 2000, by and
among Conexant Systems, Inc., H&J Acquisition Sub, Inc. and
Harris & Jeffries, Inc., included as Appendix A-1 to the proxy
statement-prospectus included as part of this Registration
Statement.
99.b First Amendment of Agreement and Plan of Merger, dated as of
August 28, 2000, by and among Conexant Systems, Inc.,
H&J Acquisition Sub, Inc. and Harris & Jeffries, Inc., included
as Appendix A-2 to the proxy statement-prospectus included as
part of this Registration Statement.
99.c Form of proxy to be used by Harris & Jeffries, Inc.
*99.d Form of Voting Agreement, included as Appendix B to the proxy
statement-prospectus included as part of this Registration
Statement.
*99.e Form of Letter of Transmittal, included as Appendix C to the
proxy statement-prospectus included as part of this Registration
Statement.
___________________
* Previously filed.
ITEM 22. UNDERTAKINGS.
(a) Conexant hereby undertakes that, for purposes of determining any
liability under the Securities Act, each filing of Conexant's annual report
pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(b) Conexant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c)
under the Securities Act, Conexant undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form; and
(c) Conexant undertakes that every prospectus (i) that is filed
pursuant to sub-paragraph (b) immediately preceding, or (ii) that purports
to meet the requirements of Section 10(a)(3) of the Securities Act and is
used in connection with an offering of securities subject to Rule 415 under
the Securities Act, will be filed as a part of an amendment to this
Registration Statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of Conexant pursuant to the provisions described above, or
otherwise, Conexant has been advised that in the opinion of the Commission
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than the payment by
Conexant of expenses incurred or paid by a director, officer or controlling
person of Conexant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the
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<PAGE> 281
securities being registered, Conexant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
(e) Conexant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to items 4,
10(b), 11, or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of this Registration
Statement through the date of responding to the request.
(f) Conexant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in this
Registration Statement when it became effective.
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<PAGE> 282
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the registrant has duly caused this Amendment to the Registration Statement on
Form S-4 (Registration No. 333-44094) to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newport Beach, State of
California, on the 28th day of August, 2000.
CONEXANT SYSTEMS, INC.
By /s/ Dwight W. Decker
_____________________________________
(Dwight W. Decker, Chairman and
Chief Executive Officer)
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed on the 28th day of August, 2000 by
the following persons in the capacities indicated:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
DWIGHT W. DECKER* Chairman of the Board and Chief Executive Officer
(principal executive officer) and Director
DONALD R. BEALL* Director
F. CRAIG FARRILL* Director
JERRE L. STEAD* Director
BALAKRISHNAN S. IYER* Senior Vice President and Chief Financial Officer
(principal financial and accounting officer)
*By /s/ Dennis E. O'Reilly
___________________________
(Dennis E. O'Reilly, Attorney-in-Fact)**
________________
** By authority of the power of attorney filed as Exhibit 24 to the
Registration Statement.
</TABLE>
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<PAGE> 283
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C> <C>
*3.a Restated Certificate of Incorporation, as amended, of Conexant,
filed as Exhibit 3.1 to Conexant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 2000, is incorporated herein by
reference.
*3.b Amended By-Laws of Conexant, filed as Exhibit 4.2 to Conexant's
Registration Statement on Form S-8 (Registration No. 333-68755),
are incorporated herein by reference.
*4.a Specimen certificate for Common Stock, par value $1 per share,
filed as Exhibit 4.3 to Conexant's Registration Statement on Form
10 (File No. 000-24923), is incorporated herein by reference.
*4.b.1 Rights Agreement, dated as of November 30, 1998, by and between
Conexant and ChaseMellon Shareholder Services, L.L.C. as rights
agent, filed as Exhibit 4.4 to Conexant's Registration Statement
on Form S-8 (Registration No. 333-68755), is incorporated herein
by reference.
*4.b.2 First Amendment to Rights Agreement, dated as of December 9,
1999, filed as Exhibit 4.1 to Conexant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1999, is incorporated
herein by reference.
*5 Opinion of Dennis E. O'Reilly, Esq., Senior Vice President,
General Counsel and Secretary of Conexant.
23.a Consent of Deloitte & Touche LLP, independent auditors.
23.b Consent of Arthur Andersen LLP, independent public accountants.
23.c Consent of Ernst & Young LLP, independent auditors.
*23.d Consent of Dennis E. O'Reilly, Esq., contained in his opinion
filed as Exhibit 5 to this Registration Statement.
23.e Consent of Chadbourne & Parke LLP.
*24 Power of Attorney authorizing certain persons to sign this
Registration Statement on behalf of certain directors and
officers of Conexant, set forth on the signature page of this
Registration Statement.
*99.a Agreement and Plan of Merger, dated as of July 19, 2000, by and
among Conexant Systems, Inc., H&J Acquisition Sub, Inc. and
Harris & Jeffries, Inc., included as Appendix A-1 to the proxy
statement-prospectus included as part of this Registration
Statement.
99.b First Amendment of Agreement and Plan of Merger, dated as of
August 28, 2000, by and among Conexant Systems, Inc.,
H&J Acquisition Sub, Inc. and Harris & Jeffries, Inc., included
as Appendix A-2 to the proxy statement-prospectus included as
part of this Registration Statement.
99.c Form of proxy to be used by Harris & Jeffries, Inc.
*99.d Form of Voting Agreement, included as Appendix B to the proxy
statement-prospectus included as part of this Registration
Statement.
</TABLE>
<PAGE> 284
<TABLE>
<S> <C>
*99.e Form of Letter of Transmittal, included as Appendix C to the
proxy statement-prospectus included as part of this Registration
Statement.
---------------
* Previously filed.
</TABLE>
